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EX-32 - SECTION 1350 CERTIFICATIONS - American Realty Capital Trust III, Inc.bdca0331201210kex32.htm
EX-31.2 - CERTIFICATION OF THE PRINCIPAL FINANCIAL OFFICER OF THE COMPANY PURSUANT TO SECURITIES EXCHANGE ACT RULE 13A-14(A) OR 15D-14(A), AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 - American Realty Capital Trust III, Inc.bdca0331201210kex312.htm
EX-31.1 - CERTIFICATION OF THE PRINCIPAL EXECUTIVE OFFICER OF THE COMPANY PURSUANT TO SECURITIES EXCHANGE ACT RULE 13A-14(A) OR 15D-14(A), AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 - American Realty Capital Trust III, Inc.bdca0331201210kex311.htm

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549

FORM 10-Q
(Mark One)
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2012
OR
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number: 0-54251
BUSINESS DEVELOPMENT CORPORATION OF AMERICA
(Exact Name of Registrant as Specified in its Charter)

Maryland
 
27-2614444
(State or Other Jurisdiction of
Incorporation or Organization)
 
(I.R.S. Employer
Identification No.)
 
 
 
405 Park Avenue, 15th Floor
New York, New York
 
10022
(Address of Principal Executive Office)
 
(Zip Code)

(212) 415-6500
(Registrant’s Telephone Number, Including Area Code)

Not applicable
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   Yes x 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 o
 
 
 
Non-accelerated filer x
 
Smaller reporting company o
(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).   Yes o No x
    The number of shares of the registrant's common stock, $0.001 par value, outstanding as of May 11, 2012 was 5,276,112.



BUSINESS DEVELOPMENT CORPORATION OF AMERICA
FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2012

TABLE OF CONTENTS
 
 
 
 
Page
PART I
  
Statements of Assets and Liabilities as of March 31, 2012 (Unaudited) and December 31, 2011
Statements of Operations for the Three Months Ended March 31, 2012 and 2011 (Unaudited)
Statements of Changes in Net Assets for the Three Months Ended March 31, 2012 and 2011 (Unaudited)
Statements of Cash Flows for the Three Months Ended March 31, 2012 and 2011 (Unaudited)
Schedule of Investments as of March 31, 2012 (Unaudited) and December 31, 2011
Notes to Financial Statements
Item 2. Management's Discussion and Analysis
PART II
  
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults upon Senior Securities
Item 4. Mine Safety Disclosures
Item 5. Other Information
Item 6. Exhibits




Item 1. Financial Statements.

    

BUSINESS DEVELOPMENT CORPORATION OF AMERICA
 
STATEMENTS OF ASSETS AND LIABILITIES
(dollars in thousands except share and per share data)


 
March 31, 2012
 
December 31, 2011
 
(Unaudited)
 
 
ASSETS
 
 
 
Investments, at fair value (amortized cost of $32,520 and $14,294, respectively)
$
32,830

 
$
14,271

Cash and cash equivalents
1,120

 
828

Interest receivable
265

 
142

Due from affiliate
2,106

 
918

Deferred credit facility financing costs, net
38

 
50

Prepaid expenses and other assets
27

 
41

Total assets
36,386

 
16,250

 
 
 
 
LIABILITIES
 

 
 

Revolving credit facility
$
10,000

 
$
5,900

Payable for unsettled trades

1,007

 
1,914

Accounts payable and accrued expenses
145

 
154

Interest and credit facility fees payable
32

 
19

Stockholder distributions payable
166

 
56

Total liabilities
11,350

 
8,043

 
 
 
 
NET ASSETS
 
 
 
Preferred stock, $.001 par value, 50,000,000 shares authorized, none issued and outstanding
$

 
$

Common stock, $.001 par value, 450,000,000 shares authorized
2,726,639 and 912,297 shares issued and outstanding, respectively
3

 
1

Capital in excess of par value
24,645

 
8,235

Accumulated distributions in excess of net investment income
(3
)
 
(7
)
Accumulated net realized gain from investments
81

 
1

Net unrealized appreciation (depreciation) on investments
310

 
(23
)
Net assets
25,036

 
8,207

 
 
 
 
Total liabilities and net assets
$
36,386

 
$
16,250

 
 
 
 
Net asset value per share *
$
9.18

 
$
9.00

Offering price per share excluding commissions and dealer manager fees
$
9.23

 
$
9.23


*Net asset value per share and common shares outstanding for the period ended March 31, 2012 and year ended December 31, 2011 have been adjusted to reflect a stock dividend of $0.05 per share declared on March 29, 2012.

The accompanying notes are an integral part of these statements.

1



BUSINESS DEVELOPMENT CORPORATION OF AMERICA

STATEMENTS OF OPERATIONS
(dollars in thousands except share and per share data)
(Unaudited)
 
 
For the Three Months Ended March 31,
 
 
2012
 
2011
Investment income:
 
 
 
 
Interest income
 
$
569

 
$

Other income
 
41

 

Total investment income
 
610

 

 
 
 
 
 
Operating expenses:
 
 

 
 

Interest and credit facility financing expenses
 
106

 
13

Professional fees
 
119

 

Directors fees
 
29

 

Insurance
 
51

 

Management fees
 
98

 

Incentive fees
 
149

 

Other administrative
 
26

 
50

Expenses before expense waivers and reimbursements
 
578

 
63

Waiver of management and incentive fees
 
(247
)
 

Expense support reimbursement
 
(78
)
 

Total expenses, net of expense waivers and reimbursements
 
253

 
63

 
 
 
 
 
Net investment income (loss)
 
357

 
(63
)
 
 
 
 
 
Realized and unrealized gain on investments:
 
 
 
 
Net realized gain from investments
 
80

 

Net change in unrealized appreciation on investments
 
333

 

Net realized and unrealized gain on investments
 
413

 

 
 
 
 
 
Net increase (decrease) in net assets resulting from operations
 
$
770

 
$
(63
)
 
 
 
 
 
Per share information - basic and diluted*:
 
 
 
 
Net investment income (loss)
 
$
0.21

 
$
(2.82
)
Net increase (decrease) in net assets resulting from operations
 
$
0.44

 
$
(2.82
)
Weighted average common shares outstanding
 
1,739,161

 
22,223


*Per share information - basic and diluted and weighted average common shares outstanding for the three months ended March 31, 2012 and 2011 have been adjusted to reflect a stock dividend of $0.05 per share declared on March 29, 2012.

The accompanying notes are an integral part of these statements.

2


BUSINESS DEVELOPMENT CORPORATION OF AMERICA

STATEMENTS OF CHANGES IN NET ASSETS
(dollars in thousands except share and per share data)
(Unaudited)
 
 
For the Three Months Ended March 31,
 
 
2012
 
2011
Operations:
 
 
 
 
Net investment income (loss)
 
$
357

 
$
(63
)
Net realized gain from investments
 
80

 

Net unrealized appreciation on investments
 
333

 

Net increase (decrease) in net assets from operations
 
770

 
(63
)
Stockholder distributions:
 
 

 
 

Distributions from net investment income
 
(353
)
 

Net decrease in net assets from stockholder distributions
 
(353
)
 

Capital share transactions:
 
 

 
 

Issuance of common stock
 
16,331

 

Reinvestment of stockholder distributions
 
81

 

Net increase in net assets from capital share transactions
 
16,412

 

 
 
 
 
 
Total increase (decrease) in net assets
 
16,829

 
(63
)
Net assets at beginning of period
 
8,207

 
192

Net assets at end of period
 
$
25,036

 
$
129

 
 
 
 
 
Net asset value per common share *
 
$
9.18

 
$
5.79

Common shares outstanding at end of period *
 
2,726,639

 
22,331

 
 
 
 
 
Accumulated distributions in excess of net investment income
 
$
(3
)
 
$
(63
)

*Net asset value per share and common shares outstanding for the period ended March 31, 2012 and year ended December 31, 2011 have been adjusted to reflect a stock dividend of $0.05 per share declared on March 29, 2012.

The accompanying notes are an integral part of these statements.

3


BUSINESS DEVELOPMENT CORPORATION OF AMERICA

STATEMENTS OF CASH FLOWS
(dollars in thousands)
(Unaudited)
 
 
For the Three Months Ended March 31,
 
 
2012
 
2011
Operating activities:
 
 
 
 
Net increase (decrease) in net assets from operations
 
$
770

 
$
(63
)
Adjustments to reconcile net increase (decrease) in net assets from operations to net cash used in operating activities:
 
 

 
 

Net accretion of discount on investments
 
(66
)
 

Amortization of deferred financing costs
 
12

 
13

Repayments of investments
 
5,917

 

Purchase of investments
 
(23,997
)
 

Net realized gain from investments
 
(80
)
 

Net unrealized appreciation on investments
 
(333
)
 

Increase (decrease) in operating assets:
 
 

 
 

Interest receivable
 
(123
)
 

Prepaid expenses and other assets
 
13

 
(41
)
Increase (decrease) in operating liabilities:
 
 

 
 

Payable for unsettled trades
 
(907
)
 

Accounts payable and accrued expenses
 
41

 
91

Interest and credit facility fees payable
 
13

 

Net cash used in operating activities
 
(18,740
)
 

 
 
 
 
 
Financing activities:
 
 

 
 

Proceeds from issuance of shares of common stock, net
 
16,412

 

Payments of offering costs
 
(674
)
 
(1
)
Proceeds from line of credit
 
4,100

 

Payments of financing cost
 
(50
)
 

Payments to affiliate, net
 
(513
)
 

Stockholder distributions
 
(243
)
 

Net cash provided by (used in) financing activities
 
19,032

 
(1
)
 
 
 
 
 
Net increase (decrease) in cash and cash equivalents
 
292

 
(1
)
Cash and cash equivalents, beginning of period
 
828

 
1

Cash and cash equivalents, end of period
 
$
1,120

 
$

 
 
 
 
 
Supplemental information:
 
 

 
 

Interest paid during the period
 
$
65

 
$

 
 
 
 
 
Supplemental non-cash information:
 
 
 
 
Stock distribution
 
$
184

 
$

Cash distribution payable
 
$
118

 
$


The accompanying notes are an integral part of these statements.

