Attached files
file | filename |
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EX-32.2 - EX-32.2 - THL Credit, Inc. | d576741dex322.htm |
EX-32.1 - EX-32.1 - THL Credit, Inc. | d576741dex321.htm |
EX-31.1 - EX-31.1 - THL Credit, Inc. | d576741dex311.htm |
EX-31.2 - EX-31.2 - THL Credit, Inc. | d576741dex312.htm |
Table of Contents
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 June 30, 2013
OR
¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. |
For the transition period from to
Commission file number 814-00789
THL CREDIT, INC.
(Exact Name of Registrant as Specified in Its Charter)
Delaware | 27-0344947 | |
(State or Other Jurisdiction of Incorporation or Organization) |
(I.R.S. Employer Identification No.) | |
100 Federal St., 31st Floor, Boston, MA | 02110 | |
(Address of Principal Executive Offices) | (Zip Code) |
Registrants Telephone Number, Including Area Code: 800-454-4424
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, as amended, 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 ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ¨ No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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.
Large accelerated filer | ¨ | Accelerated filer | x | |||
Non-Accelerated filer | ¨ (Do not check if a smaller reporting company) | Smaller reporting company | ¨ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Securities Exchange Act of 1934). Yes ¨ No x
The number of shares of the registrants common stock, $0.001 par value per share, outstanding at August 6, 2013 was 33,905,202.
Table of Contents
THL CREDIT, INC.
FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 2013
Table of Contents
PART 1. FINANCIAL INFORMATION
In this Quarterly Report, Company, we, us and our refer to THL Credit, Inc. and its wholly owned subsidiaries unless the context states otherwise.
Item 1. | Financial Statements |
THL Credit, Inc. and Subsidiaries
Consolidated Statements of Assets and Liabilities
(in thousands, except per share data)
June
30, 2013 (unaudited) |
December 31, 2012 |
|||||||
Assets: |
||||||||
Investments at fair value: |
||||||||
Non-controlled, non-affiliated investments (cost of $503,479 and $391,699, respectively) |
$ | 507,137 | $ | 394,339 | ||||
Non-controlled, affiliated investments (cost of $10 and $10, respectively) |
10 | 10 | ||||||
|
|
|
|
|||||
Total investments at fair value (cost of $503,489 and $391,709, respectively) |
507,147 | 394,349 | ||||||
Cash |
34,377 | 4,819 | ||||||
Deferred financing costs |
4,543 | 3,817 | ||||||
Interest receivable |
7,905 | 2,594 | ||||||
Due from affiliate |
543 | 420 | ||||||
Receivable for paydown of investment |
392 | 125 | ||||||
Prepaid expenses and other assets |
134 | 134 | ||||||
|
|
|
|
|||||
Total assets |
$ | 555,041 | $ | 406,258 | ||||
|
|
|
|
|||||
Liabilities: |
||||||||
Loans payable |
$ | 70,000 | $ | 50,000 | ||||
Payable for investments purchased |
14,850 | | ||||||
Accrued incentive fees |
5,193 | 3,279 | ||||||
Base management fees payable |
1,673 | 1,514 | ||||||
Income taxes payable |
1,548 | | ||||||
Accrued expenses |
773 | 739 | ||||||
Deferred tax liability |
386 | 454 | ||||||
Due to affiliate |
180 | | ||||||
Interest rate derivative |
66 | 1,053 | ||||||
Accrued credit facility fees and interest |
57 | 115 | ||||||
Accrued administrator expenses |
20 | 304 | ||||||
Dividends payable |
| 1,316 | ||||||
|
|
|
|
|||||
Total liabilities |
94,746 | 58,774 | ||||||
Commitments and contingencies (Note 8) |
||||||||
Net Assets: |
||||||||
Preferred stock, par value $.001 per share, 100,000 preferred shares authorized, no preferred shares issued and outstanding |
| | ||||||
Common stock, par value $.001 per share, 100,000 common shares authorized, 33,905 and 26,315 shares issued and outstanding at June 30, 2013 and December 31, 2012, respectively. |
34 | 26 | ||||||
Paid-in capital in excess of par |
449,928 | 343,723 | ||||||
Net unrealized appreciation on investments, net of provision for taxes of $386 and $454, respectively |
3,272 | 2,187 | ||||||
Net unrealized depreciation on interest rate derivative |
(66 | ) | (1,053 | ) | ||||
Interest rate derivative periodic interest payments, net |
(388 | ) | (180 | ) | ||||
Accumulated undistributed net realized gains, net of provision for taxes of $1,097 and $0, respectively |
2,034 | 348 | ||||||
Accumulated undistributed net investment income |
5,481 | 2,433 | ||||||
|
|
|
|
|||||
Total net assets |
460,295 | 347,484 | ||||||
|
|
|
|
|||||
Total liabilities and net assets |
$ | 555,041 | $ | 406,258 | ||||
|
|
|
|
|||||
Net asset value per share |
$ | 13.58 | $ | 13.20 | ||||
|
|
|
|
See accompanying notes to these consolidated financial statements.
2
Table of Contents
THL Credit, Inc. and Subsidiaries
Consolidated Statements of Operations (unaudited)
(in thousands, except per share data)
Three months ended June 30, | Six months ended June 30, | |||||||||||||||
2013 | 2012 | 2013 | 2012 | |||||||||||||
Investment Income: |
||||||||||||||||
From non-controlled, non-affiliated investments: |
||||||||||||||||
Interest income |
$ | 16,888 | $ | 11,003 | $ | 30,779 | $ | 21,153 | ||||||||
Dividend income |
4,527 | | 4,527 | | ||||||||||||
Other income |
510 | 62 | 545 | 131 | ||||||||||||
From non-controlled, affiliated investment: |
||||||||||||||||
Other income |
747 | 694 | 1,244 | 1,224 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total investment income |
22,672 | 11,759 | 37,095 | 22,508 | ||||||||||||
Expenses: |
||||||||||||||||
Incentive fees |
3,728 | 1,635 | 6,040 | 3,062 | ||||||||||||
Base management fees |
1,673 | 1,107 | 3,196 | 2,147 | ||||||||||||
Credit facility interest and fees |
1,401 | 760 | 2,495 | 1,213 | ||||||||||||
Administrator expenses |
761 | 677 | 1,650 | 1,501 | ||||||||||||
Other general and administrative expenses |
497 | 337 | 847 | 619 | ||||||||||||
Professional fees |
415 | 357 | 641 | 562 | ||||||||||||
Amortization of deferred financing costs |
269 | 237 | 765 | 449 | ||||||||||||
Directors fees |
159 | 135 | 286 | 269 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total expenses |
8,903 | 5,245 | 15,920 | 9,822 | ||||||||||||
Income tax provision |
496 | | 496 | | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net investment income |
13,273 | 6,514 | 20,679 | 12,686 | ||||||||||||
Realized and Unrealized Gain on Investments: |
||||||||||||||||
Net realized gain on non-controlled, non-affiliated investments |
2,782 | | 2,782 | | ||||||||||||
Income tax provision, realized gain |
(1,097 | ) | | (1,097 | ) | | ||||||||||
Net change in unrealized appreciation on investments: |
||||||||||||||||
Non-controlled, non-affiliated investments |
(681 | ) | 27 | 1,018 | (438 | ) | ||||||||||
Non-controlled, affiliated investments |
| | | (1 | ) | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net change in unrealized appreciation on investments |
(681 | ) | 27 | 1,018 | (439 | ) | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Benefit for taxes on unrealized appreciation on investments |
596 | | 67 | | ||||||||||||
Interest rate derivative periodic interest payments, net |
(104 | ) | | (208 | ) | | ||||||||||
Unrealized appreciation (depreciation) on interest rate derivative |
846 | (574 | ) | 988 | (574 | ) | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net increase in net assets resulting from operations |
$ | 15,615 | $ | 5,967 | $ | 24,229 | $ | 11,673 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Net investment income per common share: |
||||||||||||||||
Basic and diluted |
$ | 0.49 | $ | 0.32 | $ | 0.78 | $ | 0.63 | ||||||||
Net increase in net assets resulting from operations per common share: |
||||||||||||||||
Basic and diluted |
$ | 0.58 | $ | 0.30 | $ | 0.91 | $ | 0.58 | ||||||||
Weighted average shares of common stock outstanding: |
||||||||||||||||
Basic and diluted |
26,899 | 20,220 | 26,609 | 20,220 |
See accompanying notes to these consolidated financial statements.
3
Table of Contents
THL Credit, Inc. and Subsidiaries
Consolidated Statements of Changes in Net Assets (unaudited)
(in thousands, except per share data)
For the six months ended June 30, | ||||||||
2013 | 2012 | |||||||
Increase in net assets from operations: |
||||||||
Net investment income |
$ | 20,679 | $ | 12,686 | ||||
Interest rate derivative periodic interest payments, net |
(208 | ) | | |||||
Realized gain on investments |
2,782 | | ||||||
Income tax provision, realized gain |
(1,097 | ) | ||||||
Net change in unrealized appreciation on investments |
1,018 | (439 | ) | |||||
Benefit for taxes on unrealized appreciation on investments |
67 | | ||||||
Net change in unrealized depreciation on interest rate derivative |
988 | (574 | ) | |||||
|
|
|
|
|||||
Net increase in net assets resulting from operations |
24,229 | 11,673 | ||||||
Distributions to stockholders |
(17,631 | ) | (12,941 | ) | ||||
Capital share transactions: |
||||||||
Issuance of common stock |
110,966 | | ||||||
Less offering costs |
(4,753 | ) | | |||||
|
|
|
|
|||||
Net increase in net assets from capital share transactions |
106,213 | | ||||||
|
|
|
|
|||||
Total increase (decrease) in net assets |
112,811 | (1,268 | ) | |||||
Net assets at beginning of period |
347,484 | 267,617 | ||||||
|
|
|
|
|||||
Net assets at end of period |
$ | 460,295 | $ | 266,349 | ||||
|
|
|
|
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Common shares outstanding at end of period |
33,905 | 20,220 | ||||||
|
|
|
|
|||||
Capital share activity: |
||||||||
Shares sold |
7,590 | | ||||||
Shares issued from reinvestment of dividends |
| 2 | ||||||
|
|
|
|
|||||
7,590 | 2 | |||||||
|
|
|
|
See accompanying notes to these consolidated financial statements.
