Attached files

file filename
EX-31.1 - EXHIBIT 31.1 - Oxford Square Capital Corp.v352007_ex31-1.htm
EX-31.2 - EXHIBIT 31.2 - Oxford Square Capital Corp.v352007_ex31-2.htm
EX-32.1 - EXHIBIT 32.1 - Oxford Square Capital Corp.v352007_ex32-1.htm
EX-32.2 - EXHIBIT 32.2 - Oxford Square Capital Corp.v352007_ex32-2.htm

 

 

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 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

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

COMMISSION FILE NUMBER: 0-50398



 

TICC CAPITAL CORP.

(Exact name of registrant as specified in its charter)



 

 
MARYLAND   20-0188736
(State or other jurisdiction of
incorporation or organization)
  (I.R.S. Employer
Identification No.)

8 SOUND SHORE DRIVE, SUITE 255
GREENWICH, CONNECTICUT 06830

(Address of principal executive office)

(203) 983-5275

(Registrant’s telephone number, including area code)



 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 
Large accelerated filer o   Accelerated filer x
Non-accelerated filer o   Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. The number of shares of the issuer’s Common Stock, $0.01 par value, outstanding as of August 6, 2013 was 52,632,665.

 

 


 
 

TABLE OF CONTENTS

TICC CAPITAL CORP.

TABLE OF CONTENTS

 
PART I. FINANCIAL INFORMATION     1  

Item 1.

Financial Statements (Unaudited)

    1  

 

Consolidated Statements of Assets and Liabilities as of June 30, 2013 and December 31, 2012

    1  

 

Consolidated Schedule of Investments as of June 30, 2013

    2  

 

Consolidated Schedule of Investments as of December 31, 2012

    7  

 

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

    12  

 

Consolidated Statements of Changes in Net Assets for the six months ended June 30, 2013 and for the year ended December 31, 2012

    13  

 

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

    14  

 

Notes to Consolidated Financial Statements

    15  

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results
of Operations

    39  

 

Cautionary Statements Regarding Forward-Looking Statements

    39  

 

Overview

    41  

 

Critical Accounting Policies

    43  

 

Portfolio Composition and Investment Activity

    48  

 

Liquidity and Capital Resources

    67  

 

Recent Developments

    71  

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

    71  

Item 4.

Controls and Procedures

    71  
PART II. OTHER INFORMATION     72  

Item 1.

Legal Proceedings

    72  

Item 1A.

Risk Factors

    72  

Item 2.

 Unregistered Sales of Equity Securities and Use of Proceeds

    75  

Item 3.

Defaults Upon Senior Securities

    75  

Item 4.

Mine Safety Disclosures

    75  

Item 5.

Other Information

    75  

Item 6.

Exhibits

    76  
SIGNATURES     78  

i


 
 

TABLE OF CONTENTS

PART I — FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)

TICC CAPITAL CORP.
  
CONSOLIDATED STATEMENTS OF ASSETS AND LIABILITIES
(unaudited)

   
  June 30,
2013
  December 31,
2012
ASSETS
                 
Non-affiliated/non-control investments (cost: $885,250,679 @ 6/30/13; $634,081,527 @ 12/31/12)   $ 889,523,855     $ 651,099,873  
Control investments (cost: $16,987,907 @ 6/30/13; $17,256,179
@ 12/31/12)
    16,150,000       16,450,000  
Total investments at fair value (cost: $902,238,586 @ 6/30/13; $651,337,706 @ 12/31/12)     905,673,855       667,549,873  
Cash and cash equivalents     28,009,607       51,392,949  
Restricted cash     73,011,753       21,240,508  
Deferred debt issuance costs     8,628,908       8,154,925  
Interest and distributions receivable     6,850,531       5,986,122  
Securities sold not settled     2,725,910       1,516,875  
Other assets     349,010       181,788  
Total assets   $ 1,025,249,574     $ 756,023,040  
LIABILITIES
                 
Accrued interest payable   $ 2,573,422     $ 4,234,376  
Investment advisory fee payable to affiliate     6,264,303       4,930,908  
Accrued capital gains incentive fee to affiliate     2,380,817       6,617,810  
Securities purchased not settled     49,462,219        
Accrued expenses     850,903       302,971  
Notes payable – TICC CLO LLC, net of discount     99,961,243       99,882,627  
Notes payable – TICC CLO 2012-1 LLC, net of discount     235,413,949       115,451,819  
Convertible senior notes payable     115,000,000       115,000,000  
Total liabilities     511,906,856       346,420,511  
COMMITMENTS (Note 14)
                 