4



BUSINESS DEVELOPMENT CORPORATION OF AMERICA

SCHEDULE OF INVESTMENTS
(dollars in thousands)

March 31, 2012
(Unaudited)
Portfolio Company (a)
 
Industry
 
Investment Coupon Rate/Maturity
 
Effective Yield
 
Principal / Number of Shares
 
Amortized Cost
 
Fair Value (c)
 
% of Net Assets
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Senior Secured First Lien Debt - 83.0% (b)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Audio Messaging Solutions, LLC
 
Media: Diversified & Production
 
12.00%, 6/16/2016
 
12.00
%
 
$
1,085

 
$
1,085

 
$
1,085

 
4.3
%
BCBG Max Azria
 
Retail
 
L+10.50% (13.75%), 6/9/2015
 
16.51
%
 
997

 
932

 
932

 
3.7
%
Caribbean Restaurants
 
Beverage, Food & Tobacco
 
L+7.50% (9.00%), 2/16/2017
 
9.44
%
 
1,000

 
980

 
980

 
3.9
%
Community Choice
 
Banking, Finance, Insurance & Real Estate
 
10.75%, 5/1/2019
 
11.34
%
 
2,000

 
1,972

 
1,972

 
7.9
%
CST Industries
 
Construction & Building
 
L+6.50% (8.00%), 8/9/2013
 
14.42
%
 
2,287

 
2,124

 
2,124

 
8.5
%
DS Waters
 
Beverage, Food & Tobacco
 
L+9.00% (10.50%), 8/22/2017
 
10.96
%
 
2,000

 
1,960

 
1,960

 
7.8
%
EIG Investors
 
Services: Business
 
L+6.25% (7.75%), 12/19/2017
 
8.15
%
 
499

 
489

 
489

 
2.0
%
Fertitta Morton's Restaurant, Inc.
 
Beverage, Food & Tobacco
 
L+7.25% (8.75%), 1/30/2017
 
9.79
%
 
1,000

 
976

 
976

 
3.9
%
Global Tel Link
 
Telecommunications
 
L+5.50% (7.00%), 11/26/2017
 
7.59
%
 
499

 
489

 
489

 
2.0
%
Harrah's Propco
 
Hotel, Gaming & Leisure
 
L+3.00% (3.23%), 2/13/2015
 
14.68
%
 
400

 
298

 
318

 
1.3
%
J Jill
 
Retail
 
L+8.50% (10.00%), 3/17/2017
 
13.18
%
 
543

 
481

 
421

 
1.7
%
K2 Pure Solutions
 
Chemicals, Plastics & Rubber
 
L+6.75% (10.00%), 9/10/2015
 
9.88
%
 
1,950

 
1,957

 
1,957

 
7.8
%
McClatchy Co.
 
Media: Advertising, Printing & Publishing
 
11.50%, 2/15/2017
 
12.55
%
 
500

 
481

 
533

 
2.1
%
Metokote
 
Chemicals, Plastics & Rubber
 
L+6.50% (10.00%), 11/27/2013
 
9.98
%
 
1,177

 
1,177

 
1,177

 
4.7
%
Omi Holdings
 
Capital Equipment
 
12.00%, 4/13/2013
 
11.99
%
 
952

 
952

 
952

 
3.8
%
Open Solutions
 
Services: Business
 
 L+2.13% (2.69%), 1/23/2014
 
8.85
%
 
547

 
491

 
512

 
2.0
%
Permian Tanks
 
Energy: Oil & Gas
 
L+7.75% (9.50%), 3/16/2017
 
10.62
%
 
2,000

 
1,950

 
1,950

 
7.8
%
ProPT
 
Healthcare & Pharmaceuticals
 
L+7.00% (8.50%), 10/31/2016
 
8.84
%
 
975

 
975

 
975

 
3.9
%
Tekelec
 
Telecommunications
 
L+7.50% (9.00%), 3/31/2018
 
9.34
%
 
1,000

 
985

 
985

 
3.9
%
Sub Total Senior Secured First Lien Debt
 
 
 
 
 
 
 
 
 
20,754

 
20,787

 
83.0
%

 
 
 
 
 
 
 
 
 
 
 
 
 
 

5



BUSINESS DEVELOPMENT CORPORATION OF AMERICA

SCHEDULE OF INVESTMENTS
(dollars in thousands)

March 31, 2012
(Unaudited)
Portfolio Company (a)
 
Industry
 
Investment Coupon Rate/Maturity
 
Effective Yield
 
Principal / Number of Shares
 
Amortized Cost
 
Fair Value (c)
 
% of Net Assets
Senior Secured Second Lien Debt - 37.0% (b)
 

 
 
 
 
 


 


 

 

Advantage Sales
 
Services: Business
 
L+7.75% (9.25%) 12/17/2017
 
9.68
%
 
$
595

 
$
589

 
$
589

 
2.4
%
Blue Coat
 
High Tech Industries
 
L+10.00% (11.50%), 2/13/2018
 
11.87
%
 
1,500

 
1,476

 
1,512

 
6.0
%
Bolthouse
 
Beverage, Food & Tobacco
 
L+7.50% (9.50%), 8/11/2016
 
9.60
%
 
1,500

 
1,505

 
1,505

 
6.0
%
Infor Global
 
High Tech Industries
 
L+6.25% (6.49%), 3/2/2014
 
12.88
%
 
1,600

 
1,441

 
1,595

 
6.4
%
Pierre Foods Inc.
 
Beverage, Food & Tobacco
 
L+9.50% (11.25%), 9/30/2017
 
11.15
%
 
1,000

 
999

 
999

 
4.0
%
Rocket Software
 
Services: Business
 
L+8.75% (10.25%), 2/08/2018
 
10.67
%
 
1,000

 
980

 
1,005

 
4.0
%
Sensus Metering
 
Utilities: Electric
 
L+7.25% (8.50%), 5/9/2017
 
8.61
%
 
600

 
589

 
589

 
2.4
%
Southern Pacific Resource Corp. (d)
 
Energy: Oil & Gas
 
L+7.50% (10.75%), 1/7/2016
 
10.37
%
 
1,445

 
1,462

 
1,462

 
5.8
%
Sub Total Senior Secured Second Lien Debt
 

 
 
 
 
 


 
9,041

 
9,256

 
37.0
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Senior Unsecured Debt- 3.8% (b)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Avis Budget Car Rental
 
Automobile
 
8.25%, 1/15/2019
 
8.92
%
 
$
500

 
$
488

 
$
507

 
2.0
%
Momentive Performance
 
Chemicals, Plastics & Rubber
 
9.00%, 1/15/2021
 
13.40
%
 
500

 
397

 
440

 
1.8
%
Sub Total Senior Unsecured Debt
 
 
 
 
 
 
 
 
 
885

 
947

 
3.8
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Equity/Other - 7.3% (b)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Carlyle CGMS
 
Banking, Finance, Insurance & Real Estate
 

 
 
 
20

 
$
1,840

 
$
1,840

 
7.3
%
Sub Total Equity/Other
 
 
 
 
 
 
 
 
 
1,840

 
1,840

 
7.3
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
TOTAL INVESTMENTS - 131.1% (b)
 
 
 
 
 
 
 
 
 
$
32,520

 
$
32,830

 
131.1
%
LIABILITIES IN EXCESS OF OTHER ASSETS - 31.1%
 
 
 
 
 
 
 
 
 
 
 
(7,794
)
 
31.1
%
NET ASSETS - 100%
 
 
 
 
 
 
 
 
 
 
 
$
25,036

 
100.0
%

(a)
All of the Company's debt investments are issued by eligible portfolio companies, as defined in the Investment Company Act of 1940, except Southern Pacific Resource Corp., Avis Budget Car Rental and Carlyle CGMS.
(b)
Percentages are based on net assets of $25,036 thousand as of March 31, 2012.
(c)
Because there is no readily available market value for these investments, the fair value of these investments is determined in good faith by the Company's board of directors as required by the Investment Company Act of 1940. (See Note 3 to the financial statements).
(d)
Non-U.S. company. The principal place of business for Southern Pacific Resource Corp. is Canada.


6



BUSINESS DEVELOPMENT CORPORATION OF AMERICA

SCHEDULE OF INVESTMENTS
(dollars in thousands)

December 31, 2011
Portfolio Company (a)
 
Industry
 
Investment Coupon Rate/Maturity
 
Effective Yield
 
Principal / Number of Shares
 
Amortized Cost
 
Fair Value (c)
 
% of Net Assets
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Senior Secured First Lien Debt - 117.2% (b)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Audio Messaging Solutions, LLC
 
Media: Diversified & Production
 
12.00%, 6/16/2016
 
12.00
%
 
$
1,085

 
$
1,085

 
$
1,085

 
13.3
%
Avaya, Inc.
 
Telecommunications
 
L + 4.50% (5.01%), 10/26/2017
 
7.80
%
 
292

 
260

 
272

 
3.3
%
California Healthcare Medical Billing, Inc.
 
Healthcare & Pharmaceuticals
 
12.00%, 10/17/2015
 
12.00
%
 
230

 
230

 
230

 
2.8
%
Central Parking
 
Automobile
 
L + 2.25% (2.81%), 5/22/2014
 
8.54
%
 
349

 
305

 
305

 
3.7
%
Chrysler Group LLC
 
Automobile
 
L + 4.75% (6.00%), 5/24/2017
 
8.27
%
 
299

 
270

 
284

 
3.5
%
EIG Investors
 
Services: Business
 
L + 6.50% (8.00%), 12/19/2017
 
8.43
%
 
500

 
490

 
490

 
6.0
%
Global Tel Link
 
Telecommunications
 
L + 5.50% (7.00%), 11/26/2017
 
7.41
%
 
500

 
490

 
490

 
6.0
%
Harrah's Propco
 
Hotel, Gaming & Leisure
 
L + 3.00% (3.25%), 2/13/2015
 
10.87
%
 
400

 
290

 
290

 
3.5
%
Harrison Hydra-Gen, Ltd.
 
Capital Equipment
 
12.00%, 6/4/2015
 
12.00
%
 
230

 
230

 
230

 
2.8
%
Indianapolis Aviation Partners, LLC
 
Aerospace and Defense
 
12.00%, 9/15/2014
 
12.00
%
 
230

 
230

 
230

 
2.8
%
J Jill
 
Retail
 
L + 8.50% (10.00%), 3/17/2017
 
13.18
%
 
550

 
484

 
451

 
5.5
%
K2 Pure Solutions
 
Chemicals, Plastics & Rubber
 
L + 6.75% (10.00%), 9/10/2015
 
9.99
%
 
450

 
450

 
450

 
5.5
%
KIK Custom Products Inc.
 
Consumer Goods: Non-Durable
 
L + 2.25% (2.53%), 11/24/2014
 
5.24
%
 
499

 
430

 
430

 
5.2
%
McClatchy Co.
 