4
Table of Contents
THL Credit, Inc. and Subsidiaries
Consolidated Statements of Cash Flows (unaudited)
(in thousands)
For the six months ended June 30, | ||||||||
2013 | 2012 | |||||||
Cash flows from operating activities: |
||||||||
Net increase in net assets resulting from operations |
$ | 24,229 | $ | 11,673 | ||||
Adjustments to reconcile net increase in net assets resulting from operations to net cash used for operating activities: |
||||||||
Increase in payable for investments purchased |
14,850 | | ||||||
Net change in unrealized appreciation on investments |
(1,018 | ) | 439 | |||||
Unrealized (appreciation) depreciation on interest rate derivative |
(988 | ) | 574 | |||||
Purchases of investments |
(200,059 | ) | (101,811 | ) | ||||
Proceeds from sale and paydown of investments |
91,893 | 41,025 | ||||||
Increase in investments due to PIK |
(1,874 | ) | (1,816 | ) | ||||
Amortization of deferred financing costs |
765 | 449 | ||||||
Accretion of discounts on investments and other fees |
(2,007 | ) | (1,182 | ) | ||||
Increase in interest receivable |
(5,311 | ) | (1,939 | ) | ||||
Increase in due from affiliate |
(123 | ) | (173 | ) | ||||
Increase in prepaid expenses and other assets |
| (50 | ) | |||||
(Decrease) increase in accrued expenses |
(63 | ) | 29 | |||||
(Decrease) increase in accrued credit facility fees and interest |
(58 | ) | 473 | |||||
Increase in income taxes payable |
1,548 | | ||||||
Decrease in deferred tax liability |
(67 | ) | | |||||
Increase in base management fees payable |
159 | 94 | ||||||
Decrease in accrued administrator expenses |
(284 | ) | (339 | ) | ||||
Increase (decrease) in incentive fees payable |
1,915 | (21 | ) | |||||
Decrease in dividends payable |
(1,316 | ) | | |||||
Increase (decrease) in due to affiliate |
180 | (21 | ) | |||||
|
|
|
|
|||||
Net cash used for operating activities |
(77,629 | ) | (52,596 | ) | ||||
Cash flows from financing activities: |
||||||||
Borrowings under credit facility |
228,700 | 117,800 | ||||||
Repayments under credit facility |
(208,700 | ) | (52,600 | ) | ||||
Issuance of shares of common stock |
110,966 | | ||||||
Offering costs paid |
(4,657 | ) | (90 | ) | ||||
Distributions paid to stockholders |
(17,631 | ) | (12,941 | ) | ||||
Increase in deferred financing costs |
(1,491 | ) | (2,924 | ) | ||||
|
|
|
|
|||||
Net cash provided by financing activities |
107,187 | 49,245 | ||||||
|
|
|
|
|||||
Net increase (decrease) in cash |
29,558 | (3,351 | ) | |||||
Cash, beginning of period |
4,819 | 5,573 | ||||||
|
|
|
|
|||||
Cash, end of period |
$ | 34,377 | $ | 2,222 | ||||
|
|
|
|
|||||
Supplemental Disclosure of Cash Flow Information: |
||||||||
Cash interest paid |
$ | 1,609 | $ | 366 |
See accompanying notes to these consolidated financial statements.
5
Table of Contents
THL Credit, Inc. and Subsidiaries
Consolidated Schedule of Investments (unaudited)
June 30, 2013
(dollar amounts in thousands)
Portfolio company/Type of Investment(1) | Industry | Interest Rate(2) | Initial Acquisition Date |
Maturity/ Dissolution Date |
Principal(3) No. of Shares / No. of Units |
Cost | Fair Value | |||||||||||||||||
Non-controlled/non-affiliated investments110.18% of net asset value |
||||||||||||||||||||||||
20-20 Technologies Inc. |
||||||||||||||||||||||||
Senior Secured |
Business services | 13.3%(5) |
9/12/12 | 9/12/17 | $ | 13,825 | $ | 13,521 | $ | 13,652 | ||||||||||||||
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|
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13,521 | 13,652 | |||||||||||||||||||||||
Adirondack Park CLO Ltd. |
||||||||||||||||||||||||
Subordinated Notes, |
Financial services | 13.7%(19) | 3/27/13 | 4/15/24 | $ | 10,000 | 9,318 | 9,318 | ||||||||||||||||
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|
|||||||||||||||||||||
9,318 | 9,318 | |||||||||||||||||||||||
AIM Media Texas Operating, LLC |
||||||||||||||||||||||||
Second Lien Loan |
Media | 16.0%(6) (13.0% Cash and 3.0% PIK) |
6/21/12 | 6/21/17 | $ | 6,395 | 6,258 | 6,395 | ||||||||||||||||
Member interest(7)(8) |
6/21/12 | | 0.763636 | 764 | 1,000 | |||||||||||||||||||
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|
|||||||||||||||||||||
7,022 | 7,395 | |||||||||||||||||||||||
Airborne Tactical Advantage |
||||||||||||||||||||||||
Senior Secured Note |
Aerospace & | 11.0% | 9/7/11 | 3/7/16 | $ | 4,000 | 3,873 | 3,920 | ||||||||||||||||
Class A Warrants(9) |
defense | 9/7/11 | | 512 | 113 | 120 | ||||||||||||||||||
|
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|
|||||||||||||||||||||
3,986 | 4,040 | |||||||||||||||||||||||
Blue Coat Systems, Inc. |
||||||||||||||||||||||||
Second Lien Term Loan |
Business services | 9.5% (LIBOR + 8.5%) |
6/27/13 | 6/27/20 | $ | 15,000 | 14,850 | 14,850 | ||||||||||||||||
|
|
|
|
|||||||||||||||||||||
14,850 | 14,850 | |||||||||||||||||||||||
C&K Market, Inc. |
||||||||||||||||||||||||
Senior Subordinated Note |
Retail & grocery | 18.0% |
11/3/10 | 11/3/15 | $ | 13,650 | 13,302 | 12,831 | ||||||||||||||||
Warrant for Class B |
11/3/10 | | 157 | 349 | | |||||||||||||||||||
|
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|
|||||||||||||||||||||
13,651 | 12,831 | |||||||||||||||||||||||
Connecture, Inc. |
||||||||||||||||||||||||
Second Lien Term Loan |
Business services | 12.5% (LIBOR + 11.0%) |
3/18/13 | 7/15/18 | $ | 7,000 | 6,866 | 6,866 | ||||||||||||||||
|
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|
|||||||||||||||||||||
6,866 | 6,866 | |||||||||||||||||||||||
Country Pure Foods, LLC |
||||||||||||||||||||||||
Subordinated Term Loan |
Food & beverage | 13.0% | 8/13/10 | 2/13/17 | $ | 16,181 | 16,181 | 16,019 | ||||||||||||||||
|
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|
|||||||||||||||||||||
16,181 | 16,019 | |||||||||||||||||||||||
CRS Reprocessing, LLC |
||||||||||||||||||||||||
Senior Secured Term Loan |
Manufacturing | 10.5% (LIBOR + 9.5%) |
6/16/11 | 6/16/15 | $ | 18,302 | 18,217 | 18,302 | ||||||||||||||||
|
|
|
|
|||||||||||||||||||||
18,217 | 18,302 |
(Continued on next page)
See accompanying notes to these consolidated financial statements.
6
Table of Contents
THL Credit, Inc. and Subsidiaries
Consolidated Schedule of Investments (unaudited) (Continued)
June 30, 2013
(dollar amounts in thousands)
Portfolio company/Type of Investment(1) | Industry | Interest Rate(2) | Initial Acquisition Date |
Maturity/ Dissolution Date |
Principal(3) No. of Shares / No. of Units |
Cost | Fair Value | |||||||||||||||||
Cydcor LLC |
||||||||||||||||||||||||
Senior Secured Term Loan |
Business services | 9.8% (LIBOR +7.3%) |
6/17/13 | 6/12/17 | $ | 14,013 | 14,013 | 14,013 | ||||||||||||||||
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|
|||||||||||||||||||||
14,013 | 14,013 | |||||||||||||||||||||||
Dr. Fresh, LLC |
||||||||||||||||||||||||
Subordinated Term Loan |
Consumer products | 14.0%(6) (12.0% Cash and 2.0% PIK) |
5/15/12 | 11/15/17 | $ | 14,301 | 14,055 | 14,229 | ||||||||||||||||
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|
|||||||||||||||||||||
14,055 | 14,229 | |||||||||||||||||||||||
Duff & Phelps Corporation |
||||||||||||||||||||||||
Tax Receivable Agreement |
Financial services | 17.0%(12) | 6/1/12 | 12/31/29 | | 12,262 | 13,828 | |||||||||||||||||
Senior Secured Term Loan(11) |
4.5% (LIBOR + 3.5%) |
5/15/13 | 4/23/20 | $ | 250 | 254 | 254 | |||||||||||||||||
|
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|
|||||||||||||||||||||
12,516 | 14,082 | |||||||||||||||||||||||
Embarcadero Technologies, Inc. |
||||||||||||||||||||||||
First Lien Term Loan |
Business services | 10.2%(5) |
2/15/13 | 12/28/17 | $ | 10,075 | 9,933 | 9,949 | ||||||||||||||||
|
|
|
|
|||||||||||||||||||||
9,933 | 9,949 | |||||||||||||||||||||||
Expert Global Solutions, Inc. |
||||||||||||||||||||||||
Second Lien Term Loan |
Business services | 12.50% (LIBOR + 10.25% and 0.75% PIK) |
6/21/13 | 10/3/18 | $ | 18,727 | 19,007 | 19,007 | ||||||||||||||||
|
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|
|||||||||||||||||||||
19,007 | 19,007 | |||||||||||||||||||||||
Express Courier International, Inc. |
||||||||||||||||||||||||
Secured Subordinated Term Loan |
Business services | 15.0%(13) (PIK) | 1/17/12 | 7/17/16 | $ | 7,766 | 7,652 | 6,368 | ||||||||||||||||
|
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|
|||||||||||||||||||||
7,652 | 6,368 | |||||||||||||||||||||||
Firebirds International, LLC |
||||||||||||||||||||||||
Common stock(9) |
Restaurants | 5/17/11 | | 2 | 191 | 260 | ||||||||||||||||||
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|
|
|||||||||||||||||||||
191 | 260 | |||||||||||||||||||||||
Food Processing Holdings, LLC |
||||||||||||||||||||||||
Senior Subordinated Note (16) |
Food & beverage | 15.0%(6) (12.0% Cash and 3.0% PIK) |
2/28/12 | 8/28/17 | $ | 14,058 | 13,947 | 13,847 | ||||||||||||||||
Class A Units(9) |
4/20/10 | | 162.44 | 163 | 198 | |||||||||||||||||||
Class B Units(9) |
4/20/10 | | 406.09 | 408 | 150 | |||||||||||||||||||
|
|
|
|
|||||||||||||||||||||
14,518 | 14,195 | |||||||||||||||||||||||
Freeport Financial SBIC Fund LP |
||||||||||||||||||||||||
Member interest(18) |
Financial services | 6/14/13 | | | 147 | 147 | ||||||||||||||||||
|
|
|
|
|||||||||||||||||||||
147 | 147 |
(Continued on next page)
See accompanying notes to these consolidated financial statements.
