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Table of Contents

 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(Mark One)
     
þ   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2011
OR
     
o   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from:                      to                     
Commission File Number: 01-33901
Fifth Street Finance Corp.
(Exact name of registrant as specified in its charter)
     
Delaware   26-1219283
     
(State or jurisdiction of
incorporation or organization)
  (I.R.S. Employer
Identification No.)
     
10 Bank Street, 12th Floor
White Plains, NY
  10606
     
(Address of principal executive office)   (Zip Code)
REGISTRANT’S TELEPHONE NUMBER, INCLUDING AREA CODE:
(914) 286-6800
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
     
Title of Each Class   Name of Each Exchange
on Which Registered
     
Common Stock, par value $0.01 per share   New York Stock Exchange
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 periods as the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES þ NO o
     Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). YES o NO o
     Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer o Accelerated filer þ  Non-accelerated filer o
(Do not check if a smaller reporting company)
Smaller reporting company o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act) YES o NO þ
The registrant had 66,667,933 shares of common stock outstanding as of April 28, 2011.
 
 

 


 

FIFTH STREET FINANCE CORP.
FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2011
TABLE OF CONTENTS
         
       
 
     
 
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 EX-10.5
 EX-10.6
 EX-31.1
 EX-31.2
 EX-32.1
 EX-32.2

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Table of Contents

PART I — FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Fifth Street Finance Corp.
Consolidated Statements of Assets and Liabilities
(unaudited)
                 
    March 31, 2011   September 30, 2010
Assets
               
 
               
Investments at fair value:
               
Control investments (cost at March 31, 2011: $11,045,168; cost at September 30, 2010: $12,195,029)
  $ 9,695,327     $ 3,700,000  
Affiliate investments (cost at March 31, 2011: $48,829,558; cost at September 30, 2010: $50,133,521)
    35,747,092       47,222,059  
Non-control/Non-affiliate investments (cost at March 31, 2011: $893,318,481;
cost at September 30, 2010: $530,168,045)
    894,306,634       512,899,257  
Total investments at fair value (cost at March 31, 2011: $953,193,207;
cost at September 30, 2010: $592,496,595)
    939,749,053       563,821,316  
 
               
Cash and cash equivalents
    38,556,212       76,765,254  
Interest and fees receivable
    6,622,820       3,813,757  
Due from portfolio company
    96,424       103,426  
Deferred financing costs
    8,849,335       5,465,964  
Collateral posted to bank and other assets
    1,874,666       1,956,013  
 
               
Total Assets
  $ 995,748,510     $ 651,925,730  
 
               
Liabilities and Net Assets
               
 
               
Liabilities:
               
Accounts payable, accrued expenses and other liabilities
  $ 452,770     $ 1,322,282  
Base management fee payable
    4,785,961       2,875,802  
Incentive fee payable
    4,139,032       2,859,139  
Due to FSC, Inc.
    808,525       1,083,038  
Interest payable
    652,827       282,640  
Payments received in advance from portfolio companies
    861,298       1,330,724  
Loans payable
    134,000,000        
SBA debentures payable
    138,300,000       73,000,000  
Total Liabilities
    284,000,413       82,753,625  
 
               
Net Assets:
               
Common stock, $0.01 par value, 150,000,000 shares authorized, 66,667,933 and 54,550,290 shares issued and outstanding at March 31, 2011 and September 30, 2010
    666,679       545,503  
Additional paid-in-capital
    765,404,953       619,759,984  
Net unrealized depreciation on investments and interest rate swap
    (12,978,443 )     (29,448,713 )
Net realized loss on investments
    (47,054,064 )     (33,090,961 )
Accumulated undistributed net investment income
    5,708,972       11,406,292  
Total Net Assets (equivalent to $10.68 and $10.43 per common share at March 31, 2011 and September 30, 2010) (Note 12)
    711,748,097       569,172,105  
 
               
Total Liabilities and Net Assets
  $ 995,748,510     $ 651,925,730  
See notes to Consolidated Financial Statements.

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Table of Contents

Fifth Street Finance Corp.
Consolidated Statements of Operations
(unaudited)
                                 
    Three months   Three months   Six months   Six months
    ended March 31,   ended March 31,   ended March 31,   ended March 31,
    2011   2010   2011   2010
Interest income:
                               
Control investments
  $ 12,463     $ (41,919 )   $ 13,432     $ 182,827  
Affiliate investments
    1,127,620       2,257,404       2,290,136       4,516,905  
Non-control/Non-affiliate investments
    21,202,939       11,874,938       37,692,123       19,548,264  
Interest on cash and cash equivalents
    4,393       5,521       13,530       201,183  
Total interest income
    22,347,415       14,095,944       40,009,221       24,449,179  
 
                               
PIK interest income:
                               
Control investments
    101,339             134,672        
Affiliate investments
    275,633       323,533       557,433       655,149  
Non-control/Non-affiliate investments
    3,094,431       1,981,640       5,922,986       3,611,798  
Total PIK interest income
    3,471,403       2,305,173       6,615,091       4,266,947  
 
                               
Fee income:
                               
Control investments
    28             126,514        
Affiliate investments
    133,407       425,261       266,961       679,038  
Non-control/Non-affiliate investments
    3,740,634       1,018,639       8,007,850       1,680,003  
Total fee income
    3,874,069       1,443,900       8,401,325       2,359,041  
 
                               
Dividend and other income:
                               
Control investments
                       
Affiliate investments
                       
Non-control/Non-affiliate investments
    8,288       11,333       10,722       22,666  
Total dividend and other income
    8,288       11,333       10,722       22,666  
 
                               
Total Investment Income
    29,701,175       17,856,350       55,036,359       31,097,833  
 
                               
Expenses:
                               
Base management fee
    4,785,961       2,336,878       8,564,740       4,603,881  
Incentive fee
    4,139,032       2,801,562       7,652,933       4,888,826  
Professional fees
    507,483       329,014       1,197,972       630,619  
Board of Directors fees
    36,000       43,000       85,500       81,000  
Interest expense
    2,724,188       260,941       4,662,898       352,120  
Administrator expense
    391,175       318,806       745,344       570,624  
General and administrative expenses
    561,209       559,901       1,515,241       1,142,524  
Total expenses
    13,145,048       6,650,102       24,424,628       12,269,594  
Base management fee waived
                      (727,067 )
Net expenses
    13,145,048       6,650,102       24,424,628       11,542,527  
 
                               
Net Investment Income
    16,556,127       11,206,248       30,611,731       19,555,306  
Unrealized appreciation on interest rate swap
    234,166             970,556        
 
                               
Unrealized appreciation (depreciation) on investments:
                               
Control investments
    (757,321 )     486,853       7,313,275       2,480,075  
Affiliate investments
    (8,590,695 )     3,327,908       (10,171,003 )     3,727,842  
Non-control/Non-affiliate investments
    8,741,597       (2,638,050 )     18,357,442       (4,031,912 )
Net unrealized appreciation (depreciation) on investments
    (606,419 )     1,176,711       15,499,714       2,176,005  
 
                               
Realized gain (loss) on investments:
                               
Control investments
    (40,586 )           (7,805,705 )      
Affiliate investments
          (2,908,084 )           (2,908,084 )
Non-control/Non-affiliate investments
    (472,298 )           (6,157,398 )     106,000  
Net realized loss on investments
    (512,884 )     (2,908,084 )     (13,963,103 )     (2,802,084 )
 
                               
Net increase in net assets resulting from operations
  $ 15,670,990     $ 9,474,875     $ 33,118,898     $ 18,929,227  
 
                               
Net investment income per common
share — basic and diluted
  $ 0.27     $ 0.26     $ 0.52     $ 0.48  
Earnings per common share — basic and diluted
  $ 0.25     $ 0.22     $ 0.57     $ 0.47  
Weighted average common shares outstanding — basic and diluted
    62,120,473       43,019,350       58,339,723       40,421,657  
See notes to Consolidated Financial Statements.

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Table of Contents

Fifth Street Finance Corp.
Consolidated Statements of Changes in Net Assets
(unaudited)
                 
    Six months ended   Six months ended
    March 31, 2011   March 31, 2010
Operations:
               
Net investment income
  $ 30,611,731     $ 19,555,306  
Net unrealized appreciation on investments and interest rate swap
    16,470,270       2,176,005  
Net realized loss on investments
    (13,963,103 )     (2,802,084 )
 
               
Net increase in net assets from operations
    33,118,898       18,929,227  
 
               
Stockholder transactions:
               
Distributions to stockholders
    (36,309,051 )     (23,794,498 )
 
               
Net decrease in net assets from stockholder transactions
    (36,309,051 )     (23,794,498 )
 
               
Capital share transactions:
               
Issuance of common stock, net
    143,429,688       77,537,266  
Issuance of common stock under dividend reinvestment plan
    2,336,457       1,168,939  
 
               
Net increase in net assets from capital share transactions
    145,766,145       78,706,205  
Total increase in net assets
    142,575,992       73,840,934  
Net assets at beginning of period
    569,172,105       410,556,071  
Net assets at end of period
  $ 711,748,097     $ 484,397,005  
 
               
Net asset value per common share
  $ 10.68     $ 10.70  
 
               
Common shares outstanding at end of period
    66,667,933       45,282,596  
See notes to Consolidated Financial Statements.

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Table of Contents

Fifth Street Finance Corp.
Consolidated Statements of Cash Flows
(unaudited)
                 
    Six months ended   Six months ended
    March 31, 2011   March 31, 2010
Cash flows from operating activities:
               
Net increase in net assets resulting from operations
  $ 33,118,898     $ 18,929,227  
Adjustments to reconcile net increase in net assets resulting from operations to net cash used by operating activities:
               
Net unrealized appreciation on investments and interest rate swap
    (16,470,270 )     (2,176,005 )
Net realized losses on investments
    13,963,103       2,802,084  
PIK interest income
    (6,615,091 )     (4,266,947 )
Recognition of fee income
    (8,401,325 )     (2,359,041 )
Accretion of original issue discount on investments
    (808,927 )     (448,427 )
Amortization of deferred financing costs
    955,154        
Change in operating assets and liabilities:
               
Fee income received
    14,010,650       6,466,569  
Increase in interest and fees receivable
    (1,826,027 )     (1,781,438 )
Decrease in due from portfolio company
    7,002       78,521  
(Increase) decrease in collateral posted to bank and other assets
    81,347       (1,736,387 )
Increase (decrease) in accounts payable, accrued expenses and other liabilities
    101,045       (85,056 )
Increase in base management fee payable
    1,910,159       784,718  
Increase in incentive fee payable
    1,279,893       857,299  
Decrease in due to FSC, Inc.
    (274,513 )     (152,845 )
Increase in interest payable
    370,187       24,537  
Decrease in payments received in advance from portfolio companies
    (469,426 )     (95,997 )
Purchases of investments and net revolver activity, net of syndications
    (452,660,960 )     (176,666,609 )
Principal payments received on investments (scheduled payments)
    10,186,307       4,182,202  
Principal payments received on investments (payoffs)
    62,204,072       6,385,000  
PIK interest income received in cash
    6,711,111       635,194  
Proceeds from the sale of investments
          4,191,721  
Net cash used by operating activities
    (342,627,611 )     (144,431,680 )
Cash flows from financing activities:
               
Dividends paid in cash
    (33,972,594 )     (22,625,559 )
Borrowings under SBA debentures payable
    65,300,000        
Borrowings under credit facilities
    378,000,000       38,000,000  
Repayments of borrowings under credit facilities
    (244,000,000 )     (38,000,000 )
Deferred financing costs paid
    (4,338,525 )      
Proceeds from the issuance of common stock
    143,921,427       78,086,148  
Offering costs paid
    (491,739 )     (765,602 )
Net cash provided by financing activities
    304,418,569       54,694,987  
Net decrease in cash and cash equivalents
    (38,209,042 )     (89,736,693 )
Cash and cash equivalents, beginning of period
    76,765,254       113,205,287  
Cash and cash equivalents, end of period
  $ 38,556,212     $ 23,468,594  
 
               
Supplemental Information:
               
Cash paid for interest
  $ 3,337,557     $ 213,855  
Non-cash financing activities:
               
Issuance of shares of common stock under dividend reinvestment plan
  $ 2,336,457     $ 1,168,939  
See notes to Consolidated Financial Statements.

6


Table of Contents

Fifth Street Finance Corp.
Consolidated Schedule of Investments
March 31, 2011
(unaudited)
                             
Portfolio Company/Type of Investment (1)(2)(5)   Industry   Principal (8)   Cost   Fair Value
 
 
Control Investments (3)
                           
Lighting By Gregory, LLC (9)(13)(14)
  Housewares &
Specialties
                       
 
First Lien Term Loan A, 9.75% due 2/28/2013
      $ 4,155,306     $ 3,996,187     $ 4,055,655  
First Lien Bridge Loan, 6% due 3/31/2012
        150,000       150,000        
97.38% membership interest
                1,210,000        
                 
 
                           
 
                5,356,187       4,055,655  
 
Nicos Polymers & Grinding Inc.
  Environmental &
facilities services
                       
First Lien Term Loan, 8% due 12/4/2017
        5,134,672       5,061,481       5,139,672  
First Lien Revolver, 8% due 12/4/2017
        500,000       500,000       500,000  
50% Membership Interest in CD Holdco, LLC
                127,500        
                 
 
                           
 
                5,688,981       5,639,672  
                 
 
                           
Total Control Investments
              $ 11,045,168     $ 9,695,327  
                 
 
                           
Affiliate Investments (4)
                           
O’Currance, Inc.
  Data Processing
& Outsourced
Services
                       
 
First Lien Term Loan A, 16.875% due 3/21/2012
        11,184,988     $ 11,124,844     $ 11,239,858  
First Lien Term Loan B, 16.875%, due 3/21/2012
        1,639,277       1,622,288       1,698,293  
1.75% Preferred Membership interest in O’Currance Holding Co., LLC
                130,413       31,490  
3.3% Membership Interest in O’Currance Holding Co., LLC
                250,000        
                 
 
                           
 
                13,127,545       12,969,641  
 
MK Network, LLC (13)(14)
  Education
services
                       
First Lien Term Loan A, 13.5% due 6/1/2012
        8,784,277       8,484,972        
First Lien Term Loan B, 17.5% due 6/1/2012
        4,975,819       4,748,004        
First Lien Revolver, Prime + 1.5% (10% floor), due 6/1/2010 (10)
                     
11,030 Membership Units
                771,575        
                 
 
                           
 
                14,004,551        
 
                           
Caregiver Services, Inc.
  Healthcare
services
                       
Second Lien Term Loan A, LIBOR+6.85% (12% floor) due 2/25/2013
        6,426,488       6,170,953       6,543,222  
Second Lien Term Loan B, 16.5% due 2/25/2013
        14,923,107       14,446,111       14,842,797  
1,080,399 shares of Series A Preferred Stock
                1,080,398       1,391,432  
                 
 
                           
 
                21,697,462       22,777,451  
                 
 
                           
Total Affiliate Investments
              $ 48,829,558     $ 35,747,092  
                 
 
                           
Non-Control/Non-Affiliate Investments (7)
                           
 
CPAC, Inc.
  Household
Products
                       
 
Subordinated Term Loan, 12.5% due 6/1/2012
        1,133,269     $ 1,133,269     $ 1,133,269  
                 
 
                           
 
                1,133,269       1,133,269  

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Table of Contents

Fifth Street Finance Corp.
Consolidated Schedule of Investments
March 31, 2011
(unaudited)
                             
Portfolio Company/Type of Investment (1)(2)(5)   Industry   Principal (8)   Cost   Fair Value
 
 
Repechage Investments Limited
  Restaurants                        
First Lien Term Loan, 15.5% due 10/16/2011
        3,508,523       3,352,646       3,274,691  
7,500 shares of Series A Preferred Stock of Elephant & Castle, Inc.
                750,000       63,687  
                 
 
                           
 
                4,102,646       3,338,378  
 
Traffic Control & Safety Corporation
  Construction and
Engineering
                       
Senior Term Loan A, 7.741% due 6/29/2012
        2,361,779       2,263,371       2,263,371  
Senior Term Loan B, 5.29% due 6/29/2012
        2,846,473       2,727,870       2,727,870  
Senior Term Loan C, 5.29% due 6/29/2012
        4,027,956       3,860,124       3,860,124  
Senior Revolver, 5.29% due 6/29/2012
        5,250,000       5,031,251       5,031,251  
Second Lien Term Loan, 15% due 5/28/2015 (9)
        20,376,773       20,157,995       19,325,690  
Subordinated Loan, 15% due 5/28/2015
        4,936,102       4,936,102       3,213,442  
24,750 shares of Series B Preferred Stock
                247,500        
43,494 shares of Series D Preferred Stock (6)
                434,937        
25,000 shares of Common Stock
                2,500        
                 
 
                           
 
                39,661,650       36,421,748  
 
TBA Global, LLC
  Advertising                        
53,994 Senior Preferred Shares
                215,975       215,975  
191,977 Shares A Shares
                191,977       179,240  
                 
 
                           
 
                407,952       395,215  
 
Fitness Edge, LLC
  Leisure facilities                        
First Lien Term Loan A, LIBOR+5.25% (10% floor), due 8/8/2012
        1,000,000       997,107       1,006,811  
First Lien Term Loan B, 15% due 8/8/2012
        5,703,099       5,662,270       5,713,995  
1,000 Common Units (6)
                42,908       138,450  
                 
 
                           
 
                6,702,285       6,859,256  
 
Filet of Chicken (9)
  Food Distributors                        
Second Lien Term Loan, 14.5% due 7/31/2012
        7,335,987       7,159,978       7,316,796  
                 
 
                           
 
                7,159,978       7,316,796  
 
Boot Barn
  Apparel,
accessories &
luxury goods
                       
247.06 shares of Series A Preferred Stock
                247,060       71,394  
1,308 shares of Common Stock
                8,855       8,725  
                 
 
                           
 
                255,915       80,119  
 
Premier Trailer Leasing, Inc. (9)(13)(14)
  Trucking                        
Second Lien Term Loan, 16.5% due 10/23/2012
        18,758,227       17,063,645       3,897,412  
285 shares of Common Stock
                1,140        
                 
 
                           
 
                17,064,785       3,897,412  
Pacific Press Technologies, Inc.
                           
Second Lien Term Loan, 14.75% due 1/10/2013
  Industrial
machinery
    10,174,134       9,954,793       10,191,421  
33,463 shares of Common Stock
                344,513       715,974  
                 
 
                           
 
                10,299,306       10,907,395  
 
Rail Acquisition Corp.
  Electronic
manufacturing
services
                       
First Lien Term Loan, 17% due 9/1/2013
        17,331,049       14,552,152       9,779,405  
First Lien Revolver, 7.85% due 9/1/2013
        5,120,565       5,120,565       5,120,565  
                 
 
                           
 
                19,672,717       14,899,970  

8


Table of Contents

Fifth Street Finance Corp.
Consolidated Schedule of Investments
March 31, 2011
(unaudited)
                             
Portfolio Company/Type of Investment (1)(2)(5)   Industry   Principal (8)   Cost   Fair Value
 
 
Western Emulsions, Inc.
  Construction
materials
                       
Second Lien Term Loan, 15% due 6/30/2014
        6,706,609       6,578,609       6,705,597  
                 
 
                           
 
                6,578,609       6,705,597  
 
Storyteller Theaters Corporation
  Movies &
entertainment
                       
1,692 shares of Common Stock
                169       61,613  
20,000 shares of Preferred Stock
                200,000       200,000  
                 
 
                           
 
                200,169       261,613  
 
HealthDrive Corporation (9)
  Healthcare
services
                       
First Lien Term Loan A, 10% due 7/17/2013
        6,462,970       6,186,332       6,498,125  
First Lien Term Loan B, 13% due 7/17/2013
        10,230,293       10,140,293       10,500,432  
First Lien Revolver, 12% due 7/17/2013
        1,000,000       991,000       1,016,374  
                 
 
                           
 
                17,317,625       18,014,931  
 
idX Corporation
  Distributors                        
Second Lien Term Loan, 14.5% due 7/1/2014
        13,726,772       13,520,365       13,763,520  
                 
 
                           
 
                13,520,365       13,763,520  
 
Cenegenics, LLC
  Healthcare
services
                       
First Lien Term Loan, 17% due 10/27/2014
        19,616,954       18,808,868       19,638,428  
414,419 Common Units (6)
                598,382       1,269,716  
                 
 
                           
 
                19,407,250       20,908,144  
 
IZI Medical Products, Inc.
  Healthcare
technology
                       
First Lien Term Loan A, 12% due 3/31/2014
        4,049,775       4,004,026       4,055,414  
First Lien Term Loan B, 16% due 3/31/2014
        17,259,468       16,783,215       17,263,298  
First Lien Revolver, 10% due 3/31/2014 (11)
              (30,000 )      
453,755 Preferred units of IZI Holdings, LLC (6)
                453,755       632,370  
                 
 
                           
 
                21,210,996       21,951,082  
 
Trans-Trade, Inc.
  Air freight &
logistics
                       
First Lien Term Loan, 15.5% due 9/10/2014
        12,777,468       12,502,032       12,881,433  
First Lien Revolver, 12% due 9/10/2014
        5,000,000       4,892,667       5,015,544  
                 
 
                           
 
                17,394,699       17,896,977  
 
Riverlake Equity Partners II, LP
  Multi-sector
holdings
                       
1.89% limited partnership interest
                122,105       122,105  
                 
 
                           
 
                122,105       122,105  
 
Riverside Fund IV, LP
  Multi-sector
holdings
                       
0.25% limited partnership interest
                416,478       416,478  
                 
 
                           
 
                416,478       416,478  
 
ADAPCO, Inc.
  Fertilizers &
agricultural
chemicals
                       
First Lien Term Loan A, 10% due 12/17/2014
        8,000,000       7,831,887       8,008,672  
First Lien Term Loan B, 14% due 12/17/2014
        14,370,059       14,077,157       14,356,636  
First Lien Term Revolver, 10% due 12/17/2014
        4,750,000       4,540,784       4,782,888  
                 
 
                           
 
                26,449,828       27,148,196  
 
Ambath/Rebath Holdings, Inc.
  Home
improvement
retail
                       
First Lien Term Loan A, LIBOR+7% (10% floor) due 12/30/2014
        4,000,000       4,000,000       4,023,879  
First Lien Term Loan B, 15% due 12/30/2014
        22,708,636       22,708,636       22,695,582  
First Lien Term Revolver, LIBOR+6.5% (9.5% floor) due 12/30/2014 (10)
        1,500,000       1,500,000       1,498,917  
                 
 
                           
 
                28,208,636       28,218,378  

9


Table of Contents

Fifth Street Finance Corp.
Consolidated Schedule of Investments
March 31, 2011
(unaudited)
                             
Portfolio Company/Type of Investment (1)(2)(5)   Industry   Principal (8)   Cost   Fair Value
 
 
JTC Education, Inc.
  Education
services
                       
First Lien Term Loan, LIBOR+9.5% (12.5% floor) due 12/31/2014
        28,664,063       27,943,969       28,697,559  
First Lien Revolver, LIBOR+9.5% (12.75% floor) due 12/31/2014
        1,250,000       896,667       1,324,494  
                 
 
                           
 
                28,840,636       30,022,053  
 
Tegra Medical, LLC
  Healthcare
equipment
                       
First Lien Term Loan A, LIBOR+7% (10% floor) due 12/31/2014
        24,640,000       24,272,161       24,723,072  
First Lien Term Loan B, 14% due 12/31/2014
        22,323,354       21,997,682       22,333,892  
First Lien Revolver, LIBOR+7% (10% floor) due 12/31/2014
        1,500,000       1,441,333       1,507,608  
                 
 
                           
 
                47,711,176       48,564,572  
 
Flatout, Inc.
  Food retail                        
First Lien Term Loan A, 10% due 12/31/2014
        6,800,000       6,654,706       6,807,073  
First Lien Term Loan B, 15% due 12/31/2014
        12,927,154       12,643,019       12,937,783  
First Lien Revolver, 10% due 12/31/2014 (11)
              (33,559 )      
                 
 
                           
 
                19,264,166       19,744,856  
 
Psilos Group Partners IV, LP
  Multi-sector
holdings
                       
2.52% limited partnership interest (12)
                       
                 
 