Media: Advertising, Printing & Publishing
 
11.50%, 2/15/2017
 
12.55
%
 
500

 
481

 
481

 
5.9
%
Mid-Columbia Lumber Products, LLC
 
Construction & Building
 
12.00%, 12/18/2014
 
12.00
%
 
230

 
230

 
230

 
2.8
%
Omi Holdings
 
Capital Equipment
 
12.00%, 4/13/2013
 
11.99
%
 
996

 
996

 
996

 
12.1
%
Open Solutions
 
Services: Business
 
L + 2.13% (2.55%), 1/23/2014
 
8.92
%
 
549

 
485

 
485

 
5.9
%
OPI International Ltd. (d)
 
Energy: Oil & Gas
 
12.00%, 11/30/2015
 
12.00
%
 
230

 
230

 
230

 
2.8
%
Pegasus Research Group, LLC
 
Services: Business
 
13.00% Cash / 3% PIK, 1/6/2016
 
16.00
%
 
231

 
231

 
231

 
2.8
%
PPL Rvs, Inc
 
Automobile
 
18.00%, 6/10/2015
 
17.99
%
 
215

 
215

 
215

 
2.6
%
ProPT
 
Healthcare & Pharmaceuticals
 
L + 7.00% (8.50%), 10/31/2016
 
8.84
%
 
988

 
988

 
988

 
12.1
%
River Aggregates, LLC
 
Construction & Building
 
12.00%, 3/30/2016
 
12.00
%
 
230

 
230

 
230

 
2.8
%
Texas Competitive Electric
 
Utilities: Electric
 
L + 4.50% (4.78%), 10/10/2017
 
12.43
%
 
450

 
307

 
288

 
3.5
%
Sub Total Senior Secured First Lien Debt
 
 
 
 
 
 
 
 
 
9,637

 
9,611

 
117.2
%

7



BUSINESS DEVELOPMENT CORPORATION OF AMERICA

SCHEDULE OF INVESTMENTS
(dollars in thousands)

December 31, 2011
Portfolio Company (a)
 
Industry
 
Investment Coupon Rate/Maturity
 
Effective Yield
 
Principal / Number of Shares
 
Amortized Cost
 
Fair Value (c)
 
% of Net Assets
Senior Secured Second Lien Debt - 36.5% (b)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Bolthouse
 
Beverage, Food & Tobacco
 
L + 7.50% (9.50%), 8/11/2016
 
9.49
%
 
$
500

 
$
500

 
$
500

 
6.1
%
Ceres Management, LLC
 
Automobile
 
14.00%, 3/31/2013
 
13.98
%
 
230

 
230

 
230

 
2.8
%
Condit Exhibits, LLC (e)
 
Media: Diversified & Production
 
9.00% Cash / 9.00% PIK, 7/1/2013
 
17.97
%
 
230

 
230

 
230

 
2.8
%
Infor Global
 
High Tech Industries
 
L + 6.25% (6.51%), 3/2/2014
 
9.01
%
 
600

 
498

 
498

 
6.1
%
Pierre Foods Inc.
 
Beverage, Food & Tobacco
 
L + 9.50% (11.25%), 9/30/2017
 
11.18
%
 
500

 
499

 
499

 
6.1
%
Sensus Metering
 
Utilities: Electric
 
L + 7.25% (8.50%), 5/9/2017
 
8.97
%
 
600

 
588

 
588

 
7.1
%
Southern Pacific Resource Corp. (d)
 
Energy: Oil & Gas
 
L + 7.50% (10.75%), 1/7/2016
 
10.58
%
 
449

 
451

 
451

 
5.5
%
Sub Total Senior Secured Second Lien Debt
 
 
 
 
 
 
 
 
 
2,996

 
2,996

 
36.5
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Senior Unsecured Debt - 10.7% (b)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Avis Budget Car Rental
 
Automobile
 
8.25%, 1/15/2019
 
8.92
%
 
$
500

 
$
488

 
$
507

 
6.1
%
Momentive Performance
 
Chemicals, Plastics & Rubber
 
9.00%, 1/15/2021
 
13.40
%
 
500

 
396

 
380

 
4.6
%
Sub Total Senior Unsecured Debt
 
 
 
 
 
 
 
 
 
884

 
887

 
10.7
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Subordinated Debt - 2.8% (b)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
NTS Holdings, Inc.
 
Construction & Building
 
12.00%, 4/30/2015
 
11.99
%
 
$
230

 
$
230

 
$
230

 
2.8
%
Sub Total Subordinated Debt
 
 
 
 
 
 
 
 
 
230

 
230

 
2.8
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Equity/Other - 6.7% (b)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Bank of America - (BAC-H Preferred)
 
Banking, Finance, Insurance & Real Estate
 
Perpetual
 

 
25

 
$
547

 
$
547

 
6.7
%
Sub Total Equity/Other
 
 
 
 
 
 
 
 
 
547

 
547

 
6.7
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
TOTAL INVESTMENTS - 173.9% (b)
 
 
 
 
 
 
 
 
 
$
14,294

 
$
14,271

 
173.9
%
LIABILITIES IN EXCESS OF OTHER ASSETS - 73.9%
 
 
 
 
 
 
 
 
 
 
 
(6,064
)
 
73.9
%
NET ASSETS - 100%
 
 
 
 
 
 
 
 
 
 
 
$
8,207

 
100
%

(a) All of the Company's debt investments are issued by eligible U.S. portfolio companies, as defined in the Investment Company Act of 1940, except OPI International Ltd., Southern Pacific Resource Corp. and Avis Budget Car Rental.
(b) Percentages are based on net assets of $8,207 thousand as of December 31, 2011.
(c) Because there is no readily available market value for these investments, the fair value of these investments is determined in good faith by the Company's board of directors as required by the Investment Company Act of 1940. (See Note 3 to the financial statements).
(d) Non-U.S. company. The principal place of business for OPI International Ltd. is Bermuda and for Southern Pacific Resource Corp. is Canada.
(e) Terms of loan include PIK interest. Company has paid interest currently since February 2011.

8

BUSINESS DEVELOPMENT CORPORATION OF AMERICA

NOTES TO FINANCIAL STATEMENTS
March 31, 2012
(Unaudited)


Note 1 — Organization and Basis of Presentation

Business Development Corporation of America (the “Company”), incorporated in Maryland on May 5, 2010, is an externally managed, non-diversified closed-end investment company that elected to be treated as a regulated investment company (“RIC”) for U.S. federal income tax purposes beginning with the taxable year ended December 31, 2011 and that has elected to be treated as a business development company (“BDC”) under the Investment Company Act of 1940, as amended (the “1940 Act”). The Company is, therefore, required to comply with certain regulatory requirements as promulgated under the 1940 Act. The Company is managed by BDCA Adviser, LLC (the “Adviser”) pursuant to the terms of the Investment Advisory and Management Services Agreement, as amended (the “Advisory Agreement”). The Adviser was formed in Delaware as a private investment management firm and is registered as an investment adviser under the Investment Advisers Act of 1940, as amended (the “Advisers Act”). The Adviser oversees the management of its activities and is responsible for making investment decisions for its portfolio.

On January 25, 2011, the Company commenced its initial public offering (the “IPO”) on a “reasonable best efforts basis” of up to 150.0 million shares of common stock, $0.001 par value per share, at an initial offering price of $10.00 per share, subject to certain volume and other discounts, pursuant to a registration statement on Form N-2 (File No. 333-166636) (the “Registration Statement”) filed with the U.S. Securities and Exchange Commission (the “SEC”) under the Securities Act of 1933, as amended.  The Company sold 22,222 shares of common stock to its Adviser, an entity wholly owned by AR Capital, LLC (formerly known as American Realty Capital II, LLC) (the “Sponsor”) on July 8, 2010, at $9.00 per share, which represents the initial public offering price of $10.00 per share minus selling commissions of $0.70 per share and dealer manager fees of $0.30 per share.  On August 25, 2011, the Company had raised sufficient funds to break escrow on its IPO and commenced operations as of that date. As of March 31, 2012, the Company had issued 2.7 million shares of common stock for gross proceeds of $27.1 million including the purchase made by the Adviser and shares issued under the Company's distribution reinvestment plan ("DRIP").

The Company anticipates that during its offering period it will invest largely in first and second lien senior secured loans and mezzanine debt issued by middle market companies. The Company may also purchase interests in loans through secondary market transactions in the "over-the-counter" market for institutional loans. First and second lien secured loans generally are senior debt instruments that rank ahead of subordinated debt and equity in bankruptcy priority and are generally secured by liens on the operating assets of a borrower which may include inventory, receivables, plant, property and equipment. Mezzanine debt is subordinated to senior loans and is generally unsecured. The Company defines middle market companies as those with annual revenues between $10 million and $1 billion. The Company expects that each investment will range between approximately $1 million and $25 million, although this investment size will vary proportionately with the size of its capital base. As the Company increases its capital base during the offering period, it will begin investing in, and ultimately intends to have a substantial portion of its assets invested in, customized direct loans to and equity securities of middle market companies. In most cases, companies to whom the Company provides customized financing solutions will be privately held at the time the Company invests in them.

The Company has entered into a fund administration servicing agreement and a fund accounting servicing agreement with US Bancorp Fund Services, LLC (the “Administrator”). The Administrator provides services, such as accounting, financial reporting, legal and compliance support and investor relations support, necessary for the Company to operate. Realty Capital Securities, LLC (the “Dealer Manager”), an affiliate of the Sponsor, serves as the dealer manager of the Company’s IPO. The Adviser and the Dealer Manager are related parties and will receive compensation and fees for services related to the IPO and for the investment and management of the Company’s assets.  The Adviser and Dealer Manager will receive fees during the offering, acquisition, operational and liquidation stages.


9

BUSINESS DEVELOPMENT CORPORATION OF AMERICA

NOTES TO FINANCIAL STATEMENTS
March 31, 2012
(Unaudited)

Note 2 — Summary of Significant Accounting Policies

The consolidated financial statements of the Company included herein were prepared in conformity with accounting principles generally accepted in the United States of America ("U.S. GAAP") for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. The information furnished includes all adjustments and accruals of a normal recurring nature, which, in the opinion of management, are necessary for a fair presentation of results for the interim periods. The results of operations for the three months ended March 31, 2012 are not necessarily indicative of the results for the entire year or any subsequent interim period. These financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto as of December 31, 2011 and for the year then ended, which are included in the Form 10-K filed with the Securities and Exchange Commission ("SEC") on March 19, 2012.
The Company's significant accounting policies are described in Note 2 to the financial statements as of December 31, 2011 and for the year then ended, which are included in the Form 10-K filed with the SEC on March 19, 2012. There have been no significant changes to these policies during the three months ended March 31, 2012, other than the updates described below.
New Accounting Pronouncements

In May 2011, the Financial Accounting Standards Board (the "FASB") issued guidance that expands the existing disclosure requirements for fair value measurements, primarily for Level 3 measurements, which are measurements based on unobservable inputs such as the Company's own data. This guidance is largely consistent with current fair value measurement principles with few exceptions that do not result in a change in general practice. The guidance was applied prospectively and was effective for interim and annual reporting periods ending after December 15, 2011. The adoption of this guidance did not have a material impact on the Company's financial position or results of operations as the guidance relates only to disclosure requirements.
 Note 3 — Fair Value of Financial Instruments

Accounting guidance establishes a hierarchal disclosure framework which prioritizes and ranks the level of market price observability of inputs used in measuring investments at fair value. Market price observability is affected by a number of factors, including the type of investment and the characteristics specific to the investment. Investments with readily available active quoted prices or for which fair value can be measured from actively quoted prices generally will have a higher degree of market price observability and a lesser degree of judgment used in measuring fair value.
The Company determines fair value based on quoted prices when available or through the use of alternative approaches, such as discounting the expected cash flows using market interest rates commensurate with the credit quality and duration of the investment. This alternative approach also reflects the contractual terms of the derivatives, if any, including the period to maturity, and uses observable market-based inputs, including interest rate curves and implied volatilities. The guidance defines three levels of inputs that may be used to measure fair value:
Level 1—Quoted prices in active markets for identical assets and liabilities that the reporting entity has the ability to access at the measurement date.