7
Table of Contents
THL Credit, Inc. and Subsidiaries
Consolidated Schedule of Investments (unaudited) (Continued)
June 30, 2013
(dollar amounts in thousands)
Portfolio company/Type of Investment(1) | Industry | Interest Rate(2) | Initial Acquisition Date |
Maturity/ Dissolution Date |
Principal(3) No. of Shares / No. of Units |
Cost | Fair Value | |||||||||||||||||
Gold, Inc. |
||||||||||||||||||||||||
Subordinated Term Loan |
Consumer products | 15.0%(6) (13.0% Cash and 2.0% PIK) |
12/31/12 | 12/31/17 | $ | 16,555 | 16,247 | 16,555 | ||||||||||||||||
|
|
|
|
|||||||||||||||||||||
16,247 | 16,555 | |||||||||||||||||||||||
Gryphon Partners 3.5, L.P. |
||||||||||||||||||||||||
Partnership interest(18) |
Financial services | | 11/20/12 | 12/21/18 | $ | 1,195 | 311 | 836 | ||||||||||||||||
|
|
|
|
|||||||||||||||||||||
311 | 836 | |||||||||||||||||||||||
Harrison Gypsum, LLC |
||||||||||||||||||||||||
Senior Secured Term Loan |
Industrials | 10.5%(6) (LIBOR + 8.5% and 0.5% PIK) |
12/21/12 | 12/21/17 | $ | 24,876 | 24,535 | 24,628 | ||||||||||||||||
|
|
|
|
|||||||||||||||||||||
24,535 | 24,628 | |||||||||||||||||||||||
Hart InterCivic, Inc. |
||||||||||||||||||||||||
Senior Secured Term Loan |
Election services | 10.5% (LIBOR + 9.0%) |
7/1/11 | 7/1/16 | $ | 8,775 | 8,658 | 8,643 | ||||||||||||||||
Senior Secured Revolving Loan(10)(15) |
10.5% (LIBOR + 9.0%) |
7/1/11 | 7/1/16 | | (36 | ) | | |||||||||||||||||
|
|
|
|
|||||||||||||||||||||
8,622 | 8,643 | |||||||||||||||||||||||
HEALTHCAREfirst, Inc. |
||||||||||||||||||||||||
Senior Secured Term Loan |
Business services | 11.5%(5) |
8/31/12 | 8/30/17 | $ | 9,550 | 9,300 | 9,216 | ||||||||||||||||
|
|
|
|
|||||||||||||||||||||
9,300 | 9,216 | |||||||||||||||||||||||
Holland Intermediate Acquisition Corp. |
||||||||||||||||||||||||
Senior Secured Term Loan |
Energy / Utilities | 10.0% (LIBOR + 9.0%) |
5/29/13 | 5/29/18 | $ | 29,227 | 28,602 | 28,602 | ||||||||||||||||
|
|
|
|
|||||||||||||||||||||
28,602 | 28,602 | |||||||||||||||||||||||
IMDS Corporation |
||||||||||||||||||||||||
Subordinated Term Loan |
Healthcare, device manufacturing | 15.5%(6) (12.5% Cash and 3.0% PIK) |
5/2/12 | 11/2/17 | $ | 13,467 | 13,190 | 12,726 | ||||||||||||||||
|
|
|
|
|||||||||||||||||||||
13,190 | 12,726 | |||||||||||||||||||||||
Ingenio Acquisition, LLC |
||||||||||||||||||||||||
Senior Secured Term Loan |
Media | 12.75%(6) (11.25% Cash and 1.5% PIK) |
5/10/13 | 5/10/18 | $ | 9,667 | 9,477 | 9,477 | ||||||||||||||||
|
|
|
|
|||||||||||||||||||||
9,477 | 9,477 | |||||||||||||||||||||||
Jefferson Management Holdings, LLC |
||||||||||||||||||||||||
Member interest(7)(8) |
Healthcare, dental services | 4/20/10 | | 1,393 | 1,393 | 1,043 | ||||||||||||||||||
|
|
|
|
|||||||||||||||||||||
1,393 | 1,043 |
(Continued on next page)
See accompanying notes to these consolidated financial statements.
8
Table of Contents
THL Credit, Inc. and Subsidiaries
Consolidated Schedule of Investments (unaudited) (Continued)
June 30, 2013
(dollar amounts in thousands)
Portfolio company/Type of Investment(1) | Industry | Interest Rate(2) | Initial Acquisition Date |
Maturity/ Dissolution Date |
Principal(3) No. of Shares / No. of Units |
Cost | Fair Value | |||||||||||||||||
LCP Capital Fund LLC |
||||||||||||||||||||||||
Member interest(8)(17)(18) |
Financial services | 12.5%(20) | 4/20/10 | 2/15/15 | $ | 8,354 | 8,354 | 8,354 | ||||||||||||||||
|
|
|
|
|||||||||||||||||||||
8,354 | 8,354 | |||||||||||||||||||||||
Loadmaster Derrick & Equipment, Inc. |
||||||||||||||||||||||||
Senior Secured Term Loan |
Energy / Utilities |
9.25% (LIBOR + 8.25%) |
9/28/12 | 9/28/17 | $ | 9,709 | 9,482 | 9,515 | ||||||||||||||||
|
|
|
|
|||||||||||||||||||||
9,482 | 9,515 | |||||||||||||||||||||||
Martex Fiber Southern Corp. |
||||||||||||||||||||||||
Subordinated Term Loan |
Textiles | 13.5%(6) (12.0% Cash and 1.5% PIK) |
4/30/12 | 10/31/19 | $ | 8,822 | 8,704 | 8,469 | ||||||||||||||||
|
|
|
|
|||||||||||||||||||||
8,704 | 8,469 | |||||||||||||||||||||||
Octagon Income Note XIV, Ltd. |
||||||||||||||||||||||||
Income Notes, Residual Interest(4)(18) |
Financial Services | 15.5%(19) | 12/19/12 | 1/15/24 | $ | 10,000 | 9,442 | 9,442 | ||||||||||||||||
|
|
|
|
|||||||||||||||||||||
9,442 | 9,442 | |||||||||||||||||||||||
OEM Group, Inc. |
||||||||||||||||||||||||
Senior Secured Note |
Manufacturing | 15.0%(6) (12.5% Cash and 2.5% PIK) |
10/7/10 | 10/7/15 | $ | 14,970 | 14,737 | 14,072 | ||||||||||||||||
Warrant for Common |
| | ||||||||||||||||||||||
|
|
|
|
|||||||||||||||||||||
14,737 | 14,072 | |||||||||||||||||||||||
Pinnacle Operating Corporation |
||||||||||||||||||||||||
Senior Secured Term Loan |
Chemicals | 11.5% (LIBOR + 10.3%) |
11/26/12 | 5/15/19 | $ | 10,000 | 9,546 | 10,050 | ||||||||||||||||
|
|
|
|
|||||||||||||||||||||
9,546 | 10,050 | |||||||||||||||||||||||
SeaStar Solutions (f.k.a. Marine |
||||||||||||||||||||||||
Senior Subordinated Note |
Manufacturing | 13.5%(6) (11.5% Cash and 2.0% PIK) |
9/18/12 | 5/18/17 | $ | 16,500 | 16,176 | 16,418 | ||||||||||||||||
|
|
|
|
|||||||||||||||||||||
16,176 | 16,418 | |||||||||||||||||||||||
Sheplers, Inc. |
||||||||||||||||||||||||
Senior Secured (2nd lien) Term Loan(7) |
Retail & grocery |
13.2% (LIBOR + 11.7%) |
12/20/11 | 12/20/16 | $ | 11,426 | 11,206 | 11,198 | ||||||||||||||||
Mezzanine Loan(7) |
17.0%(21) (10.0% Cash and 7.0% PIK) |
12/20/11 | 12/20/17 | $ | 1,839 | 1,812 | 1,812 | |||||||||||||||||
|
|
|
|
|||||||||||||||||||||
13,018 | 13,010 | |||||||||||||||||||||||
Sheridan Square CLO, Ltd |
||||||||||||||||||||||||
Income Notes, Residual Interest(4)(18) |
Financial Services | 13.2%(19) | 3/12/13 | 4/15/25 | $ | 6,723 | 6,596 | 6,596 | ||||||||||||||||
|
|
|
|
|||||||||||||||||||||
6,596 | 6,596 |
(Continued on next page)
See accompanying notes to these consolidated financial statements.
9
Table of Contents
THL Credit, Inc. and Subsidiaries
Consolidated Schedule of Investments (unaudited) (Continued)
June 30, 2013
(dollar amounts in thousands)
Portfolio company/Type of Investment(1) | Industry | Interest Rate(2) | Initial Acquisition Date |
Maturity/ Dissolution Date |
Principal(3) No. of Shares / No. of Units |
Cost | Fair Value | |||||||||||||||||
Surgery Center Holdings, Inc. |
||||||||||||||||||||||||
Second Lien Term Loan |
Healthcare, ambulatory surgery centers |
9.75% (LIBOR + 8.5%) |
4/19/13 | 4/11/20 | $ | 15,000 | 14,633 | 15,000 | ||||||||||||||||
Member interest(8)(9) |
4/20/10 | 470 | 470 | 1,900 | ||||||||||||||||||||
|
|
|
|
|||||||||||||||||||||
15,103 | 16,900 | |||||||||||||||||||||||
The Studer Group, L.L.C. |
||||||||||||||||||||||||
Senior Subordinated Note |
Healthcare, consulting | 14.0%(6) (12.0% Cash and 2.0% PIK) |
9/29/11 | 3/29/17 | $ | 12,581 | 12,396 | 12,581 | ||||||||||||||||
|
|
|
|
|||||||||||||||||||||
12,396 | 12,581 | |||||||||||||||||||||||
Trinity Services Group, Inc. |
||||||||||||||||||||||||
Senior Subordinated Note |
Food & beverage | 13.5%(6) (12.0% Cash and 1.5% PIK) |
3/29/12 | 9/29/17 | $ | 14,250 | 14,076 | 13,965 | ||||||||||||||||
|
|
|
|
|||||||||||||||||||||
14,076 | 13,965 | |||||||||||||||||||||||
Tri Starr Management Services, Inc. |
||||||||||||||||||||||||
Senior Subordinated Note |
Business services | 15.0%(6) (12.5% Cash and 2.5% PIK) |
3/4/13 | 3/4/19 | $ | 18,068 | 17,722 | 17,722 | ||||||||||||||||
|
|
|
|
|||||||||||||||||||||
17,722 | 17,722 | |||||||||||||||||||||||
Vision Solutions, Inc. |
||||||||||||||||||||||||
Second Lien Term Loan |
Business services | 9.5% (LIBOR + 8.0%) |
3/31/11 | 7/23/17 | $ | 11,625 | 11,554 | 11,625 | ||||||||||||||||
|
|
|
|
|||||||||||||||||||||
11,554 | 11,625 | |||||||||||||||||||||||
Washington Inventory Service |
||||||||||||||||||||||||
Senior Secured Term Loan |
Business services | 10.3% (LIBOR + 9.0%) |
12/27/12 | 6/20/19 | $ | 11,000 | 10,848 | 11,165 | ||||||||||||||||
|
|
|
|
|||||||||||||||||||||
10,848 | 11,165 | |||||||||||||||||||||||
Wingspan Portfolio Holdings, Inc. |
||||||||||||||||||||||||
Subordinated Term Loan |
Financial Services | 13.5% (6) (12.0% Cash and 1.5% PIK) |
5/21/13 | 11/21/16 | $ | 18,768 | 18,404 | 18,404 | ||||||||||||||||
|
|
|
|
|||||||||||||||||||||
18,404 | 18,404 | |||||||||||||||||||||||
YP Equity Investors, LLC |
||||||||||||||||||||||||
Member interest(7)(8) |
Media, advertising | 5/18/12 | | | 1,600 | |||||||||||||||||||
|
|
|
|
|||||||||||||||||||||
| 1,600 | |||||||||||||||||||||||
|
|
|
|
|||||||||||||||||||||
Non-controlled/non-affiliated investments110.18% of net asset value |
$ | 503,479 | $ | 507,137 |
(Continued on next page)
See accompanying notes to these consolidated financial statements.