                           
Mansell Group, Inc.
  Advertising                        
First Lien Term Loan A, LIBOR+7% (10% floor) due 4/30/2015
        9,875,000       9,705,286       9,868,451  
First Lien Term Loan B, LIBOR+9% (12% floor) due 4/30/2015
        8,076,228       7,936,932       8,084,702  
First Lien Revolver, LIBOR+6% (9% floor) due 4/30/2015 (11)
        1,000,000       967,333       1,005,963  
                 
 
                           
 
                18,609,551       18,959,116  
 
NDSSI Holdings, Inc.
  Electronic
equipment &
instruments
                       
First Lien Term Loan, LIBOR+9.75% (12.75% floor) due 4/30/2015
        30,017,061       29,519,554       30,061,843  
First Lien Revolver, LIBOR+7% (10% floor) due 4/30/2015
        3,500,000       3,421,154       3,502,086  
                 
 
                           
 
                32,940,708       33,563,929  
 
Eagle Hospital Physicians, Inc.
  Healthcare
services
                       
First Lien Term Loan, LIBOR+8.75% (11.75% floor) due 8/11/2015
        7,850,000       7,669,829       7,868,400  
First Lien Revolver, LIBOR+5.75% (8.75% floor) due 8/11/2015 (11)
              (55,758 )      
                 
 
                           
 
                7,614,071       7,868,400  
 
Enhanced Recovery Company, LLC
  Diversified
support services
                       
First Lien Term Loan A, LIBOR+7% (9% floor) due 8/13/2015
        15,250,000       14,978,636       15,287,877  
First Lien Term Loan B, LIBOR+10% (13% floor) due 8/13/2015
        11,070,781       10,872,060       11,067,261  
First Lien Revolver, LIBOR+7% (9% floor) due 8/13/2015
        1,000,000       927,738       1,083,965  
                 
 
                           
 
                26,778,434       27,439,103  
 
Epic Acquisition, Inc.
  Healthcare
services
                       
First Lien Term Loan A, LIBOR+8% (11% floor) due 8/13/2015
        9,297,500       9,094,984       9,275,558  
First Lien Term Loan B, 15.25% due 8/13/2015
        17,159,953       16,780,515       17,186,836  
First Lien Revolver, LIBOR+6.5% (9.5% floor) due 8/13/2015
        600,000       533,454       621,878  
                 
 
                           
 
                26,408,953       27,084,272  
 
Specialty Bakers LLC
  Food
distributors
                       
First Lien Term Loan A, LIBOR+8.5% due 9/15/2015
        8,775,000       8,565,857       8,782,067  
First Lien Term Loan B, LIBOR+11% (13.5% floor) due 9/15/2015
        11,000,000       10,743,058       11,040,725  
First Lien Revolver, LIBOR+8.5% due 9/15/2015 (11)
              (93,433 )      
                 
 
                           
 
                19,215,482       19,822,792  

10


Table of Contents

Fifth Street Finance Corp.
Consolidated Schedule of Investments
March 31, 2011
(unaudited)
                             
Portfolio Company/Type of Investment (1)(2)(5)   Industry   Principal (8)   Cost   Fair Value
 
 
CRGT, Inc.
  IT consulting &
other services
                       
First Lien Term Loan A, LIBOR+7.5% due 10/1/2015
        29,000,000       28,500,168       29,068,105  
First Lien Term Loan B, 12.5% due 10/1/2015
        22,000,000       21,604,000       22,040,291  
First Lien Revolver, LIBOR+7.5% due 10/1/2015 (11)
              (225,000 )      
                 
 
                           
 
                49,879,168       51,108,396  
 
Welocalize, Inc.
  Internet
software &
services
                       
First Lien Term Loan A, LIBOR+8% (10% floor) due 11/19/2015
        16,400,000       16,095,901       16,400,313  
First Lien Term Loan, LIBOR+9% (12.25% floor) due 11/19/2015
        21,096,423       20,711,423       21,075,236  
First Lien Revolver, LIBOR+7% (9% floor) due 11/19/2015
        2,250,000       2,140,000       2,274,860  
2,086,163 Common Units in RPWL Holdings, LLC
                2,086,163       2,112,041  
                 
 
                           
 
                41,033,487       41,862,450  
 
Miche Bag, LLC
  Apparel,
accessories &
luxury goods
                       
First Lien Term Loan B, LIBOR+9% (12% floor) due 12/7/2013
        15,000,000       14,659,710       15,042,504  
First Lien Term Loan, LIBOR+10% (16% floor) due 12/7/2015
        17,162,074       14,426,785       17,126,857  
First Lien Revolver, LIBOR+7% (10% floor) due 12/7/2015 (11)
              (118,222 )      
10,371 Preferred Equity units in Miche Holdings, LLC (6)
                1,037,112       954,366  
146,289 Series D Common Equity units in Miche Holdings, LLC (6)
                1,462,888       1,346,170  
                 
 
                           
 
                31,468,273       34,469,897  
 
Bunker Hill Capital II (QP), L.P.
  Multi-sector
holdings
                       
0.50% limited partnership interest (12)
                       
                 
 
                           
Dominion Diagnostics, LLC
  Healthcare
services
                       
First Lien Term Loan A, LIBOR+7% (9% floor) due 12/17/2015
        30,350,000       29,769,524       30,394,983  
First Lien Term Loan, LIBOR+9% (12.5% floor) due 12/17/2015
        20,058,396       19,685,062       20,161,592  
First Lien Revolver, LIBOR+6.5% (9% floor) due 12/17/2015 (11)
              (93,333 )      
                 
 
                           
 
                49,361,253       50,556,575  
 
Advanced Pain Management
  Healthcare
services
                       
First Lien Term Loan, LIBOR+5% (6.75% floor) due 12/22/2015
        8,148,750       8,012,134       8,163,952  
First Lien Revolver, LIBOR+5% (6.75% floor) due 12/22/2015 (11)
              (5,600 )      
                 
 
                           
 
                8,006,534       8,163,952  
 
DISA, Inc.
  Human
resources &
employment
services
                       
First Lien Term Loan A, LIBOR+7.5% (8.25% floor) due 12/30/2015
        13,000,000       12,750,198       13,084,515  
First Lien Term Loan B, LIBOR+11.5% (12.5% floor) due 12/30/2015
        8,331,511       8,173,515       8,311,374  
First Lien Revolver, LIBOR+6% (7% floor) due 12/30/2015 (11)
              (76,142 )      
                 
 
                           
 
                20,847,571       21,395,889  
 
Saddleback Fence and Vinyl Products, Inc.
  Building
products
                       
First Lien Term Loan, 8% due 11/30/2013
        772,768       772,768       772,768  
First Lien Revolver, 8% due 11/30/2011
                     
                 
 
                           
 
                772,768       772,768  

11


Table of Contents

Fifth Street Finance Corp.
Consolidated Schedule of Investments
March 31, 2011
(unaudited)
                             
Portfolio Company/Type of Investment (1)(2)(5)   Industry   Principal (8)   Cost   Fair Value
 
 
Best Vinyl Fence & Deck, LLC
  Building
Products
                       
First Lien Term Loan A, 8% due 11/30/2013
        2,060,713       1,946,983       2,060,713  
First Lien Term Loan B, 8% due 5/31/2011
        3,863,838       3,863,838       3,863,838  
First Lien Revolver, 8% due 11/30/2011
                     
25,641 Shares of Series A Preferred Stock in Vanguard Vinyl, Inc.
                       
25,641 Shares of Common Stock in Vanguard Vinyl, Inc.
                       
                 
 
                           
 
                5,810,821       5,924,551  
 
Physicians Pharmacy Alliance, Inc.
  Healthcare
services
                       
First Lien Term Loan, LIBOR+10.5% due 1/4/2016
        17,060,989       16,697,763       17,060,989  
First Lien Revolver, LIBOR+6% due 1/4/2016 (11)
              (42,500 )      
                 
 
                           
 
                16,655,263       17,060,989  
 
Cardon Healthcare Network, LLC
  Diversified
support services
                       
First Lien Term Loan, LIBOR+10% (11.75% floor) due 1/6/2016
        11,850,000       11,605,493       11,850,000  
First Lien Revolver, LIBOR+6.5% (8.25% floor) due 1/6/2016 (11)
              (41,214 )      
                 
 
                           
 
                11,564,279       11,850,000  
 
U.S. Retirement Partners, Inc.
  Diversified
financial
services
                       
First Lien Term Loan, LIBOR+9.5% (11.5% floor) due 1/6/2016
        11,700,000       11,361,007       11,700,000  
                 
 
                           
 
                11,361,007       11,700,000  
 
IOS Acquisitions, Inc.
  Oil & gas
equipment &
services
                       
First Lien Term Loan A, LIBOR+8% (10% floor) due 1/14/2016
        5,300,000       5,178,937       5,300,000  
First Lien Term Loan B, LIBOR+12% (14% floor) due 1/14/2016
        6,025,702       5,885,311       6,025,702  
First Lien Revolver, LIBOR+8% (10% floor) due 1/14/2016 (11)
              (46,797 )      
                 
 
                           
 
                11,017,451       11,325,702  
 
Actient Pharmaceuticals LLC
  Healthcare
services
                       
First Lien Term Loan, LIBOR+6.25% (8.25% floor) due 7/29/2015
        9,754,098       9,564,490       9,754,098  
                 
 
                           
 
                9,564,490       9,754,098  
 
Phoenix Brands Merger Sub LLC
  Household
products
                       
Senior Term Loan, LIBOR+5% (6.5% floor) due 1/13/2016
        8,571,429       8,386,251       8,571,429  
Subordinated Term Loan, LIBOR+13.875% due 2/1/2017
        20,000,000       19,611,111       20,000,000  
First Lien Revolver, LIBOR+5% (6.5% floor) due 1/31/2016
        4,285,714       4,145,893       4,285,714  
                 
 
                           
 
                32,143,255       32,857,143  
 
U.S. Collections, Inc.
  Diversified
support services
                       
First Lien Term Loan, LIBOR+5.25% (7% floor) due 3/31/2016
        11,358,793       11,136,614       11,358,793  
                 
 
                           
 
                11,136,614       11,358,793  
 
CCCG, LLC
  Oil & gas
equipment &
services
                       
First Lien Term Loan, LIBOR+9% (10.75% floor) due 7/29/2015
        34,938,750       34,248,422       34,938,750  
                 
 
                           
 
                34,248,422       34,938,750  
 
Maverick Healthcare Group, LLC
  Healthcare
equipment
                       
First Lien Term Loan, LIBOR+9% (10.75% floor) due 12/31/2016
        24,937,500       24,379,539       24,937,500  
                 
 
                           
 
                24,379,539       24,937,500  
 
Refac Optical Group
  Specialty
stores
                       
First Lien Term Loan A, LIBOR+7.5% due 3/23/2016
        19,510,000       19,040,081       19,510,000  
First Lien Term Loan B, LIBOR+10.25% due 3/23/2016
        20,033,509       19,546,656       20,033,509  
First Lien Revolver, LIBOR+7.5% due 3/23/2016 (11)
              (188,891 )      
1,000 Shares of Common Stock in Refac Holdings, Inc.
                1,000       1,000  
1,000 Shares of Preferred Stock in Refac Holdings, Inc.
                999,000       999,000  
                 
 
                           
 
                39,397,846       40,543,509  
 
Total Non-Control/Non-Affiliate Investments
              $ 893,318,481     $ 894,306,634  
                 
 
                           
Total Portfolio Investments
              $ 953,193,207     $ 939,749,053  
                 
 
(1)   All debt investments are income producing unless otherwise noted in (13) or (14) below. Interest rates and floors may contain fixed rate PIK provisions. Equity is non-income producing unless otherwise noted.
 
(2)   See Note 3 to the Consolidated Financial Statements for portfolio composition by geographic region.
 
(3)   Control Investments are defined by the Investment Company Act of 1940 (“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.
 
(4)   Affiliate Investments are defined by the 1940 Act as investments in companies in which the Company owns between 5% and 25% of the voting securities.
 
(5)   Equity ownership may be held in shares or units of companies related to the portfolio companies.
 
(6)   Income producing through payment of dividends or distributions.
 
(7)   Non-Control/Non-Affiliate Investments are defined by the 1940 Act as investments that are neither Control Investments nor Affiliate Investments.
 
(8)   Principal includes accumulated PIK interest and is net of repayments.

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Table of Contents

Fifth Street Finance Corp.
Consolidated Schedule of Investments
March 31, 2011
(unaudited)
 
     
(9)   Interest rates have been adjusted on certain term loans and revolvers. These rate adjustments are temporary in nature due to financial or payment covenant violations in the original credit agreements, or permanent in nature per loan amendment or waiver documents. The table below summarizes these rate adjustments by portfolio company:
                 
Portfolio Company   Effective date   Cash interest   PIK interest   Reason
Lighting by Gregory, LLC
  March 11, 2011   - 2.0% on Bridge Loan       Per loan amendment
Traffic Control & Safety Corp.
  May 28, 2010   - 4.0% on Second Lien Term Loan   + 1.0% on Second Lien
Term Loan
  Per restructuring agreement
Filet of Chicken
  October 1, 2010   + 1.0% on Term Loan   + 1.0% on Term Loan   Tier pricing per waiver agreement
Premier Trailer Leasing, Inc.
  August 4, 2009   + 4.0% on Term Loan       Default interest per credit
agreement
HealthDrive Corporation
  April 30, 2009   + 2.0% on Term Loan A       Per waiver agreement
     
(10)   Revolving credit line has been suspended and is deemed unlikely to be renewed in the future.
 
(11)   Cost amounts represent unearned income related to undrawn commitments.
 
(12)   Represents an unfunded commitment to fund a limited partnership interest.
 
(13)   Investment was on cash non-accrual status as of March 31, 2011.
 
(14)   Investment was on PIK non-accrual status as of March 31, 2011.
See notes to Consolidated Financial Statements.

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Table of Contents

Fifth Street Finance Corp.
Consolidated Schedule of Investments
September 30, 2010
                             
Portfolio Company/Type                
of Investment(1)(2)(5)   Industry   Principal(8)   Cost   Fair Value
Control Investments(3)
                           
Lighting By Gregory, LLC(13)(14)
  Housewares &
Specialties
                       
First Lien Term Loan A, 9.75% due 2/28/2013
      $ 5,419,495     $ 4,728,589     $ 1,503,716  
First Lien Term Loan B, 14.5% due 2/28/2013
        8,575,783       6,906,440       2,196,284  
First Lien Bridge Loan, 8% due 10/15/2010
        152,312       150,000        
97.38% membership interest
                410,000        
 
                           
 
                12,195,029       3,700,000  
 
                           
Total Control Investments
              $ 12,195,029     $ 3,700,000  
 
                           
Affiliate Investments(4)
                           
O’Currance, Inc.
  Data Processing &
Outsourced Services
                       
First Lien Term Loan A, 16.875% due 3/21/2012
        10,961,448     $ 10,869,262     $ 10,805,775  
First Lien Term Loan B, 16.875%, due 3/21/2012
        1,853,976       1,828,494       1,896,645  
1.75% Preferred Membership interest in O’Currance Holding Co., LLC
                130,413       38,592  
3.3% Membership Interest in O’Currance Holding Co., LLC
                250,000        
 
                           
 
                13,078,169       12,741,012  
MK Network, LLC(13)(14)
  Education services                        
First Lien Term Loan A, 13.5% due 6/1/2012
        9,740,358       9,539,188       7,913,140  
First Lien Term Loan B, 17.5% due 6/1/2012
        4,926,187       4,748,004       3,938,660  
First Lien Revolver, Prime + 1.5% (10% floor), due 6/1/2010(10)
                     
11,030 Membership Units(6)
                771,575        
 
                           
 
                15,058,767       11,851,800  
Caregiver Services, Inc.
  Healthcare services                        
Second Lien Term Loan A, LIBOR+6.85% (12% floor) due 2/25/2013
        7,141,190       6,813,431       7,113,622  
Second Lien Term Loan B, 16.5% due 2/25/2013
        14,692,015       14,102,756       14,179,626  
1,080,399 shares of Series A Preferred Stock
                1,080,398       1,335,999  
 
                           
 
                21,996,585       22,629,247  
 
                           
Total Affiliate Investments
              $ 50,133,521     $ 47,222,059  
 
                           
Non-Control/Non-Affiliate Investments(7)
                           
CPAC, Inc.
  Household Products                        
Subordinated Term Loan, 12.5% due 6/1/2012
        1,064,910     $ 1,064,910     $ 1,064,910  
 
                           
 
                1,064,910       1,064,910  
Vanguard Vinyl, Inc.(9)(13)(14)
  Building Products                        
First Lien Term Loan, 12% due 3/30/2013
        7,000,000       6,827,373       5,812,199  
First Lien Revolver, LIBOR+7% (10% floor) due 3/30/2013
        1,250,000       1,207,895       1,029,268  
25,641 Shares of Series A Preferred Stock
                253,846        
25,641 Shares of Common Stock
                2,564        
 
                           
 
                8,291,678       6,841,467  
Repechage Investments Limited
  Restaurants                        
First Lien Term Loan, 15.5% due 10/16/2011
        3,708,971       3,475,906       3,486,342  
7,500 shares of Series A Preferred Stock of Elephant & Castle, Inc.
                750,000       354,114  
 
                           
 
                4,225,906       3,840,456  

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Table of Contents

Fifth Street Finance Corp.
Consolidated Schedule of Investments
September 30, 2010
                             
Portfolio Company/Type                
of Investment(1)(2)(5)   Industry   Principal(8)   Cost   Fair Value
Traffic Control & Safety Corporation(9)
  Construction and
Engineering
                       
Second Lien Term Loan, 15% due 5/28/2015
        19,969,524       19,724,493       19,440,090  
Subordinated Loan, 15% due 5/28/2015
        4,577,800       4,577,800       4,404,746  
24,750 shares of Series B Preferred Stock
                247,500        
43,494 shares of Series D Preferred Stock(6)
                434,937        
25,000 shares of Common Stock
                2,500        
 
                           
 
                24,987,230       23,844,836  
Nicos Polymers & Grinding Inc.(9)(13)(14)
  Environmental &
facilities services
                       
First Lien Term Loan A, LIBOR+5% (10% floor), due 7/17/2012
        3,154,876       3,040,465       1,782,181  
First Lien Term Loan B, 13.5% due 7/17/2012
        6,180,185       5,713,125       3,347,672  
3.32% Interest in Crownbrook Acquisition I LLC
                168,086        
 
                           
 
                8,921,676       5,129,853  
TBA Global, LLC(9)
  Advertising                        
Second Lien Term Loan B, 14.5% due 8/3/2012
        10,840,081       10,594,939       10,625,867  
53,994 Senior Preferred Shares
                215,975       215,975  
191,977 Shares A Shares
                191,977       179,240  
 
                           
 
                11,002,891       11,021,082  
Fitness Edge, LLC
  Leisure Facilities                        
First Lien Term Loan A, LIBOR+5.25% (10% floor), due 8/8/2012
        1,250,000       1,245,136       1,247,418  
First Lien Term Loan B, 15% due 8/8/2012
        5,631,547       5,575,477       5,674,493  
1,000 Common Units (6)
                42,908       118,132  
 
                           
 
                6,863,521       7,040,043  
Filet of Chicken(9)
  Food Distributors                        
Second Lien Term Loan, 14.5% due 7/31/2012
        9,316,518       9,063,155       8,964,766  
 
                           
 
                9,063,155       8,964,766  
Boot Barn(9)
  Apparel, accessories &
luxury goods
                       
Second Lien Term Loan, 14.5% due 10/3/2013
        23,545,479       23,288,566       23,477,539  
247.06 shares of Series A Preferred Stock
                247,060       71,394  
1,308 shares of Common Stock
                131        
 
                           
 
                23,535,757       23,548,933  
Premier Trailer Leasing, Inc.(9)(13)(14)
  Trucking                        
Second Lien Term Loan, 16.5% due 10/23/2012
        18,452,952       17,063,645       4,597,412  
285 shares of Common Stock
                1,140        
 
                           
 
                17,064,785       4,597,412  
Pacific Press Technologies, Inc.(9)
                           
Second Lien Term Loan, 14.75% due 7/10/2013
  Industrial machinery     10,071,866       9,798,901       9,829,869  
33,786 shares of Common Stock
                344,513       402,894  
 
                           
 
                10,143,414       10,232,763  
Goldco, LLC
                           
Second Lien Term Loan, 17.5% due 1/31/2013
  Restaurants     8,355,688       8,259,479       8,259,479  
 
                           
 
                8,259,479       8,259,479  
Rail Acquisition Corp.(9)
  Electronic manufacturing
services
                       
First Lien Term Loan, 17% due 9/1/2013
        16,315,866       13,536,969       12,854,425  
First Lien Revolver, 7.85% due 9/1/2013
        5,201,103       5,201,103       5,201,103  
 
                           
 
                18,738,072       18,055,528  

15


Table of Contents

Fifth Street Finance Corp.
Consolidated Schedule of Investments
September 30, 2010
                             
Portfolio Company/Type                
of Investment(1)(2)(5)   Industry   Principal(8)   Cost   Fair Value
Western Emulsions, Inc.(9)
  Construction materials                        
Second Lien Term Loan, 15% due 6/30/2014
        17,864,713       17,475,899       17,039,751  
 
                           
 
                17,475,899       17,039,751  
Storyteller Theaters Corporation
  Movies & entertainment                        
1,692 shares of Common Stock
                169       61,613  
20,000 shares of Preferred Stock
                200,000       200,000  
 
                           
 
                200,169       261,613  
HealthDrive Corporation(9)
  Healthcare services                        
First Lien Term Loan A, 10% due 7/17/2013
        6,662,970       6,324,339       6,488,990  
First Lien Term Loan B, 13% due 7/17/2013
        10,178,726       10,068,726       9,962,414  
First Lien Revolver, 12% due 7/17/2013
        500,000       489,000       508,967  
 
                           
 
                16,882,065       16,960,371  
idX Corporation
  Distributors                        
Second Lien Term Loan, 14.5% due 7/1/2014
        13,588,794       13,350,633       13,258,317  
 
                           
 
                13,350,633       13,258,317  
Cenegenics, LLC
  Healthcare services                        
First Lien Term Loan, 17% due 10/27/2014
        20,172,004       19,257,215       19,544,864  
414,419 Common Units(6)
                598,382       1,417,886  
 
                           
 
                19,855,597       20,962,750  
IZI Medical Products, Inc.
  Healthcare technology                        
First Lien Term Loan A, 12% due 3/31/2014
        4,449,775       4,387,947       4,406,684  
First Lien Term Loan B, 16% due 3/31/2014
        17,258,033       16,702,405       17,092,868  
First Lien Revolver, 10% due 3/31/2014(11)
              (35,000 )     (35,000 )
453,755 Preferred units of IZI Holdings, LLC (6)
                453,755       676,061  
 
                           
 
                21,509,107       22,140,613  
Trans-Trade, Inc.
  Air freight & logistics                        
First Lien Term Loan, 15.5% due 9/10/2014
        12,751,463       12,536,099       12,549,159  
First Lien Revolver, 12% due 9/10/2014
        1,500,000       1,468,667       1,491,373  
 
                           
 
                14,004,766       14,040,532  
Riverlake Equity Partners II, LP
  Multi-sector holdings                        
1.87% limited partnership interest
                33,640       33,640  
 
                           
 
                33,640       33,640  
Riverside Fund IV, LP
  Multi-sector holdings                        
0.33% limited partnership interest
                135,825       135,825  
 
                           
 
                135,825       135,825  
ADAPCO, Inc.
  Fertilizers &
agricultural chemicals
                       
First Lien Term Loan A, 10% due 12/17/2014
        9,000,000       8,789,498       8,806,763  
First Lien Term Loan B, 14% due 12/17/2014
        14,225,615       13,892,772       13,897,677  
First Lien Term Revolver, 10% due 12/17/2014
        4,250,000       4,012,255       4,107,420  
 
                           
 
                26,694,525       26,811,860  

16


Table of Contents

Fifth Street Finance Corp.
Consolidated Schedule of Investments
September 30, 2010
                             
Portfolio Company/Type                
of Investment(1)(2)(5)   Industry   Principal(8)   Cost   Fair Value
Ambath/Rebath Holdings, Inc.
  Home improvement
retail
                       