Level 2—Inputs other than quoted prices included within Level 1 that are observable for the asset and liability or can be corroborated with observable market data for substantially the entire contractual term of the asset or liability.

Level 3—Unobservable inputs that reflect the entity’s own assumptions about the assumptions that market participants would use in the pricing of the asset or liability and are consequently not based on market activity, but rather through particular valuation techniques.

The determination of where an asset or liability falls in the above hierarchy requires significant judgment and factors specific to the asset or liability. In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety. The Company evaluates its hierarchy disclosures each quarter and depending on various factors, it is possible that an asset or liability may be classified differently from quarter to quarter. However, the Company expects that changes in classifications between levels will be rare.

10

BUSINESS DEVELOPMENT CORPORATION OF AMERICA

NOTES TO FINANCIAL STATEMENTS
March 31, 2012
(Unaudited)


The Company’s investment portfolio at March 31, 2012 was comprised primarily of debt instruments for which quoted prices within the categories of Level 1 and Level 2 inputs are not available. Therefore, at March 31, 2012, the majority of investments were valued at fair value as determined in good faith using the valuation policy approved by the board of directors using Level 3 inputs. The Company evaluates the source of inputs, including any markets in which the Company’s investments are trading, in determining fair value. Due to the inherent uncertainty in the valuation process, the estimate of fair value of the Company’s investment portfolio at March 31, 2012 may differ materially from values that would have been used had a ready market for the securities existed.

    
In addition to using the above inputs in investment valuations, the Company continues to employ the valuation policy approved by the board of directors. The Company evaluates the source of inputs, including any markets in which the Company’s investments are trading, in determining fair value.

The following table presents fair value measurements of investments, by major class, as of March 31, 2012 according to the fair value hierarchy (dollars in thousands):

 
Fair Value Measurements
 
Level 1
 
Level 2
 
Level 3
 
Total
Senior Secured First Lien Debt
$

 
$

 
$
20,787

 
$
20,787

Senior Secured Second Lien Debt

 

 
9,256

 
9,256

Senior Unsecured Debt

 

 
947

 
947

Equity/Other


 

 
1,840

 
1,840

Total
$

 
$

 
$
32,830

 
$
32,830


The following table presents fair value measurements of investments, by major class, as of December 31, 2011 according to the fair value hierarchy (dollars in thousands):

 
Fair Value Measurements
 
Level 1
 
Level 2
 
Level 3
 
Total
Senior Secured First Lien Debt
$

 
$

 
$
9,611

 
$
9,611

Senior Secured Second Lien Debt

 

 
2,996

 
2,996

Senior Unsecured Debt

 

 
887

 
887

Subordinated Debt

 

 
230

 
230

Equity/Other
547

 

 

 
547

Total
$
547

 
$

 
$
13,724

 
$
14,271



    














11

BUSINESS DEVELOPMENT CORPORATION OF AMERICA

NOTES TO FINANCIAL STATEMENTS
March 31, 2012
(Unaudited)

The following table provides a reconciliation of the beginning and ending balances for investments that use Level 3 inputs for the three months ended March 31, 2012 (dollars in thousands):

 
Senior Secured First Lien Debt
 
Senior Secured Second Lien Debt
 
Senior Unsecured Debt
 
Subordinated Debt
 
Equity/Other
 
Total
Balance as of December 31, 2011
$
9,611

 
$
2,996

 
$
887

 
$
230

 
$

 
$
13,724

Net unrealized gains
59

 
216

 
58

 

 

 
333

Purchases and other adjustments to cost
14,705

 
7,516

 
2

 

 
1,840

 
24,063

Sales and redemptions
(3,627
)
 
(1,464
)
 

 
(230
)
 

 
(5,321
)
Net realized gains (losses)
39

 
(8
)
 

 

 

 
31

Net transfers in and/or out

 

 

 

 

 

Balance as of March 31, 2012
$
20,787

 
$
9,256

 
$
947

 
$

 
$
1,840

 
$
32,830



Purchases represent the acquisition of new investments at cost. Redemptions represent principal payments received during the period.

The composition of the Company’s investments as of March 31, 2012, at amortized cost and fair value, were as follows (dollars in thousands):
 
Investments at
Amortized Cost
 
Investments at
Fair Value
 
Fair Value
Percentage of
Total Portfolio
Senior Secured First Lien Debt
$
20,754

 
$
20,787

 
63.3
%
Senior Secured Second Lien Debt
9,041

 
9,256

 
28.2
%
Senior Unsecured Debt
885

 
947

 
2.9
%
Equity/Other
1,840

 
1,840

 
5.6
%
Total
$
32,520

 
$
32,830

 
100.0
%

The composition of the Company’s investments as of December 31, 2011, at amortized cost and fair value, were as follows (dollars in thousands):

 
Investments at
Amortized Cost
 
Investments at
Fair Value
 
Fair Value
Percentage of
Total Portfolio
Senior Secured First Lien Debt
$
9,637

 
$
9,611

 
67.4
%
Senior Secured Second Lien Debt
2,996

 
2,996

 
21.0
%
Senior Unsecured Debt
884

 
887

 
6.2
%
Subordinated Debt
230

 
230

 
1.6
%
Equity/Other
547

 
547

 
3.8
%
Total
$
14,294

 
$
14,271

 
100.0
%



Note 4 — Related Party Transactions and Arrangements

The Adviser and Sponsor own 0.02 million and 0.1 million shares of the Company’s outstanding common stock as of March 31, 2012, respectively.



12

BUSINESS DEVELOPMENT CORPORATION OF AMERICA

NOTES TO FINANCIAL STATEMENTS
March 31, 2012
(Unaudited)

Management and Incentive Fee Compensation to the Adviser
 
The Adviser and its affiliates receive fees for services relating to the investment and management of the Company’s assets. The Adviser is entitled to an annual base management fee calculated at an annual rate of 1.5% of the Company’s average gross assets. The management fee is payable quarterly in arrears, and is calculated based on the average value of the Company’s gross assets at the end of the two most recently completed calendar quarters. All or any part of the management fee not taken as to any quarter is deferred without interest and may be taken in such other quarter as the Adviser will determine. The management fee for any partial month or quarter will be appropriately prorated.
 
The incentive fee consists of three parts. The first part, which is referred to as the subordinated incentive fee on income, is calculated and payable quarterly in arrears based on 20% of “pre-incentive fee net investment income” but only after the payment of a certain preferred return rate to investors, as defined in the Advisory Agreement, for the immediately preceding quarter of 1.75% per quarter, or an annualized rate of 7.0% subject to a "catch-up" feature. The second part of the incentive fee, which is referred to as the incentive fee on capital gains during operations, is an incentive fee on capital gains earned on liquidated investments from the Company’s portfolio during operations prior to a liquidation of the Company and is determined and payable in arrears as of the end of each calendar year (or upon termination of the Advisory Agreement). This fee equals 20.0% of the Company’s incentive fee capital gains, which equals the Company’s realized capital gains on a cumulative basis from inception, calculated as of the end of each calendar 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. The third part of the incentive fee, which is referred to as the subordinated liquidation incentive fee, equals 20.0% of the net proceeds from a liquidation of the Company in excess of adjusted capital, as calculated immediately prior to liquidation.

For the three months ended March 31, 2012, the Adviser waived $0.2 million of compensation earned for management and incentive fees to provide additional liquidity to the Company and enable the Company to cover distributions from income from operations. No fees were earned to the Adviser for the three months ended March 31, 2011.

Expense Support Agreement

The Adviser and its affiliates may incur and pay costs and fees on behalf of the Company. The Company and its Adviser have entered into the Expense Support Agreement whereby the Adviser may pay the Company up to 100% of all offering and operating expenses (“Expense Support Payment”) for any period beginning on the effective date of the Registration Statement, until the Adviser and the Company mutually agree otherwise. The Expense Support Payment for any month shall be paid by the Adviser to the Company in any combination of cash or other immediately available funds, and/or offsets against amounts due from the Company to the Adviser.

Offering and operating expenses subject to this agreement include offering costs incurred in connection with the Company’s ongoing offering of common stock, which are recorded as a component of equity, and expenses as defined by U.S. GAAP, including, without limitation, advisory fees payable and interest on indebtedness for such period, if any.

Pursuant to the terms of the Expense Support Agreement, the Company has agreed if requested, to reimburse the Adviser for Expense Support Payments within three years from the end of the fiscal year in which such Expense Support Payment is made by the Adviser. Reimbursement shall be made as promptly as possible, but only to the extent it does not cause the Company’s operating expenses, excluding organization and offering expenses, management fees and incentive fees payable to the Adviser, financing fees and interest, brokerage commissions and extraordinary expenses to exceed 1.5% of net assets attributable to shares of common stock after taking such payment into account.
 
If an Expense Support Payment has not been reimbursed prior to the end of the third fiscal year following the date such Expense Support Payment was made, the Company’s obligation to pay such Expense Support Payment shall automatically terminate, and be of no further effect.
 
As of March 31, 2012, the Adviser had assumed on a cumulative basis, $0.1 million of offering costs and $0.8 million of operating expenses pursuant to the Expense Support Agreement.




13

BUSINESS DEVELOPMENT CORPORATION OF AMERICA

NOTES TO FINANCIAL STATEMENTS
March 31, 2012
(Unaudited)

Offering Costs

Pursuant to the Advisory Agreement, the Company and the Adviser have agreed that the Company will not be liable for offering expenses to the extent that, together with all prior offering expenses, the amounts exceed 1.5% of the aggregate gross proceeds from the Company’s on-going offering. As of March 31, 2012, offering costs in the amount of $2.1 million have been incurred in excess of the 1.5% limit and are the responsibility of the Adviser.

