First Eagle Alternative Capital BDC, Inc. - FORM 10-Q

First Eagle Alternative Capital BDC, Inc. - FORM 10-Q - August 6, 2013

Attached files

Attached files

file	filename
EX-32.2 - EX-32.2 - First Eagle Alternative Capital BDC, Inc.	d576741dex322.htm
EX-32.1 - EX-32.1 - First Eagle Alternative Capital BDC, Inc.	d576741dex321.htm
EX-31.1 - EX-31.1 - First Eagle Alternative Capital BDC, Inc.	d576741dex311.htm
EX-31.2 - EX-31.2 - First Eagle Alternative Capital BDC, Inc.	d576741dex312.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 June 30, 2013

¨	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., 31^st Floor, Boston, MA		02110
(Address of Principal Executive Offices)		(Zip Code)

Registrant’s 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.

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 registrant’s common stock, $0.001 par value per share, outstanding at August 6, 2013 was 33,905,202.

THL CREDIT, INC.

FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 2013

Table of Contents


	INDEX	PAGE NO.
PART I.	FINANCIAL INFORMATION

Item 1.	Financial Statements

	Consolidated Statements of Assets and Liabilities as of June 30, 2013 (unaudited) and December 31, 2012		2

	Consolidated Statements of Operations for the three and six months ended June 30, 2013 and 2012 (unaudited)		3

	Consolidated Statements of Changes in Net Assets for the six months ended June 30, 2013 and 2012 (unaudited)		4

	Consolidated Statements of Cash Flows for the six months ended June 30, 2013 and 2012 (unaudited)		5

	Consolidated Schedules of Investments as of June 30, 2013 (unaudited) and December 31, 2012		6

	Notes to Consolidated Financial Statements (unaudited)		19

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		38

Item 3.	Quantitative and Qualitative Disclosures About Market Risk		60

Item 4.	Controls and Procedures		60

PART II.	OTHER INFORMATION

Item 1.	Legal Proceedings		61

Item 1A.	Risk Factors		61

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		64

Item 3.	Defaults Upon Senior Securities		64

Item 4.	Mine Safety Disclosures		64

Item 5.	Other Information		64

Item 6.	Exhibits		64

SIGNATURES			65

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.

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.

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

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.

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.

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 investments—110.18% of net asset value
20-20 Technologies Inc.
Senior Secured Term Loan⁽⁴⁾	Business services	13.3%⁽⁵⁾		9/12/12		9/12/17	$	13,825	$	13,521	$	13,652

										13,521		13,652
Adirondack Park CLO Ltd.
Subordinated Notes, Residual Interest⁽⁴⁾⁽¹⁸⁾	Financial services	13.7%⁽¹⁹⁾		3/27/13		4/15/24	$	10,000		9,318		9,318

										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

										7,022		7,395
Airborne Tactical Advantage Company, LLC
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

										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		—

										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

										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

										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.

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

										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

										14,055		14,229
Duff & Phelps Corporation
Tax Receivable Agreement Payment Rights⁽¹¹⁾	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

										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

										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

										7,652		6,368
Firebirds International, LLC
Common stock⁽⁹⁾	Restaurants			5/17/11		—		2		191		260

										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.

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.

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 Acquisition Corp)
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 (2^nd 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.

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 investments—110.18% of net asset value									$	503,479	$	507,137

(Continued on next page)

See accompanying notes to these consolidated financial statements.

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 investments—0.00% of net asset value

THL Credit Greenway Fund LLC

Member interest^(8)(18)

Financial services

1/27/11

1/14/21

—

THL Credit Greenway Fund II LLC

Member interest^(8)(18)

Financial services

3/1/13

—

Total investments—110.18% 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 instruments—0.00% 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. Issuer’s 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 Company’s 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.

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.

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 investments—113.49% 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 Company, LLC
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 Term Loans⁽¹⁰⁾		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.

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 Payment Rights⁽¹¹⁾	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 Loan^{(14) (15)}		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 Loan^(10)(15)		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.

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

										12,967		12,404
Jefferson Management Holdings, LLC
Member interest⁽⁷⁾⁽⁸⁾	Healthcare, dental services	N/A		4/20/10		—		1,393		1,393		1,388

										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

										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 Loan⁽¹⁰⁾		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 Interest⁽⁴⁾	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										—		—

										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.

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 (2^nd lien) Term Loan⁽⁷⁾	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

										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

										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

										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

										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

										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 investments—113.49% of net asset value									$	391,699	$	394,339

(Continued on next page)

See accompanying notes to these consolidated financial statements.

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 investment—0.00% of net asset value

THL Credit Greenway Fund LLC

Member interest^(8)(18)

Financial services

1/27/11

1/14/21

—

Total investments—113.49% 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 Company’s 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.

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.

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 Company’s 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 Company’s 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.

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 period’s 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 Company’s 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 Company’s 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 Company’s 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 Company’s board of directors. Because we expect that there will not be a readily available market value for many of the investments in the Company’s portfolio, it is expected that many of the Company’s portfolio investments’ values will be determined in good faith by the Company’s 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

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 Company’s board of directors undertakes a multi-step valuation process each quarter, as described below:

•

the Company’s 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 Company’s board of directors, independent valuation firms engaged by the Company conduct independent appraisals and review the Advisor’s 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 company’s 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 Company’s board of directors, in consultation with the Company’s 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 Company’s 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 counterparty’s 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 Company’s 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 Company’s 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 company’s 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 1—Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;

Level 2—Quoted prices in markets that are not considered to be active or financial instruments for which significant inputs are observable, either directly or indirectly;

Level 3—Prices 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 entity’s 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 Company’s 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

if it does not expect amounts to be collectible. To maintain the Company’s 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	)

Accumulated PIK balance at December 31, 2012	$	5,807
PIK income capitalized/receivable		1,951
PIK received in cash from repayments		(1,784	)

Accumulated PIK balance at June 30, 2013	$	5,974

Interest income from the Company’s 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

Total investments	$	507,147		$	—	$	—		$	507,147

Interest rate derivative		(66	)		—		(66	)		—

Total liability at fair value	$	(66	)	$	—	$	(66	)	$	—

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

Total investments	$	394,349		$	—	$	—		$	394,349

Interest rate derivative		(1,053	)		—		(1,053	)		—

Total liability at fair value	$	(1,053	)	$	—	$	(1,053	)	$	—

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	%

Total investments	$	503,489	$	507,147		110.18	%

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
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	%

Total investments	$	503,489	$	507,147		110.18	%

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	%

Total investments	$	391,709	$	394,349		113.49	%

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	%

Total investments	$	391,709	$	394,349		113.49	%

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

Ending balance, June 30, 2013	$	150,171		$	120,228		$	181,945		$	9,347		$	6,271		$	13,828		$	25,357		$	507,147

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

(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	)

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