First Lien Term Loan A, LIBOR+7% (10% floor) due 12/30/2014
        9,500,000       9,277,900       9,127,886  
First Lien Term Loan B, 15% due 12/30/2014
        22,423,729       21,920,479       21,913,276  
First Lien Term Revolver, LIBOR+6.5% (9.5% floor) due 12/30/2014
        1,500,000       1,432,500       1,442,696  
 
                           
 
                32,630,879       32,483,858  
JTC Education, Inc.
  Education services                        
First Lien Term Loan, LIBOR+9.5% (12.5% floor) due 12/31/2014
        31,054,688       30,243,946       30,660,049  
First Lien Revolver, LIBOR+9.5% (12.75% floor) due 12/31/2014(11)
              (401,111 )     (401,111 )
 
                           
 
                29,842,835       30,258,938  
Tegra Medical, LLC
  Healthcare equipment                        
First Lien Term Loan A, LIBOR+7% (10% floor) due 12/31/2014
        26,320,000       25,877,206       26,250,475  
First Lien Term Loan B, 14% due 12/31/2014
        22,098,966       21,729,057       22,114,113  
First Lien Revolver, LIBOR+7% (10% floor) due 12/31/2014(11)
              (66,667 )     (66,667 )
 
                           
 
                47,539,596       48,297,921  
Flatout, Inc.
  Food retail                        
First Lien Term Loan A, 10% due 12/31/2014
        7,300,000       7,120,671       7,144,136  
First Lien Term Loan B, 15% due 12/31/2014
        12,862,760       12,539,879       12,644,316  
First Lien Revolver, 10% due 12/31/2014(11)
              (38,136 )     (38,136 )
 
                           
 
                19,622,414       19,750,316  
Psilos Group Partners IV, LP
  Multi-sector holdings                        
2.53% limited partnership interest(12)
                       
 
                           
 
                       
 
                           
Mansell Group, Inc.
  Advertising                        
First Lien Term Loan A, LIBOR+7% (10% floor) due 4/30/2015
        5,000,000       4,909,720       4,915,885  
First Lien Term Loan B, LIBOR+9% (13.5% floor) due 4/30/2015
        4,025,733       3,952,399       3,946,765  
First Lien Revolver, LIBOR+6% (9% floor) due 4/30/2015(11)
              (36,667 )     (36,667 )
 
                           
 
                8,825,452       8,825,983  
NDSSI Holdings, Inc.
  Electronic
equipment
& instruments
                       
First Lien Term Loan, LIBOR+9.75% (13.75% floor) due 9/10/2014
        30,245,558       29,684,880       29,409,043  
First Lien Revolver, LIBOR+7% (10% floor) due 9/10/2014
        3,500,000       3,409,615       3,478,724  
 
                           
 
                33,094,495       32,887,767  
Eagle Hospital Physicians, Inc.
  Healthcare services                        
First Lien Term Loan, LIBOR+8.75% (11.75% floor) due 8/11/2015
        8,000,000       7,783,892       7,783,892  
First Lien Revolver, LIBOR+5.75% (8.75% floor) due 8/11/2015
              (64,394 )     (64,394 )
 
                           
 
                7,719,498       7,719,498  
Enhanced Recovery Company, LLC
  Diversified support services                        
First Lien Term Loan A, LIBOR+7% (9% floor) due 8/13/2015
        15,500,000       15,171,867       15,171,867  
First Lien Term Loan B, LIBOR+10% (13% floor) due 8/13/2015
        11,014,977       10,782,174       10,782,174  
First Lien Revolver, LIBOR+7% (9% floor) due 8/13/2015
        376,852       292,196       292,196  
 
                           
 
                26,246,237       26,246,237  

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Fifth Street Finance Corp.
Consolidated Schedule of Investments
September 30, 2010
                             
Portfolio Company/Type                
of Investment(1)(2)(5)   Industry   Principal(8)   Cost   Fair Value
Epic Acquisition, Inc.
  Healthcare services                        
First Lien Term Loan A, LIBOR+8% (11% floor) due 8/13/2015
        7,750,000       7,554,728       7,554,728  
First Lien Term Loan B, 15.25% due 8/13/2015
        13,555,178       13,211,532       13,211,532  
First Lien Revolver, LIBOR+6.5% (9.5% floor) due 8/13/2015
        300,000       223,634       223,634  
 
                           
 
                20,989,894       20,989,894  
Specialty Bakers LLC
  Food distributors                        
First Lien Term Loan A, LIBOR+8.5% due 9/15/2015
        9,000,000       8,755,670       8,755,670  
First Lien Term Loan B, LIBOR+11% (13.5% floor) due 9/15/2015
        11,000,000       10,704,008       10,704,008  
First Lien Revolver, LIBOR+8.5% due 9/15/2015
        2,000,000       1,892,367       1,892,367  
 
                           
 
                21,352,045       21,352,045  
 
                           
Total Non-Control/Non-Affiliate Investments
              $ 530,168,045     $ 512,899,257  
 
                           
Total Portfolio Investments
              $ 592,496,595     $ 563,821,316  
 
                           
 
(1)   All debt investments are income producing unless otherwise noted in (13) or (14) below. Interest rates and floors may contain fixed rate PIK provisions. Equity is non-income producing unless otherwise noted.
 
(2)   See Note 3 to the Consolidated Financial Statements for portfolio composition by geographic region.
 
(3)   Control Investments are defined by the Investment Company Act of 1940 (“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.
 
(4)   Affiliate Investments are defined by the 1940 Act as investments in companies in which the Company owns between 5% and 25% of the voting securities.
 
(5)   Equity ownership may be held in shares or units of companies related to the portfolio companies.
 
(6)   Income producing through payment of dividends or distributions.
 
(7)   Non-Control/Non-Affiliate Investments are defined by the 1940 Act as investments that are neither Control Investments nor Affiliate Investments.
 
(8)   Principal includes accumulated PIK interest and is net of repayments.

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Fifth Street Finance Corp.
Consolidated Schedule of Investments
September 30, 2010
 
(9)   Interest rates have been adjusted on certain term loans and revolvers. These rate adjustments are temporary in nature due to financial or payment covenant violations in the original credit agreements, or permanent in nature per loan amendment or waiver documents. The table below summarizes these rate adjustments by portfolio company:
                 
Portfolio Company   Effective date   Cash interest   PIK interest   Reason
Nicos Polymers & Grinding, Inc.
  February 10, 2008       + 2.0% on Term Loan A & B   Per waiver agreement
TBA Global, LLC
  February 15, 2008       + 2.0% on Term Loan B   Per waiver agreement
Vanguard Vinyl, Inc.
  April 1, 2008   + 0.5% on Term Loan       Per loan amendment
Filet of Chicken
  January 1, 2009   + 1.0% on Term Loan       Tier pricing per waiver agreement
Boot Barn
  January 1, 2009   + 1.0% on Term Loan   + 2.5% on Term Loan   Tier pricing per waiver agreement
HealthDrive Corporation
  April 30, 2009   + 2.0% on Term Loan A       Per waiver agreement
Premier Trailer Leasing, Inc.
  August 4, 2009   + 4.0% on Term Loan       Default interest per credit agreement
Rail Acquisition Corp.
  May 1, 2010   - 4.5% on Term Loan   - 0.5% on Term Loan   Per restructuring agreement
Traffic Control & Safety Corp.
  May 28, 2010   - 4.0% on Term Loan   + 1.0% on Term Loan   Per restructuring agreement
Pacific Press Technologies, Inc.
  July 1, 2010   - 2.0% on Term Loan   - 0.75% on Term Loan   Per waiver agreement
Western Emulsions, Inc.
  September 30, 2010       + 3.0% on Term Loan   Per loan agreement
 
(10)   Revolving credit line has been suspended and is deemed unlikely to be renewed in the future.
 
(11)   Amounts represent unearned income related to undrawn commitments.
 
(12)   Represents an unfunded commitment to fund a limited partnership interest.
 
(13)   Investment was on cash non-accrual status as of September 30, 2010.
 
(14)   Investment was on PIK non-accrual status as of September 30, 2010.

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FIFTH STREET FINANCE CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Organization
     Fifth Street Mezzanine Partners III, L.P. (the “Partnership”), a Delaware limited partnership, was organized on February 15, 2007 to primarily invest in debt securities of small and middle market companies. FSMPIII GP, LLC was the Partnership’s general partner (the “General Partner”). The Partnership’s investments were managed by Fifth Street Management LLC (the “Investment Adviser”). The General Partner and Investment Adviser were under common ownership.
     Effective January 2, 2008, the Partnership merged with and into Fifth Street Finance Corp. (the “Company”), an externally managed, closed-end, non-diversified management investment company that has elected to be treated as a business development company under the Investment Company Act of 1940 (the “1940 Act”). Fifth Street Finance Corp. is managed by the Investment Adviser. Prior to January 2, 2008, references to the Company are to the Partnership. Since January 2, 2008, references to the “Company”, “FSC”, “we” or “our” are to Fifth Street Finance Corp., unless the context otherwise requires.
     The Company also has certain wholly-owned subsidiaries, including subsidiaries that are not consolidated for income tax purposes, which hold certain portfolio investments of the Company. The subsidiaries are consolidated with the Company for accounting purposes, and the portfolio investments held by the subsidiaries are included in the Company’s Consolidated Financial Statements. All significant intercompany balances and transactions have been eliminated.
     The Company’s shares are listed on the New York Stock Exchange under the symbol “FSC.” The following table reflects common stock offerings that have occurred since inception:
                                                 
                Offering        
Date   Transaction   Shares     price     Gross proceeds  
 
June 17, 2008
 
Initial public offering
    10,000,000     $   14.12     $141.2 million
July 21, 2009
 
Follow-on public offering (including underwriters’ exercise of over-allotment option)
    9,487,500     $ 9.25     $87.8 million
September 25, 2009
 
Follow-on public offering (including underwriters’ exercise of over-allotment option)
    5,520,000     $ 10.50     $58.0 million
January 27, 2010
 
Follow-on public offering
    7,000,000     $ 11.20     $78.4 million
February 25, 2010
 
Underwriters’ exercise of over-allotment option
    300,500     $ 11.20     $3.4 million
June 21, 2010
 
Follow-on public offering (including underwriters’exercise of over-allotment option)
    9,200,000     $ 11.50     $105.8 million
December 2010
  At-the-Market offering     429,110     $ 11.87 (1)   $5.1 million
February 4, 2011
 
Follow-on public offering (including underwriters’ exercise of over-allotment option)
    11,500,000     $ 12.65     $145.5 million
 
(1)   Average offering price
     On February 3, 2010, the Company’s consolidated wholly-owned subsidiary, Fifth Street Mezzanine Partners IV, L.P., received a license, effective February 1, 2010, from the United States Small Business Administration, or SBA, to operate as a small business investment company, or SBIC, under Section 301(c) of the Small Business Investment Act of 1958. SBICs are designated to stimulate the flow of private equity capital to eligible small businesses. Under SBA regulations, SBICs may make loans to eligible small businesses and invest in the equity securities of small businesses.
     The SBIC license allows the Company’s SBIC subsidiary to obtain leverage by issuing SBA-guaranteed debentures, subject to the issuance of a capital commitment by the SBA and other customary procedures. SBA-guaranteed debentures are non-recourse, interest only debentures with interest payable semi-annually and have a ten year maturity. The principal amount of SBA-guaranteed debentures is not required to be paid prior to maturity but may be prepaid at any time without

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FIFTH STREET FINANCE CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
penalty. The interest rate of SBA-guaranteed debentures is fixed on a semi-annual basis at a market-driven spread over U.S. Treasury Notes with 10-year maturities.
     SBA regulations currently limit the amount that the Company’s SBIC subsidiary may borrow to a maximum of $150 million when it has at least $75 million in regulatory capital, receives a capital commitment from the SBA and has been through an examination by the SBA subsequent to licensing. As of March 31, 2011, the Company’s SBIC subsidiary had $75 million in regulatory capital. The SBA has issued a capital commitment to the Company’s SBIC subsidiary in the amount of $150 million, and $138.3 million of SBA debentures were outstanding as of March 31, 2011. $73.0 million of these debentures bear interest at a rate of 3.50% per annum, including the SBA annual charge of 0.285%, and $65.3 million of these debentures bear interest at a rate of 4.369% per annum, including the SBA annual charge of 0.285%.
     The SBA restricts the ability of SBICs to repurchase their capital stock. SBA regulations also include restrictions on a “change of control” or transfer of an SBIC and require that SBICs invest idle funds in accordance with SBA regulations. In addition, the Company’s SBIC subsidiary may also be limited in its ability to make distributions to the Company if it does not have sufficient capital, in accordance with SBA regulations.
     The Company’s SBIC subsidiary is subject to regulation and oversight by the SBA, including requirements with respect to maintaining certain minimum financial ratios and other covenants. Receipt of an SBIC license does not assure that the SBIC subsidiary will receive SBA-guaranteed debenture funding and is dependent upon the SBIC subsidiary continuing to be in compliance with SBA regulations and policies.
     The SBA, as a creditor, will have a superior claim to the SBIC subsidiary’s assets over the Company’s stockholders in the event the Company liquidates the SBIC subsidiary or the SBA exercises its remedies under the SBA-guaranteed debentures issued by the SBIC subsidiary upon an event of default.
     The Company has received exemptive relief from the Securities and Exchange Commission (“SEC”) to permit it to exclude the debt of the SBIC subsidiary guaranteed by the SBA from the definition of senior securities in the Company’s 200% asset coverage test under the 1940 Act. This allows the Company increased flexibility under the 200% asset coverage test by permitting it to borrow up to $150 million more than it would otherwise be able to under the 1940 Act absent the receipt of this exemptive relief.
Note 2. Significant Accounting Policies

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FIFTH STREET FINANCE CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Basis of Presentation and Liquidity:
     The Consolidated Financial Statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and Regulation S-X. In the opinion of management, all adjustments of a normal recurring nature considered necessary for the fair presentation of the Consolidated Financial Statements have been made. The financial results of the Company’s portfolio investments are not consolidated in the Company’s Consolidated Financial Statements.
     Although the Company expects to fund the growth of its investment portfolio through the net proceeds from the recent and future equity offerings, the Company’s dividend reinvestment plan, and issuances of senior securities or future borrowings, to the extent permitted by the 1940 Act, the Company cannot assure that its plans to raise capital will be successful. In addition, the Company intends to distribute to its stockholders between 90% and 100% of its taxable income each year in order to satisfy the requirements applicable to Regulated Investment Companies (“RICs”) under Subchapter M of the Internal Revenue Code (“Code”). Consequently, the Company may not have the funds or the ability to fund new investments, to make additional investments in its portfolio companies, to fund its unfunded commitments to portfolio companies or to repay borrowings. In addition, the illiquidity of its portfolio investments may make it difficult for the Company to sell these investments when desired and, if the Company is required to sell these investments, it may realize significantly less than their recorded value.
Use of Estimates:
     The preparation of financial statements in conformity with GAAP requires management to make certain estimates and assumptions affecting amounts reported in the financial statements and accompanying notes. These estimates are based on the information that is currently available to the Company and on various other assumptions that the Company believes to be reasonable under the circumstances. Actual results could differ materially from those estimates under different assumptions and conditions. The most significant estimates inherent in the preparation of the Company’s Consolidated Financial Statements are the valuation of investments and revenue recognition.
     The Consolidated Financial Statements include portfolio investments at fair value of $939.7 million and $563.8 million at March 31, 2011 and September 30, 2010, respectively. The portfolio investments represent 132.0% and 99.1% of net assets at March 31, 2011 and September 30, 2010, respectively, and their fair values have been determined by the Company’s Board of Directors in good faith in the absence of readily available market values. Because of the inherent uncertainty of valuation, the determined values may differ significantly from the values that would have been used had a ready market existed for the investments, and the differences could be material.
     The Company classifies its investments in accordance with the requirements of the 1940 Act. Under the 1940 Act, “Control Investments” are defined as investments in companies in which the Company owns more than 25% of the voting securities or has rights to maintain greater than 50% of the board representation; “Affiliate Investments” are defined as investments in companies in which the Company owns between 5% and 25% of the voting securities; and “Non-Control/Non-Affiliate Investments” are defined as investments that are neither Control Investments nor Affiliate Investments.

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FIFTH STREET FINANCE CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Fair Value Measurements:
     The Financial Accounting Standards Board Accounting Standards Codification (“ASC”) Topic 820 Fair Value Measurements and Disclosures (“ASC 820”) defines fair value as the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. A liability’s fair value is defined as the amount that would be paid to transfer the liability to a new obligor, not the amount that would be paid to settle the liability with the creditor. Where available, fair value is based on observable market prices or parameters or derived from such prices or parameters. Where observable prices or inputs are not available or reliable, valuation techniques are applied. These valuation techniques involve some level of management estimation and judgment, the degree of which is dependent on the price transparency for the investments or market and the investments’ complexity.
     Assets recorded at fair value in the Company’s Consolidated Financial Statements are categorized based upon the level of judgment associated with the inputs used to measure their fair value.
     Hierarchical levels, defined by ASC 820 and directly related to the amount of subjectivity associated with the inputs to fair valuation of these assets and liabilities, are as follows:
    Level 1 — Unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date.
 
    Level 2 — Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data at the measurement date for substantially the full term of the assets or liabilities.
 
    Level 3 — Unobservable inputs that reflect management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date. Consideration is given to the risk inherent in the valuation technique and the risk inherent in the inputs to the model.
     Under ASC 820, the Company performs detailed valuations of its debt and equity investments on an individual basis, using market, income and bond yield approaches as appropriate. In general, the Company utilizes the bond yield method in determining the fair value of its investments, as long as it is appropriate. If, in the Company’s judgment, the bond yield approach is not appropriate, it may use the enterprise value approach in determining the fair value of the Company’s investment in the portfolio company. If there is deterioration in the credit quality of the portfolio company or an investment is in workout status, the Company may use alternative methodologies, including an asset liquidation or expected recovery model.
     Under the market approach, the Company estimates the enterprise value of the portfolio companies in which it invests. There is no one methodology to estimate enterprise value and, in fact, for any one portfolio company, enterprise value is best expressed as a range of fair values, from which the Company derives a single estimate of enterprise value. To estimate the enterprise value of a portfolio company, the Company analyzes various factors, including the portfolio company’s historical and projected financial results. Typically, private companies are valued based on multiples of EBITDA, cash flows, net income, revenues, or in limited cases, book value. The Company generally requires portfolio companies to provide annual audited and quarterly and monthly unaudited financial statements, as well as annual projections for the upcoming fiscal year.
     Under the income approach, the Company generally prepares and analyzes discounted cash flow models based on projections of the future free cash flows of the business.
     Under the bond yield approach, the Company uses bond yield models to determine the present value of the future cash flow streams of its debt investments. The Company reviews various sources of transactional data, including private mergers and acquisitions involving debt investments with similar characteristics, and assesses the information in the valuation process.
      The Company’s Board of Directors undertakes a multi-step valuation process each quarter in connection with determining the fair value of the Company’s investments:
    The quarterly valuation process begins with each portfolio company or investment being initially valued by the deal team within the Investment Adviser responsible for the portfolio investment;

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    Preliminary valuations are then reviewed and discussed with the principals of the Investment Adviser;
 
    Separately, independent valuation firms engaged by the Board of Directors prepare preliminary valuations on a selected basis and submit the reports to the Company;
 
    The deal team compares and contrasts its preliminary valuations to the preliminary valuations of the independent valuation firms;
 
    The deal team prepares a valuation report for the Valuation Committee of the Board of Directors;
 
    The Valuation Committee of the Board of Directors is apprised of the preliminary valuations of the independent valuation firms;
 
    The Valuation Committee of the Board of Directors reviews the preliminary valuations, and the deal team responds and supplements the preliminary valuations to reflect any comments provided by the Valuation Committee;
 
    The Valuation Committee of the Board of Directors makes a recommendation to the Board of Directors; and
 
    The Board of Directors discusses valuations and determines the fair value of each investment in the Company’s portfolio in good faith.
     The fair value of all of the Company’s investments at March 31, 2011 and September 30, 2010 was determined by the Board of Directors. The Board of Directors is solely responsible for the valuation of the portfolio investments at fair value as determined in good faith pursuant to the Company’s valuation policy and a consistently applied valuation process.
     The Board of Directors has engaged independent valuation firms to provide valuation assistance. Upon completion of their processes each quarter, the independent valuation firms provide the Company with written reports regarding the preliminary valuations of selected portfolio securities as of the close of such quarter. The Company will continue to engage independent valuation firms to provide assistance regarding the determination of the fair value of selected portfolio securities each quarter; however, the Board of Directors is ultimately and solely responsible for determining the fair value of the Company’s investments in good faith.
     Realized gain or loss on the sale of investments is the difference between the proceeds received from dispositions of portfolio investments and their stated costs. Realized losses may also be recorded in connection with the Company’s determination that certain investments are considered worthless securities and/or meet the conditions for loss recognition per the applicable tax rules.

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FIFTH STREET FINANCE CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Investment Income:
     Interest income, adjusted for amortization of premium and accretion of original issue discount, is recorded on an accrual basis to the extent that such amounts are expected to be collected. The Company stops accruing interest on investments when it is determined that interest is no longer collectible. In connection with its investment, the Company sometimes receives nominal cost equity that is valued as part of the negotiation process with the particular portfolio company. When the Company receives nominal cost equity, the Company allocates its cost basis in its investment between its debt securities and its nominal cost equity at the time of origination. Any resulting discount from recording the loan is accreted into interest income over the life of the loan.
     Distributions of earnings from portfolio companies are recorded as dividend income when the distribution is received.
     The Company has investments in debt securities which contain a payment-in-kind or “PIK” interest provision. PIK interest is computed at the contractual rate specified in each investment agreement and added to the principal balance of the investment and recorded as income.
     Fee income consists of the monthly collateral management fees that the Company receives in connection with its debt investments and the accreted portion of the debt origination fees. The Company capitalizes upfront loan origination fees received in connection with investments. The unearned fee income from such fees is accreted into fee income, based on the straight line method or effective interest method as applicable, over the life of the investment.
     The Company has also structured exit fees across certain of its portfolio investments to be received upon the future exit of those investments. These fees are to be paid to the Company upon the sooner to occur of (i) a sale of the borrower or substantially all of the assets of the borrower, (ii) the maturity date of the loan, or (iii) the date when full prepayment of the loan occurs. Exit fees are fees which are payable upon the exit of a debt security, and a percentage of these fees are included in net investment income over the life of the loan. The receipt of such fees is contingent upon a successful exit event for each of the investments.
Cash and Cash Equivalents:
     Cash and cash equivalents consist of demand deposits and highly liquid investments with maturities of three months or less, when acquired. The Company places its cash and cash equivalents with financial institutions and, at times, cash held in bank accounts may exceed the Federal Deposit Insurance Corporation insured limit. Included in cash and cash equivalents is $0.6 million that is held at Wells Fargo Bank, National Association (“Wells Fargo”) in connection with the Company’s three-year credit facility. The Company is restricted in terms of access to this cash until such time as the Company submits its required monthly reporting schedules and Wells Fargo verifies the Company’s compliance per the terms of the credit agreement.
Deferred Financing Costs:
     Deferred financing costs consist of fees and expenses paid in connection with the closing of credit facilities and are capitalized at the time of payment. Deferred financing costs are amortized using the straight line method over the terms of the respective credit facilities. This amortization expense is included in interest expense in the Company’s Consolidated Statement of Operations.
Collateral Posted to Bank:
     Collateral posted to bank consists of cash posted as collateral with respect to the Company’s interest rate swap. The Company is restricted in terms of access to this collateral until such swap is terminated or the swap agreement expires. Cash collateral posted is held in an account at Wells Fargo.