Note 5 — Borrowings

In January 2011, the Company entered into an agreement to obtain a revolving line of credit in the amount of $10.0 million with Main Street Capital Corp. The line of credit bears a variable interest rate based on the London Interbank Offered Rate plus 3.50%. As of March 31, 2012, the variable rate was 3.74%, which was comprised of the London Interbank Offered Rate of 0.24%. As of December 31, 2011, the variable rate was 3.69%, which was comprised of the London Interbank Offered Rate of 0.19%. The line will be available to the Company until January 2013 and permits the Company to periodically draw on the available funds to purchase securities or pay certain expenses. All unpaid principal is due at maturity. The line of credit agreement requires the Company to pay a maximum commitment fee of $0.1 million payable based on 1% of each draw of the available funds. This commitment fee is included in deferred financing costs on the Company's balance sheet and is being amortized over the term of the agreement, which is two years. As of March 31, 2012, the Company had deferred financing costs of $0.1 million, net of accumulated amortization of $0.06 million. Borrowings under the line of credit are secured by the assets of the Company including cash, securities, investments, property, fixtures and equipment among other assets. At March 31, 2012, $10.0 million was drawn on this facility. For the three months ended March 31, 2012, the Company incurred interest expense related to the outstanding borrowings of $0.1 million. For the three months ended March 31, 2011, the Company incurred no interest expense since there were no outstanding borrowings during the period. 

The Company is required to disclose the fair value of financial instruments for which it is practicable to estimate that value. The fair value of short-term financial instruments such as cash and cash equivalents, due to affiliates and accounts payable approximate their carrying value on the accompanying statements of assets and liabilities due to their short-term nature. The fair values of the Company’s remaining financial instruments that are not reported at fair value on the accompanying statements of assets and liabilities are reported below. (amounts in thousands):

 
Level
 
Carrying Amount at March 31, 2012
 
Fair Value at March 31, 2012
Senior secured revolving credit facility
3

 
$
10,000

 
$
10,000


The interest rate of the revolving line of credit is determined by a variable market rate and the Company's leverage ratio, and has terms commensurate with the market; as such the outstanding balance on the facility approximates fair value.


Note 6 — Commitments and Contingencies

Litigation
 
In the ordinary course of business, the Company may become subject to litigation or claims. There are no material legal proceedings pending or known to be contemplated against the Company.
 
Indemnifications

In the ordinary course of its business, the Company may enter into contracts or agreements that contain indemnifications or warranties. Future events could occur that lead to the execution of these provisions against the Company. Based on its history and experience, management feels that the likelihood of such an event is remote.

Note 7 — Economic Dependency
 
Under various agreements, the Company has engaged or will engage the Adviser and its affiliates to provide certain services that are essential to the Company, including asset management services, asset acquisition and disposition decisions, the

14

BUSINESS DEVELOPMENT CORPORATION OF AMERICA

NOTES TO FINANCIAL STATEMENTS
March 31, 2012
(Unaudited)

sale of shares of the Company’s common stock available for issuance, as well as other administrative responsibilities for the Company including accounting services and investor relations.
  
As a result of these relationships, the Company is dependent upon the Adviser and its affiliates. In the event that these companies were unable to provide the Company with the respective services, the Company would be required to find alternative providers of these services.

Note 8 — Common Stock

On August 25, 2011, the Company had raised sufficient funds to break escrow on its IPO and through March 31, 2012, the Company sold 2.7 million shares of common stock for gross proceeds of $27.1 million, including shares issued to the Adviser and Sponsor and shares issued under the DRIP.

See Note 10 Distributions regarding a common stock distribution declared on March 29, 2012.

Note 9 — Net Increase (Decrease) in Net Assets

Basic earnings per share is computed by dividing earnings available to common stockholders by the weighted average number of shares outstanding during the period. Other potentially dilutive shares, and the related impact to earnings, are considered when calculating earnings per share on a diluted basis. The Company had no potentially dilutive securities as of March 31, 2012 and 2011.

The following information sets forth the computation of the weighted average basic and diluted net increase (decrease) in net assets per share from operations for the three months ended March 31, 2012, and March 31, 2011 (dollars in thousands except share and per share amounts):
 
 
For the Three Months Ended March 31,
 
For the Three Months Ended March 31,
 
 
2012
 
2011
Basic and diluted
 
 
 
 
Net increase (decrease) in net assets from operations
 
$
770

 
$
(63
)
Weighted average shares outstanding *
 
1,739,161

 
22,223

Earnings (loss) per share-basic and diluted *
 
$
0.44

 
$
(2.82
)
    
*Per share information - basic and diluted and weighted average common shares outstanding for the three months ended March 31, 2012 and 2011 have been adjusted to reflect a stock dividend of $0.05 per share declared on March 29, 2012.
    
On May 1, 2012, the Company announced that it was increasing its public offering price per share from $10.26 to $10.44.

Note 10 — Distributions

The Company has declared and paid cash distributions to stockholders on a monthly basis since it commenced operations. From time to time, the Company may also pay interim distributions at the discretion of its board of directors. The Company may fund its cash distributions to stockholders from any sources of funds available to it, including offering proceeds, borrowings, net investment income from operations, capital gains proceeds from the sale of assets and non-capital gains proceeds from the sale of assets. The Company’s distributions may exceed its earnings, especially during the period before the Company has substantially invested the proceeds from its IPO. As a result, a portion of the distributions the Company will make may represent a return of capital for tax purposes. As of March 31, 2012, the Company has accrued $0.2 million in stockholder distributions that were unpaid.


15

BUSINESS DEVELOPMENT CORPORATION OF AMERICA

NOTES TO FINANCIAL STATEMENTS
March 31, 2012
(Unaudited)

The following table reflects the cash distributions per share paid on the Company's common stock to date (dollars in thousands except share and per share amounts):

Payment Date
 
Per share
 
Distributions Paid in Cash
 
Distributions Paid Through the DRIP
 
Total Distributions Paid
2011:
 
 
 
 
 
 
 
 
October 3, 2011
 
$
0.07

 
$
13

 
$
13

 
$
26

November 1, 2011
 
0.07

 
20

 
14

 
34

December 1, 2011
 
0.06

 
25

 
17

 
42

2012:
 
 
 
 
 
 
 
 
January 3, 2012
 
0.06

 
35

 
21

 
56

February 1, 2012
 
0.06

 
47

 
26

 
73

March 1, 2012
 
0.06

 
80

 
34

 
114

April 2, 2012
 
0.06

 
118

 
48

 
166

May 1, 2012
 
0.06

 
157

 
65

 
222

 
 
 
 
$
495

 
$
238

 
$
733


    


The following table reflects the stock distributions per share that we declared on our common stock to date:
Date Declared
 
Record Date
 
Payment Date
 
Per Share
 
Distribution Percentage
 
Shares Issued
March 29, 2012
 
May 1, 2012
 
May 2, 2012
 
$
0.05

 
0.49
%
 
25,721



The Company has not established any limit on the extent to which it may use borrowings, if any, or proceeds from its IPO to fund distributions (which may reduce the amount of capital it ultimately invests in assets). There can be no assurance that the Company will be able to sustain distributions at any particular level.

On March 1, 2012 the price for which newly-issued shares under the DRIP will be issued to stockholders was changed from 95% to 90% of the stock price that the shares are sold in the offering as of the date the distribution is made.

16

BUSINESS DEVELOPMENT CORPORATION OF AMERICA

NOTES TO FINANCIAL STATEMENTS
March 31, 2012
(Unaudited)



Note 11 — Financial Highlights

The following is a schedule of financial highlights for the three months ended March 31, 2012 and March 31, 2011:

 
For the Three Months Ended March 31, 2012
 
For the Three Months Ended March 31, 2011
Per share data*:
 
 
 
Net asset value, beginning of period
$
9.00

 
$
8.61

 
 
 
 
Results of operations (1)
       Net investment income (loss)
0.21

 
(2.82
)
Net realized and unrealized gain on investments
0.23

 

Net increase (decrease) in net assets resulting from operations
0.44

 
(2.82
)
 
 
 
 
Stockholder distributions (2)
       Distributions from net investment income
(0.20
)
 

Net decrease in net assets resulting from stockholder distributions
(0.20
)
 

 
 
 
 
Capital share transactions
       Issuance of common stock (3)
0.10

 


Offering costs
(0.16
)
 

Net decrease in net assets resulting from capital share transactions
(0.06
)
 

Net asset value, end of period
$
9.18

 
$
5.79

Shares outstanding at end of period
2,726,639

 
22,331

Total return (5)
4.08
%
 

Ratio/Supplemental data:
 

 
 

Net assets, end of period (in thousands)
$
25,036

 
$
129

Ratio of net investment income to average net assets (4)(6)
15.62
%
 
(148.51
)%
Ratio of operating expenses to average net assets (4)(6)
11.10
%
 
148.51
 %
Ratio of incentive fees to average net assets (6)
6.54
%
 

Ratio of credit facility related expenses to average net assets (6)
4.63
%
 
29.60
 %
Portfolio turnover ratio
23.63
%
 


*Per share information and weighted average common shares outstanding for the three months ended March 31, 2012 and 2011 have been adjusted to reflect a stock dividend of $0.05 per share declared on March 29, 2012.
_________________________

(1) 
The per share data was derived by using the weighted average shares outstanding during the period. Net investment income per share excluding the expense waivers and reimbursements equals $0.26 for the three months ended March 31, 2012.  There was no expense waiver and reimbursement for the three months ended March 31, 2011.

(2) 
The per share data for distributions reflects the actual amount of distributions declared per share during the period.

(3) 
The issuance of common stock on a per share basis reflects the incremental net asset value changes as a result of the issuance of shares of common stock in the Company’s continuous offering.

(4) 
For the three months ended March 31, 2012, excluding the expense waiver and reimbursement, the ratio of net investment income and operating expenses to average net assets is 1.4% and 25.33%, respectively. For the three months ended March 31, 2011, there was no expense waiver and reimbursement.


17

BUSINESS DEVELOPMENT CORPORATION OF AMERICA

NOTES TO FINANCIAL STATEMENTS
March 31, 2012
(Unaudited)

(5) 
Total return is calculated assuming a purchase of shares at the current net asset value on the first day and a sale at the current net asset value on the last day of the periods reported. Distributions, if any, are assumed for purposes of this calculation to be reinvested at prices obtained under the DRIP. The total return based on net asset value for the three months ended March 31, 2012, includes the effect of the expense waiver and reimbursement which equaled 3.54%. For the three months ended March 31, 2011, there was no expense waiver and reimbursement.

(6) 
Ratios are annualized.

Note 12 – Subsequent Events

The Company has evaluated subsequent events through the filing of this Form 10-Q and determined that there have been no events that have occurred that would require adjustments to the Company’s disclosures in the financial statements except for the following:

Subsequent to March 31, 2012 through the date of issuance of the financial statements included herein, the Company has purchased eight debt investments with an aggregate face value of $16.5 million for $16.3 million in cash and sold six debt investments with an aggregate carrying value of $4.3 million for an aggregate redemption value of $4.6 million in cash resulting in a realized gain of $0.3 million.

From April 1, 2012 to May 11, 2012, the Company has issued 2.6 million shares of common stock including shares issued pursuant to the DRIP. Total gross proceeds from these issuances including proceeds from shares issued pursuant to the DRIP were $25.2 million.