10
Table of Contents
THL Credit, Inc. and Subsidiaries
Consolidated Schedule of Investments (unaudited) (Continued)
June 30, 2013
(dollar amounts in thousands)
Portfolio company/Type of Investment(1) | Industry | Interest Rate(2) | Initial Acquisition Date |
Maturity/ Dissolution Date |
Principal(2) No. of Shares / No. of Units |
Cost | Fair Value | |||||||||||||||||
Non-controlled/affiliated investments0.00% of net asset value |
||||||||||||||||||||||||
THL Credit Greenway Fund LLC |
||||||||||||||||||||||||
Member interest(8)(18) |
Financial services | 1/27/11 | 1/14/21 | | 7 | 7 | ||||||||||||||||||
|
|
|
|
|||||||||||||||||||||
7 | 7 | |||||||||||||||||||||||
THL Credit Greenway Fund II LLC |
||||||||||||||||||||||||
Member interest(8)(18) |
Financial services | 3/1/13 | | 3 | 3 | |||||||||||||||||||
|
|
|
|
|||||||||||||||||||||
3 | 3 | |||||||||||||||||||||||
|
|
|
|
|||||||||||||||||||||
Total investments110.18% of net asset value |
$ | 503,489 | $ | 507,147 |
Derivative Instruments | ||||||||||||||||||||||
Counterparty | Instrument | Interest Rate | Expiration Date |
# of Contracts | Notional | Cost | Fair Value | |||||||||||||||
ING Capital Markets, LLC |
Interest Rate Swap Pay Fixed/Receive Floating |
1.1425%/LIBOR | 5/10/17 | 1 | $ | 50,000 | $ | | $ | (66 | ) | |||||||||||
|
|
|
|
|||||||||||||||||||
Total derivative instruments0.00% of net asset value |
$ | | $ | (66 | ) |
(1) | All debt investments are income-producing. Equity and member interests are non-income-producing unless otherwise noted. |
(2) | Variable interest rate investments bear interest in reference to LIBOR or ABR, which are effective as of June 30, 2013. These variable rates reset monthly or quarterly, subject to interest rate floors. |
(3) | Principal includes accumulated PIK, or paid-in-kind, interest and is net of repayments. |
(4) | Foreign company at the time of investment and, as a result, is not a qualifying asset under Section 55(a) of the Investment Company Act of 1940. |
(5) | Unitranche investment; interest rate reflected represents the effective yield earned on the investment for the most recent quarter. |
(6) | At the option of the issuer, interest can be paid in cash or cash and PIK. The percentage of PIK shown is the maximum PIK that can be elected by the company. |
(7) | Interest held by a wholly owned subsidiary of THL Credit, Inc. |
(8) | Member interests of limited liability companies are the equity equivalents of the stock of corporations. |
(9) | Equity ownership may be held in shares or units of companies related to the portfolio company. |
(10) | Issuer pays 0.50% unfunded commitment fee on revolving loan facility. |
(11) | Publicly-traded company with a market capitalization in excess of $250 million at the time of investment and, as a result, is not a qualifying asset under Section 55(a) of the Investment Company Act of 1940. |
(12) | Income-producing security with no stated coupon; yield from initial investment through June 30, 2013 was approximately 17.0%. |
(13) | Loan was on non-accrual status as of June 30, 2013. Issuers contractual rate is 15.0% PIK until July 31, 2013 and then 13.0% cash thereafter. |
(14) | Issuer pays 0.25% unfunded commitment fee on revolving loan facility. |
(15) | The negative cost is the result of the capitalized discount being greater than the principal amount outstanding on the loan. |
(16) | Interest held in companies related to the portfolio company. |
(17) | The Companys investment in LCP Capital Fund LLC is in the form of membership interests and its contributed capital is for the most recent quarter maintained in a collateral account held by a custodian and acts as collateral for certain credit default swaps for the Series 2005-1 equity interest. See Note 2 in the Notes to the Consolidated Financial Statements. |
11
Table of Contents
THL Credit, Inc. and Subsidiaries
Consolidated Schedule of Investments (unaudited) (Continued)
June 30, 2013
(dollar amounts in thousands)
(18) | Non-registered investment company at the time of investment and, as a result, is not a qualifying asset under Section 55(a) of the Investment Company Act of 1940. |
(19) | Income producing security with no stated coupon; cash interest yield for the three months ended June 30, 2013 was in the range of 13.2% and 15.5%. |
(20) | Income producing security with no stated coupon; cash interest yield from initial investment through June 30, 2013 was approximately 12.5% |
(21) | Issuer has the option to increase its aggregate interest rate to 18.5% all PIK for a period of time under certain conditions in the credit agreement. |
See accompanying notes to these consolidated financial statements.
12
Table of Contents
THL Credit, Inc. and Subsidiaries
Consolidated Schedule of Investments
December 31, 2012
(dollar amounts in thousands)
Portfolio company/Type of Investment(1) | Industry | Interest Rate(2) | Initial Acquisition Date |
Maturity/ Dissolution Date |
Principal(3) No. of Shares / No. of Units |
Cost | Fair Value | |||||||||||||||||
Non-controlled/non-affiliated investments113.49% of net asset value |
||||||||||||||||||||||||
20-20 Technologies Inc. |
||||||||||||||||||||||||
Senior Secured Term Loan(4) |
Business services | 13.2%(5) (LIBOR + 11.00%) |
9/12/12 | 9/12/17 | $ | 14,000 | $ | 13,666 | $ | 13,666 | ||||||||||||||
|
|
|
|
|||||||||||||||||||||
13,666 | 13,666 | |||||||||||||||||||||||
AIM Media Texas Operating, LLC |
||||||||||||||||||||||||
Second Lien Loan |
Media | 16.0%(6) | 6/21/12 | 6/21/17 | $ | 9,9757 | 9,743 | 9,775 | ||||||||||||||||
Member interest(7)(8) |
6/21/12 | | 0.763636 | 764 | 764 | |||||||||||||||||||
|
|
|
|
|||||||||||||||||||||
10,507 | 10,539 | |||||||||||||||||||||||
Airborne Tactical Advantage |
||||||||||||||||||||||||
Senior Secured Note |
Aerospace & defense |
11.0% | 9/7/11 | 3/7/16 | $ | 4,000 | 3,854 | 3,900 | ||||||||||||||||
Class A Warrants(9) |
9/7/11 | | 512 | 113 | 120 | |||||||||||||||||||
Senior Secured Delayed Draw |
11.0% | 9/7/11 | 3/7/13 | | | | ||||||||||||||||||
|
|
|
|
|||||||||||||||||||||
3,967 | 4,020 | |||||||||||||||||||||||
C&K Market, Inc. |
||||||||||||||||||||||||
Senior Subordinated Note |
Retail & grocery | 16.0% (14.0% Cash and 2.0% PIK) |
11/3/10 | 11/3/15 | $ | 13,582 | 13,176 | 13,480 | ||||||||||||||||
Warrant for Class B |
11/3/10 | | 156,552 | 349 | 350 | |||||||||||||||||||
|
|
|
|
|||||||||||||||||||||
13,525 | 13,830 | |||||||||||||||||||||||
Country Pure Foods, LLC |
||||||||||||||||||||||||
Subordinated Term Loan |
Food & beverage | 15.0% (12.5% Cash and 2.5% PIK) |
8/13/10 | 2/13/16 | $ | 16,079 | 15,871 | 15,758 | ||||||||||||||||
|
|
|
|
|||||||||||||||||||||
15,871 | 15,758 | |||||||||||||||||||||||
CRS Reprocessing, LLC |
||||||||||||||||||||||||
Senior Secured Term Loan |
Manufacturing | 10.3% (LIBOR + 9.3%) |
6/16/11 | 6/16/15 | $ | 8,438 | 8,327 | 8,375 | ||||||||||||||||
|
|
|
|
|||||||||||||||||||||
8,327 | 8,375 | |||||||||||||||||||||||
Cydcor LLC |
||||||||||||||||||||||||
Senior Secured Term Loan |
Business services | 12.3% (LIBOR + 9.8%) |
9/18/12 | 9/17/16 | $ | 14,649 | 14,270 | 14,270 | ||||||||||||||||
|
|
|
|
|||||||||||||||||||||
14,270 | 14,270 | |||||||||||||||||||||||
Dr. Fresh, LLC |
||||||||||||||||||||||||
Subordinated Term Loan |
Consumer products | 14.0%(6) (12.0% Cash and 2.0% PIK) |
5/15/12 | 11/15/17 | $ | 14,158 | 13,893 | 13,946 | ||||||||||||||||
|
|
|
|
|||||||||||||||||||||
13,893 | 13,946 |
(Continued on next page)
See accompanying notes to these consolidated financial statements.