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FIFTH STREET FINANCE CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Interest Rate Swap:
     The Company does not utilize hedge accounting and marks its interest rate swap to fair value on a quarterly basis through its Consolidated Statement of Operations.
Offering Costs:
     Offering costs consist of fees and expenses incurred in connection with the public offer and sale of the Company’s common stock, including legal, accounting, and printing fees. $0.5 million of offering costs have been charged to capital during the six months ended March 31, 2011.
Income Taxes:
     As a RIC, the Company is not subject to federal income tax on the portion of its taxable income and gains distributed currently to its stockholders as a dividend. The Company intends to distribute between 90% and 100% of its taxable income and gains, within the Subchapter M rules, and thus the Company anticipates that it will not incur any federal or state income tax at the RIC level. As a RIC, the Company is also subject to a federal excise tax based on distributive requirements of its taxable income on a calendar year basis (e.g., calendar year 2011). The Company anticipates timely distribution of its taxable income within the tax rules; however, the Company incurred a de minimis federal excise tax for calendar years 2008 2009 and 2010. In addition, the Company may incur a federal excise tax in future years.
     The purpose of the Company’s taxable subsidiaries is to permit the Company to hold equity investments in portfolio companies which are “pass through” entities for federal tax purposes in order to comply with the “source income” requirements contained in the RIC tax requirements. The taxable subsidiaries are not consolidated with the Company for income tax purposes and may generate income tax expense as a result of their ownership of certain portfolio investments. This income tax expense, if any, would be reflected in the Company’s Consolidated Statements of Operations. The Company uses the asset and liability method to account for its taxable subsidiaries’ income taxes. Using this method, the Company recognizes deferred tax assets and liabilities for the estimated future tax effects attributable to temporary differences between financial reporting and tax bases of assets and liabilities. In addition, the Company recognizes deferred tax benefits associated with net operating carry forwards that it may use to offset future tax obligations. The Company measures deferred tax assets and liabilities using the enacted tax rates expected to apply to taxable income in the years in which it expects to recover or settle those temporary differences.
     ASC 740 Accounting for Uncertainty in Income Taxes (“ASC 740”) provides guidance for how uncertain tax positions should be recognized, measured, presented, and disclosed in the Company’s Consolidated 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 not deemed to meet the more-likely-than-not threshold are recorded as a tax benefit or expense in the current year. Management’s determinations regarding ASC 740 may be subject to review and adjustment at a later date based upon factors including, but not limited to, an ongoing analysis of tax laws, regulations and interpretations thereof. The Company recognizes the tax benefits of uncertain tax positions only where the position is “more likely than not” to be sustained assuming examination by tax authorities. Management has analyzed the Company’s tax positions, and has concluded that no liability for unrecognized tax benefits should be recorded related to uncertain tax positions taken on returns filed for open tax years 2008 or 2009 or expected to be taken in the Company’s 2010 tax return. The Company identifies its major tax jurisdictions as U.S. Federal and New York State, and the Company is not aware of any tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will change materially in the next 12 months.
Recent Accounting Pronouncements
     In January 2010, the FASB issued Accounting Standards Update No. 2010-06, Fair Value Measurements and Improving Disclosures About Fair Value Measurements (Topic 820), which provides for improving disclosures about fair value measurements, primarily significant transfers in and out of Levels 1 and 2, and activity in Level 3 fair value measurements. The disclosures and clarifications of existing disclosures are effective for the interim and annual reporting periods beginning after December 15, 2009, while the disclosures about the purchases, sales, issuances, and settlements in the roll forward activity in Level 3 fair value measurements are effective for fiscal years after December 15, 2010 and for the interim periods within those fiscal years. Except for certain detailed Level 3 disclosures, which are effective for fiscal years after December 15, 2010 and interim periods within those years, the new guidance became effective for the Company’s fiscal 2010 second quarter. The adoption of this disclosure-only guidance is included in Note 3 — Portfolio Investments and did not have an impact on the Company’s consolidated financial results.

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FIFTH STREET FINANCE CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Note 3. Portfolio Investments
     At March 31, 2011, 132.0% of net assets or $939.7 million was invested in 55 long-term portfolio investments and 5.4% of net assets or $38.6 million was invested in cash and cash equivalents. In comparison, at September 30, 2010, 99.1% of net assets or $563.8 million was invested in 38 long-term portfolio investments and 13.5% of net assets or $76.8 million was invested in cash and cash equivalents. As of March 31, 2011, primarily all of the Company’s debt investments were secured by first or second priority liens on the assets of the portfolio companies. Moreover, the Company held equity investments in certain of its portfolio companies consisting of common stock, preferred stock or limited liability company interests designed to provide the Company with an opportunity for an enhanced rate of return. These instruments generally do not produce a current return, but are held for potential investment appreciation and capital gain.
     During the three and six months ended March 31, 2011, the Company recorded net realized losses on investments of $0.5 million and $14.0 million, respectively. During the three and six months ended March 31, 2010, the Company recorded net realized losses on investments of $2.9 million and $2.8 million, respectively. During the three and six months ended March 31, 2011, the Company recorded net unrealized depreciation of $0.4 million and net unrealized appreciation of $16.5 million, respectively. During the three and six months ended March 31, 2010, the Company recorded net unrealized appreciation of $1.2 million and $2.2 million, respectively.
     The composition of the Company’s investments as of March 31, 2011 and September 30, 2010 at cost and fair value was as follows:
                                 
    March 31, 2011   September 30, 2010
    Cost   Fair Value   Cost   Fair Value
Investments in debt securities
  $ 939,758,904     $ 928,817,827     $ 585,529,301     $ 558,579,951  
Investments in equity securities
    13,434,303       10,931,226       6,967,294       5,241,365  
     
 
                               
Total
  $ 953,193,207     $ 939,749,053     $ 592,496,595     $ 563,821,316  
     
     The composition of the Company’s debt investments as of March 31, 2011 and September 30, 2010 at fixed rates and floating rates was as follows:
                                 
    March 31, 2011   September 30, 2010
    Fair Value   % of Portfolio   Fair Value   % of Portfolio
Fixed rate debt securities
  $ 375,510,714       40.43 %   $ 375,584,242       67.24 %
Floating rate debt securities
    553,307,113       59.57 %     182,995,709       32.76 %
     
 
                               
Total
  $ 928,817,827       100.00 %   $ 558,579,951       100.00 %
     
     The following table presents the financial instruments carried at fair value as of March 31, 2011, by caption on the Company’s Consolidated Statement of Assets and Liabilities for each of the three levels of hierarchy established by ASC 820.
                                 
    Level 1   Level 2   Level 3   Total
Investments in debt securities (first lien)
  $     $     $ 821,884,661     $ 821,884,661  
Investments in debt securities (second lien)
                82,586,455       82,586,455  
Investments in debt securities (subordinated)
                24,346,711       24,346,711  
Investments in equity securities (preferred)
                4,559,714       4,559,714  
Investments in equity securities (common)
                6,371,512       6,371,512  
     
Total investments at fair value
  $     $     $ 939,749,053     $ 939,749,053  
Interest rate swap
          197,121             197,121  
     
 
                               
Total assets at fair value
  $     $ 197,121     $     $ 939,946,174  
     

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FIFTH STREET FINANCE CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
     The following table presents the financial instruments carried at fair value as of September 30, 2010, by caption on the Company’s Consolidated Statement of Assets and Liabilities for each of the three levels of hierarchy established by ASC 820.
                                 
    Level 1   Level 2   Level 3   Total
Investments in debt securities (first lien)
  $     $     $ 416,323,957     $ 416,323,957  
Investments in debt securities (second lien)
                137,851,248       137,851,248  
Investments in debt securities (subordinated)
                4,404,746       4,404,746  
Investments in equity securities (preferred)
                2,892,135       2,892,135  
Investments in equity securities (common)
                2,349,230       2,349,230  
     
Total investments at fair value
  $     $     $ 563,821,316     $ 563,821,316  
Interest rate swap
          773,435             773,435  
     
 
                               
Total liabilities at fair value
  $     $ 773,435     $     $ 773,435  
     
     When a determination is made to classify a financial instrument within Level 3 of the valuation hierarchy, the determination is based upon the fact that the unobservable factors are the most significant to the overall fair value measurement. However, Level 3 financial instruments typically include, in addition to the unobservable or Level 3 components, observable components (that is, components that are actively quoted and can be validated by external sources). Accordingly, the appreciation (depreciation) in the tables below includes changes in fair value due in part to observable factors that are part of the valuation methodology.
     The following table provides a roll-forward in the changes in fair value from December 31, 2010 to March 31, 2011 for all investments for which the Company determines fair value using unobservable (Level 3) factors.
                                                 
    First     Second     Subordinated     Preferred     Common        
    Lien Debt     Lien Debt     Debt     Equity     Equity     Total  
 
                                               
Fair value as of December 31, 2010
  $ 642,402,398     $ 85,394,636     $ 4,221,399     $ 3,963,240     $ 6,413,662     $ 742,395,335  
New investments & net revolver activity
    196,101,572             21,098,928       999,000       904,786       219,104,286  
Redemptions/repayments
    (17,074,472 )     (2,679,662 )                     (19,754,134 )
Net accrual of PIK interest income
    1,895,461       (241,057 )     214,910                   1,869,314  
Accretion of original issue discount
    337,962       82,328                         420,290  
Net change in unearned income
    (2,844,253 )     119,105       (388,889 )                 (3,114,037 )
Net unrealized appreciation (depreciation)
    1,334,579       (88,895 )     (799,637 )     (148,680 )     (903,786 )     (606,419 )
Net change from unrealized to realized
    (268,586 )                 (253,846 )     (43,150 )     (565,582 )
Transfer into (out of) Level 3
                                   
 
                                   
 
                                               
Fair value as of March 31, 2011
  $ 821,884,661     $ 82,586,455     $ 24,346,711     $ 4,559,714     $ 6,371,512     $ 939,749,053  
 
                                   
 
                                               
Net unrealized appreciation (depreciation) relating to Level 3 assets still held at March 31, 2011 and reported within net unrealized appreciation (depreciation) on investments in the Consolidated Statement of Operations for the three months ended March 31, 2011
  $ 1,065,992     $ (88,895 )   $ (799,637 )   $ (402,526 )   $ (946,936 )   $ (1,172,002 )

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FIFTH STREET FINANCE CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
     The following table provides a roll-forward in the changes in fair value from December 31, 2009 to March 31, 2010, for all investments for which the Company determines fair value using unobservable (Level 3) factors.
                                                 
    First     Second     Subordinated     Preferred     Common        
    Lien Debt     Lien Debt     Debt     Equity     Equity     Total  
 
                                               
Fair value as of December 31, 2009
  $ 280,768,502     $ 152,254,769     $     $ 2,661,823     $ 1,008,446     $ 436,693,540  
New investments & net revolver activity
    38,267,938                         480,914       38,748,852  
Redemptions/repayments
    (1,757,500 )     (13,252,034 )                 (71,003 )     (15,080,537 )
Net accrual of PIK interest income
    1,274,728       920,445                         2,195,173  
Accretion of original issue discount
    124,757       102,727                         227,484  
Net change in unearned income
    (548,719 )     360,976                         (187,743 )
Net unrealized appreciation (depreciation)
    (408,039 )     (1,828,808 )                 3,413,558       1,176,711  
Net change from unrealized to realized
          (611,084 )                 (2,297,000 )     (2,908,084 )
Transfer into (out of) Level 3
                                   
 
                                   
 
                                               
Fair value as of March 31, 2010
  $ 317,721,667     $ 137,946,991     $     $ 2,661,823     $ 2,534,915     $ 460,865,396  
 
                                   
 
                                               
Net unrealized appreciation (depreciation) relating to Level 3 assets still held at March 31, 2010 and reported within net unrealized appreciation (depreciation) on investments in the Consolidated Statement of Operations for the three months ended March 31, 2010
  $ (408,039 )   $ (2,801,978 )   $     $     $ 1,116,558     $ (2,093,459 )
     The following table provides a roll-forward in the changes in fair value from September 30, 2010 to March 31, 2011 for all investments for which the Company determines fair value using unobservable (Level 3) factors.
                                                 
    First     Second     Subordinated     Preferred     Common        
    Lien Debt     Lien Debt     Debt     Equity     Equity     Total  
 
Fair value as of September 30, 2010
  $ 416,323,957     $ 137,851,248     $ 4,404,746     $ 2,892,135     $ 2,349,230     $ 563,821,316  
New investments & net revolver activity
    425,949,652             21,064,910       2,036,112       4,727,894       453,778,568  
Redemptions/repayments
    (20,887,909 )     (52,567,380 )                       (73,455,289 )
Net accrual of PIK interest income
    3,690,849       (4,213,530 )     426,661                   (96,020 )
Accretion of original issue discount
    494,029       314,898                         808,927  
Net change in unearned income
    (7,121,126 )     917,653       (388,889 )                 (6,592,362 )
Net unrealized appreciation (depreciation)
    17,154,014       283,566       (1,160,717 )     (114,687 )     (662,462 )     15,499,714  
Net change from unrealized to realized
    (13,718,805 )                 (253,846 )     (43,150 )     (14,015,801 )
Transfer into (out of) Level 3
                                   
 
                                   
 
                                               
Fair value as of March 31, 2011
  $ 821,884,661     $ 82,586,455     $ 24,346,711     $ 4,559,714     $ 6,371,512     $ 939,749,053  
 
                                   
 
                                               
Net unrealized appreciation (depreciation) relating to Level 3 assets still held at March 31, 2011 and reported within net unrealized appreciation (depreciation) on investments in the Consolidated Statement of Operations for the six months ended March 31, 2011
  $ 6,625,331     $ 503,467     $ (1,160,717 )   $ (368,533 )   $ (705,612 )   $ 4,893,936  
The following table provides a roll-forward in the changes in fair value from September 30, 2009 to March 31, 2010, for all investments for which the Company determines fair value using unobservable (Level 3) factors.
                                                 
    First     Second     Subordinated     Preferred     Common        
    Lien Debt     Lien Debt     Debt     Equity     Equity     Total  
 
                                               
Fair value as of September 30, 2009
  $ 142,016,942     $ 153,904,458     $     $ 2,889,471     $ 800,266     $ 299,611,137  
New investments & net revolver activity
    170,031,723       6,000,000                   634,886       176,666,609  
Redemptions/repayments
    6,708,213       (21,290,133 )                 (71,003 )     (14,652,923 )
Net accrual of PIK interest income
    2,061,244       1,570,509                         3,631,753  
Accretion of original issue discount
    232,289       216,138                         448,427  
Net change in unearned income
    (4,564,359 )     456,831                         (4,107,528 )
Net unrealized appreciation (depreciation)
    1,235,615       (2,299,728 )           (227,648 )     3,467,766       2,176,005  
Net change from unrealized to realized
          (611,084 )                 (2,297,000 )     (2,908,084 )
Transfer into (out of) Level 3
                                   
 
                                   
 
                                               
Fair value as of March 31, 2010
  $ 317,721,667     $ 137,946,991     $     $ 2,661,823     $ 2,534,915     $ 460,865,396  
 
                                   
 
                                               
Net unrealized appreciation (depreciation) relating to Level 3 assets still held at March 31, 2010 and reported within net unrealized appreciation (depreciation) on investments in the Consolidated Statement of Operations for the six months ended March 31, 2010
  $ 1,235,615     $ (3,514,541 )   $     $ (227,648 )   $ 1,170,766     $ (1,335,808 )

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FIFTH STREET FINANCE CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
     Concurrent with its adoption of ASC 820, effective October 1, 2008, the Company augmented the valuation techniques it uses to estimate the fair value of its debt investments where there is not a readily available market value (Level 3). Prior to October 1, 2008, the Company estimated the fair value of its Level 3 debt investments by first estimating the enterprise value of the portfolio company which issued the debt investment. To estimate the enterprise value of a portfolio company, the Company analyzed various factors, including the portfolio companies historical and projected financial results. Typically, private companies are valued based on multiples of EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization), cash flow, net income, revenues or, in limited instances, book value.
     In estimating a multiple to use for valuation purposes, the Company looked to private merger and acquisition statistics, discounted public trading multiples or industry practices. In some cases, the best valuation methodology may have been a discounted cash flow analysis based on future projections. If a portfolio company was distressed, a liquidation analysis may have provided the best indication of enterprise value.
     If there was adequate enterprise value to support the repayment of the Company’s debt, the fair value of the Level 3 loan or debt security normally corresponded to cost plus the amortized original issue discount unless the borrower’s condition or other factors lead to a determination of fair value at a different amount.
     Beginning on October 1, 2008, the Company also introduced a bond yield model to value these investments based on the present value of expected cash flows. The significant inputs into the model are market interest rates for debt with similar characteristics and an adjustment for the portfolio company’s credit risk. The credit risk component of the valuation considers several factors including financial performance, business outlook, debt priority and collateral position.
     The Company’s off-balance sheet arrangements consisted of $85.6 million and $49.5 million of unfunded commitments to provide debt financing to its portfolio companies or to fund limited partnership interests as of March 31, 2011 and September 30, 2010, respectively. Such commitments involve, to varying degrees, elements of credit risk in excess of the amount recognized in the Statement of Assets and Liabilities and are not reflected on the Company’s Consolidated Statements of Assets and Liabilities.

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FIFTH STREET FINANCE CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
     A summary of the composition of the unfunded commitments (consisting of revolvers, term loans and limited partnership interests) as of March 31, 2011 and September 30, 2010 is shown in the table below:
                 
    March 31, 2011   September 30, 2010
     
 
               
Traffic Control & Safety Corporation
  $ 2,250,000     $  
HealthDrive Corporation
    1,000,000       1,500,000  
IZI Medical Products, Inc.
    2,500,000       2,500,000  
Trans-Trade, Inc.
    1,000,000       500,000  
Riverlake Equity Partners II, LP (limited partnership interest)
    877,895       966,360  
Riverside Fund IV, LP (limited partnership interest)
    583,522       864,175  
ADAPCO, Inc.
    5,250,000       5,750,000  
AmBath/ReBath Holdings, Inc.
    1,500,000       1,500,000  
JTC Education, Inc.
    5,159,479       9,062,453  
Tegra Medical, LLC
    2,500,000       4,000,000  
Vanguard Vinyl, Inc.
          1,250,000  
Flatout, Inc.
    1,500,000       1,500,000  
Psilos Group Partners IV, LP (limited partnership interest)
    1,000,000       1,000,000  
Mansell Group, Inc.
    1,000,000       2,000,000  
NDSSI Holdings, Inc.
    1,500,000       1,500,000  
Eagle Hospital Physicians, Inc.
    2,500,000       2,500,000  
Enhanced Recovery Company, LLC
    3,000,000       3,623,148  
Epic Acquisition, Inc.
    2,400,000       2,700,000  
Specialty Bakers, LLC
    4,000,000       2,000,000  
Rail Acquisition Corp.
    4,879,435       4,798,897  
Bunker Hill Capital II (QP), L.P. (limited partnership interest)
    1,000,000        
CRGT, Inc.
    12,500,000        
Welocalize, Inc.
    3,750,000        
Miche Bag, LLC
    5,000,000        
Dominion Diagnostics, LLC
    5,000,000        
Advanced Pain Management
    400,000        
DISA, Inc.
    4,000,000        
Saddleback Fence and Vinyl Products, Inc.
    400,000        
Best Vinyl Fence & Deck, LLC
    1,000,000        
Physicians Pharmacy Alliance, Inc.
    2,000,000        
Cardon Healthcare Network, LLC
    2,000,000        
IOS Acquisitions, Inc.
    2,000,000        
Phoenix Brands Merger Sub LLC
    2,142,857        
     
 
               
Total
  $ 85,593,188     $ 49,515,033  
     
     Summaries of the composition of the Company’s investment portfolio at cost and fair value as a percentage of total investments are shown in the following tables:
                                 
    March 31, 2011   September 30, 2010
     
 
                               
Cost:
                               
First lien debt
  $ 819,025,973       85.92 %   $ 430,200,694       72.61 %
Second lien debt
    95,052,449       9.97 %     150,600,807       25.42 %
Subordinated debt
    25,680,482       2.69 %     4,727,800       0.80 %
Purchased equity
    6,216,015       0.65 %     2,330,305       0.39 %
Equity grants
    6,679,705       0.70 %     4,467,524       0.75 %
Limited partnership interests
    538,583       0.07 %     169,465       0.03 %
     
 
                               
Total
  $ 953,193,207       100.00 %   $ 592,496,595       100.00 %
     

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FIFTH STREET FINANCE CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
                                 
    March 31, 2011   September 30, 2010
     
 
                               
Fair value:
                               
First lien debt
  $ 821,884,661       87.46 %   $ 416,323,957       73.84 %
Second lien debt
    82,586,455       8.79 %     137,851,248       24.45 %
Subordinated debt
    24,346,711       2.59 %     4,404,746       0.78 %
Purchased equity
    3,973,327       0.42 %     625,371       0.11 %
Equity grants
    6,419,316       0.68 %     4,446,529       0.79 %
Limited partnership interests
    538,583       0.06 %     169,465       0.03 %
     
 
                               
Total
  $ 939,749,053       100.00 %   $ 563,821,316       100.00 %
     
     The Company invests in portfolio companies located in the United States. The following tables show the portfolio composition by geographic region at cost and fair value as a percentage of total investments. The geographic composition is determined by the location of the corporate headquarters of the portfolio company, which may not be indicative of the primary source of the portfolio company’s business.
                                 