18


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

The following discussion should be read in conjunction with the accompanying unaudited financial statements of Business Development Corporation of America and the notes thereto, and other financial information included elsewhere in this Quarterly Report on Form 10-Q. As used herein, the terms “we,” “our” and “us” refer to Business Development Corporation of America, a Maryland corporation, and, as required by context, to BDCA Adviser, LLC (the “Adviser”) and its subsidiaries. Business Development Corporation of America is externally managed by the Adviser.
The forward-looking statements contained in this Quarterly Report on Form 10-Q may include statements as to:
•     our future operating results;
•     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;
•     the timing of cash flows, if any, from the operations of our portfolio companies;
•     actual and potential conflicts of interest with our Adviser and its affiliates;
•     the dependence of our future success on the general economy and its effect on the industries in which we invest;
•     the ability to qualify and maintain our qualification as a RIC and a BDC; and
•     the impact on our business of Dodd-Frank and the rules and regulations issued thereunder.

In addition, words such as “anticipate,” “believe,” “expect” and “intend” indicate a forward-looking statement,
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 discussed in Part I, Item 1A “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2011. Other factors that could cause actual results to differ materially include:

•     changes in the economy;
•     risks associated with possible disruption in our operations or the economy generally due to terrorism or natural
disasters; and
•     future changes in laws or regulations and conditions in our operating areas.

You should not place undue reliance on these forward-looking statements. The forward-looking statements made in this Quarterly Report on Form 10-Q relate only to events as of the date on which the statements are made. We undertake no obligation to update any forward-looking statement to reflect events or circumstances occurring after the date of this Quarterly Report on Form 10-Q.




19



Overview

We incorporated in Maryland on May 5, 2010, as an externally managed, non-diversified closed-end investment company that has elected to be regulated as a RIC for U.S. federal income tax purposes for the taxable year ending December 31, 2012 and that has elected to be treated as a BDC, under the 1940 Act. We, therefore, are required to comply with certain regulatory requirements as promulgated under the 1940 Act. We are managed by the Adviser. The Adviser was formed in Delaware as a private investment management firm and is registered as an investment adviser under the Advisers Act. Our Adviser oversees the management of our activities and is responsible for making investment decisions for our portfolio.

On January 25, 2011, we commenced our IPO on a “reasonable best efforts basis” of up to 150.0 million shares of common stock, $0.001 par value per share, at a price of $10.00 per share, subject to certain volume and other discounts, pursuant to a registration statement on Form N-2 (File No. 333-166636) (the “Registration Statement”) filed with the U.S. Securities and Exchange Commission (the “SEC”) under the Securities Act of 1933, as amended. We sold 22,222 shares of common stock to the Adviser, an entity wholly owned by AR Capital, LLC (formerly known as American Realty Capital II, LLC) (the “Sponsor”) on July 8, 2010, at $9.00 per share, which represents the initial public offering price of $10.00 per share minus selling commissions of $0.70 per share and dealer manager fees of $0.30 per share. On August 25, 2011, we had raised sufficient funds to break escrow on our IPO and commenced operations as of that date. As of March 31, 2012, we had issued 2.7 million shares of our common stock for gross proceeds of $27.1 million including the purchase made by the Adviser and shares issued under the DRIP.

We anticipate that during our offering period we will invest largely in first and second lien senior secured loans and mezzanine debt issued by middle market companies. We may also purchase interests in loans through secondary market transactions in the "over-the-counter" market for institutional loans. First and second lien secured loans generally are senior debt instruments that rank ahead of subordinated debt and equity in bankruptcy priority and are generally secured by liens on the operating assets of a borrower which may include inventory, receivables, plant, property and equipment. Mezzanine debt is subordinated to senior loans and is generally unsecured. We define middle market companies as those with annual revenues between $10 million and $1 billion. We expect that our investments will generally range between approximately $1 million and $25 million, although this investment size will vary proportionately with the size of our capital base. As we increase our capital base during our offering period, we will begin investing in, and ultimately intend to have a substantial portion of our assets invested in, customized direct loans to and equity securities of middle market companies. In most cases, companies to whom we provide customized financing solutions will be privately held at the time we invest in them.
 
We have entered into a fund administration servicing agreement and a fund accounting servicing agreement with the Administrator. The Administrator provides services, such as accounting, financial reporting, legal and compliance support and investor relations support, necessary to operate. The Dealer Manager, an affiliate of the Sponsor, serves as the dealer manager of the IPO. The Adviser and the Dealer Manager are related parties and will receive compensation and fees for services related to the IPO and for the investment and management of our assets.  The Adviser and Dealer Manager will receive fees during the offering, acquisition, operational and liquidation stages. The Adviser will pay to the Administrator a portion of the fees payable to the Adviser for the performance of these support services.

As a BDC, we are required to comply with certain regulatory requirements. For instance, we have to invest at least 70% of our total assets in “qualifying assets,” including securities of U.S. operating companies whose securities are not listed on a national securities exchange, U.S. operating companies with listed securities that have equity market capitalizations of less than $250 million, cash, cash equivalents, U.S. government securities and high-quality debt investments that mature in one year or less. In addition, we are only allowed to borrow money such that our asset coverage, which, as defined in the 1940 Act, measures the ratio of total assets less total liabilities (excluding borrowings) to total borrowings, equals at least 200% after such borrowing, with certain limited exceptions.


20



Significant Accounting Estimates and Critical Accounting Policies
 
Our financial statements are prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”), which requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Critical accounting policies are those that require the application of management’s most difficult, subjective, or complex judgments, often because of the need to make estimates about the effect of matters that are inherently uncertain and that may change in subsequent periods. In preparing the financial statements, management has made estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting periods. In preparing the financial statements, management has utilized available information, including our past history, industry standards and the current economic environment, among other factors, in forming its estimates and judgments, giving due consideration to materiality. Actual results may differ from these estimates. In addition, other companies may utilize different estimates, which may impact the comparability of our results of operations to those of companies in similar businesses. As our expected operating plans occur we will describe additional critical accounting policies in the notes to our future financial statements in addition to those discussed below.

Set forth below is a summary of the significant accounting estimates and critical accounting policies that management believes are important to the preparation of our financial statements. Certain of our accounting estimates are particularly important for an understanding of our financial position and results of operations and require the application of significant judgment by our management. As a result, these estimates are subject to a degree of uncertainty. These significant accounting estimates include:

Valuation of Portfolio Investments

Portfolio investments are reported on the balance sheet at fair value. On a quarterly basis we perform an analysis of each investment to determine fair value as follows:

Securities that are publicly-traded are valued at the reported closing price on the valuation date. Securities that are not publicly-traded but are traded through broker networks are valued using information including, but not limited to, indicative dealer quotes, values of like securities, and other available market information.

Investments in securities for which no active market exists are generally valued using either an enterprise value methodology and/or using debt fair value techniques. The enterprise value methodology determines the total value of a portfolio company, which is then allocated to individual securities in order of liquidation preference. To determine enterprise value we may use discounted cash flow techniques, comparisons to valuations of similar publicly traded companies, or comparisons to market transactions for comparable companies among other techniques where appropriate. Debt fair value techniques, such as market yield analysis where a discounted cash flow analysis is performed using estimated current market yield required on the debt instrument, may be applied to individual debt instruments.

In determining the fair value of investments, we may look to private merger and acquisition statistics, public trading multiples discounted for illiquidity and other factors, valuations implied by third-party investments in the portfolio companies, net income, revenues or, in limited instances, book value or liquidation value of a portfolio company, or other industry practices. We may also consider the size and scope of a portfolio company and its specific strengths and weaknesses, as well as any other factors we deem relevant in assessing the value. Portfolio securities that carry certain restrictions on sale are typically valued at a discount from the public market value of the security, if there is one.

Valuation of fixed income investments, such as loans and debt securities, depends upon a number of factors, including prevailing interest rates for like securities, expected volatility in future interest rates, call features, put features and other relevant terms of the debt. For investments without readily available market prices, we will incorporate these factors into discounted cash flow models to arrive at fair value. Other factors that our board of directors will consider include the borrower’s ability to adequately service its debt, the fair market value of the portfolio company in relation to the face amount of its outstanding debt and the quality of collateral securing our debt investments.


21



As part of our quarterly valuation process our Adviser may be assisted by an independent valuation firm engaged by our board of directors. The audit committee of our board of directors reviews each preliminary valuation and our Adviser and an independent valuation firm (if applicable) will supplement the preliminary valuation to reflect any comments provided by the audit committee. Our board of directors then discusses the valuations and determines the fair value of each investment, in good faith, based on the input of our Adviser, the independent valuation firm (to the extent applicable) and the audit committee of our board of directors.

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

Income Taxes

We have elected to be treated for federal income tax purposes, and intend to qualify thereafter, as a RIC under Subchapter M of the Code. Generally, a RIC is exempt from federal income taxes if it distributes at least 90% of its ‘‘investment company taxable income,’’ as defined in the Code, each year. Dividends paid up to one year after the current tax year can be carried back to the prior tax year for determining the dividends paid in such tax year. We intend to distribute sufficient dividends to maintain its RIC status each year. We are also subject to nondeductible federal excise taxes if we do not distribute at least 98% of net ordinary income each calendar year, 98.2% of capital gain net income for the one year period ending on October 31 of such calendar year, if any, and any recognized and undistributed income from prior years for which we paid no federal income taxes. We will generally endeavor each year to avoid any federal excise taxes.

New Accounting Pronouncements

Please see "New Accounting Pronouncements" in Note 2 - Summary of Significant Accounting Policies to the financial statements.

Net Realized Gains or Losses and Net Change in Unrealized Appreciation or Depreciation

We measure realized gains or losses by the difference between the net proceeds from the repayment or sale and the amortized cost basis of the investment, without regard to unrealized appreciation or depreciation previously recognized, but considering unamortized upfront fees and prepayment penalties. Net change in unrealized appreciation or depreciation reflects the change in portfolio investment values during the reporting period, including any reversal of previously recorded unrealized appreciation or depreciation, when gains or losses are realized.

Portfolio and Investment Activity

During the three months ended March 31, 2012, we made $24.0 million of investments in new portfolio companies and had $5.9 million in aggregate amount of exits and repayments, resulting in net investments of $18.1 million for the period. We had no investments as of March 31, 2011.

Our portfolio composition based on fair value at March 31, 2012 was as follows:

 
At March 31, 2012
 
Percentage of
Total Portfolio
 
Weighted Average
Current Coupon Yield (1)
Senior Secured First Lien Debt
63.3
%
 
9.6
%
Senior Secured Second Lien Debt
28.2

 
9.7

Senior Unsecured Debt
2.9

 
8.6

Equity/Other
5.6

 

Total
100.0
%
 
9.6
%

(1) Excludes the effect of the amortization or accretion of loan premiums or discounts. Including the effect of the amortization of premiums and accretion of discounts the weighted average effective yield was 11.10% at March 31, 2012.
   