13
Table of Contents
THL Credit, Inc. and Subsidiaries
Consolidated Schedule of Investments (Continued)
December 31, 2012
(dollar amounts in thousands)
Portfolio company/Type of Investment(1) | Industry | Interest Rate(2) | Initial Acquisition Date |
Maturity/ Dissolution Date |
Principal(2) No. of Shares / No. of Units |
Cost | Fair Value | |||||||||||||||||
Duff & Phelps Corporation |
||||||||||||||||||||||||
Tax Receivable Agreement |
Financial services | 16.4%(12) | 6/1/12 | 12/31/29 | | 12,262 | 12,262 | |||||||||||||||||
|
|
|
|
|||||||||||||||||||||
12,262 | 12,262 | |||||||||||||||||||||||
Express Courier International, Inc. |
||||||||||||||||||||||||
Secured Subordinated Term Loan |
Business services | 15.0% (PIK) (13) |
1/17/12 | 7/17/16 | $ | 7,479 | 7,358 | 6,357 | ||||||||||||||||
|
|
|
|
|||||||||||||||||||||
7,358 | 6,357 | |||||||||||||||||||||||
Firebirds International, LLC |
||||||||||||||||||||||||
Senior Secured Term Loan |
Restaurants | 10.5% (LIBOR + 9.0%) |
5/17/11 | 5/17/16 | $ | 8,200 | 8,080 | 8,200 | ||||||||||||||||
Senior Secured Revolving |
10.5% (LIBOR + 9.0%) |
5/17/11 | 5/17/16 | | (67 | ) | | |||||||||||||||||
Common stock(9) |
5/17/11 | | 1,906 | 191 | 215 | |||||||||||||||||||
|
|
|
|
|||||||||||||||||||||
8,204 | 8,415 | |||||||||||||||||||||||
Food Processing Holdings, LLC |
||||||||||||||||||||||||
Senior Subordinated Note(6)(16) |
Food & beverage | 15.0% (12.0% Cash and 3.0% PIK) |
2/28/12 | 8/28/17 | $ | 13,847 | 13,727 | 13,397 | ||||||||||||||||
Class A Units(9) |
4/20/10 | | 162.44 | 163 | 181 | |||||||||||||||||||
Class B Units(9) |
4/20/10 | | 406.09 | 408 | 150 | |||||||||||||||||||
|
|
|
|
|||||||||||||||||||||
14,298 | 13,728 | |||||||||||||||||||||||
Gold, Inc. |
||||||||||||||||||||||||
Subordinated Term Loan |
Consumer products | 15.0%(6) (13.0% Cash and 2.0% PIK) |
12/31/12 | 12/31/17 | $ | 36,800 | 36,064 | 36,064 | ||||||||||||||||
|
|
|
|
|||||||||||||||||||||
36,064 | 36,064 | |||||||||||||||||||||||
Gryphon Partners 3.5, L.P. |
||||||||||||||||||||||||
Partnership interest |
Financial services | 11/20/12 | 12/21/18 | | 1,195 | 1,895 | ||||||||||||||||||
|
|
|
|
|||||||||||||||||||||
1,195 | 1,895 | |||||||||||||||||||||||
Harrison Gypsum, LLC |
||||||||||||||||||||||||
Senior Secured Term Loan |
Industrials | 10.5%(6)(LIBOR + 8.5% and 0.5% PIK) |
12/21/12 | 12/21/17 | $ | 25,380 | 25,001 | 25,001 | ||||||||||||||||
|
|
|
|
|||||||||||||||||||||
25,001 | 25,001 | |||||||||||||||||||||||
Hart InterCivic, Inc. |
||||||||||||||||||||||||
Senior Secured Term Loan |
Election services | 10.5% (LIBOR + 9.0%) |
7/1/11 | 7/1/16 | $ | 9,594 | 9,450 | 9,499 | ||||||||||||||||
Senior Secured Revolving |
10.5% (LIBOR + 9.0%) |
7/1/11 | 7/1/16 | | (42 | ) | | |||||||||||||||||
|
|
|
|
|||||||||||||||||||||
9,408 | 9,499 | |||||||||||||||||||||||
HEALTHCAREfirst, Inc. |
||||||||||||||||||||||||
Senior Secured Term Loan |
Business services | 11.5%(5) (LIBOR + 10.0%) |
8/31/12 | 8/30/17 | $ | 9,875 | 9,594 | 9,594 | ||||||||||||||||
|
|
|
|
|||||||||||||||||||||
9,594 | 9,594 |
(Continued on next page)
See accompanying notes to these consolidated financial statements.
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THL Credit, Inc. and Subsidiaries
Consolidated Schedule of Investments (Continued)
December 31, 2012
(dollar amounts in thousands)
Portfolio company/Type of Investment(1) | Industry | Interest Rate(2) | Initial Acquisition Date |
Maturity/ Dissolution Date |
Principal(2) No. of Shares / No. of Units |
Cost | Fair Value | |||||||||||||||||
IMDS Corporation |
||||||||||||||||||||||||
Subordinated Term Loan |
Healthcare, device manufacturing | 15.5%(6)) (12.5% Cash and 3.0% PIK) |
5/2/12 | 11/2/17 | $ | 13,266 | 12,967 | 12,404 | ||||||||||||||||
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|
|
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12,967 | 12,404 | |||||||||||||||||||||||
Jefferson Management |
||||||||||||||||||||||||
Member interest(7)(8) |
Healthcare, dental services | N/A | 4/20/10 | | 1,393 | 1,393 | 1,388 | |||||||||||||||||
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|
|
|||||||||||||||||||||
1,393 | 1,388 | |||||||||||||||||||||||
LCP Capital Fund LLC |
||||||||||||||||||||||||
Member interest(8)(17)(18) |
Financial services | 16.2%(19) | 4/20/10 | 2/15/15 | $ | 8,354 | 8,354 | 8,354 | ||||||||||||||||
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|
|
|
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8,354 | 8,354 | |||||||||||||||||||||||
Loadmaster Derrick & Equipment, Inc. |
||||||||||||||||||||||||
Senior Secured Term Loan |
Energy / Utilities | 9.3% (LIBOR + 8.3%) |
9/28/12 | 9/28/17 | $ | 9,709 | 9,462 | 9,462 | ||||||||||||||||
Senior Secured Revolving |
9.3% (LIBOR + 8.3%) |
9/28/12 | 9/28/17 | $ | 290 | 290 | 290 | |||||||||||||||||
Senior Secured Delayed Draw Term Loans |
9.3% (LIBOR + 8.3%) |
9/28/12 | 9/28/17 | | | | ||||||||||||||||||
|
|
|
|
|||||||||||||||||||||
9,752 | 9,752 | |||||||||||||||||||||||
Marine Acquisition Corp. (Teleflex Marine) |
||||||||||||||||||||||||
Senior Subordinated Note |
Manufacturing | 13.5%(6) | 9/18/12 | 5/18/17 | $ | 16,500 | 16,146 | 16,170 | ||||||||||||||||
|
|
|
|
|||||||||||||||||||||
16,146 | 16,170 | |||||||||||||||||||||||
Martex Fiber Southern Corp. |
||||||||||||||||||||||||
Subordinated Term Loan |
Textiles | 13.5%(6) (12.0% Cash and 1.5% PIK) |
4/30/12 | 10/31/19 | $ | 8,756 | 8,632 | 8,580 | ||||||||||||||||
|
|
|
|
|||||||||||||||||||||
8,632 | 8,580 | |||||||||||||||||||||||
Octagon Income Note XIV, Ltd. |
||||||||||||||||||||||||
Income Notes, Residual |
Financial Services | 15.5%(20) | 12/19/12 | 1/15/24 | $ | 10,000 | 9,400 | 9,400 | ||||||||||||||||
|
|
|
|
|||||||||||||||||||||
9,400 | 9,400 | |||||||||||||||||||||||
OEM Group, Inc. |
||||||||||||||||||||||||
Senior Secured Note |
Manufacturing | 15.0%(6) (12.5% Cash and 2.5% PIK) |
10/7/10 | 10/7/15 | $ | 14,784 | 14,510 | 13,601 | ||||||||||||||||
Warrant for Common |
| | ||||||||||||||||||||||
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|
|
|
|||||||||||||||||||||
14,510 | 13,601 | |||||||||||||||||||||||
Pinnacle Operating Corporation |
||||||||||||||||||||||||
Senior Secured Term Loan |
Chemicals | 11.5% (LIBOR + 10.3%) |
11/26/12 | 5/15/19 | $ | 10,000 | 9,508 | 9,508 | ||||||||||||||||
|
|
|
|
|||||||||||||||||||||
9,508 | 9,508 |
(Continued on next page)
See accompanying notes to these consolidated financial statements.
15
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THL Credit, Inc. and Subsidiaries
Consolidated Schedule of Investments (Continued)
December 31, 2012
(dollar amounts in thousands)
Portfolio company/Type of Investment(1) | Industry | Interest Rate(2) | Initial Acquisition Date |
Maturity/ Dissolution Date |
Principal(2) No. of Shares / No. of Units |
Cost | Fair Value | |||||||||||||||||
Sheplers, Inc. |
||||||||||||||||||||||||
Senior Secured (2nd lien) Term |
Retail & grocery |
13.2% (LIBOR + 11.65%) |
12/20/11 | 12/20/16 | $ | 11,426 | 11,182 | 11,369 | ||||||||||||||||
Mezzanine Loan(7) |
17.0%(21)(10.0% Cash and 7.0% PIK) |
12/20/11 | 12/20/17 | $ | 1,776 | 1,747 | 1,768 | |||||||||||||||||
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|
|
|||||||||||||||||||||
12,929 | 13,137 | |||||||||||||||||||||||
Surgery Center Holdings, Inc. |
||||||||||||||||||||||||
Senior Subordinated Note |
Healthcare, | 15.0% | 4/20/10 | 8/4/17 | $ | 18,773 | 18,405 | 18,960 | ||||||||||||||||
Member interest(8)(9) |
ambulatory surgery centers | 470 | 470 | 1,850 | ||||||||||||||||||||
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|
|
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18,875 | 20,810 | |||||||||||||||||||||||
The Studer Group, L.L.C. |
||||||||||||||||||||||||
Senior Subordinated Note |
Healthcare, consulting | 14.0% (12.0% Cash and 2.0% PIK) |
9/29/11 | 3/29/17 | $ | 12,454 | 12,251 | 12,361 | ||||||||||||||||
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|
|
|
|||||||||||||||||||||
12,251 | 12,361 | |||||||||||||||||||||||
Trinity Services Group, Inc. |
||||||||||||||||||||||||
Senior Subordinated Note |
Food & beverage | 13.5%(6) (12.0% Cash and 1.5% PIK) |
3/29/12 | 9/29/17 | $ | 14,143 | 13,954 | 14,073 | ||||||||||||||||
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|
|
|
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13,954 | 14,073 | |||||||||||||||||||||||
Vision Solutions, Inc. |
||||||||||||||||||||||||
Second Lien Term Loan |
Business services | 9.5% (LIBOR + 8.0%) |
3/31/11 | 7/23/17 | $ | 11,625 | 11,547 | 11,625 | ||||||||||||||||
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|
|
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11,547 | 11,625 | |||||||||||||||||||||||
Washington Inventory Service |
||||||||||||||||||||||||
Senior Secured Term Loan |
Business services | 10.3% (LIBOR + 9.0%) |
12/27/12 | 6/20/19 | $ | 11,000 | 10,835 | 10,835 | ||||||||||||||||
|
|
|
|
|||||||||||||||||||||
10,835 | 10,835 | |||||||||||||||||||||||
YP Equity Investors, LLC. |
||||||||||||||||||||||||
Senior Secured Term Loan |
Media, advertising | 15.0% (12.0% Cash and 3.0% PIK) |
5/8/12 | 5/8/17 | $ | 3,322 | 3,236 | 3,322 | ||||||||||||||||
Warrant for Member interest(7)(8) |
0 | 1,800 | ||||||||||||||||||||||
|
|
|
|
|||||||||||||||||||||
3,236 | 5,122 | |||||||||||||||||||||||
|
|
|
|
|||||||||||||||||||||
Non-controlled/non-affiliated investments113.49% of net asset value |
$ | 391,699 | $ | 394,339 |
(Continued on next page)
See accompanying notes to these consolidated financial statements.