    March 31, 2011   September 30, 2010
         
Cost:
                               
Northeast
  $ 294,387,203       30.88 %   $ 175,370,861       29.60 %
Southwest
    236,037,587       24.77 %     121,104,464       20.44 %
Southeast
    185,861,206       19.50 %     108,804,931       18.36 %
West
    155,539,266       16.32 %     133,879,457       22.60 %
Midwest
    81,367,945       8.53 %     53,336,882       9.00 %
     
 
                               
Total
  $ 953,193,207       100.00 %   $ 592,496,595       100.00 %
     
                                 
    March 31, 2011   September 30, 2010
         
Fair value:
                               
Northeast
  $ 285,198,168       30.35 %   $ 161,264,153       28.60 %
Southwest
    222,098,808       23.63 %     107,468,588       19.07 %
Southeast
    191,004,149       20.33 %     109,457,070       19.41 %
West
    157,478,117       16.76 %     131,881,487       23.39 %
Midwest
    83,969,811       8.93 %     53,750,018       9.53 %
     
 
                               
Total
  $ 939,749,053       100.00 %   $ 563,821,316       100.00 %
     

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FIFTH STREET FINANCE CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
     The composition of the Company’s portfolio by industry at cost and fair value as of March 31, 2011 and September 30, 2010 were as follows:
                                 
    March 31, 2011   September 30, 2010
         
Cost:
                               
Healthcare services
  $ 176,032,901       18.47 %   $ 87,443,639       14.76 %
Healthcare equipment
    72,090,715       7.56 %     47,539,596       8.02 %
IT consulting & other services
    49,879,168       5.23 %           0.00 %
Diversified support services
    49,479,327       5.19 %     26,246,237       4.43 %
Oil & gas equipment & services
    45,265,873       4.75 %           0.00 %
Education services
    42,845,187       4.49 %     44,901,602       7.58 %
Internet software & services
    41,033,487       4.30 %           0.00 %
Construction and engineering
    39,661,650       4.16 %     24,987,230       4.22 %
Specialty stores
    39,397,846       4.13 %           0.00 %
Household products
    33,276,524       3.49 %     1,064,910       0.18 %
Electronic equipment & instruments
    32,940,708       3.46 %     33,094,495       5.59 %
Apparel, accessories & luxury goods
    31,724,188       3.33 %     23,535,757       3.97 %
Home improvement retail
    28,208,636       2.96 %     32,630,879       5.51 %
Fertilizers & agricultural chemicals
    26,449,828       2.77 %     26,694,525       4.51 %
Food distributors
    26,375,460       2.77 %     30,415,200       5.13 %
Healthcare technology
    21,210,996       2.23 %     21,509,107       3.63 %
Human resources & employment services
    20,847,571       2.19 %           0.00 %
Electronic manufacturing services
    19,672,717       2.06 %     18,738,072       3.16 %
Food retail
    19,264,166       2.02 %     19,622,414       3.31 %
Advertising
    19,017,503       2.00 %     19,828,343       3.35 %
Air freight and logistics
    17,394,699       1.82 %     14,004,766       2.36 %
Trucking
    17,064,785       1.79 %     17,064,785       2.88 %
Distributors
    13,520,365       1.42 %     13,350,633       2.25 %
Data processing and outsourced services
    13,127,545       1.38 %     13,078,169       2.21 %
Other diversified financial services
    11,361,007       1.19 %           0.00 %
Industrial machinery
    10,299,306       1.08 %     10,143,414       1.71 %
Leisure facilities
    6,702,285       0.70 %     6,863,521       1.16 %
Building products
    6,583,589       0.69 %     8,291,678       1.40 %
Construction materials
    6,578,609       0.69 %     17,475,899       2.95 %
Environmental & facilities services
    5,688,981       0.60 %     8,921,676       1.51 %
Housewares & specialties
    5,356,187       0.56 %     12,195,029       2.06 %
Restaurants
    4,102,646       0.43 %     12,485,385       2.11 %
Multi-sector holdings
    538,583       0.07 %     169,465       0.02 %
Movies & entertainment
    200,169       0.02 %     200,169       0.03 %
     
 
                               
Total
  $ 953,193,207       100.00 %   $ 592,496,595       100.00 %
     
                                 
    March 31, 2011   September 30, 2010
         
Fair Value:
                               
Healthcare services
  $ 182,188,812       19.39 %   $ 89,261,760       15.83 %
Healthcare equipment
    73,502,072       7.82 %     48,297,921       8.57 %
IT consulting & other services
    51,108,396       5.44 %           0.00 %
Diversified support services
    50,647,896       5.39 %     26,246,237       4.66 %
Oil & gas equipment & services
    46,264,452       4.92 %           0.00 %
Internet software & services
    41,862,450       4.45 %           0.00 %
Specialty stores
    40,543,509       4.31 %           0.00 %
Construction and engineering
    36,421,748       3.88 %     23,844,836       4.23 %
Apparel, accessories & luxury goods
    34,550,016       3.68 %     23,548,933       4.18 %
Household products
    33,990,412       3.62 %     1,064,910       0.19 %
Electronic equipment & instruments
    33,563,929       3.57 %     32,887,767       5.83 %
Education services
    30,022,053       3.19 %     42,110,738       7.47 %
Home improvement retail
    28,218,378       3.00 %     32,483,858       5.76 %
Fertilizers & agricultural chemicals
    27,148,196       2.89 %     26,811,860       4.76 %
Food distributors
    27,139,588       2.89 %     30,316,811       5.38 %
Healthcare technology
    21,951,082       2.34 %     22,140,613       3.93 %
Human resources & employment services
    21,395,889       2.28 %           0.00 %
Food retail
    19,744,856       2.10 %     19,750,316       3.50 %
Advertising
    19,354,331       2.06 %     19,847,065       3.52 %
Air freight and logistics
    17,896,977       1.90 %     14,040,532       2.49 %
Electronic manufacturing services
    14,899,970       1.59 %     18,055,528       3.20 %
Distributors
    13,763,520       1.46 %     13,258,317       2.35 %
Data processing and outsourced services
    12,969,641       1.38 %     12,741,012       2.26 %
Other diversified financial services
    11,700,000       1.25 %           0.00 %
Industrial machinery
    10,907,395       1.16 %     10,232,763       1.81 %
Leisure facilities
    6,859,256       0.73 %     7,040,043       1.25 %
Construction materials
    6,705,597       0.71 %     17,039,751       3.02 %
Building products
    6,697,319       0.71 %     6,841,467       1.21 %
Environmental & facilities services
    5,639,672       0.60 %     5,129,853       0.91 %
Housewares & specialties
    4,055,655       0.43 %     3,700,000       0.66 %
Trucking
    3,897,412       0.41 %     4,597,412       0.82 %
Restaurants
    3,338,378       0.36 %     12,099,935       2.15 %
Multi-sector holdings
    538,583       0.06 %     169,465       0.01 %
Movies & entertainment
    261,613       0.03 %     261,613       0.05 %
     
 
                               
Total
  $ 939,749,053       100.00 %   $ 563,821,316       100.00 %
     

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FIFTH STREET FINANCE CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
     The Company’s investments are generally in small and mid-sized companies in a variety of industries. At March 31, 2011 and September 30, 2010, the Company had no single investment that represented greater than 10% of the total investment portfolio at fair value. Income, consisting of interest, dividends, fees, other investment income, and realization of gains or losses, can fluctuate upon repayment or sale of an investment and in any given year can be highly concentrated among several investments. For the three months ended March 31, 2011 and March 31, 2010, no individual investment produced income that exceeded 10% of investment income.
Note 4. Fee Income
          The Company receives a variety of fees in the ordinary course of business. Certain fees, such as origination fees, are capitalized and amortized in accordance with ASC 310-20 Nonrefundable Fees and Other Costs. In accordance with ASC 820, the net unearned fee income balance is netted against the cost of the respective investments. Other fees, such as servicing and collateral management fees, are classified as fee income and recognized as they are earned on a monthly basis.
          Accumulated unearned fee income activity for the six months ended March 31, 2011 and March 31, 2010 was as follows:
                 
    Six months     Six months  
    ended March 31,     ended March 31,  
    2011     2010  
 
               
Beginning unearned fee income balance
  $ 11,900,871     $ 5,589,630  
Net fees received
    10,589,519       6,469,801  
Unearned fee income recognized
    (3,997,160 )     (2,312,436 )
     
 
               
Ending unearned fee income balance
  $ 18,493,230     $ 9,746,995  
     
     As of March 31, 2011, the Company had structured $7.6 million in aggregate exit fees across 10 portfolio investments upon the future exit of those investments. These fees are to be paid to the Company upon the sooner to occur of (i) a sale of the borrower or substantially all of the assets of the borrower, (ii) the maturity date of the loan, or (iii) the date when full prepayment of the loan occurs. Exit fees are fees which are payable upon the exit of a debt investment and a portion of these fees is included in net investment income over the period of the loan. The receipt of such fees is contingent upon a successful exit event for each of the investments.

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FIFTH STREET FINANCE CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Note 5. Share Data
     Effective January 2, 2008, the Partnership merged with and into the Company. At the time of the merger, all outstanding partnership interests in the Partnership were exchanged for 12,480,972 shares of common stock of the Company. An additional 26 fractional shares were payable to the stockholders in cash.
     On June 17, 2008, the Company completed an initial public offering of 10,000,000 shares of its common stock at the offering price of $14.12 per share. The net proceeds totaled $129.5 million after deducting investment banking commissions of $9.9 million and offering costs of $1.8 million.
     On July 21, 2009, the Company completed a follow-on public offering of 9,487,500 shares of its common stock, which included the underwriters’ exercise of their over-allotment option, at the offering price of $9.25 per share. The net proceeds totaled $82.7 million after deducting investment banking commissions of $4.4 million and offering costs of $0.7 million.
     On September 25, 2009, the Company completed a follow-on public offering of 5,520,000 shares of its common stock, which included the underwriters’ exercise of their over-allotment option, at the offering price of $10.50 per share. The net proceeds totaled $54.9 million after deducting investment banking commissions of $2.8 million and offering costs of $0.3 million.
     On January 27, 2010, the Company completed a follow-on public offering of 7,000,000 shares of its common stock at the offering price of $11.20 per share, with 300,500 additional shares being sold as part of the underwriters’ partial exercise of their over-allotment option on February 25, 2010. The net proceeds totaled $77.5 million after deducting investment banking commissions of $3.7 million and offering costs of $0.5 million.
     On April 20, 2010, at the Company’s 2010 Annual Meeting, the Company’s stockholders approved, among other things, amendments to the Company’s restated certificate of incorporation to increase the number of authorized shares of common stock from 49,800,000 shares to 150,000,000 shares and to remove the Company’s authority to issue shares of Series A Preferred Stock.
     On June 21, 2010, the Company completed a follow-on public offering of 9,200,000 shares of its common stock, which included the underwriters’ exercise of their over-allotment option, at the offering price of $11.50 per share. The net proceeds totaled $100.5 million after deducting investment banking commissions of $4.8 million and offering costs of $0.5 million.
     On December 7, 2010, the Company entered into an at-the-market equity offering sales agreement relating to shares of its common stock. Throughout the month of December 2010, the Company sold 429,110 shares of its common stock at an average offering price of $11.87 per share. The net proceeds totaled $5.0 million after deducting fees and commissions of $0.1 million. The Company terminated the at-the-market equity offering sales agreement effective January 20, 2011 and did not sell any shares of the Company’s common stock pursuant thereto subsequent to December 31, 2010.
     On February 4, 2011, the Company completed a follow-on public offering of 11,500,000 shares of its common stock, which included the underwriters’ exercise of their over-allotment option, at the offering price of $12.65 per share. The net proceeds totaled $138.6 million after deducting investment banking commissions of $6.5 million and offering costs of $0.3 million.
     No dilutive instruments were outstanding and therefore none were reflected in the Company’s Consolidated Statement of Assets and Liabilities at March 31, 2011. The following table sets forth the weighted average common shares outstanding for computing basic and diluted earnings per common share for the three and six months ended March 31, 2011 and March 31, 2010:
                                 
    Three months   Three months   Six months   Six months
    ended March 31, 2011   ended March 31, 2010   ended March 31, 2011   ended March 31, 2010
 
                               
Weighted average common shares outstanding, basic and diluted
    62,120,473       43,019,350       58,339,723       40,421,657  
     

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FIFTH STREET FINANCE CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
          The following table reflects the dividend distributions per share that the Board of Directors of the Company has declared and the Company has paid, including shares issued under the dividend reinvestment plan (“DRIP”), on its common stock from inception to March 31, 2011:
                                                 
    Record   Payment   Amount   Cash   DRIP Shares   DRIP Shares
Date Declared   Date   Date   per Share   Distribution   Issued   Value
5/1/2008
    5/19/2008       6/3/2008     $ 0.30     $1.9 million     133,317     $1.9 million
8/6/2008
    9/10/2008       9/26/2008       0.31     5.1 million     196,786 (1)   1.9 million
12/9/2008
    12/19/2008       12/29/2008       0.32     6.4 million     105,326     0.8 million
12/9/2008
    12/30/2008       1/29/2009       0.33     6.6 million     139,995     0.8 million
12/18/2008
    12/30/2008       1/29/2009       0.05     1.0 million     21,211     0.1 million
4/14/2009
    5/26/2009       6/25/2009       0.25     5.6 million     11,776     0.1 million
8/3/2009
    9/8/2009       9/25/2009       0.25     7.5 million     56,890     0.6 million
11/12/2009
    12/10/2009       12/29/2009       0.27     9.7 million     44,420     0.5 million
1/12/2010
    3/3/2010       3/30/2010       0.30     12.9 million     58,689     0.7 million
5/3/2010
    5/20/2010       6/30/2010       0.32     14.0 million     42,269     0.5 million
8/2/2010
    9/1/2010       9/29/2010       0.10     5.2 million     25,425     0.3 million
8/2/2010
    10/6/2010       10/27/2010       0.10     5.2 million     24,850     0.3 million
8/2/2010
    11/3/2010       11/24/2010       0.11     5.7 million     26,569     0.3 million
8/2/2010
    12/1/2010       12/29/2010       0.11     5.7 million     28,238     0.3 million
11/30/2010
    1/4/2011       1/31/2011       0.1066     5.4 million     36,038     0.5 million
11/30/2010
    2/1/2011       2/28/2011       0.1066     5.5 million     29,072     0.4 million
11/30/2010
    3/1/2011       3/31/2011       0.1066     6.5 million     43,766     0.6 million
 
(1)   Shares were purchased on the open market and distributed.
          In October 2008, the Company’s Board of Directors authorized a stock repurchase program to acquire up to $8 million of the Company’s outstanding common stock. Stock repurchases under this program were made through the open market at times and in such amounts as Company management deemed appropriate. The stock repurchase program expired December 2009. In October 2008, the Company repurchased 78,000 shares of common stock on the open market as part of its share repurchase program.
     In October 2010, the Company’s Board of Directors authorized a stock repurchase program to acquire up to $20 million of the Company’s outstanding common stock. Stock repurchases under this program are to be made through the open market at times and in such amounts as the Company’s management deems appropriate, provided it is below the most recently published net asset value per share. The stock repurchase program expires December 31, 2011 and may be limited or terminated by the Board of Directors at any time without prior notice.
Note 6. Lines of Credit
     On November 16, 2009, Fifth Street Funding, LLC, a consolidated wholly-owned bankruptcy remote, special purpose subsidiary (“Funding”), and the Company entered into a Loan and Servicing Agreement (“Agreement”), with respect to a three-year credit facility (“Wells Fargo facility”) with Wells Fargo, as successor to Wachovia Bank, National Association (“Wachovia”), Wells Fargo Securities, LLC, as administrative agent, each of the additional institutional and conduit lenders party thereto from time to time, and each of the lender agents party thereto from time to time, in the amount of $50 million, with an accordion feature which allowed for potential future expansion of the facility up to $100 million. The facility bore interest at LIBOR plus 4.0% per annum and had a maturity date of November 16, 2012.
     On May 26, 2010, the Company amended the Wells Fargo facility to expand the borrowing capacity under that facility. Pursuant to the amendment, the Company received an additional $50 million commitment, thereby increasing the size of the facility from $50 million to $100 million, with an accordion feature that allows for potential future expansion of that facility from a total of $100 million up to a total of $150 million. In addition, the interest rate of the Wells Fargo facility was reduced from LIBOR plus 4% per annum to LIBOR plus 3.5% per annum, with no LIBOR floor, and the maturity date of the facility was extended from November 16, 2012 to May 26, 2013. The facility may be extended for up to two additional years upon the mutual consent of Wells Fargo and each of the lender parties thereto.
     On November 5, 2010, the Company amended the Wells Fargo facility to, among other things, provide for the issuance from time to time of letters of credit for the benefit of the Company’s portfolio companies. The letters of credit are subject to certain restrictions, including a borrowing base limitation and an aggregate sublimit of $15.0 million.
     On February 28, 2011, the Company amended the Wells Fargo facility to, among other things, reduce the interest rate to LIBOR plus 3.0% per annum, with no LIBOR floor, and extend the maturity date of the facility to February 25, 2014.

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FIFTH STREET FINANCE CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
     In connection with the Wells Fargo facility, the Company concurrently entered into (i) a Purchase and Sale Agreement with Funding, pursuant to which the Company will sell to Funding certain loan assets it has originated or acquired, or will originate or acquire and (ii) a Pledge Agreement with Wells Fargo, pursuant to which the Company pledged all of its equity interests in Funding as security for the payment of Funding’s obligations under the Agreement and other documents entered into in connection with the Wells Fargo facility.
     The Agreement and related agreements governing the Wells Fargo facility required both Funding and the Company to, among other things (i) make representations and warranties regarding the collateral as well as each of their businesses, (ii) agree to certain indemnification obligations, and (iii) comply with various covenants, servicing procedures, limitations on acquiring and disposing of assets, reporting requirements and other customary requirements for similar credit facilities. The Wells Fargo facility agreements also include usual and customary default provisions such as the failure to make timely payments under the facility, a change in control of Funding, and the failure by Funding or the Company to materially perform under the Agreement and related agreements governing the facility, which, if not complied with, could accelerate repayment under the facility, thereby materially and adversely affecting the Company’s liquidity, financial condition and results of operations. The Company is currently in compliance with all financial covenants under the Wells Fargo facility.
     The Wells Fargo facility is secured by all of the assets of Funding, and all of the Company’s equity interest in Funding. The Company intends to use the net proceeds of the Wells Fargo facility to fund a portion of its loan origination activities and for general corporate purposes. Each loan origination under the facility is subject to the satisfaction of certain conditions. The Company cannot be assured that Funding will be able to borrow funds under the Wells Fargo facility at any particular time or at all. As of March 31, 2011, the Company had $60.0 million of borrowings outstanding under the Wells Fargo facility.
     On May 27, 2010, the Company entered into a three-year secured syndicated revolving credit facility (“ING facility”) pursuant to a Senior Secured Revolving Credit Agreement (“ING Credit Agreement”) with certain lenders party thereto from time to time and ING Capital LLC, as administrative agent. The ING facility allows for the Company to borrow money at a rate of either (i) LIBOR plus 3.5% per annum or (ii) 2.5% per annum plus an alternate base rate based on the greatest of the Prime Rate, Federal Funds Rate plus 0.5% per annum or LIBOR plus 1% per annum, and had a maturity date of May 27, 2013. The ING facility also allows the Company to request letters of credit from ING Capital LLC, as the issuing bank. The initial commitment under the ING facility was $90 million, and the ING facility included an accordion feature that allowed for potential future expansion of the facility up to a total of $150 million. The ING facility is secured by substantially all of the Company’s assets, as well as the assets of two of the Company’s wholly-owned subsidiaries, FSFC Holdings, Inc. and FSF/MP Holdings, Inc., subject to certain exclusions for, among other things, equity interests in the Company’s SBIC subsidiary and equity interests in Funding as further set forth in a Guarantee, Pledge and Security Agreement (“ING Security Agreement”) entered into in connection with the ING Credit Agreement, among FSFC Holdings, Inc., FSF/MP Holdings, Inc., ING Capital LLC, as collateral agent, and the Company. Neither the Company’s SBIC subsidiary nor Funding is party to the ING facility and their respective assets have not been pledged in connection therewith. The ING facility provides that the Company may use the proceeds and letters of credit under the facility for general corporate purposes, including acquiring and funding leveraged loans, mezzanine loans, high-yield securities, convertible securities, preferred stock, common stock and other investments.
     On February 22, 2011, the Company amended the ING facility to, among other things, expand the borrowing capacity to $215 million. In addition, the ING facility’s accordion feature was increased to allow for potential future expansion up to a total of $300 million and the maturity date was extended to February 22, 2014.

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FIFTH STREET FINANCE CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
     Pursuant to the ING Security Agreement, FSFC Holdings, Inc. and FSF/MP Holdings, Inc. guaranteed the obligations under the ING Security Agreement, including the Company’s obligations to the lenders and the administrative agent under the ING Credit Agreement. Additionally, the Company pledged its entire equity interests in FSFC Holdings, Inc. and FSF/MP Holdings, Inc. to the collateral agent pursuant to the terms of the ING Security Agreement.
     The ING Credit Agreement and related agreements governing the ING facility required FSFC Holdings, Inc., FSF/MP Holdings, Inc. and the Company to, among other things (i) make representations and warranties regarding the collateral as well as each of the Company’s businesses, (ii) agree to certain indemnification obligations, and (iii) agree to comply with various affirmative and negative covenants and other customary requirements for similar credit facilities. The ING facility documents also include usual and customary default provisions such as the failure to make timely payments under the facility, the occurrence of a change in control, and the failure by the Company to materially perform under the ING Credit Agreement and related agreements governing the facility, which, if not complied with, could accelerate repayment under the facility, thereby materially and adversely affecting the Company’s liquidity, financial condition and results of operations. The Company is currently in compliance with all financial covenants under the ING facility.
     Each loan or letter of credit originated under the ING facility is subject to the satisfaction of certain conditions. The Company cannot be assured that it will be able to borrow funds under the ING facility at any particular time or at all.
     As of March 31, 2011, the Company had $74.0 million of borrowings outstanding under the ING facility.
     As of March 31, 2011, except for assets that were funded through the Company’s SBIC subsidiary, substantially all of the Company’s assets were pledged as collateral under the Wells Fargo facility or the ING facility.
     Interest expense for the three and six months ended March 31, 2011 was $2.7 million and $4.7 million, respectively. Interest expense for the three and six months ended March 31, 2010 was $0.3 million and $0.4 million, respectively.
Note 7. Interest and Dividend Income
     Interest income is recorded on an accrual basis to the extent that such amounts are expected to be collected. In accordance with the Company’s policy, accrued interest is evaluated periodically for collectability. The Company stops accruing interest on investments when it is determined that interest is no longer collectible. Distributions from portfolio companies are recorded as dividend income when the distribution is received.
     The Company holds debt in its portfolio that contains a PIK interest provision. The PIK interest, which represents contractually deferred interest added to the loan balance that is generally due at the end of the loan term, is generally recorded on the accrual basis to the extent such amounts are expected to be collected. The Company generally ceases accruing PIK interest if there is insufficient value to support the accrual or if the Company does not expect the portfolio company to be able to pay all principal and interest due. The Company’s decision to cease accruing PIK interest involves subjective judgments and determinations based on available information about a particular portfolio company, including whether the portfolio company is current with respect to its payment of principal and interest on its loans and debt securities; monthly and quarterly financial statements and financial projections for the portfolio company; the Company’s assessment of the portfolio company’s business development success, including product development, profitability and the portfolio company’s overall adherence to its business plan; information obtained by the Company in connection with periodic formal update interviews with the portfolio company’s management and, if appropriate, the private equity sponsor; and information about the general economic and market conditions in which the portfolio company operates. Based on this and other information, the Company determines whether to cease accruing PIK interest on a loan or debt security. The Company’s determination to cease accruing PIK interest on a loan or debt security is generally made well before the Company’s full write-down of such loan or debt security.

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FIFTH STREET FINANCE CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
     Accumulated PIK interest activity for the six months ended March 31, 2011 and March 31, 2010 was as follows:
                 
    Six months ended   Six months ended
    March 31, 2011   March 31, 2010
PIK balance at beginning of period
  $ 19,300,954     $ 12,059,478  
Gross PIK interest accrued
    7,001,665       5,187,143  
PIK income reserves
    (386,574 )     (920,196 )
PIK interest received in cash
    (6,711,111 )     (635,194 )
Adjustments due to loan exits
    (316,258 )     (1,143,830 )
     
 
               
PIK balance at end of period
  $ 18,888,676     $ 14,547,401  
     
     As of March 31, 2011, the Company had stopped accruing cash interest, PIK interest and original issue discount (“OID”) on three investments that did not pay all of their scheduled cash interest payments for the period ended March 31, 2011. As of March 31, 2010, the Company had stopped accruing PIK interest and OID on four investments, including two investments that had not paid all of their scheduled cash interest payments.
     The non-accrual status of the Company’s portfolio investments as of March 31, 2011, September 30, 2010 and March 31, 2010 was as follows:
                         
               
    March 31, 2011   September 30, 2010   March 31, 2010
Lighting by Gregory, LLC
  Cash non-accrual     Cash non-accrual     Cash non-accrual  
Martini Park, LLC
          PIK non-accrual  
Nicos Polymers & Grinding, Inc.
        Cash non-accrual     PIK non-accrual  
MK Network, LLC
  Cash non-accrual     Cash non-accrual        
Premier Trailer Leasing, Inc.
  Cash non-accrual     Cash non-accrual     Cash non-accrual  
Vanguard Vinyl, Inc.
        Cash non-accrual        
     Income non-accrual amounts for the three and six months ended March 31, 2011 and March 31, 2010 were as follows:
                                 
    Three months ended   Three months ended   Six months ended   Six months ended
    March 31, 2011   March 31, 2010   March 31, 2011   March 31, 2010
 
                               
Cash interest income
  $ 1,460,163     $ 1,311,024     $ 3,566,595     $ 2,445,588  
PIK interest income
    146,184       451,313       386,574       920,196  
OID income
    30,138       103,911       60,276       207,822  
     
 
                               
Total
  $ 1,636,485     $ 1,866,248     $ 4,013,445     $ 3,573,606  
     
Note 8. Taxable/Distributable Income and Dividend Distributions
     Taxable income differs from net increase (decrease) in net assets resulting from operations primarily due to: (1) unrealized appreciation (depreciation) on investments, as investment gains and losses are not included in taxable income until they are realized; (2) origination fees received in connection with investments in portfolio companies, which are amortized into interest income over the life of the investment for book purposes, are treated as taxable income upon receipt; (3) organizational and deferred offering costs; (4) recognition of interest income on certain loans; and (5) income or loss recognition on exited investments.
     At September 30, 2010, the Company has a net loss carryforward of $1.5 million to offset net capital gains, to the extent provided by federal tax law. The capital loss carryforward will expire in the Company’s tax year ending September 30, 2017. During the year ended September 30, 2010, the Company realized capital losses from the sale of investments after October 31 and prior to year end (“post-October capital losses”) of $12.9 million, which for tax purposes are treated as arising on the first day of the following year.
     Listed below is a reconciliation of “net increase in net assets resulting from operations” to taxable income for the three and six months ended March 31, 2011:
                 
    Three months ended     Six months ended  
    March 31, 2011     March 31, 2011  
 
               
Net increase in net assets resulting from operations
  $ 15,671,000     $ 33,119,000  
Net change in unrealized (appreciation) depreciation
    372,000       (16,470,000 )
Book/tax difference due to deferred loan origination fees, net
    3,114,000       6,592,000  
Book/tax difference due to organizational and deferred offering costs
    (22,000 )     (43,000 )
Book/tax difference due to interest income on certain loans
    675,000       1,726,000  
Book/tax difference due to capital losses not recognized
    513,000       13,963,000  
Other book-tax differences
    (8,000 )     121,000  
     
 
               
Taxable/Distributable Income (1)
  $ 20,315,000     $ 39,008,000  
     
 
(1)   The Company’s taxable income for 2011 is an estimate and will not be finally determined until the Company files its tax return for the fiscal year ended September 30, 2011. Therefore, the final taxable income may be different than the estimate.
     Distributions to stockholders are recorded on the record date. The Company is required to distribute annually to its stockholders at least 90% of its net ordinary income and net realized short-term capital gains in excess of net realized long-term capital losses for each taxable year in order to be eligible for the tax benefits allowed to a RIC under Subchapter M of the Code. The Company anticipates paying out as a dividend all or substantially all of those amounts. The amount to be paid out as a dividend is determined by the Board of Directors and is based on management’s estimate of the Company’s annual taxable income. The Company maintains an “opt out” dividend reinvestment plan for its stockholders.