    

22



The following table shows the portfolio composition by industry grouping at fair value at March 31, 2012 (dollars in thousands):

 
At March 31, 2012
 
Investments at
Fair Value
 
Percentage of
Total Portfolio
Beverage, Food & Tobacco
$
6,421

 
19.6
%
Banking, Finance, Insurance & Real Estate
3,812

 
11.6
%
Chemicals, Plastics & Rubber
3,574

 
10.9
%
Energy: Oil & Gas
3,412

 
10.4
%
High Tech Industries
3,106

 
9.4
%
Services: Business
2,595

 
7.9
%
Construction & Building
2,124

 
6.5
%
Telecommunications
1,475

 
4.5
%
Retail
1,353

 
4.1
%
Media: Diversified & Production
1,085

 
3.3
%
Healthcare & Pharmaceuticals
975

 
3.0
%
Capital Equipment
952

 
2.9
%
Utilities: Electric
588

 
1.7
%
Media: Advertising, Printing & Publishing
533

 
1.6
%
Automobile
507

 
1.6
%
Hotel, Gaming & Leisure
318

 
1.0
%
Total
$
32,830

 
100.0
%

Portfolio Asset Quality

Our Adviser employs an investment rating system to categorize our investments. In addition to various risk management and monitoring tools, our Adviser grades the credit risk of all debt investments on a scale of 1 to 5 no less frequently than quarterly. This system is intended primarily to reflect the underlying risk of a portfolio debt investment relative to the inherent risk at the time the original debt investment was made (i.e., at the time of acquisition), although it may also take into account under certain circumstances the performance of the portfolio company's business, the collateral coverage of the investment and other relevant factors.
 Loan Rating
 
Summary Description
1
  
Debt investment exceeding fundamental performance expectations and/or capital gain expected. Trends and risk factors since the time of investment are favorable.
 
 
2
  
Performing consistent with expectations and a full return of principal and interest expected. Trends and risk factors are neutral to favorable. All investments are initially rated a “2”.
 
 
3
  
Performing debt investment requiring closer monitoring. Trends and risk factors show some deterioration.
 
 
4
  
Underperforming debt investment. Some loss of interest or dividend expected, but still expecting a positive return on investment. Trends and risk factors are negative.
 
 
5
  
Underperforming debt investment with expected loss of interest and some principal.

As of March 31, 2012, all investments are performing as expected and are rated 2 in accordance with our loan rating system.




23



RESULTS OF OPERATIONS

Operating results for the three months ended March 31, 2012 and March 31, 2011 are as follows (dollars in thousands):
 
For the Three Months Ended March 31,
 
For the Three Months Ended March 31,
 
2012
 
2011
Total investment income
$
610

 
 
Total expenses, net
253

 
63

Net investment income (loss)
357

 
(63
)
Net realized gain
80

 

Net unrealized appreciation
333

 

Net increase (decrease) in net assets resulting from operations
$
770

 
$
(63
)
 
For the three months ended March 31, 2011, we had not yet commenced operations. Therefore, we did not have any income, cash flow from operations or funds available for distribution, nor did we declare any distributions or issue any shares to the public.

Investment Income

For the three months ended March 31, 2012, total investment income was $0.6 million, and was attributable to $24.0 million of investments in new portfolio companies. We held no investments during the three months ended March 31, 2011.

Operating Expenses

The composition of our operating expenses for the three months ended March 31, 2012 and March 31, 2011 are as follows (dollars in thousands):

 
For the Three Months Ended March 31,
 
For the Three Months Ended March 31,
 
2012
 
2011
Interest and credit facility financing expenses
$
106

 
$
13

Professional fees
119

 

Director fees
29

 

Insurance
51

 

Management fees
98

 

Incentive fees
149

 

General and administrative expenses
26

 
50

Operating expenses before expense waivers and reimbursements
578

 
63

Waiver of management and incentive fees
(247
)
 

Expense support reimbursement
(78
)
 

Total operating expenses, net of expense waivers and reimbursements
$
253

 
$
63


Interest and credit facility expenses for the three months ended March 31, 2012 were comprised of amortization of deferred financing costs related to our line of credit facility and interest on the balance drawn on our credit facility. For the three months ended March 31, 2012, management fees of $0.1 million and incentive fees of $0.1 million were incurred but waived by the Adviser.





24



Net Realized Gain from Investments

For the three months ended March 31, 2012, we had $5.9 million of principal repayments, resulting in $0.1 million of realized gains. We held no investments during the three months ended March 31, 2011.

Net Change in Unrealized Depreciation on Investments

For the three months ended March 31, 2012, our investments had $0.3 million of unrealized appreciation. We held no investments during the three months ended March 31, 2011.

Changes in Net Assets from Operations

For the three months ended March 31, 2012, we recorded a net increase in net assets resulting from operations of $0.8 million versus a net decrease in net assets resulting from operations of $0.01 million for the three months ended March 31, 2011. The difference is attributable to an increase in net investment income offset by an increase in interest expense for the three months ended March 31, 2012, as compared to the same period in the prior year after the effect of fees and expenses which were waived or assumed by the Adviser. Based on the weighted average shares of common stock outstanding for the three months ended March 31, 2012 and 2011, respectively, our per share net increase in net assets resulting from operations was $0.44 for the three months ended March 31, 2012, versus a per share net decrease in net assets resulting from operations of $2.82 for the three months ended March 31, 2011.

Cash Flows for the Three Months Ended March 31, 2012

For the three months ended March 31, 2012, net cash used in operating activities was $18.7 million. The level of cash flows used in or provided by operating activities is affected by the timing of purchases, redemptions and sales of portfolio investments, among other factors. Cash flows used in operating activities for the three months ended March 31, 2012 were mainly due to net income of $0.8 million adjusted for $24.0 million for purchases of investments, $0.9 million from decrease in unsettled trades payable, $0.1 million from net realized gain on investments, $0.3 million from net unrealized appreciation on investments and $0.1 million from increase in interest receivable offset by cash provided by operating activities of $5.9 million for repayments of investments, $0.01 million from decrease in prepaid expenses and other assets, $0.04 million from increase in accounts payable and accrued expenses, $0.01 million from increase in interest and credit facility fees payable and a non-cash item of $0.01 million (amortization of deferred credit facility financing costs).

Net cash provided by financing activities of $19.0 million during the three months ended March 31, 2012 related to net proceeds from the issuance of common stock of $16.3 million, and proceeds on line of credit of $4.1 million. These inflows were partially offset by payments of deferred offering costs of $0.7 million, payments to affiliate of $0.5 million, payments of financing cost of $0.05 million and payments of stockholder distributions of $0.2 million.

Cash Flows for the Three Months Ended March 31, 2011

Cash flows provided by operating activities were due to net loss of $60 thousand adjusted for an increase of $40 thousand in prepaid expenses and other assets, offset by an increase of $90 thousand in accounts payable and accrued expenses and a non-cash item of $10 thousand (amortization of deferred credit facility financing costs).

Net cash used in financing activities consisted of payments related to offering costs of $1 thousand (actual amount $691).

Liquidity and Capital Resources
 
We generate cash from the net proceeds of our ongoing continuous initial public offering and, as our portfolio of investments builds, from cash flows from fees, interest and dividends earned from our investments, as well as proceeds from sales of our investments. The Registration Statement offering for sale up to $1.5 billion of shares of our common stock (150.0 million shares at an initial public offering price of $10.00 per share) was declared effective on January 27, 2011. As of March 31, 2012, we had issued 2.7 million shares of our common stock for gross proceeds of $27.1 million including shares issued pursuant to the DRIP and shares purchased by the Adviser for our initial capitalization.
 

25




Our principal demands for funds in both the short-term and long-term are for portfolio investments, either directly or through investment interests, for the payment of operating expenses, distributions to our investors, repurchases under our stock repurchase program, and for the payment of principal and interest on our outstanding indebtedness. Generally, capital needs for investment activities will be met through net proceeds received from the sale of common stock through our public offering. We may also from time to time enter into other agreements with third parties whereby third parties will contribute to specific investment opportunities. Items other than investment acquisitions are expected to be met from a combination of the proceeds from the sale of common stock, cash flows from operations, and, during our IPO, reimbursements from the Adviser. Management expects that in the future, as our investment portfolio grows, our investments will generate sufficient cash flow to cover operating expenses and the payment of a monthly distribution. Other potential future sources of capital include proceeds from secured or unsecured financings from banks or other lenders, proceeds from private offerings, proceeds from the sale of investments and undistributed funds from operations. However, our ability to incur additional debt will be dependent on a number of factors, including our degree of leverage, the value of our unencumbered assets and borrowing restrictions that may be imposed by lenders.  Our ability to raise proceeds in our public offering will be dependent on a number of factors as well, including general market conditions for business development companies and market perceptions about us.

In January 2011, we entered into an agreement to obtain a revolving line of credit in the amount of $10.0 million with Main Street Capital Corp. The line of credit bears a variable interest rate based on the London Inter Bank Offered Rate plus 3.50%. The line will be available to us until January 2013 and permits us to periodically draw on the available funds to purchase securities or pay certain expenses. The line of credit agreement required us to pay a commitment fee of $0.1 million payable based on 1% of each draw on the available funds. Borrowings under the line of credit are secured by our assets including cash, securities, investments property, fixtures and equipment among other assets. At March 31, 2012, we had $10.0 million outstanding on this facility.

Our cash is deposited in either commercial bank accounts or custody accounts and may be deposited in short-term, highly liquid investments that we believe provide appropriate safety of principal.

Distributions

We have declared and paid cash distributions to our stockholders on a monthly basis since we commenced operations. As of March 31, 2012, the annualized yield for distributions declared was 7.90% based on our then current public offering price of $10.26 per share. From time to time, we may also pay interim distributions at the discretion of our board of directors. Our distributions may exceed our earnings, especially during the period before we have substantially invested the proceeds from our IPO. As a result, a portion of the distributions we make may represent a return of capital for tax purposes. For the three months ended March 31 2012, we have declared $0.4 million in distributions and paid distributions of $0.3 million, which consists of $0.2 million in cash and $0.1 million issued pursuant to the DRIP. As of March 31, 2012, we had $0.2 million of distributions unpaid. For the three months ended March 31, 2011, we had not yet commenced operations. Therefore, we did not have any income, cash flow from operations or funds available for distribution, nor did we declare any distributions or issue any shares to the public.

On March 1, 2012, the price for which newly-issued shares under the DRIP will be issued to stockholders was changed from 95% to 90% of the stock price that the shares are sold in the offering as of the date the distribution is made.

On March 29, 2012, we declared a special common stock distribution equal to $0.05 per share. The distribution was paid to stockholders of record on May 1, 2012.