16
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THL Credit, Inc. and Subsidiaries
Consolidated Schedule of Investments (Continued)
December 31, 2012
(dollar amounts in thousands)
Portfolio company/Type of Investment(1) | Industry | Interest Rate (2) |
Initial Acquisition Date |
Maturity/ Dissolution Date |
Principal(2) No. of Shares / No. of Units |
Cost | Fair Value | |||||||||||||||||||
Non-controlled/affiliated investment0.00% of net asset value |
||||||||||||||||||||||||||
THL Credit Greenway Fund LLC |
||||||||||||||||||||||||||
Member interest(8)(18) |
Financial services | 1/27/11 | 1/14/21 | | 10 | 10 | ||||||||||||||||||||
|
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|
|
|||||||||||||||||||||||
10 | 10 | |||||||||||||||||||||||||
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|
|
|
|||||||||||||||||||||||
Total investments113.49% of net asset value |
$ | 391,709 | $ | 394,349 | ||||||||||||||||||||||
|
|
|
|
Derivative Instruments | ||||||||||||||||||||||
Counterparty | Instrument | Interest Rate | Expiration Date |
# of Contracts | Notional | Cost | Fair Value | |||||||||||||||
ING Capital Markets, LLC |
Interest Rate Swap Pay Fixed/Receive Floating | 1.1425%/LIBOR | 5/10/17 | 1 | $ | 50,000 | $ | | $ | (1,053 | ) | |||||||||||
|
|
|
|
|||||||||||||||||||
Total derivative instruments(0.30)% of net asset value |
$ | | $ | (1,053 | ) | |||||||||||||||||
|
|
|
|
(1) | All debt investments are income-producing. Equity and member interests are non-income-producing unless otherwise noted. |
(2) | Variable interest rate investments bear interest in reference to LIBOR or ABR, which reset monthly or quarterly, subject to interest rate floors. Unless otherwise noted, for each debt investment we have provided the interest rate in effect as of December 31, 2012. |
(3) | Principal includes accumulated PIK, or paid-in-kind, interest and is net of repayments. |
(4) | Foreign company at the time of investment and, as a result, is not a qualifying asset under Section 55(a) of the Investment Company Act of 1940. |
(5) | Unitranche investment; yield reflected represents the effective yield earned on the investment. |
(6) | At the option of the issuer, interest can be paid in cash or cash and PIK. The percentage of PIK shown is the maximum PIK that can be elected by the company. |
(7) | Interest held by a wholly owned subsidiary of THL Credit, Inc. |
(8) | Member interests of limited liability companies are the equity equivalents of the stock of corporations. |
(9) | Equity ownership may be held in shares or units of companies related to the portfolio company. |
(10) | Issuer pays 0.5% unfunded commitment fee on facility. |
(11) | Publicly-traded company with a market capitalization in excess of $250 million at the time of investment and, as a result, is not a qualifying asset under Section 55(a) of the Investment Company Act of 1940. |
(12) | Income-producing security with no stated coupon; yield from initial investment through December 31, 2012 was approximately 16.4%. |
(13) | Issuer will pay 15% PIK until April 1, 2013, 13.0% cash interest thereafter. |
(14) | Issuer pays 0.25% unfunded commitment fee on revolving loan quarterly. |
(15) | The negative cost is the result of the capitalized discount being greater than the principal amount outstanding on the loan. |
(16) | Interest held in companies related to the portfolio company. |
(17) | The Companys investment in LCP Capital Fund LLC is in the form of membership interests and its contributed capital is maintained in a collateral account held by a custodian and acts as collateral for certain credit default swaps for the Series 2005-1 equity interest. See Note 2 in the Notes to the Consolidated Financial Statements. |
(18) | Non-registered investment company at the time of investment and, as a result, is not a qualifying asset under Section 55(a) of the Investment Company Act of 1940. |
(Continued on next page)
See accompanying notes to these consolidated financial statements.
17
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THL Credit, Inc. and Subsidiaries
Consolidated Schedule of Investments
December 31, 2012
(dollar amounts in thousands)
(19) | Income producing security with no stated coupon; cash yield for the three months ended December 31, 2012 was approximately 16.2%. |
(20) | Income producing security with no stated coupon; cash yield for the three months ended December 31, 2012 was approximately 15.5%. |
(21) | Issuer has the option to increase its aggregate interest rate to 18.5% all PIK for a period of time under certain conditions in the credit agreement. |
See accompanying notes to these consolidated financial statements.
18
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THL Credit, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
June 30, 2013
(in thousands, except per share data)
1. Organization
THL Credit, Inc., or the Company, was organized as a Delaware corporation on May 26, 2009. The Company has elected to be regulated as a business development company, or BDC, under the Investment Company Act of 1940, as amended, or 1940 Act. The Company has elected to be treated for tax purposes as a regulated investment company, or RIC, under the Internal Revenue Code of 1986, or the Code, as amended. In 2009, the Company was treated for tax purposes as a corporation. The Companys investment objective is to generate both current income and capital appreciation, primarily through privately negotiated investments in debt and equity securities of middle-market companies.
The Company was initially funded on July 23, 2009, issuing 7 shares of common stock at an aggregate purchase price of $101 to THL Credit Opportunities, L.P., an affiliate of THL Credit Advisors LLC, or the Advisor. While the Company incurred certain costs in connection with an anticipated initial public offering, which ultimately would have been borne by the Advisor had the offering not closed; the Company did not formally commence principal operations until the completion of the offering on April 21, 2010, as described below.
On April 20, 2010, in anticipation of completing an initial public offering and formally commencing principal operations, the Company entered into a purchase and sale agreement with THL Credit Opportunities, L.P. and THL Credit Partners BDC Holdings, L.P., or BDC Holdings, an affiliate of the Company, to effectuate the sale by THL Credit Opportunities, L.P. to the Company of certain securities valued at $62,107, as determined by the Companys board of directors, and on the same day issued 4,140 shares of common stock to BDC Holdings valued at $15.00 per share, pursuant to such agreement, in exchange for the aforementioned securities. Subsequently, the Company filed an election to be regulated as a BDC.
On April 21, 2010, the Company completed its initial public offering, formally commencing principal operations, and sold 9,000 shares of its common stock through a group of underwriters at a price of $13.00 per share, less an underwriting discount and commissions totaling $0.8125 per share. Concurrently, the Company sold 6,308 shares of its common stock to BDC Holdings at $13.00 per share, the sale of which was not subject to an underwriting discount and commission. On April 27, 2010, the Company closed the sale of the aforementioned 15,308 shares and received $190,684 of net proceeds, which includes an underwriting discount and offering expenses.
On May 26, 2010, the underwriters exercised their over-allotment option under the underwriting agreement and elected to purchase an additional 337 shares of common stock at $13.00 per share resulting in additional net proceeds of $3,892, which includes an underwriting discount and offering expenses.
On September 25, 2012, the Company closed a public equity offering selling 6,095 shares of its common stock through a group of underwriters at a price of $14.09 per share, less an underwriting discount and offering expenses, and received $81,657 in net proceeds.
On June 24, 2013, the Company closed a public equity offering selling 7,590 shares of its common stock through a group of underwriters at a price of $14.62 per share, less an underwriting discount and offering expenses, and received $106,205 in net proceeds.
The Company has established wholly owned subsidiaries, THL Credit AIM Media Holdings Inc., THL Credit Holdings, Inc. and THL Credit YP Holdings Inc, which are structured as Delaware entities, or tax blockers, to hold equity or equity-like investments in portfolio companies organized as limited liability companies, or LLCs (or other forms of pass-through entities). Tax blockers are not consolidated for income tax purposes and may incur income tax expense as a result of their ownership of portfolio companies.
The Company has a wholly owned subsidiary, THL Corporate Finance, Inc., which serves as the administrative agent on certain investment transactions.
THL Credit SBIC, LP, or SBIC LP, and its general partner, THL Credit SBIC GP, LLC, or SBIC GP, were organized in Delaware on August 25, 2011 as a limited partnership and limited liability company, respectively. On January 16, 2013, the Company withdrew its application with the Investment Division of the U.S. Small Business Administration, or SBA, to license a small business investment company, or SBIC. Both the SBIC LP and SBIC GP remain consolidated wholly owned subsidiaries of the Company.
19
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2. Significant Accounting Policies
Basis of Presentation
The consolidated financial statements include the accounts of the Company and its subsidiaries. All inter-company accounts and transactions have been eliminated in consolidation. In accordance with Article 6 of Regulation S-X under the Securities Act of 1933, as amended, and the Securities and Exchange Act of 1934, as amended, the Company generally will not consolidate its interest in any company other than in investment company subsidiaries and controlled operating companies substantially all of whose business consists of providing services to the Company.
The accompanying consolidated financial statements of the Company have been presented in accordance with accounting principles generally accepted in the United States of America (GAAP) and pursuant to the requirements for reporting on Form 10-Q and Article 10 of Regulation S-X. Accordingly, certain disclosures accompanying annual financial statements prepared in accordance with GAAP are omitted. In the opinion of management, the unaudited financial results included herein contain all adjustments, consisting solely of normal accruals, considered necessary for the fair statement of financial statements for the interim period included herein. The current periods results of operations are not necessarily indicative of the operating results to be expected for the period ended December 31, 2013. The financial results of our portfolio companies are not consolidated in the financial statements. The accounting records of the Company are maintained in U.S. dollars.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that may affect the reported amounts and disclosures in the financial statements. Changes in the economic environment, financial markets, credit worthiness of our portfolio companies and any other parameters used in determining these estimates could cause actual results to differ and these differences could be material.
Cash
Cash consists of funds held in demand deposit accounts at several financial institutions and, at certain times, balances may exceed the Federal Deposit Insurance Corporation insured limit and is therefore subject to credit risk. There were no cash equivalents as of June 30, 2013 and December 31, 2012.