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FIFTH STREET FINANCE CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
To date, the Company’s Board of Directors declared the following distributions:
                                 
Dividend Type   Date Declared   Record Date   Payment Date   Amount per Share
Quarterly
    5/1/2008       5/19/2008       6/3/2008     $ 0.30  
Quarterly
    8/6/2008       9/10/2008       9/26/2008     $ 0.31  
Quarterly
    12/9/2008       12/19/2008       12/29/2008     $ 0.32  
Quarterly
    12/9/2008       12/30/2008       1/29/2009     $ 0.33  
Special
    12/18/2008       12/30/2008       1/29/2009     $ 0.05  
Quarterly
    4/14/2009       5/26/2009       6/25/2009     $ 0.25  
Quarterly
    8/3/2009       9/8/2009       9/25/2009     $ 0.25  
Quarterly
    11/12/2009       12/10/2009       12/29/2009     $ 0.27  
Quarterly
    1/12/2010       3/3/2010       3/30/2010     $ 0.30  
Quarterly
    5/3/2010       5/20/2010       6/30/2010     $ 0.32  
Quarterly
    8/2/2010       9/1/2010       9/29/2010     $ 0.10  
Monthly
    8/2/2010       10/6/2010       10/27/2010     $ 0.10  
Monthly
    8/2/2010       11/3/2010       11/24/2010     $ 0.11  
Monthly
    8/2/2010       12/1/2010       12/29/2010     $ 0.11  
Monthly
    11/30/2010       1/4/2011       1/31/2011     $ 0.1066  
Monthly
    11/30/2010       2/1/2011       2/28/2011     $ 0.1066  
Monthly
    11/30/2010       3/1/2011       3/31/2011     $ 0.1066  
Monthly
    1/30/2011       4/1/2011       4/29/2011     $ 0.1066  
Monthly
    1/30/2011       5/2/2011       5/31/2011     $ 0.1066  
Monthly
    1/30/2011       6/1/2011       6/30/2011     $ 0.1066  
     For income tax purposes, the Company estimates that its distributions will be composed entirely of ordinary income, and will be reflected as such on the Form 1099-DIV for the calendar year 2011. The Company anticipates declaring further distributions to its stockholders to meet the RIC distribution requirements.
     As a RIC, the Company is also subject to a federal excise tax based on distributive requirements of its taxable income on a calendar year basis. Because the Company did not satisfy these distribution requirements for calendar years 2008, 2009 and 2010 the Company incurred a de minimis federal excise tax for those calendar years.
Note 9. Realized Gains or Losses from Investments and Net Change in Unrealized Appreciation or Depreciation from Investments
     Realized gains or losses are measured by the difference between the net proceeds from the sale or redemption and the cost basis of the investment without regard to unrealized appreciation or depreciation previously recognized, and includes investments written-off during the period, net of recoveries. Realized losses may also be recorded in connection with the Company’s determination that certain investments are considered worthless securities and/or meet the conditions for loss recognition per the applicable tax rules. Net change in unrealized appreciation or depreciation from investments reflects the net change in the valuation of the portfolio pursuant to the Company’s valuation guidelines and the reclassification of any prior period unrealized appreciation or depreciation on exited investments.
      During the six months ended March 31, 2011, the Company recorded investment realization events, including the following:
    In October 2010, the Company received a cash payment of $8.7 million from Goldco, Inc. in full satisfaction of all obligations under the loan agreement. The debt investment was exited at par and no realized gain or loss was recorded on this transaction;
 
    In November 2010, the Company received a cash payment of $11.0 million from TBA Global, LLC in full satisfaction of all obligations under the loan agreement. The debt investment was exited at par and no realized gain or loss was recorded on this transaction;
 
    In November 2010, the Company restructured its investment in Vanguard Vinyl, Inc. The restructuring resulted in a material modification of the terms of the loan agreement. As such, the Company recorded a realized loss in the

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      amount of $1.7 million in accordance with ASC 470-50;
 
    In December 2010, the Company restructured its investment in Nicos Polymers & Grinding, Inc. The restructuring resulted in a material modification of the terms of the loan agreement. As such, the Company recorded a realized loss in the amount of $3.9 million in accordance with ASC 470-50;
 
    In December 2010, the Company received a cash payment of $25.3 million from Boot Barn in full satisfaction of all obligations under the loan agreement. The debt investment was exited at par and no realized gain or loss was recorded on this transaction;
 
    In December 2010, the Company received a cash payment of $11.7 million from Western Emulsions, Inc. in partial satisfaction of the obligations under the loan agreement. No realized gain or loss was recorded on this transaction;
 
    In December 2010, the Company restructured its investment in Lighting by Gregory, LLC. The restructuring resulted in a material modification of the terms of the loan agreement. As such, the Company recorded a realized loss in the amount of $7.8 million in accordance with ASC 470-50; and
 
    In March 2011, the Company received a cash payment of $5.0 million from AmBath/ReBath Holdings, Inc. as part of a restructuring of the loan agreement. The restructuring resulted in a material modification of the terms of the loan agreement. As such, the Company recorded a realized loss in the amount of $0.3 million in accordance with ASC 470-50.
      During the six months ended March 31, 2010, the Company recorded investment realization events, including the following:
    In October 2009, the Company received a cash payment in the amount of $0.1 million representing a payment in full of all amounts due in connection with the cancellation of its loan agreement with American Hardwoods Industries, LLC. The Company recorded a $0.1 million reduction to the previously recorded $10.4 million realized loss on the investment in American Hardwoods;
 
    In October 2009, the Company received a cash payment of $3.9 million from Elephant & Castle, Inc. in partial satisfaction of the obligations under the loan agreement. No realized gain or loss was recorded on this transaction; and
 
    In March 2010, the Company recorded a realized loss in the amount of $2.9 million in connection with the sale of a portion of its investment in CPAC, Inc.
Note 10. Concentration of Credit Risks
     The Company places its cash in financial institutions and at times such balances may be in excess of the FDIC insured limit. The Company limits its exposure to credit loss by depositing its cash with high credit quality financial institutions and monitoring their financial stability.
Note 11. Related Party Transactions
     The Company has entered into an investment advisory agreement with the Investment Adviser. Under the investment advisory agreement, the Company pays the Investment Adviser a fee for its services under the investment advisory agreement consisting of two components — a base management fee and an incentive fee.
Base management Fee
     The base management fee is calculated at an annual rate of 2% of the Company’s gross assets, which includes any borrowings for investment purposes. The base management fee is payable quarterly in arrears, and will be calculated based on the value of the Company’s gross assets at the end of each fiscal quarter, and appropriately adjusted on a pro rata basis for any equity capital raises or repurchases during such quarter. The base management fee for any partial month or quarter will be appropriately prorated.

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FIFTH STREET FINANCE CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
     On January 6, 2010, the Company announced that the Investment Adviser had voluntarily agreed to take the following actions:
    To waive the portion of its base management fee for the quarter ended December 31, 2009 attributable to four new portfolio investments, as well as cash and cash equivalents. The amount of the management fee waived was $727,000; and
 
    To permanently waive that portion of its base management fee attributable to the Company’s assets held in the form of cash and cash equivalents as of the end of each quarter beginning March 31, 2010.
     For purposes of the waiver, cash and cash equivalents is as defined in the notes to the Company’s Consolidated Financial Statements.
     For the three and six months ended March 31, 2011, the net base management fees were $4.8 million and $8.6 million, respectively. For the three and six months ended March 31, 2010, the net base management fees were $2.3 million and $3.9 million, respectively. At March 31, 2011, the Company had a liability on its Consolidated Statement of Assets and Liabilities in the amount of $4.8 million reflecting the unpaid portion of the base management fee payable to the Investment Adviser.
  Incentive Fee
     The incentive fee portion of the investment advisory agreement has two parts. The first part is calculated and payable quarterly in arrears based on the Company’s “Pre-Incentive Fee Net Investment Income” for the immediately preceding fiscal quarter. For this purpose, “Pre-Incentive Fee Net Investment Income” means interest income, dividend income and any other income (including any other fees (other than fees for providing managerial assistance), such as commitment, origination, structuring, diligence and consulting fees or other fees that the Company receives from portfolio companies) accrued during the fiscal quarter, minus the Company’s operating expenses for the quarter (including the base management fee, expenses payable under the Company’s administration agreement with FSC, Inc., and any interest expense and dividends paid on any issued and outstanding indebtedness or preferred stock, but excluding the incentive fee). Pre-Incentive Fee Net Investment Income includes, in the case of investments with a deferred interest feature (such as original issue discount, debt instruments with PIK interest and zero coupon securities), accrued income that the Company has not yet received in cash. Pre-Incentive Fee Net Investment Income does not include any realized capital gains, realized capital losses or unrealized capital appreciation or depreciation. Pre-Incentive Fee Net Investment Income, expressed as a rate of return on the value of the Company’s net assets at the end of the immediately preceding fiscal quarter, will be compared to a “hurdle rate” of 2% per quarter (8% annualized), subject to a “catch-up” provision measured as of the end of each fiscal quarter. The Company’s net investment income used to calculate this part of the incentive fee is also included in the amount of its gross assets used to calculate the 2% base management fee. The operation of the incentive fee with respect to the Company’s Pre-Incentive Fee Net Investment Income for each quarter is as follows:
    No incentive fee is payable to the Investment Adviser in any fiscal quarter in which the Company’s Pre-Incentive Fee Net Investment Income does not exceed the hurdle rate of 2% (the “preferred return” or “hurdle”);
 
    100% of the Company’s Pre-Incentive Fee Net Investment Income with respect to that portion of such Pre-Incentive Fee Net Investment Income, if any, that exceeds the hurdle rate but is less than or equal to 2.5% in any fiscal quarter (10% annualized) is payable to the Investment Adviser. The Company refers to this portion of its Pre-Incentive Fee Net Investment Income (which exceeds the hurdle rate but is less than or equal to 2.5%) as the “catch-up.” The “catch-up” provision is intended to provide the Investment Adviser with an incentive fee of 20% on all of the Company’s Pre-Incentive Fee Net Investment Income as if a hurdle rate did not apply when the Company’s Pre-Incentive Fee Net Investment Income exceeds 2.5% in any fiscal quarter; and

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FIFTH STREET FINANCE CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
    20% of the amount of the Company’s Pre-Incentive Fee Net Investment Income, if any, that exceeds 2.5% in any fiscal quarter (10% annualized) is payable to the Investment Adviser once the hurdle is reached and the catch-up is achieved (20% of all Pre-Incentive Fee Net Investment Income thereafter is allocated to the Investment Adviser).
     The second part of the incentive fee is determined and payable in arrears as of the end of each fiscal year (or upon termination of the investment advisory agreement, as of the termination date), commencing on September 30, 2008, and equals 20% of the Company’s realized capital gains, if any, on a cumulative basis from inception through the end of each fiscal year, computed net of all realized capital losses and unrealized capital depreciation on a cumulative basis, less the aggregate amount of any previously paid capital gain incentive fees.
      GAAP requires the Company to accrue for the theoretical capital gains incentive fee that would be payable after giving effect to the net realized and unrealized capital appreciation and depreciation. It should be noted that a fee so calculated and accrued would not necessarily be payable under the Investment Advisory Agreement, and may never be paid based upon the computation of capital gains incentive fees in subsequent periods. Amounts ultimately paid under the Investment Advisory Agreement will be consistent with the formula reflected in the Investment Advisory Agreement.
     The Company does not currently accrue for capital gains incentive fees due to the accumulated realized and unrealized losses in the portfolio.
     For the three and six months ended March 31, 2011, incentive fees were $4.1 million and $7.7 million, respectively. For the three and six months ended March 31, 2010, incentive fees were $2.8 million and $4.9 million, respectively, and were comprised solely of incentive fees related to the Company’s Pre-Incentive Fee Net Investment Income. At March 31, 2011, the Company had a liability on its Consolidated Statement of Assets and Liabilities in the amount of $4.1 million reflecting the unpaid portion of the incentive fee payable to the Investment Adviser.
Indemnification
     The investment advisory agreement provides that, absent willful misfeasance, bad faith or gross negligence in the performance of their respective duties or by reason of the reckless disregard of their respective duties and obligations, the Company’s Investment Adviser and its officers, managers, agents, employees, controlling persons, members (or their owners) and any other person or entity affiliated with it, are entitled to indemnification from the Company for any damages, liabilities, costs and expenses (including reasonable attorneys’ fees and amounts reasonably paid in settlement) arising from the rendering of the Investment Adviser’s services under the investment advisory agreement or otherwise as the Company’s Investment Adviser.
Administration Agreement
     The Company has also entered into an administration agreement with FSC, Inc. under which FSC, Inc. provides administrative services for the Company, including office facilities and equipment, and clerical, bookkeeping and recordkeeping services at such facilities. Under the administration agreement, FSC, Inc. also performs or oversees the performance of the Company’s required administrative services, which includes being responsible for the financial records which the Company is required to maintain and preparing reports to the Company’s stockholders and reports filed with the SEC. In addition, FSC, Inc. assists the Company in determining and publishing the Company’s net asset value, overseeing the preparation and filing of the Company’s tax returns and the printing and dissemination of reports to the Company’s stockholders, and generally overseeing the payment of the Company’s expenses and the performance of administrative and professional services rendered to the Company by others. For providing these services, facilities and personnel, the Company reimburses FSC, Inc. the allocable portion of overhead and other expenses incurred by FSC, Inc. in performing its obligations under the administration agreement, including rent and the Company’s allocable portion of the costs of compensation and related expenses of the Company’s chief financial officer and chief compliance officer and their staffs. FSC, Inc. has voluntarily determined to forgo receiving reimbursement for the services performed for the Company by its chief compliance officer. However, although FSC, Inc. currently intends to forgo its right to receive such reimbursement, it is under no obligation to do so and may cease to do so at any time in the future. FSC, Inc. may also provide, on the Company’s behalf, managerial assistance to the Company’s portfolio companies. The administration agreement may be terminated by either party without penalty upon 60 days’ written notice to the other party.
     For the three and six months ended March 31, 2011, the Company accrued administrative expenses of $0.6 million, including $0.2 million of general and administration expenses, and $1.3 million, including $0.6 million of general and administration expenses, that are due to FSC, Inc., respectively. At March 31, 2011, $0.8 million was included in Due to FSC, Inc. in the Consolidated Statement of Assets and Liabilities.

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FIFTH STREET FINANCE CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Note 12. Financial Highlights
                                 
    Three     Three     Six     Six  
    months ended     months ended     months ended     months ended  
Per share data:   March 31, 2011     March 31, 2010     March 31, 2011     March 31, 2010  
Net asset value at beginning of period
  $ 10.44     $ 10.82     $ 10.43     $ 10.84  
Net investment income
    0.27       0.26       0.52       0.48  
Net unrealized appreciation (depreciation) on investments and interest rate swap
    (0.01 )     0.03       0.28       0.06  
Net realized loss on investments
    (0.01 )     (0.07 )     (0.24 )     (0.07 )
Dividends declared
    (0.30 )     (0.30 )     (0.62 )     (0.57 )
Issuance of common stock
    0.29       (0.04 )     0.31       (0.04 )
Net asset value at end of period
  $ 10.68     $ 10.70     $ 10.68     $ 10.70  
 
                               
Per share market value at beginning of period
  $ 12.14     $ 10.74     $ 11.14     $ 10.93  
Per share market value at end of period
  $ 13.35     $ 11.61     $ 13.35     $ 11.61  
Total return (1)
    12.61 %     10.89 %     26.04 %     11.44 %
Common shares outstanding at beginning of period
    55,059,057       37,923,407       54,550,290       37,878,987  
Common shares outstanding at end of period
    66,667,933       45,282,596       66,667,933       45,282,596  
 
                               
Net assets at beginning of period
  $ 574,919,813     $ 410,257,351     $ 569,172,105     $ 410,556,071  
Net assets at end of period
  $ 711,748,097     $ 484,397,005     $ 711,748,097     $ 484,397,005  
Average net assets (2)
  $ 662,783,066     $ 456,501,106     $ 616,969,193     $ 432,914,471  
Ratio of net investment income to average net assets (3)
    10.13 %     9.96 %     9.95 %     9.06 %
Ratio of total expenses to average net assets (3)
    8.04 %     5.91 %     7.94 %     5.35 %
Ratio of portfolio turnover to average investments at fair value
    0.00 %     1.00 %     1.88 %     1.18 %
Weighted average outstanding debt (4)
  $ 224,511,111     $ 11,928,015     $ 162,925,275     $ 6,151,216  
Average debt per share
  $ 3.61     $ 0.28     $ 2.79     $ 0.15  
 
(1)   Total return equals the increase or decrease of ending market value over beginning market value, plus distributions, divided by the beginning market value, assuming dividend reinvestment prices obtained under the Company’s dividend reinvestment plan. Total return is not annualized.
 
(2)   Calculated based upon the daily weighted average net assets for the period.
 
(3)   Interim periods are annualized.
 
(4)   Calculated based upon the daily weighted average of loans payable for the period.

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FIFTH STREET FINANCE CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Note 13. Preferred Stock
     The Company’s restated certificate of incorporation had not authorized any shares of preferred stock. However, on April 4, 2008, the Company’s Board of Directors approved a certificate of amendment to its restated certificate of incorporation reclassifying 200,000 shares of its common stock as shares of non-convertible, non-participating preferred stock, with a par value of $0.01 and a liquidation preference of $500 per share (“Series A Preferred Stock”) and authorizing the issuance of up to 200,000 shares of Series A Preferred Stock. A certificate of amendment was also approved by the holders of a majority of the shares of the Company’s outstanding common stock through a written consent first solicited on April 7, 2008.
     On April 20, 2010, at the Company’s 2010 Annual Meeting, the Company’s stockholders approved, among other things, an amendment to the Company’s restated certificate of incorporation to remove the Company’s authority to issue shares of Series A Preferred Stock.
Note 14. Interest Rate Swaps
     In August 2010, the Company entered into a three-year interest rate swap agreement to mitigate its exposure to adverse fluctuations in interest rates for a total notional amount of $100.0 million. Under the interest rate swap agreement, the Company will pay a fixed interest rate of 0.99% and receive a floating rate based on the prevailing one-month LIBOR, which as of March 31, 2011 was 0.24%. For the three and six months ended March 31, 2011, the Company recorded $0.2 million and $1.0 million, respectively, of unrealized appreciation related to this swap agreement. As of March 31, 2011, this swap agreement had a fair value of $0.2 million which is included in “collateral posted to bank and other assets” in the Company’s Consolidated Statements of Assets and Liabilities.
     As of March 31, 2011, the Company posted $1.5 million of cash as collateral with respect to the interest rate swap. The Company is restricted in terms of access to this collateral until such swap is terminated or the swap agreement expires. Cash collateral posted is held in an account at Wells Fargo.
     Swaps contain varying degrees of off-balance sheet risk which could result from changes in the market values of underlying assets, indices or interest rates and similar items. As a result, the amounts recognized in the Consolidated Statement of Assets and Liabilities at any given date may not reflect the total amount of potential losses that the Company could ultimately incur.
Note 15. Subsequent Events
     On April 12, 2011, the Company closed a private offering of $150 million aggregate principal amount of its 5.375% convertible senior notes due 2016. These convertible senior notes were sold only to qualified institutional buyers (as defined in the Securities Act) pursuant to Rule 144A under the Securities Act. The Company has granted the initial purchasers for the offering the option, which expires May 7, 2011, to purchase up to an additional $22.5 million aggregate principal amount of the convertible senior notes. In addition, Leonard M. Tannenbaum, the Company’s chief executive officer, purchased $2 million principal amount of the convertible senior notes directly from the Company in a private placement.
     The convertible senior notes are unsecured and bear interest at a rate of 5.375% per year, payable semiannually. In certain circumstances, the convertible senior notes are convertible into shares of the Company’s common stock at an initial conversion rate of 67.7415 shares of common stock per $1,000 principal amount of convertible senior notes, which is equivalent to an initial conversion price of approximately $14.76 per share of common stock, subject to customary anti-dilution adjustments. In addition, if certain corporate events occur in respect of the Company, holders of the convertible senior notes may require the Company to repurchase for cash all or part of their convertible senior notes at a repurchase price equal to 100% of the principal amount of the convertible senior notes to be repurchased, plus accrued and unpaid interest through, but excluding, the required repurchase date. The Company does not have the right to redeem the convertible senior notes prior to maturity. The convertible senior notes will mature on April 1, 2016, unless repurchased or converted in accordance with their terms prior to such date.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
     The following discussion should be read in connection with our Consolidated Financial Statements and the notes thereto included elsewhere in this quarterly report on Form 10-Q.
     Some of the statements in this quarterly report on Form 10-Q constitute forward-looking statements because they relate to future events or our future performance or financial condition. The forward-looking statements contained in this quarterly report on Form 10-Q may include statements as to:
    our future operating results and dividend projections;
 
    our business prospects and the prospects of our portfolio companies;
 
    the impact of the investments that we expect to make;
 
    the ability of our portfolio companies to achieve their objectives;
 
    our expected financings and investments;
 
    the adequacy of our cash resources and working capital; and
 
    the timing of cash flows, if any, from the operations of our portfolio companies.
     In addition, words such as “anticipate,” “believe,” “expect,” “project” and “intend” indicate forward-looking statements, although not all forward-looking statements include these words. The forward-looking statements contained in this quarterly report on Form 10-Q involve risks and uncertainties. Our actual results could differ materially from those implied or expressed in the forward-looking statements for any reason, including the factors set forth in “Risk Factors” in our annual report on Form 10-K for the year ended September 30, 2010 and elsewhere in this quarterly report on Form 10-Q. Other factors that could cause actual results to differ materially include:
    changes in the economy and the financial markets;
 
    risks associated with possible disruption in our operations or the economy generally due to terrorism or natural disasters;
 
    future changes in laws or regulations (including the interpretation of these laws and regulations by regulatory authorities) and conditions in our operating areas, particularly with respect to business development companies, small business investment companies, or SBICs, and regulated investment companies, or RICs; and
 
    other considerations that may be disclosed from time to time in our publicly disseminated documents and filings.
     We have based the forward-looking statements included in this quarterly report on Form 10-Q on information available to us on the date of this quarterly report, and we assume no obligation to update any such forward-looking statements. Although we undertake no obligation to revise or update any forward-looking statements, whether as a result of new information, future events or otherwise, you are advised to consult any additional disclosures that we may make directly to you or through reports that we in the future may file with the Securities and Exchange Commission, or the SEC, including annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K.
     Except as otherwise specified, references to the “Company,” “we,” “us,” and “our,” refer to Fifth Street Finance Corp.