We have not established any limit on the extent to which we may use borrowings, if any, or proceeds from our IPO to fund distributions (which may reduce the amount of capital we ultimately invest in assets). There can be no assurance that we will be able to sustain distributions at any particular level.

26




Election as a RIC

We have elected to be treated as a RIC under Subchapter M of the Code commencing with our taxable year ending December, 31 2012, and to qualify as a RIC thereafter. As a RIC, we generally will not have to pay corporate-level U.S. federal income taxes on any income that we distribute to our stockholders from our tax earnings and profits. To qualify as a RIC, we must, among other things, meet certain source-of-income and asset diversification requirements. In addition, in order to obtain RIC tax treatment, we must distribute to our stockholders, for each taxable year, at least 90% of our “investment company taxable income,” which is generally our net ordinary income plus the excess, if any, of realized net short-term capital gain over realized net long-term capital loss, or the annual distribution requirement. Even if we qualify as a RIC, we generally will be subject to corporate-level U.S. federal income tax on our undistributed taxable income and could be subject to U.S federal excise, state, local and foreign taxes.

  Inflation

The impact of inflation on our portfolio depends on the type of securities we hold. When inflation occurs, the value of our equity securities may fall in the short term.  However in the long term, a company’s revenue and earnings and, therefore, the value of the equity investment, should at least increase at the same pace as inflation. The effect of inflation on debt securities is more immediate and direct as inflation may decrease the value of fixed rate debt securities. However, not all debt securities are affected equally, the longer the term of the debt security, the more volatile the value of the investment. The process through which we will value the investments in our portfolio on a quarterly basis, market quotations and our multi-step valuation process as described in our significant accounting policies, will take the effect of inflation into account. 
 
Related-Party Transactions and Agreements
 
We have entered into agreements with affiliates of our Adviser, whereby we pay certain fees or reimbursements to our Adviser or its affiliates in connection with asset and service fees, reimbursement of operating costs and offering related costs. See Note 4 – Related Party Transactions and Arrangements in our financial statements included in this report for a discussion of the various related-party transactions, agreements and fees.

Contractual Obligations

The following table shows our payment obligations for repayment of debt and other contractual obligations at March 31, 2012 (dollars in thousands):

 
 
 
Payment Due by Period
 
Total
 
Less than 1 year
 
1 - 3 years
 
3- 5 years
 
More than 5 years
Revolving line of credit
$
10,000

 
$
10,000

 
 
 
$

 
$

Interest on revolving line of credit (1)
301

 
301

 
 
 

 

Total contractual obligations
$
10,301

 
$
10,301

 
$

 
$

 
$


(1)
Interest rate on variable rate debt is based on rate as of March 31, 2012.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.


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BUSINESS DEVELOPMENT CORPORATION OF AMERICA

Item 3.   Quantitative and Qualitative Disclosures about Market Risk.

The market risk associated with financial instruments and derivative financial instruments is the risk of loss from adverse changes in market prices or interest rates. Our market risk arises primarily from interest rate risk relating to interest rate fluctuations. Many factors including governmental monetary and tax policies, domestic and international economic and political considerations and other factors that are beyond our control contribute to interest rate risk. To meet our short and long-term liquidity requirements, we borrow funds at a combination of fixed and variable rates. Our interest rate risk management objectives are to limit the impact of interest rate changes in earnings and cash flows and to lower our overall borrowing costs. To achieve these objectives, from time to time, we may enter into interest rate hedge contracts such as swaps, collars and treasury lock agreements, subject to the requirements of the 1940 Act, in order to mitigate our interest rate risk with respect to various debt instruments. While hedging activities may insulate us against adverse changes in interest rates, they may also limit our ability to participate in benefits of lower interest rates with respect to our portfolio of investments with fixed interest rates. During the periods covered by this report, we did not engage in interest rate hedging activities.We would not hold or issue these derivative contracts for trading or speculative purposes. We do not have any foreign operations and thus we are not exposed to foreign currency fluctuations.

As of March 31, 2012, our debt included variable-rate debt, bearing a variable interest rate at the London Interbank Offered Rate plus 3.50%,with a carrying value of $10.0 million. Assuming that our current balance sheet was to remain constant and no actions were taken to alter our existing interest rate sensitivity, a 100 basis point move in interest rates up or down from their March 31, 2012 levels, would increase or decrease our interest expense and net income by $0.1 million annually. We are also exposed to changes in the fair value of our investment portfolio due to changes in market interest rates. The effect of a 100 basis point increase or decrease in interest rates from their March 31, 2012 levels would result in an increase or decrease in NAV of $0.2 million or 0.86% due to changes in the fair value of our assets. These amounts were determined by considering the impact of hypothetical interest rate changes on our borrowing costs, and, assume no other changes in our capital structure.

Because we may borrow money to make investments, our net investment income may be dependent on the difference between the rate at which we borrow funds and the rate at which we invest these funds. In periods of increasing interest rates, our cost of funds would increase, which may reduce our net investment income. As a result, there can be no assurance that a significant change in market interest rates will not have a material adverse effect on our net investment income.
    
Item 4.  Controls and Procedures.

Disclosure Controls and Procedures
 
In accordance with Rules 13a-15(b) and 15d-15(b) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), we, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, carried out an evaluation of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) of the Exchange Act) as of the end of the period covered by this Quarterly Report on Form 10-Q and determined that our disclosure controls and procedures are effective as of the end of the period covered by the Quarterly Report on Form 10-Q.

Change in Internal Control Over Financial Reporting
 
No change occurred in our internal control over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) of the Exchange Act) during the three months ended March 31, 2012 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
 


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BUSINESS DEVELOPMENT CORPORATION OF AMERICA

PART II
Item 1. Legal Proceedings.

Neither we nor our investment adviser are currently subject to any material legal proceedings.
Item 1A. Risk Factors.

In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I., “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2011, which could materially affect our business, financial condition and/or operating results. The risks described in our Annual Report on Form 10-K are not the only risks we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results. There have been no material changes in the risk factors included in our annual report on Form 10-K.

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

Not applicable.
    
Item 3. Defaults upon Senior Securities.

Not applicable.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

Not applicable.

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BUSINESS DEVELOPMENT CORPORATION OF AMERICA


Item 6. Exhibits.

The exhibits listed on the Exhibit Index (following the signatures section of this report) are included, or incorporated by reference, in this Quarterly Report on Form 10-Q.
Exhibit No.
Description
 
 
3.1
Articles of Amendment and Restatement of the Registrant (previously filed as Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on July 8, 2011 and herein incorporated by reference).
 
 
3.2
Bylaws (previously filed as Exhibit(b) to the Company’s Pre-Effective Amendment No. 1 to its Registration Statement on Form N - 2 filed November 24, 2010 and herein incorporated by reference).
 
 
4.1
Form of Subscription Agreement (previously filed as Appendix A to the Prospectus in the Company's Registration Statement on Form N-2 filed January 24, 2011 and herein incorporated by reference).
 
 
10.1
Amended and Restated Investment Advisory and Management Services Agreement by and between the Company and Adviser (previously filed as Exhibit 10.1 to the Company's Current Report on Form 8-K filed June 23, 2011, and herein incorporated by reference).
 
 
10.2
Form of Dealer Manager Agreement with Reality Capital Securities, LLC (previously filed as Exhibit (h)(1) to the Company's Pre-Effective Amendment No. 2 to its Registration Statement on Form N-2 filed January 14, 2011, and herein incorporated by reference).
 
 
10.3
Form of Soliciting Dealer Agreement (previously filed as Exhibit (h)(2) to the Company's Pre-Effective Amendment No. 2 to its Registration Statement on Form N-2 filed January 14, 2011, and herein incorporated by reference).
 
 
10.4
Loan and Security Agreement by and between the Company and Main Street Capital Corporation (previously filed as Exhibit (k)(2) to the Company's Pre-Effective Amendment No. 2 to its Registration Statement on Form N-2 filed January 14, 2011, and herein incorporated by reference).
 
 
10.5
Revolving Promissory Note (previously filed as Exhibit (k)(3) to the Company's Pre-Effective Amendment No.2 to its Registration Statement on Form N-2 filed January 14, 2011, and herein incorporated by reference).
 
 
10.6
Amended and Restated Subscription Escrow Agreement with Wells Fargo Bank (previously filed as Exhibit (k)(1) to the Company's Post Effective Amendment No. 3 to its Registration Statement on Form N-2 filed November 3, 2011, and herein incorporated by reference).
 
 
10.7
Fund Administration Servicing Agreement by and between the Company and US Bancorp Fund Services, LLC (previously filed as Exhibit 10.9 to the Company's Annual Report on Form 10-K filed March 31, 2011 and herein incorporated by reference).
 
 
10.8
Fund Accounting Servicing Agreement by and between the Company and US Bancorp Fund Services, LLC (previously filed as Exhibit 10.10 to the Company's Annual Report on Form 10-K filed March 31, 2011, and herein incorporated by reference)
 
 
10.9
Distribution Reinvesment Plan (previously filed as Exhibit E to the Company's Pre-Effective Amendment No. 1 to its Registration Statement on Form N-2 filed November 24, 2010, and herein incorporated by reference).
 
 
10.10
Assignment and Assumption Agreement (previously filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on August 31, 2011 and herein incorporated by reference).
 
 
10.11
Custody Agreement (previously filed as Exhibit (j) to the Company’s Post-Effective Amendment No. 2 to its Registration Statement on Form N-2 filed on September 1, 2011 and herein incorporated by reference).
 
 
10.12
Expense Support Agreement dated November 9, 2011 (previously filed as Exhibit 10.4 to the Company’s Quarterly Report on Form 10-Q filed on November 14, 2011 and herein incorporated by reference).
 
 
14.1
Code of Ethics (previously filed as Exhibit 14.1 on the Company's Annual Report on Form 10-K filed March 31, 2011, and herein incorporated by reference).
 
 
31.1
Certification of the Principal Executive Officer of the Company pursuant to Securities Exchange Act Rule 13a-14(a) or 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).
 
 
31.2
Certification of the Principal Financial Officer of the Company pursuant to Securities Exchange Act Rule 13a-14(a) or 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).
 
 
32
Written statement of the Principal Executive Officer and Principal Financial Officer of the Company pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith).

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BUSINESS DEVELOPMENT CORPORATION OF AMERICA

SIGNATURES
 
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
 
 
 
 
BUSINESS DEVELOPMENT CORPORATION OF AMERICA
 
 
By:
/s/ Nicholas S. Schorsch
Name: Nicholas S. Schorsch
Title: Chairman and Chief Executive Officer
(Principal Executive Officer)
 
 
By:
/s/ Brian S. Block
Name: Brian S. Block
Title: Executive Vice President and Chief Financial Officer
(Principal Financial Officer)

Date: May 15, 2012



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