Deferred Financing Costs
Deferred financing costs consist of fees and expenses paid in connection with the closing of credit facilities and are capitalized at the time of payment. Deferred financing costs are amortized using the straight line method over the term of the credit facilities.
Deferred Offering Costs
Deferred offering costs consist of fees and expenses incurred in connection with the offer and sale of the Companys common stock, including legal, accounting, printing fees and other related expenses, as well as costs incurred in connection with the filing of a shelf registration statement. These costs are capitalized when incurred and recognized as a reduction of offering proceeds when the offering becomes effective.
Interest Rate Derivative
The Company recognizes derivatives as either interest rate derivative assets or liabilities at fair value on its Consolidated Statements of Assets and Liabilities with valuation changes and interest rate payments recorded as net change in unrealized appreciation (depreciation) on interest rate derivative and interest rate derivative periodic interest payments, net, respectively, on the Consolidated Statements of Operations. See also the disclosure in Note 7, Interest Rate Derivative.
Fair Value of Financial Instruments
The carrying amounts of the Companys financial instruments, including cash, accounts payable and accrued expenses, approximate fair value due to their short-term nature. The carrying amounts and fair values of the Companys long-term obligations are disclosed in Note 6, Credit Facility.
Valuation of Investments
Investments, for which market quotations are readily available, are valued using market quotations, which are generally obtained from an independent pricing service or broker-dealers or market makers. Debt and equity securities, for which market quotations are not readily available, are valued at fair value as determined in good faith by the Companys board of directors. Because we expect that there will not be a readily available market value for many of the investments in the Companys portfolio, it is expected that many of the Companys portfolio investments values will be determined in good faith by the Companys board of directors in accordance with a documented valuation policy that has been reviewed and approved by our board of directors. Due to the inherent uncertainty of
20
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determining the fair value of investments that do not have a readily available market value, the fair value of our investments may differ significantly from the values that would have been used had a readily available market value existed for such investments, and the differences could be material.
With respect to investments for which market quotations are not readily available, the Companys board of directors undertakes a multi-step valuation process each quarter, as described below:
| the Companys quarterly valuation process begins with each portfolio company or investment being initially valued by the investment professionals responsible for the portfolio investment; |
| preliminary valuation conclusions are then documented and discussed with senior management of the Advisor; |
| to the extent determined by the audit committee of the Companys board of directors, independent valuation firms engaged by the Company conduct independent appraisals and review the Advisors preliminary valuations in light of their own independent assessment; |
| the audit committee of our board of directors reviews the preliminary valuations of the Advisor and independent valuation firms and, if necessary, responds and supplements the valuation recommendation of the independent valuation firm to reflect any comments; and |
| our board of directors discusses valuations and determines the fair value of each investment in our portfolio in good faith based on the input of the Advisor and the respective independent valuation firms. |
The types of factors that the Company may take into account in fair value pricing our investments include, as relevant, the nature and realizable value of any collateral, the portfolio companys ability to make payments and its earnings and discounted cash flows, the markets in which the portfolio company does business, comparison to publicly traded securities and other relevant factors. The Company utilizes an income approach to value its debt investments and a combination of income and market approaches to value its equity investments. With respect to unquoted securities, the Advisor and the Companys board of directors, in consultation with the Companys independent third party valuation firm, values each investment considering, among other measures, discounted cash flow models, comparisons of financial ratios of peer companies that are public and other factors, which valuation is then approved by the board of directors. For debt investments, the Company determines the fair value primarily using an income, or yield, approach that analyzes the discounted cash flows of interest and principal for the debt security, as set forth in the associated loan agreements, as well as the financial position and credit risk of each portfolio investments. The Companys estimate of the expected repayment date is generally the legal maturity date of the instrument. The yield analysis considers changes in leverage levels, credit quality, portfolio company performance and other factors.
The Company values its interest rate derivative agreement using an income approach that analyzes the discounted cash flows associated with the interest rate derivative agreement. Significant inputs to the discounted cash flows methodology include the forward interest rate yield curves in effect as of the end of the measurement period and an evaluation of the counterpartys credit risk.
The Company values its residual interest investments in collateralized loan obligations using an income approach that analyzes the discounted cash flows of our residual interest. The discounted cash flows model utilizes prepayment, re-investment and loss assumptions based on historical experience and projected performance, economic factors, the characteristics of the underlying cash flow, and comparable yields for similar collateralized loan obligation fund subordinated notes or equity, when available. Specifically, the Company uses Intex cash flow models, or an appropriate substitute to form the basis for the valuation of the Companys residual interest. The models use a set of assumptions including projected default rates, recovery rates, reinvestment rate and prepayment rates in order to arrive at estimated cash flows. The assumptions are based on available market data and projections provided by third parties as well as management estimates.
The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities (including a business). The income approach uses valuation techniques to convert future cash flows or earnings to a single present amount (discounted). The measurement is based on the value indicated by current market expectations about those future amounts. In following these approaches, the types of factors that the Company may take into account in fair value pricing the Companys investments include, as relevant: available current market data, including relevant and applicable market trading and transaction comparables, applicable market yields and multiples, the current investment performance rating, security covenants, call protection provisions, information rights, the nature and realizable value of any collateral, the portfolio companys ability to make payments, its earnings and discounted cash flows, the markets in which the portfolio company does business, comparisons of financial ratios of peer companies that are public, transaction comparables, our principal market as the reporting entity and enterprise values, among other factors.
In accordance with the authoritative guidance on fair value measurements and disclosures under GAAP, the Company discloses the fair value of its investments in a hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The guidance establishes three levels of the fair value hierarchy as follows:
Level 1Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;
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Level 2Quoted prices in markets that are not considered to be active or financial instruments for which significant inputs are observable, either directly or indirectly;
Level 3Prices or valuations that require inputs that are both significant to the fair value measurement and unobservable.
The level of an asset or liability within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. However, the determination of what constitutes observable requires significant judgment by management.
The Company considers whether the volume and level of activity for the asset or liability have significantly decreased and identifies transactions that are not orderly in determining fair value. Accordingly, if the Company determines that either the volume and/or level of activity for an asset or liability has significantly decreased (from normal conditions for that asset or liability) or price quotations or observable inputs are not associated with orderly transactions, increased analysis and management judgment will be required to estimate fair value. Valuation techniques such as an income approach might be appropriate to supplement or replace a market approach in those circumstances.
The Company has adopted the authoritative guidance under GAAP for estimating the fair value of investments in investment companies that have calculated net asset value per share in accordance with the specialized accounting guidance for Investment Companies. Accordingly, in circumstances in which net asset value per share of an investment is determinative of fair value, the Company estimates the fair value of an investment in an investment company using the net asset value per share of the investment (or its equivalent) without further adjustment, if the net asset value per share of the investment is determined in accordance with the specialized accounting guidance for investment companies as of the reporting entitys measurement date.
Investment Risk
The value of investments will generally fluctuate with, among other things, changes in prevailing interest rates, federal tax rates, counterparty risk, general economic conditions, the condition of certain financial markets, developments or trends in any particular industry and the financial condition of the issuer. During periods of limited liquidity and higher price volatility, the Companys ability to dispose of investments at a price and time that the Company deems advantageous may be impaired. The extent of this exposure is reflected in the carrying value of these financial assets and recorded in the Consolidated Statements of Assets and Liabilities.
Lower-quality debt securities involve greater risk of default or price changes due to changes in the credit quality of the issuer. The value of lower-quality debt securities often fluctuates in response to company, political, or economic developments and can decline significantly over short periods of time or during periods of general or regional economic difficulty. Lower-quality debt securities can be thinly traded or have restrictions on resale, making them difficult to sell at an acceptable price. The default rate for lower-quality debt securities is likely to be higher during economic recessions or periods of high interest rates.
As of June 30, 2013, we had one loan on non-accrual with an amortized cost basis of 7,652 and fair value of $6,368. As of December 31, 2012, we had no loans on non-accrual.
Security Transactions, Payment-in-Kind, Income Recognition, Realized/Unrealized Gains or Losses
Security transactions are recorded on a trade-date basis. The Company measures realized gains or losses by the difference between the net proceeds from the repayment or sale and the amortized cost basis of the investment, using the specific identification method. The Company reports changes in fair value of investments that are measured at fair value as a component of net change in unrealized appreciation on investments in the Consolidated Statements of Operations. The Company reports changes in fair value of the interest rate derivative that is measured at fair value as a component of net change in unrealized appreciation or depreciation on interest rate derivative in the Consolidated Statements of Operations.
Interest income, adjusted for amortization of premium and accretion of discount, is recorded on an accrual basis to the extent that the Company expects to collect such amounts. Dividend income is recognized on the ex-dividend date. Original issue discount, principally representing the estimated fair value of detachable equity or warrants obtained in conjunction with the acquisition of debt securities, and market discount or premium are capitalized and accreted or amortized into interest income over the life of the respective security using the effective yield method. The amortized cost of investments represents the original cost adjusted for the accretion/amortization of discounts and premiums and upfront loan origination fees.
Loans are placed on non-accrual status when principal or interest payments are past due 30 days or more and/or when it is no longer probable that principal or interest will be collected. However, we may make exceptions to this policy if the loan has sufficient collateral value and is in the process of collection.
The Company has investments in its portfolio which contain a contractual paid-in-kind, or PIK, interest provision. PIK interest is computed at the contractual rate specified in each investment agreement, is added to the principal balance of the investment, and is recorded as income. The Company will cease accruing PIK interest if there is insufficient value to support the accrual or
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if it does not expect amounts to be collectible. To maintain the Companys status as a RIC, PIK interest income, which is considered investment company taxable income, must be paid out to stockholders in the form of dividends even though the Company has not yet collected the cash. Amounts necessary to pay these dividends may come from available cash.
The following shows a rollforward of PIK income activity for the six months ended June 30, 2013 and for the year ended December 31, 2012:
Accumulated PIK balance at December 31, 2011 |
$ | 3,488 | ||
PIK income capitalized/receivable |
4,124 | |||
PIK received in cash from repayments |
(1,805 | ) | ||
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|
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Accumulated PIK balance at December 31, 2012 |
$ | 5,807 | ||
PIK income capitalized/receivable |
1,951 | |||
PIK received in cash from repayments |
(1,784 | ) | ||
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Accumulated PIK balance at June 30, 2013 |
$ | 5,974 | ||
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Interest income from the Companys TRA and CLO residual interests is recorded based upon an estimation of an effective yield to expected maturity using anticipated cash flows. Amounts in excess of income recognized are recorded as a reduction to the cost basis of the investment. The Company monitors the anticipated cash flows from its TRA and CLO residual interests and will adjust its effective yield periodically as needed.
The Company capitalizes and amortizes upfront loan origination fees received in connection with the closing of investments. The unearned income from such fees is accreted into interest income over the contractual life of the loan based on the effective interest method. Upon prepayment of a loan or debt security, any prepayment premiums, unamortized upfront loan origination fees, and unamortized discounts are recorded as interest income.