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Overview
     We are a specialty finance company that lends to and invests in small and mid-sized companies primarily in connection with investments by private equity sponsors. Our investment objective is to maximize our portfolio’s total return by generating current income from our debt investments and capital appreciation from our equity investments.
     We were formed as a Delaware limited partnership (Fifth Street Mezzanine Partners III, L.P.) on February 15, 2007. Effective as of January 2, 2008, Fifth Street Mezzanine Partners III, L.P. merged with and into Fifth Street Finance Corp. At the time of the merger, all outstanding partnership interests in Fifth Street Mezzanine Partners III, L.P. were exchanged for 12,480,972 shares of common stock in Fifth Street Finance Corp.
     Our consolidated financial statements prior to January 2, 2008 reflect our operations as a Delaware limited partnership (Fifth Street Mezzanine Partners III, L.P.) prior to our merger with and into a corporation (Fifth Street Finance Corp.).
     On June 17, 2008, we completed an initial public offering of 10,000,000 shares of our common stock at the offering price of $14.12 per share. Our shares are listed on the New York Stock Exchange under the symbol “FSC.”
     On July 21, 2009, we completed a follow-on public offering of 9,487,500 shares of our common stock, which included the underwriters’ exercise of their over-allotment option, at the offering price of $9.25 per share.
     On September 25, 2009, we completed a follow-on public offering of 5,520,000 shares of our common stock, which included the underwriters’ exercise of their over-allotment option, at the offering price of $10.50 per share.
     On January 27, 2010, we completed a follow-on public offering of 7,000,000 shares of our common stock, which did not include the underwriters’ exercise of their over-allotment option, at the offering price of $11.20 per share. On February 25, 2010, we sold 300,500 shares of our common stock at the offering price of $11.20 per share upon the underwriters’ exercise of their over-allotment option in connection with this offering.
     On June 21, 2010, we completed a follow-on public offering of 9,200,000 shares of our common stock, which included the underwriters’ exercise of their over-allotment option, at the offering price of $11.50 per share.
     On December 7, 2010, we entered into an at-the-market equity offering sales agreement relating to shares of our common stock. Throughout the month of December 2010, we sold 429,110 shares of our common stock at an average offering price of $11.87 per share. We terminated the at-the-market equity offering sales agreement effective January 20, 2011 and did not sell any shares of our common stock pursuant thereto subsequent to December 31, 2010.
     On February 4, 2011, we completed a follow-on public offering of 11,500,000 shares of our common stock, which included the underwriters’ exercise of their over-allotment option, at the offering price of $12.65 per share.
Current Market Conditions
     Since mid-2007, the global financial markets have experienced stress, volatility, illiquidity, and disruption. This turmoil appears to have peaked in the fall of 2008, resulting in several major financial institutions becoming insolvent, being acquired, or receiving government assistance. While the turmoil in the financial markets appears to have abated somewhat, the global economy continues to experience economic uncertainty. Economic uncertainty impacts our business in many ways, including changing spreads, structures, and purchase multiples as well as the overall supply of investment capital.
     Despite the economic uncertainty, our deal pipeline remains robust, with high quality transactions backed by private equity sponsors in small to mid-sized companies. As always, we remain cautious in selecting new investment opportunities, and will only deploy capital in deals which are consistent with our disciplined philosophy of pursuing superior risk-adjusted returns.
     As evidenced by our recent investment activities, we expect to grow the business in part by increasing the average investment size when and where appropriate. At the same time, we expect to focus more on first lien transactions. Although we believe that we currently have sufficient capital available to fund investments, a prolonged period of market disruptions may cause us to reduce the volume of loans we originate and/or fund, which could have an adverse effect

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on our business, financial condition, and results of operations. In this regard, because our common stock has at times traded at a price below our then current net asset value per share and we are limited in our ability to sell our common stock at a price below net asset value per share, we may be limited in our ability to raise equity capital.
Critical Accounting Policies
FASB Accounting Standards Codification
     The issuance of FASB Accounting Standards Codification tm (the “Codification”) on July 1, 2009 (effective for interim or annual reporting periods ending after September 15, 2009), changes the way that U.S. generally accepted accounting principles (“GAAP”) are referenced. Beginning on that date, the Codification officially became the single source of authoritative nongovernmental GAAP; however, SEC registrants must also consider rules, regulations, and interpretive guidance issued by the SEC or its staff. The switch affects the way companies refer to GAAP in financial statements and in their accounting policies. References to standards will consist solely of the number used in the Codification’s structural organization.
     Consistent with the effective date of the Codification, financial statements for periods ending after September 15, 2009, refer to the Codification structure, not pre-Codification historical GAAP.
Basis of Presentation
     The preparation of financial statements in accordance with GAAP requires management to make certain estimates and assumptions affecting amounts reported in the Consolidated Financial Statements. We have identified investment valuation and revenue recognition as our most critical accounting estimates. We continuously evaluate our estimates, including those related to the matters described below. These estimates are based on the information that is currently available to us and on various other assumptions that we believe to be reasonable under the circumstances. Actual results could differ materially from those estimates under different assumptions or conditions. A discussion of our critical accounting policies follows.
Investment Valuation
     We are required to report our investments that are not publicly traded or for which current market values are not readily available at fair value. The fair value is deemed to be the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.
     Under Accounting Standards Codification 820, Fair Value Measurements and Disclosures (“ASC 820”), which we adopted effective October 1, 2008, we perform detailed valuations of our debt and equity investments on an individual basis, using market, income, and bond yield approaches as appropriate. In general, we utilize the bond yield method in determining the fair value of our investments, as long as it is appropriate. If, in our judgment, the bond yield approach is not appropriate, we may use the enterprise value approach in determining the fair value of our investment in the portfolio company. If there is deterioration in the credit quality of the portfolio company or an investment is in workout status, we may use alternative methodologies including an asset liquidation or expected recovery model.
     Under the market approach, we estimate the enterprise value of the portfolio companies in which we invest. There is no one methodology to estimate enterprise value and, in fact, for any one portfolio company, enterprise value is best expressed as a range of fair values, from which we derive a single estimate of enterprise value. To estimate the enterprise value of a portfolio company, we analyze various factors, including the portfolio company’s historical and projected financial results. Typically, private companies are valued based on multiples of EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization), cash flows, net income, revenues, or in limited cases, book value. We generally require portfolio companies to provide annual audited and quarterly and monthly unaudited financial statements, as well as annual projections for the upcoming fiscal year.
     Under the income approach, we generally prepare and analyze discounted cash flow models based on our projections of the future free cash flows of the business. Under the bond yield approach, we use bond yield models to determine the present

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value of the future cash flow streams of our debt investments. We review various sources of transactional data, including private mergers and acquisitions involving debt investments with similar characteristics, and assess the information in the valuation process.
     Our Board of Directors undertakes a multi-step valuation process each quarter in connection with determining the fair value of our investments:
    Our quarterly valuation process begins with each portfolio company or investment being initially valued by the deal team within our investment adviser responsible for the portfolio investment;
 
    Preliminary valuations are then reviewed and discussed with the principals of our investment adviser;
 
    Separately, independent valuation firms engaged by our Board of Directors prepare preliminary valuations on a selected basis and submit reports to us;
 
    The deal team compares and contrasts its preliminary valuations to the preliminary valuations of the independent valuation firms;
 
    The deal team prepares a valuation report for the Valuation Committee of our Board of Directors;
 
    The Valuation Committee of our Board of Directors is apprised of the preliminary valuations of the independent valuation firms;
 
    The Valuation Committee of our Board of Directors reviews the preliminary valuations, and the deal team responds and supplements the preliminary valuations to reflect any comments provided by the Valuation Committee;

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    The Valuation Committee of our Board of Directors makes a recommendation to the Board of Directors; and
 
    Our Board of Directors discusses valuations and determines the fair value of each investment in our portfolio in good faith.
     The fair value of all of our investments at March 31, 2011, and September 30, 2010, was determined by our Board of Directors. Our Board of Directors is solely responsible for the valuation of our portfolio investments at fair value as determined in good faith pursuant to our valuation policy and our consistently applied valuation process.
     Our Board of Directors has engaged independent valuation firms to provide us with valuation assistance. Upon completion of their processes each quarter, the independent valuation firms provide us with written reports regarding the preliminary valuations of selected portfolio securities as of the close of such quarter. We will continue to engage independent valuation firms to provide us with assistance regarding our determination of the fair value of selected portfolio securities each quarter; however, our Board of Directors is ultimately and solely responsible for determining the fair value of our investments in good faith.
     The portions of our portfolio valued, as a percentage of the portfolio at fair value, by independent valuation firms by period were as follows:
         
For the quarter ending December 31, 2007
    91.9 %
For the quarter ending March 31, 2008
    92.1 %
For the quarter ending June 30, 2008
    91.7 %
For the quarter ending September 30, 2008
    92.8 %
For the quarter ending December 31, 2008
    100.0 %
For the quarter ending March 31, 2009
    88.7 %(1)
For the quarter ending June 30, 2009
    92.1 %
For the quarter ending September 30, 2009
    28.1 %
For the quarter ending December 31, 2009
    17.2 %(2)
For the quarter ending March 31, 2010
    26.9 %
For the quarter ending June 30, 2010
    53.1 %
For the quarter ending September 30, 2010
    61.8 %
For the quarter ending December 31, 2010
    73.9 %
For the quarter ending March 31, 2011
    82.0 %
 
(1)   96.0% excluding our investment in IZI Medical Products, Inc., which closed on December 31, 2009, and therefore was not part of the independent valuation process
 
(2)   24.8% excluding four investments that closed in December 2009 and therefore were not part of the independent valuation process
     Our $50 million credit facility with Bank of Montreal was terminated effective September 16, 2009. The facility required independent valuations for at least 90% of the portfolio on a quarterly basis. With the termination of this facility, this valuation test is no longer required. However, we still intend to have a portion of the portfolio valued by an independent third party on a quarterly basis, with a substantial portion being valued on an annual basis.
     As of March 31, 2011 and September 30, 2010, approximately 94.4% and 86.5%, respectively, of our total assets represented investments in portfolio companies valued at fair value.
Revenue Recognition
Interest and Dividend Income
     Interest income, adjusted for amortization of premium and accretion of original issue discount, is recorded on the accrual basis to the extent that such amounts are expected to be collected. We stop accruing interest on investments when it is determined that interest is no longer collectible. Distributions from portfolio companies are recorded as dividend income when the distribution is received.

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Fee Income
     We receive a variety of fees in the ordinary course of business. Certain fees, such as origination fees, are capitalized and amortized in accordance with ASC 310-20 Nonrefundable Fees and Other Costs. In accordance with ASC 820, the net unearned fee income balance is netted against the cost and fair value of the respective investments. Other fees, such as servicing fees, are classified as fee income and recognized as they are earned on a monthly basis.
     We have also structured exit fees across certain of our portfolio investments to be received upon the future exit of those investments. These fees are to be paid to us upon the sooner to occur of (i) a sale of the borrower or substantially all of the assets of the borrower, (ii) the maturity date of the loan, or (iii) the date when full prepayment of the loan occurs. Exit fees are payable upon the exit of a debt security and a portion of these fees are included in net investment income over the life of the loan. The receipt of such fees is contingent upon a successful exit event for each of the investments.
Payment-in-Kind (PIK) Interest
     Our loans typically contain a contractual PIK interest provision. The PIK interest, which represents contractually deferred interest added to the loan balance that is generally due at the end of the loan term, is generally recorded on the accrual basis to the extent such amounts are expected to be collected. We generally cease accruing PIK interest if there is insufficient value to support the accrual or if we do not expect the portfolio company to be able to pay all principal and interest due. Our decision to cease accruing PIK interest involves subjective judgments and determinations based on available information about a particular portfolio company, including whether the portfolio company is current with respect to its payment of principal and interest on its loans and debt securities; monthly and quarterly financial statements and financial projections for the portfolio company; our assessment of the portfolio company’s business development success, including product development, profitability and the portfolio company’s overall adherence to its business plan; information obtained by us in connection with periodic formal update interviews with the portfolio company’s management and, if appropriate, the private equity sponsor; and information about the general economic and market conditions in which the portfolio company operates. Based on this and other information, we determine whether to cease accruing PIK interest on a loan or debt security. Our determination to cease accruing PIK interest on a loan or debt security is generally made well before our full write-down of such loan or debt security. In addition, if it is subsequently determined that we will not be able to collect any previously accrued PIK interest, the fair value of our loans or debt securities would decline by the amount of such previously accrued, but uncollectible, PIK interest.
     For a discussion of risks we are subject to as a result of our use of PIK interest in connection with our investments, see “Risk Factors — Risks Relating to Our Business and Structure — We may have difficulty paying our required distributions if we recognize income before or without receiving cash representing such income,” “— We may in the future choose to pay dividends in our own stock, in which case you may be required to pay tax in excess of the cash you receive” and “— Our incentive fee may induce our investment adviser to make speculative investments” in our annual report on Form 10-K for the year ended September 30, 2010. In addition, if it is subsequently determined that we will not be able to collect any previously accrued PIK interest, the fair value of our loans or debt securities would decline by the amount of such previously accrued, but uncollectible, PIK interest. The accrual of PIK interest on our debt investments increases the recorded cost basis of these investments in our consolidated financial statements and, as a result, increases the cost basis of these investments for purposes of computing the capital gains incentive fee payable by us to our investment adviser.
     To maintain our status as a RIC, PIK income must be paid out to our stockholders in the form of dividends even though we have not yet collected the cash and may never collect the cash relating to the PIK interest. Accumulated PIK interest was $18.9 million and represented 2.0% of the fair value of our portfolio of investments as of March 31, 2011 and $19.3 million or 3.4% as of September 30, 2010. The net increase in loan balances as a result of contracted PIK arrangements are separately identified in our Consolidated Statements of Cash Flows.
Portfolio Composition
     Our investments principally consist of loans, purchased equity investments and equity grants in privately-held companies. Our loans are typically secured by either a first or second lien on the assets of the portfolio company and generally have terms of up to six years (but an expected average life of between three and four years). We are currently focusing our new debt origination efforts on first lien loans because we believe that the risk-adjusted returns from these loans are superior to second lien and unsecured loans at this time and offer superior credit quality. However, we may choose to originate second lien and unsecured loans in the future.

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     A summary of the composition of our investment portfolio at cost and fair value as a percentage of total investments is shown in the following tables:
                 
    March 31,     September 30,  
    2011     2010  
 
Cost:
               
First lien debt
    85.92 %     72.61 %
Second lien debt
    9.97 %     25.42 %
Subordinated debt
    2.69 %     0.80 %
Purchased equity
    0.65 %     0.39 %
Equity grants
    0.70 %     0.75 %
Limited partnership interests
    0.07 %     0.03 %
 
           
 
               
Total
    100.00 %     100.00 %
 
           
                 
    March 31,     September 30,  
    2011     2010  
 
Fair value:
               
First lien debt
    87.46 %     73.84 %
Second lien debt
    8.79 %     24.45 %
Subordinated debt
    2.59 %     0.78 %
Purchased equity
    0.42 %     0.11 %
Equity grants
    0.68 %     0.79 %
Limited partnership interests
    0.06 %     0.03 %
 
           
 
               
Total
    100.00 %     100.00 %
 
           
The industry composition of our portfolio at cost and fair value as a percentage of total investments were as follows:
                 
    March 31, 2011   September 30, 2010
Cost:
               
Healthcare services
    18.47 %     14.76 %
Healthcare equipment
    7.56 %     8.02 %
IT consulting & other services
    5.23 %     0.00 %
Diversified support services
    5.19 %     4.43 %
Oil & gas equipment & services
    4.75 %     0.00 %
Education services
    4.49 %     7.58 %
Internet software & services
    4.30 %     0.00 %
Construction and engineering
    4.16 %     4.22 %
Specialty stores
    4.13 %     0.00 %
Household products
    3.49 %     0.18 %
Electronic equipment & instruments
    3.46 %     5.59 %
Apparel, accessories & luxury goods
    3.33 %     3.97 %
Home improvement retail
    2.96 %     5.51 %
Fertilizers & agricultural chemicals
    2.77 %     4.51 %
Food distributors
    2.77 %     5.13 %
Healthcare technology
    2.23 %     3.63 %
Human resources & employment services
    2.19 %     0.00 %
Electronic manufacturing services
    2.06 %     3.16 %
Food retail
    2.02 %     3.31 %
Advertising
    2.00 %     3.35 %
Air freight and logistics
    1.82 %     2.36 %
Trucking
    1.79 %     2.88 %
Distributors
    1.42 %     2.25 %
Data processing and outsourced services
    1.38 %     2.21 %
Other diversified financial services
    1.19 %     0.00 %
Industrial machinery
    1.08 %     1.71 %
Leisure facilities
    0.70 %     1.16 %
Building products
    0.69 %     1.40 %
Construction materials
    0.69 %     2.95 %
Environmental & facilities services
    0.60 %     1.51 %
Housewares & specialties
    0.56 %     2.06 %
Restaurants
    0.43 %     2.11 %
Multi-sector holdings
    0.07 %     0.02 %
Movies & entertainment
    0.02 %     0.03 %
     
 
               
Total
    100.00 %     100.00 %
     
                 
    March 31, 2011   September 30, 2010
Fair Value:
               
Healthcare services
    19.39 %     15.83 %
Healthcare equipment
    7.82 %     8.57 %
IT consulting & other services
    5.44 %     0.00 %
Diversified support services
    5.39 %     4.66 %
Oil & gas equipment & services
    4.92 %     0.00 %
Internet software & services
    4.45 %     0.00 %
Specialty stores
    4.31 %     0.00 %
Construction and engineering
    3.88 %     4.23 %
Apparel, accessories & luxury goods
    3.68 %     4.18 %
Household products
    3.62 %     0.19 %
Electronic equipment & instruments
    3.57 %     5.83 %
Education services
    3.19 %     7.47 %
Home improvement retail
    3.00 %     5.76 %
Fertilizers & agricultural chemicals
    2.89 %     4.76 %
Food distributors
    2.89 %     5.38 %
Healthcare technology
    2.34 %     3.93 %
Human resources & employment services
    2.28 %     0.00 %
Food retail
    2.10 %     3.50 %
Advertising
    2.06 %     3.52 %
Air freight and logistics
    1.90 %     2.49 %
Electronic manufacturing services
    1.59 %     3.20 %
Distributors
    1.46 %     2.35 %
Data processing and outsourced services
    1.38 %     2.26 %
Other diversified financial services
    1.25 %     0.00 %
Industrial machinery
    1.16 %     1.81 %
Leisure facilities
    0.73 %     1.25 %
Construction materials
    0.71 %     3.02 %
Building products
    0.71 %     1.21 %
Environmental & facilities services
    0.60 %     0.91 %
Housewares & specialties
    0.43 %     0.66 %
Trucking
    0.41 %     0.82 %
Restaurants
    0.36 %     2.15 %
Multi-sector holdings
    0.06 %     0.01 %
Movies & entertainment
    0.03 %     0.05 %
     
 
               
Total
    100.00 %     100.00 %
     

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Portfolio Asset Quality
          We employ a grading system to assess and monitor the credit risk of our investment portfolio. We rate all investments on a scale from 1 to 5. The system is intended to reflect the performance of the borrower’s business, the collateral coverage of the loan, and other factors considered relevant to making a credit judgment.
    Investment Rating 1 is used for investments that are performing above expectations and/or a capital gain is expected.
 
    Investment Rating 2 is used for investments that are performing substantially within our expectations, and whose risks remain neutral or favorable compared to the potential risk at the time of the original investment. All new investments are initially rated 2.
 
    Investment Rating 3 is used for investments that are performing below our expectations and that require closer monitoring, but where we expect no loss of investment return (interest and/or dividends) or principal. Companies with a rating of 3 may be out of compliance with financial covenants.
 
    Investment Rating 4 is used for investments that are performing below our expectations and for which risk has increased materially since the original investment. We expect some loss of investment return, but no loss of principal.
 
    Investment Rating 5 is used for investments that are performing substantially below our expectations and whose risks have increased substantially since the original investment. Investments with a rating of 5 are those for which some loss of principal is expected.
               The following table shows the distribution of our investments on the 1 to 5 investment rating scale at fair value, as of March 31, 2011 and September 30, 2010:
                                                 
    March 31, 2011   September 30, 2010
            Percentage of   Leverage           Percentage of   Leverage
    Fair Value   Total Portfolio   Ratio   Fair Value   Total Portfolio   Ratio
 
                                               
1
  $ 102,517,984       10.91 %     3.07     $ 89,150,457       15.81 %     2.97  
2
    811,039,654       86.30 %     3.42       424,494,799       75.29 %     4.31  
3
    18,238,348       1.94 %     4.52       18,055,528       3.20 %     13.25  
4
          0.00 %           23,823,120       4.23 %     8.13  
5
    7,953,067       0.85 %   NM (1)     8,297,412       1.47 %   NM (1)
     
 
                                               
Total
  $ 939,749,053       100.00 %     3.30     $ 563,821,316       100.00 %     4.53  
     
 
(1)   Due to operating performance this ratio is not measurable and, as a result, is excluded from the total portfolio calculation.
     We may from time to time modify the payment terms of our investments, either in response to current economic conditions and their impact on certain of our portfolio companies or in accordance with tier pricing provisions in certain loan agreements. As of March 31, 2011, we had modified the payment terms of our investments in five portfolio companies. Such modified terms may include increased PIK interest provisions and reduced cash interest rates. These modifications, and any future modifications to our loan agreements, may limit the amount of interest income that we recognize from the modified investments, which may, in turn, limit our ability to make distributions to our stockholders.
Loans and Debt Securities on Non-Accrual Status
         As of March 31, 2011, we had stopped accruing cash interest, PIK interest and original issue discount (“OID”) on three investments that did not pay all of their scheduled cash interest payments for the period ended March 31, 2011. As of March 31, 2010, we had stopped accruing PIK interest and OID on four investments, including two investments that had not paid all of their scheduled cash interest payments.

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     The non-accrual status of our portfolio investments as of March 31, 2011, September 30, 2010 and March 31, 2010 was as follows:
                         
    March 31, 2011     September 30, 2010     March 31, 2010  
     
Lighting by Gregory, LLC
  Cash non-accrual     Cash non-accrual     Cash non-accrual  
Martini Park, LLC
              PIK non-accrual  
Nicos Polymers & Grinding, Inc.
        Cash non-accrual     PIK non-accrual  
MK Network, LLC
  Cash non-accrual     Cash non-accrual        
Premier Trailer Leasing, Inc.
  Cash non-accrual     Cash non-accrual     Cash non-accrual  
Vanguard Vinyl, Inc.
        Cash non-accrual        
     Non-accrual interest amounts related to the above investments for the three and six months ended March 31, 2011 and March 31, 2010 were as follows:
                                 
    Three months ended   Three months ended   Six months ended   Six months ended
    March 31, 2011   March 31, 2010   March 31, 2011   March 31, 2010
     
 
                               
Cash interest income
  $ 1,460,163     $ 1,311,024     $ 3,566,595     $ 2,445,588  
PIK interest income
    146,184       451,313       386,574       920,196  
OID income
    30,138       103,911       60,276       207,822  
     
 
                               
Total
  $ 1,636,485     $ 1,866,248     $ 4,013,445     $ 3,573,606  
     

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Discussion and Analysis of Results and Operations
Results of Operations
     The principal measure of our financial performance is net increase (decrease) in net assets resulting from operations, which includes net investment income (loss), net realized gain (loss) and net unrealized appreciation (depreciation). Net investment income is the difference between our income from interest, dividends, fees, and other investment income and total expenses. Net realized gain (loss) on investments is the difference between the proceeds received from dispositions of portfolio investments and their stated costs. Net unrealized appreciation (depreciation) is the net change in the fair value of our investment portfolio and derivative instruments.
Comparison of the three and six months ended March 31, 2011 and March 31, 2010
Total Investment Income
          Total investment income includes interest and dividend income on our investments, fee income and other investment income. Fee income consists principally of loan and arrangement fees, administrative fees, unused fees, amendment fees, equity structuring fees, exit fees, prepayment fees, and waiver fees. Other investment income consists primarily of dividend income received from certain of our equity investments.
          Total investment income for the three months ended March 31, 2011 and March 31, 2010 was $29.7 million and $17.9 million, respectively. For the three months ended March 31, 2011, this amount primarily consisted of $25.8 million of interest income from portfolio investments (which included $3.5 million of PIK interest), and $3.9 million of fee income. For the three months ended March 31, 2010, total investment income primarily consisted of $16.4 million of interest income from portfolio investments (which included $2.3 million of PIK interest), and $1.4 million of fee income.
          Total investment income for the six months ended March 31, 2011 and March 31, 2010 was $55.0 million and $31.1 million, respectively. For the six months ended March 31, 2011, this amount primarily consisted of $46.6 million of interest income from portfolio investments (which included $6.6 million of PIK interest), and $8.4 million of fee income. For the six months ended March 31, 2010, this amount primarily consisted of $28.7 million of interest income from portfolio investments (which included $4.3 million of PIK interest), and $2.4 million of fee income.
          The increase in our total investment income for the three and six months ended March 31, 2011 as compared to the three and six months ended March 31, 2010 was primarily attributable to higher average levels of outstanding debt investments, which was principally due to an increase of 21 investments in our portfolio in the year-over-year period, partially offset by scheduled amortization repayments received and other debt payoffs during the same period.
Expenses
          Expenses (net of the permanently waived portion of the base management fee) for the three months ended March 31, 2011 and March 31, 2010 were $13.1 million and $6.7 million, respectively. Expenses increased for the three months ended March 31, 2011 as compared to the three months ended March 31, 2010 by $6.4 million, primarily as a result of increases in the base management fee, the incentive fee, interest expense and professional fees.
          Expenses (net of the permanently waived portion of the base management fee) for the six months ended March 31, 2011 and March 31, 2010 were $24.4 million and $11.5 million, respectively. Expenses increased for the six months ended March 31, 2011 as compared to the six months ended March 31, 2010 by $12.9 million, primarily as a result of increases in the base management fee, the incentive fee, interest expense, professional fees, and other general and administrative expenses.
Net Investment Income
          As a result of the $11.8 million increase in total investment income as compared to the $6.4 million increase in net expenses, net investment income for the three months ended March 31, 2011 reflected a $5.3 million, or 47.7%, increase compared to the three months ended March 31, 2010.
          As a result of the $23.9 million increase in total investment income as compared to the $12.9 million increase in net expenses, net investment income for the six months ended March 31, 2011 reflected an $11.0 million, or 56.5%, increase compared to the six months ended March 31, 2010.
Realized Gain (Loss) on Sale of Investments
     Net realized gain (loss) on investments is the difference between the proceeds received from dispositions of portfolio investments and their stated costs. Realized losses may also be recorded in connection with our determination that certain investments are considered worthless securities and/or meet the conditions for loss recognition per the applicable tax rules.
      During the six months ended March 31, 2011, we recorded investment realization events, including the following:

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    In October 2010, we received a cash payment of $8.7 million from Goldco, Inc. in full satisfaction of all obligations under the loan agreement. The debt investment was exited at par and no realized gain or loss was recorded on this transaction;
 
    In November 2010, we received a cash payment of $11.0 million from TBA Global, LLC in full satisfaction of all obligations under the loan agreement. The debt investment was exited at par and no realized gain or loss was recorded on this transaction;
 
    In November 2010, we restructured our investment in Vanguard Vinyl, Inc. The restructuring resulted in a material modification of the terms of the loan agreement. As such, we recorded a realized loss in the amount of $1.7 million in accordance with ASC 470-50;
 
    In December 2010, we restructured our investment in Nicos Polymers & Grinding, Inc. The restructuring resulted in a material modification of the terms of the loan agreement. As such, we recorded a realized loss in the amount of $3.9 million in accordance with ASC 470-50;
 
    In December 2010, we received a cash payment of $25.3 million from Boot Barn in full satisfaction of all obligations under the loan agreement. The debt investment was exited at par and no realized gain or loss was recorded on this transaction;
 
    In December 2010, we received a cash payment of $11.7 million from Western Emulsions, Inc. in partial satisfaction of the obligations under the loan agreement. No realized gain or loss was recorded on this transaction;
 
    In December 2010, we restructured our investment in Lighting by Gregory, LLC. The restructuring resulted in a material modification of the terms of the loan agreement. As such, we recorded a realized loss in the amount of $7.8 million in accordance with ASC 470-50; and
 
    In March 2011, we received a cash payment of $5.0 million from AmBath/ReBath Holdings, Inc. as part of a restructuring of the loan agreement. The restructuring resulted in a material modification of the terms of the loan agreement. As such, we recorded a realized loss in the amount of $0.3 million in accordance with ASC 470-50.
     During the six months ended March 31, 2010, we recorded investment realization events, including the following:
    In October 2009, we received a cash payment in the amount of $0.1 million representing a payment in full of all amounts due in connection with the cancellation of our loan agreement with American Hardwoods Industries, LLC. We recorded a $0.1 million reduction to the previously recorded $10.4 million realized loss on the investment in American Hardwoods;
 
    In October 2009, we received a cash payment of $3.9 million from Elephant & Castle, Inc. in partial satisfaction of the obligations under the loan agreement. No realized gain or loss was recorded on this transaction; and
 
    In March 2010, we recorded a realized loss in the amount of $2.9 million in connection with the sale of a portion of our investment in CPAC, Inc.
Net Unrealized Appreciation or Depreciation on Investments and Interest Rate Swaps
          Net unrealized appreciation or depreciation is the net change in the fair value of our investment portfolio and our interest rate swaps during the reporting period, including the reversal of previously recorded unrealized appreciation or depreciation when gains or losses are realized.
          During the three months ended March 31, 2011, we recorded net unrealized depreciation of $0.4 million. This consisted of $1.4 million of net unrealized depreciation of equity investments, offset by $0.2 million of net unrealized appreciation on debt investments, $0.6 million of net reclassifications to realized losses and $0.2 million of net unrealized appreciation on interest rate swaps. During the three months ended March 31, 2010, we recorded net unrealized appreciation of $1.2 million. This consisted of $3.3 million of reclassifications to realized losses and $1.1 million of net unrealized appreciation on equity investments, partially offset by $3.2 million of net unrealized depreciation on debt investments.
          During the six months ended March 31, 2011, we recorded net unrealized appreciation of $16.5 million. This consisted of $10.9 million of net reclassifications to realized losses, $5.7 million of net unrealized appreciation on debt investments and $1.0 million of net unrealized appreciation on interest rate swaps, offset by $1.1 million of net unrealized depreciation on equity investments. During the six months ended March 31, 2010, we recorded net unrealized appreciation of $2.2 million. This consisted of $3.3 million of reclassifications to realized losses and $0.9 million of net unrealized appreciation on equity investments, partially offset by $2.0 million of net unrealized depreciation on debt investments.
Financial Condition, Liquidity and Capital Resources
Cash Flows
          We have a number of alternatives available to fund the growth of our investment portfolio and our operations, including, but not limited to, raising equity, increasing debt, or funding from operational cash flow. Additionally, we may reduce investment size by syndicating a portion of any given transaction.
     For the six months ended March 31, 2011, we experienced a net decrease in cash and cash equivalents of $38.2 million. During that period, we used $342.6 million of cash in operating activities, primarily for the funding of $452.7 million of investments, partially offset by $72.4 million of principal payments received and $30.6 million of net investment income. During the same period, cash provided by financing activities was $304.4 million, primarily consisting of $134.0 million of net borrowings under our credit facilities, $65.3 million of SBA borrowings, and $143.9 million of proceeds from the issuance of our common stock, partially offset by $34.0 million of cash dividends paid, and $4.3 million of deferred financing costs paid. We intend to fund our future distribution obligations through operating cash flow or with funds obtained through future equity and debt offerings or credit facilities, as we deem appropriate.
     For the six months ended March 31, 2010, we experienced a net decrease in cash and cash equivalents of $89.7 million. During that period, we used $144.4 million of cash in operating activities, primarily for the funding of $176.7 million of investments, partially offset by $15.4 million of principal payments and proceeds received and $19.6 million of net investment income. During the same period cash provided by financing activities was $54.7 million, primarily consisting of $78.1 million of proceeds from the issuance of our common stock, partially offset by $22.6 million of cash dividends paid.
     As of March 31, 2011, we had 38.6 million in cash and cash equivalents, portfolio investments (at fair value) of $939.7 million, $6.6 million of interest and fees receivable, $138.3 million of SBA debentures payable, $134.0 million of borrowings outstanding under our credit facilities, and unfunded commitments of $85.6 million.
     As of September 30, 2010, we had $76.8 million in cash and cash equivalents, portfolio investments (at fair value) of $563.8 million, $3.8 million of interest and fees receivable, $73.0 million of SBA debentures payable, and unfunded commitments of $49.5 million.

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Other Sources of Liquidity
          We intend to continue to generate cash primarily from cash flows from operations, including interest earned from the temporary investment of cash, future borrowings and future offerings of securities. In the future, we may also securitize a portion of our investments in first and second lien senior loans or unsecured debt or other assets. To securitize loans, we would likely create a wholly-owned subsidiary and contribute a pool of loans to the subsidiary. We would then sell interests in the subsidiary on a non-recourse basis to purchasers and we would retain all or a portion of the equity in the subsidiary. Our primary use of funds is investments in our targeted asset classes and cash distributions to holders of our common stock.
     Although we expect to fund the growth of our investment portfolio through the net proceeds from future equity offerings, including our dividend reinvestment plan, and issuances of senior securities or future borrowings, to the extent permitted by the 1940 Act, our plans to raise capital may not be successful. In this regard, because our common stock has at times traded at a price below our then-current net asset value per share and we are limited in our ability to sell our common stock at a price below net asset value per share, we may be limited in our ability to raise equity capital.
     In addition, we intend to distribute between 90% and 100% of our taxable income to our stockholders in order to satisfy the requirements applicable to RICs under Subchapter M of the Code. See “Regulated Investment Company Status and Distributions” below. Consequently, we may not have the funds or the ability to fund new investments, to make additional investments in our portfolio companies, to fund our unfunded commitments to portfolio companies or to repay borrowings. In addition, the illiquidity of our portfolio investments may make it difficult for us to sell these investments when desired and, if we are required to sell these investments, we may realize significantly less than their recorded value.
     Also, as a business development company, we generally are required to meet a coverage ratio of total assets, less liabilities and indebtedness not represented by senior securities, to total senior securities, which include all of our borrowings and any outstanding preferred stock, of at least 200%. This requirement limits the amount that we may borrow. As of March 31, 2011, we were in compliance with this requirement. To fund growth in our investment portfolio in the future, we anticipate needing to raise additional capital from various sources, including the equity markets and the securitization or other debt-related markets, which may or may not be available on favorable terms, if at all.
     Finally, through a wholly-owned subsidiary, we sought and obtained a license from the SBA to operate an SBIC. In this regard, on February 3, 2010, our wholly-owned subsidiary, Fifth Street Mezzanine Partners IV, L.P., received a license, effective February 1, 2010, from the SBA to operate as an SBIC under Section 301(c) of the Small Business Investment Act of 1958. SBICs are designated to stimulate the flow of private equity capital to eligible small businesses. Under SBA regulations, SBICs may make loans to eligible small businesses and invest in the equity securities of small businesses.
     The SBIC license allows our SBIC subsidiary to obtain leverage by issuing SBA-guaranteed debentures, subject to the issuance of a capital commitment by the SBA and other customary procedures. SBA-guaranteed debentures are non-recourse, interest only debentures with interest payable semi-annually and have a ten year maturity. The principal amount of SBA-guaranteed debentures is not required to be paid prior to maturity but may be prepaid at any time without penalty. The interest rate of SBA-guaranteed debentures is fixed on a semi-annual basis at a market-driven spread over U.S. Treasury Notes with 10-year maturities.
     SBA regulations currently limit the amount that our SBIC subsidiary may borrow to a maximum of $150 million when it has at least $75 million in regulatory capital, receives a capital commitment from the SBA and has been through an examination by the SBA subsequent to licensing. As of March 31, 2011, our SBIC subsidiary had $75 million in regulatory capital. The SBA has issued a capital commitment to our SBIC subsidiary in the amount of $150 million, and $138.3 million of SBA debentures were outstanding as of March 31, 2011. $73.0 million of these debentures bear interest at a rate of 3.50% per annum, including the SBA annual charge of 0.285%, and $65.3 million of these debentures bear interest at a rate of 4.369% per annum, including the SBA annual charge of 0.285%.
     We have received exemptive relief from the Securities and Exchange Commission (“SEC”) to permit us to exclude the debt of the SBIC subsidiary guaranteed by the SBA from the definition of senior securities in the 200% asset coverage test under the 1940 Act. This allows us increased flexibility under the 200% asset coverage test by permitting us to borrow up to $150 million more than we would otherwise be able to absent the receipt of this exemptive relief.
     We are also in the process of preparing an application to the SBA for a second SBIC license. If approved, this license would provide us with the capability to issue an additional $75 million of SBA-guaranteed debentures beyond the $150 million of SBA-guaranteed debentures we, through our wholly-owned subsidiary, currently have the ability to issue. However, there are no assurances that we will be successful in obtaining a second SBIC license from the SBA.
Significant capital transactions that occurred from October 1, 2009 through March 31, 2011

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     The following table reflects the dividend distributions per share that our Board of Directors has declared on our common stock from October 1, 2009 through March 31, 2011:
                                                 
Date   Record   Payment   Amount     Cash     DRIP Shares     DRIP Shares  
Declared   Date   Date   per Share     Distribution     Issued     Value  
November 12, 2009
  December 10, 2009   December 29, 2009   $ 0.27     $ 9.7 million     44,420     $ 0.5 million  
January 12, 2010
  March 3, 2010   March 30, 2010     0.30     12.9 million     58,689     0.7 million
May 3, 2010
  May 20, 2010   June 30, 2010     0.32     14.0 million     42,269     0.5 million
August 2, 2010
  September 1, 2010   September 29, 2010     0.10     5.2 million     25,425     0.3 million
August 2, 2010
  October 6, 2010   October 27, 2010     0.10     5.2 million     24,850     0.3 million
August 2, 2010
  November 3, 2010   November 24, 2010     0.11     5.7 million     26,569     0.3 million
August 2, 2010
  December 1, 2010   December 29, 2010     0.11     5.7 million     28,238     0.3 million
November 30, 2010
  January 4, 2011   January 31, 2011     0.1066     5.4 million     36,038     0.5 million
November 30, 2010
  February 1, 2011   February 28, 2011     0.1066     5.5 million     29,072     0.4 million
November 30, 2010
  March 1, 2011   March 31, 2011     0.1066     6.5 million     43,766     0.6 million
January 30, 2011
  April 1, 2011   April 29, 2011     0.1066     6.5 million     45,193     0.6 million
January 30, 2011
  May 2, 2011   May 31, 2011     0.1066                    
January 30, 2011
  June 1, 2011   June 30, 2011     0.1066                    
The following table reflects shareholder transactions that occurred from October 1, 2009 through March 31, 2011:
                                 
Date   Transaction     Shares     Share Price     Gross Proceeds (Uses)  
January 27, 2010
  Public offering     7,000,000     $ 11.20     $ 78.4 million
February 25, 2010
  Underwriters’ exercise of over-allotment     300,500       11.20     3.4 million
June 21, 2010
  Public offering (1)     9,200,000       11.50     105.8 million
December 2010
  At-the-market offering     429,110       11.87 (2)   5.1 million
February 4, 2011
  Public offering (1)     11,500,000       12.65     145.5 million
 
(1)   Includes the underwriters’ full exercise of their over-allotment option
 
(2)   Average offering price
Borrowings
     On November 16, 2009, Fifth Street Funding, LLC, a consolidated wholly-owned bankruptcy remote, special purpose subsidiary (“Funding”), and we entered into a Loan and Servicing Agreement (“Agreement”), with respect to a three-year credit facility (“Wells Fargo facility”) with Wells Fargo Bank, National Association (“Wells Fargo”), as successor to Wachovia Bank, National Association (“Wachovia”), Wells Fargo Securities, LLC, as administrative agent, each of the additional institutional and conduit lenders party thereto from time to time, and each of the lender agents party thereto from time to time, in the amount of $50 million, with an accordion feature which allowed for potential future expansion of the facility up to $100 million. The facility bore interest at LIBOR plus 4.0% per annum and had a maturity date of November 16, 2012.
     On May 26, 2010, we amended the Wells Fargo facility to expand the borrowing capacity under that facility. Pursuant to the amendment, we received an additional $50 million commitment, thereby increasing the size of the facility from $50 million to $100 million, with an accordion feature that allows for potential future expansion of that facility from a total

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of $100 million up to a total of $150 million. In addition, the interest rate of the Wells Fargo facility was reduced from LIBOR plus 4% per annum to LIBOR plus 3.5% per annum, with no LIBOR floor, and the maturity date of the facility was extended from November 16, 2012 to May 26, 2013. The facility may be extended for up to two additional years upon the mutual consent of Wells Fargo and each of the lender parties thereto.
     On November 5, 2010, we amended the Wells Fargo facility to, among other things, provide for the issuance from time to time of letters of credit for the benefit of our portfolio companies. The letters of credit are subject to certain restrictions, including a borrowing base limitation and an aggregate sublimit of $15.0 million.
     On February 28, 2011, we amended the Wells Fargo facility to, among other things, reduce the interest rate to LIBOR plus 3.0% per annum, with no LIBOR floor, and extend the maturity date of the facility to February 25, 2014.
     In connection with the Wells Fargo facility, we concurrently entered into (i) a Purchase and Sale Agreement with Funding, pursuant to which we will sell to Funding certain loan assets we have originated or acquired, or will originate or acquire and (ii) a Pledge Agreement with Wells Fargo, pursuant to which we pledged all of our equity interests in Funding as security for the payment of Funding’s obligations under the Agreement and other documents entered into in connection with the Wells Fargo facility.
     The Agreement and related agreements governing the Wells Fargo facility required both Funding and us to, among other things (i) make representations and warranties regarding the collateral as well as each of our businesses, (ii) agree to certain indemnification obligations, and (iii) comply with various covenants, servicing procedures, limitations on acquiring and disposing of assets, reporting requirements and other customary requirements for similar credit facilities. The Wells Fargo facility agreements also include usual and customary default provisions such as the failure to make timely payments under the facility, a change in control of Funding, and the failure by Funding or us to materially perform under the Agreement and related agreements governing the facility, which, if not complied with, could accelerate repayment under the facility, thereby materially and adversely affecting our liquidity, financial condition and results of operations.
     The Wells Fargo facility is secured by all of the assets of Funding, and all of our equity interest in Funding. We intend to use the net proceeds of the Wells Fargo facility to fund a portion of our loan origination activities and for general corporate purposes. Each loan origination under the facility is subject to the satisfaction of certain conditions. We cannot be assured that Funding will be able to borrow funds under the Wells Fargo facility at any particular time or at all. As of March 31, 2011, we had $60.0 million of borrowings outstanding under the Wells Fargo facility.
          On May 27, 2010, we entered into a three-year secured syndicated revolving credit facility (“ING facility”) pursuant to a Senior Secured Revolving Credit Agreement (“ING Credit Agreement”) with certain lenders party thereto from time to time and ING Capital LLC, as administrative agent. The ING facility allows for us to borrow money at a rate of either (i) LIBOR plus 3.5% per annum or (ii) 2.5% per annum plus an alternate base rate based on the greatest of the Prime Rate, Federal Funds Rate plus 0.5% per annum or LIBOR plus 1% per annum, and had a maturity date of May 27, 2013. The ING facility also allowed us to request letters of credit from ING Capital LLC, as the issuing bank. The initial commitment under the ING facility was $90 million, and the ING facility included an accordion feature that allows for potential future expansion of the facility up to a total of $150 million. The ING facility is secured by substantially all of our assets, as well as the assets of two of our wholly-owned subsidiaries, FSFC Holdings, Inc. and FSF/MP Holdings, Inc., subject to certain exclusions for, among other things, equity interests in our SBIC subsidiary and equity interests in Fifth Street Funding, LLC (the special purpose subsidiary established pursuant to the Wells Fargo facility) as further set forth in a Guarantee, Pledge and Security Agreement (“ING Security Agreement”) entered into in connection with the ING Credit Agreement, among FSFC Holdings, Inc., FSF/MP Holdings, Inc., ING Capital LLC, as collateral agent, and us. Neither our SBIC subsidiary nor Fifth Street Funding, LLC is party to the ING facility and their respective assets have not been pledged in connection therewith. The ING facility provides that we may use the proceeds and letters of credit under the facility for general corporate purposes, including acquiring and funding leveraged loans, mezzanine loans, high-yield securities, convertible securities, preferred stock, common stock and other investments.
     On February 22, 2011, we amended the ING facility to, among other things, expand the borrowing capacity to $215 million. In addition, the ING facility’s accordion feature was increased to allow for potential future expansion up to a total of $300 million and the maturity date was extended to February 22, 2014.

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     Pursuant to the ING Security Agreement, FSFC Holdings, Inc. and FSF/MP Holdings, Inc. guaranteed the obligations under the ING Security Agreement, including our obligations to the lenders and the administrative agent under the ING Credit Agreement. Additionally, we pledged our entire equity interests in FSFC Holdings, Inc. and FSF/MP Holdings, Inc. to the collateral agent pursuant to the terms of the ING Security Agreement.
     The ING Credit Agreement and related agreements governing the ING facility required FSFC Holdings, Inc., FSF/MP Holdings, Inc. and us to, among other things (i) make representations and warranties regarding the collateral as well as each of our businesses, (ii) agree to certain indemnification obligations, and (iii) agree to comply with various affirmative and negative covenants and other customary requirements for similar credit facilities. The ING facility documents also include usual and customary default provisions such as the failure to make timely payments under the facility, the occurrence of a change in control, and the failure by us to materially perform under the ING Credit Agreement and related agreements governing the facility, which, if not complied with, could accelerate repayment under the facility, thereby materially and adversely affecting our liquidity, financial condition and results of operations.
     Each loan or letter of credit originated under the ING facility is subject to the satisfaction of certain conditions. We cannot be assured that we will be able to borrow funds under the ING facility at any particular time or at all.
     As of March 31, 2011, we had $74.0 million of borrowings outstanding under the ING facility.
     As of March 31, 2011, except for assets that were funded through our SBIC subsidiary, substantially all of our assets were pledged as collateral under the Wells Fargo facility or the ING facility.
     Interest expense for the three and six months ended March 31, 2011 was $2.7 million and $4.7 million, respectively. Interest expense for the three and six months ended March 31, 2010 was $0.3 million and $0.4 million, respectively.
     The following table describes significant financial covenants with which we must comply under each of our credit facilities on a quarterly basis:
                 
    Financial            
Facility   Covenant   Description   Target Value   Reported Value (1)
Wells Fargo facility
  Minimum shareholders’ equity (inclusive of affiliates)   Net assets shall not be less than $510 million plus 50% of the aggregate net proceeds of all sales of equity interests after February 25, 2011   $510 million   $575 million
 
  Minimum shareholders’ equity (exclusive of affiliates)   Net assets exclusive of affiliates other than Funding shall not be less than $250 million   $250 million   $500 million
 
  Asset coverage ratio   Asset coverage ratio shall not be less than 2.00:1   2.00:1   5.78:1
ING facility
  Minimum shareholders’ equity   Net assets shall not be less than the greater of (a) 55% of total assets; and (b) $385 million plus 50% of the aggregate net proceeds of all sales of equity interests after February 24, 2010   $439 million   $575 million
 
  Asset coverage ratio   Asset coverage ratio shall not be less than 2.25:1   2.25:1   7.46:1
 
  Interest coverage ratio   Interest coverage ratio shall not be less than 2.50:1   2.50:1   31.48:1
 
  Eligible portfolio
investments test
  Aggregate value of (a) Cash and cash equivalents and (b) Portfolio investments rated 1, 2 or 3 shall not be less than $175 million   $175 million   $332 million
 
(1)   As contractually required, we report financial covenants based on the last filed quarterly or annual report, in this case our Form 10-Q for the quarter ended December 31, 2010.

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     The following table reflects credit facility and debenture transactions that occurred from October 1, 2009 through March 31, 2011. Amounts available and drawn are as of March 31, 2011:
                             
            Total       Total        
            Facility   Upfront   Facility   Amount   Interest
Facility   Date   Transaction   Amount   fee Paid   Availability   Drawn   Rate
Wells Fargo
facility
  November 16, 2009   Entered into credit
facility
  $ 50 million   $ 0.8 million           LIBOR + 4.00%
 
  May 26, 2010   Expanded credit
facility
    100 million     0.9 million           LIBOR + 3.50%
 
  February 28, 2011   Amended credit
facility
    100 million     0.4 million   $ 78 million (1)   $ 60 million   LIBOR + 3.00%
ING facility
  May 27, 2010   Entered into credit
facility
    90 million     0.8 million           LIBOR + 3.50%
 
  February 22, 2011   Expanded credit
facility
    215 million     1.6 million     215 million     74 million   LIBOR + 3.50%
SBA
  February 16, 2010   Received capital
commitment
    75 million     0.8 million            
 
  September 21, 2010   Received capital
commitment
    150 million     0.8 million     150 million     138.3 million   3.50% (2)
4.369% (3)