In certain investment transactions, the Company may provide advisory services. For services that are separately identifiable and external evidence exists to substantiate fair value, income is recognized as earned. The Company had no income from advisory services related to portfolio companies for the three and six months ended June 30, 2013 and 2012, respectively.
Other income includes commitment fees, fees related to the management of Greenway and Greenway II, structuring fees, amendment fees and unused commitment fees associated with investments in portfolio companies. Expenses are recorded on an accrual basis.
The following is a summary of the levels within the fair value hierarchy in which the Company invests as of June 30, 2013:
Description: |
Fair Value | Level 1 | Level 2 | Level 3 | ||||||||||||
First lien secured debt |
$ | 150,171 | $ | | $ | | $ | 150,171 | ||||||||
Second lien debt |
120,228 | | | 120,228 | ||||||||||||
Subordinated debt |
181,945 | | | 181,945 | ||||||||||||
Investments in funds |
9,347 | | | 9,347 | ||||||||||||
Equity investments |
6,271 | | | 6,271 | ||||||||||||
Investment in payment rights |
13,828 | | | 13,828 | ||||||||||||
CLO residual interests |
25,357 | 25,357 | ||||||||||||||
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Total investments |
$ | 507,147 | $ | | $ | | $ | 507,147 | ||||||||
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Interest rate derivative |
(66 | ) | | (66 | ) | | ||||||||||
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Total liability at fair value |
$ | (66 | ) | $ | | $ | (66 | ) | $ | | ||||||
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Table of Contents
The following is a summary of the levels within the fair value hierarchy in which the Company invests as of December 31, 2012:
Description: |
Fair Value | Level 1 | Level 2 | Level 3 | ||||||||||||
First lien secured debt |
$ | 102,256 | $ | | $ | | $ | 102,256 | ||||||||
Second lien debt |
70,035 | | | 70,035 | ||||||||||||
Subordinated debt |
183,319 | | | 183,319 | ||||||||||||
Investments in funds |
10,259 | | | 10,259 | ||||||||||||
Equity investments |
6,818 | | | 6,818 | ||||||||||||
Investment in payment rights |
12,262 | | | 12,262 | ||||||||||||
CLO residual interest |
9,400 | 9,400 | ||||||||||||||
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Total investments |
$ | 394,349 | $ | | $ | | $ | 394,349 | ||||||||
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Interest rate derivative |
(1,053 | ) | | (1,053 | ) | | ||||||||||
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Total liability at fair value |
$ | (1,053 | ) | $ | | $ | (1,053 | ) | $ | | ||||||
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The following is a summary of the industry classification in which the Company invests as of June 30, 2013:
Industry: |
Cost | Fair Value | %
of Net Assets |
|||||||||
Business services |
$ | 135,267 | $ | 134,432 | 29.20 | % | ||||||
Financial services |
65,098 | 67,189 | 14.60 | % | ||||||||
Manufacturing |
49,130 | 48,792 | 10.60 | % | ||||||||
Food & beverage |
44,775 | 44,180 | 9.60 | % | ||||||||
Energy / utilities |
38,084 | 38,117 | 8.28 | % | ||||||||
Consumer products |
30,302 | 30,784 | 6.69 | % | ||||||||
Retail & grocery |
26,669 | 25,840 | 5.61 | % | ||||||||
Industrials |
24,535 | 24,628 | 5.35 | % | ||||||||
Healthcare, ambulatory surgery centers |
15,102 | 16,900 | 3.67 | % | ||||||||
Media |
16,499 | 16,873 | 3.67 | % | ||||||||
Healthcare, device manufacturing |
13,190 | 12,726 | 2.76 | % | ||||||||
Healthcare, consulting |
12,396 | 12,581 | 2.73 | % | ||||||||
Chemicals |
9,546 | 10,050 | 2.18 | % | ||||||||
Election services |
8,622 | 8,643 | 1.88 | % | ||||||||
Textiles |
8,704 | 8,469 | 1.84 | % | ||||||||
Aerospace & defense |
3,986 | 4,040 | 0.88 | % | ||||||||
Media, advertising |
| 1,600 | 0.35 | % | ||||||||
Healthcare, dental services |
1,393 | 1,043 | 0.23 | % | ||||||||
Restaurants |
191 | 260 | 0.06 | % | ||||||||
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Total investments |
$ | 503,489 | $ | 507,147 | 110.18 | % | ||||||
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The following is a summary of the geographical concentration of our investment portfolio as of June 30, 2013:
Region: | Cost | Fair Value | % of Net Assets |
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Southwest |
$ | 116,505 | $ | 115,512 | 25.09 | % | ||||||
West |
101,288 | 102,699 | 22.31 | % | ||||||||
Northeast |
91,670 | 93,001 | 20.20 | % | ||||||||
Southeast |
86,948 | 89,475 | 19.44 | % | ||||||||
Midwest |
79,905 | 79,977 | 17.38 | % | ||||||||
International |
13,522 | 13,652 | 2.97 | % | ||||||||
Northwest |
13,651 | 12,831 | 2.79 | % | ||||||||
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Total investments |
$ | 503,489 | $ | 507,147 | 110.18 | % | ||||||
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Table of Contents
The following is a summary of the industry classification in which the Company invests as of December 31, 2012.
Industry: |
Cost | Fair Value | % of Net Assets |
|||||||||
Business services |
$ | 67,270 | $ | 66,347 | 19.09 | % | ||||||
Consumer products |
49,957 | 50,010 | 14.39 | % | ||||||||
Food & beverage |
44,124 | 43,559 | 12.54 | % | ||||||||
Manufacturing |
38,982 | 38,145 | 10.98 | % | ||||||||
Financial services |
31,221 | 31,921 | 9.19 | % | ||||||||
Retail & grocery |
26,455 | 26,967 | 7.76 | % | ||||||||
Industrials |
25,001 | 25,001 | 7.19 | % | ||||||||
Healthcare, ambulatory surgery centers |
18,875 | 20,810 | 5.99 | % | ||||||||
Healthcare, device manufacturing |
12,968 | 12,404 | 3.57 | % | ||||||||
Healthcare, consulting |
12,251 | 12,361 | 3.56 | % | ||||||||
Media |
10,506 | 10,539 | 3.03 | % | ||||||||
Energy/utilities |
9,752 | 9,752 | 2.81 | % | ||||||||
Chemicals |
9,508 | 9,507 | 2.74 | % | ||||||||
Election services |
9,408 | 9,499 | 2.73 | % | ||||||||
Textiles |
8,633 | 8,581 | 2.47 | % | ||||||||
Restaurants |
8,203 | 8,415 | 2.42 | % | ||||||||
Media, advertising |
3,236 | 5,122 | 1.47 | % | ||||||||
Aerospace & defense |
3,966 | 4,020 | 1.16 | % | ||||||||
Healthcare, dental services |
1,393 | 1,389 | 0.40 | % | ||||||||
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Total investments |
$ | 391,709 | $ | 394,349 | 113.49 | % | ||||||
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The following is a summary of the geographical concentration of our investment portfolio as of December 31, 2012:
Region: | Cost | Fair Value | % of Net Assets |
|||||||||
Southeast |
$ | 101,402 | $ | 104,146 | 29.98 | % | ||||||
West |
87,804 | 88,635 | 25.51 | % | ||||||||
Southwest |
73,786 | 72,432 | 20.84 | % | ||||||||
Midwest |
62,867 | 63,033 | 18.14 | % | ||||||||
Northeast |
38,659 | 38,607 | 11.11 | % | ||||||||
Northwest |
13,525 | 13,830 | 3.98 | % | ||||||||
International |
13,666 | 13,666 | 3.93 | % | ||||||||
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Total investments |
$ | 391,709 | $ | 394,349 | 113.49 | % | ||||||
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25
Table of Contents
The following table rolls forward the changes in fair value during the six months ended June 30, 2013 for investments classified within Level 3:
First lien secured debt |
Second lien debt |
Subordinated debt |
Investments in funds |
Equity investments |
Investment in payment rights |
CLO residual interests |
Totals | |||||||||||||||||||||||||
Beginning balance, January 1, 2013 |
$ | 102,256 | $ | 70,035 | $ | 183,319 | $ | 10,259 | $ | 6,819 | $ | 12,261 | $ | 9,400 | $ | 394,349 | ||||||||||||||||
Purchases |
82,125 | 56,375 | 45,395 | 150 | | | 16,014 | 200,059 | ||||||||||||||||||||||||
Sales and repayments |
(35,052 | ) | (7,972 | ) | (48,121 | ) | (887 | ) | | | (128 | ) | (92,160 | ) | ||||||||||||||||||
Unrealized appreciation (depreciation)(1) |
(31 | ) | 1,248 | (1,043 | ) | (175 | ) | (548 | ) | 1,567 | | 1,018 | ||||||||||||||||||||
Net amortization of premiums, discounts and fees |
806 | 317 | 813 | | | | 71 | 2,007 | ||||||||||||||||||||||||
PIK |
67 | 225 | 1,582 | | | | | 1,874 | ||||||||||||||||||||||||
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Ending balance, June 30, 2013 |
$ | 150,171 | $ | 120,228 | $ | 181,945 | $ | 9,347 | $ | 6,271 | $ | 13,828 | $ | 25,357 | $ | 507,147 | ||||||||||||||||
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Net change in unrealized appreciation from investments still held as of the reporting date(1) |
$ | 250 | $ | 1,286 | $ | 3,041 | $ | 184 | $ | 2,563 | $ | (1,567 | ) | $ | | $ | 5,758 | |||||||||||||||
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(1) | All unrealized appreciation (depreciation) in the table above is reflected in the accompanying Consolidated Statements of Operations. |
The following table rolls forward the changes in fair value during the six months ended June 30, 2012 for investments classified within Level 3:
First lien debt |
Second lien debt |
Subordinated debt |
Investments in funds |
Equity investments |
Investment in Payment Rights |
Totals | ||||||||||||||||||||||
Beginning balance, January 1, 2012 |
$ | 89,488 | $ | 60,125 | $ | 101,842 | $ | 12,011 | $ | 3,527 | $ | | $ | 266,993 | ||||||||||||||
Purchases |
3,049 | 19,571 | 65,924 | 4 | 764 | 12,500 | 101,812 | |||||||||||||||||||||
Sales and repayments |
(13,476 | ) | (11,333 | ) | (12,569 | ) | (3,647 | ) | | | (41,025 | ) | ||||||||||||||||
Unrealized appreciation (depreciation)(1) |
246 | (854 | ) | (4 | ) | | 173 | | (439 | ) | ||||||||||||||||||
Net amortization of premiums, discounts and fees |
250 | 243 | 689 | | | | 1,182 | |||||||||||||||||||||
PIK |
122 |