NET ASSETS
                 
Common stock, $0.01 par value, 100,000,000 shares authorized, and 52,632,665 and 41,371,286 issued and outstanding, respectively     526,327       413,713  
Capital in excess of par value     562,936,096       451,157,297  
Net unrealized appreciation on investments     3,435,269       16,212,167  
Accumulated net realized losses on investments     (45,437,685 )      (53,906,504 ) 
Distributions in excess of investment income     (8,117,289 )      (4,274,144 ) 
Total net assets     513,342,718       409,602,529  
Total liabilities and net assets   $ 1,025,249,574     $ 756,023,040  
Net asset value per common share   $ 9.75     $ 9.90  

 
 
See Accompanying Notes.

1


 
 

TABLE OF CONTENTS

TICC CAPITAL CORP.
CONSOLIDATED SCHEDULE OF INVESTMENTS
JUNE 30, 2013
(unaudited)

           
COMPANY(1)   INDUSTRY   INVESTMENT   PRINCIPAL AMOUNT   COST   FAIR VALUE(2)   % of Net
Assets
Senior Secured Notes
                                                     
ABB/Con-Cise Optical Group     retail       tranche B term loan(4)(5)(6)(10)
(4.50%, due February 6, 2019)
    $ 6,650,000     $ 6,618,479     $ 6,530,965           
Algorithmic Implementations, Inc.
(d/b/a “Ai Squared”)
      
software
      senior secured notes(4)(5)(6)
(9.84%, due September 11, 2016)
      14,000,000       13,987,907       14,000,000           
Attachmate Corporation     enterprise software       senior secured notes(4)(5)(6)(9)(10)
(7.27%, due November 22, 2017)
      7,400,000       7,270,685       7,393,414           
                second lien senior secured notes(4)(5)(9)
(11.00%, due November 22, 2018)
      18,000,000       17,749,599       17,921,340           
Berlin Packaging     packaging       second lien senior secured notes(4)(6)
(8.75%, due April 2, 2020)
      1,500,000       1,478,074       1,507,500           
Blue Coat System, Inc.     software       second lien senior secured notes(4)(5)
(9.50%, due June 28, 2020)
      15,000,000       14,850,000       14,850,000           
Compucom Systems, Inc.     IT outsourcing       first lien senior secured notes(4)(5)(10)
(4.25%, due May 9, 2020)
      7,000,000       6,965,369       6,874,000           
Cunningham Lindsey Group Inc.     insurance       first lien senior secured notes(4)(5)(6)(9)(10)
(5.00%, due December 10, 2019)
      3,980,000       3,942,693       3,960,896           
                second lien senior secured notes(4)(5)
(9.25%, due June 10, 2020)
      3,118,182       3,088,683       3,149,364           
Deltek Systems Inc     enterprise software       first lien senior secured notes(4)(5)(6)(10)
(5.00%, due October 10, 2018)
      4,626,750       4,599,900       4,605,559           
                second lien senior secured notes(4)(5)
(10.00%, due October 10, 2019)
      10,000,000       9,880,598       10,066,700           
Digital Generation, Inc.
(F/K/A “DG Fastchannel, Inc.”)
      
advertising
      first lien senior secured notes(4)(5)(6)(10)(11)
(7.25%, due July 26, 2018)
      5,328,912       5,269,551       5,244,555           
Drew Marine Partners     shipping and
transportation
      first lien senior secured notes(4)(5)(6)(9)
(6.25%, due September 1, 2014)
      3,325,000       3,301,388       3,328,325           
Edmentum, Inc.
(F/K/A “Plato, Inc.”)
      
education
      first lien senior secured notes(4)(5)(6)(9)(10)
(6.00%, due May 17, 2018)
      6,706,098       6,633,764       6,706,098           
Endurance International Group,     web hosting       first lien senior secured notes(4)(5)(6)(9)(10)(14)
(6.25%, due November 9, 2019)
      9,950,000       9,853,317       9,987,313           
                second lien senior secured notes(4)(5)(14)
(10.25%, due May 9, 2020)
      18,000,000       17,830,387       18,090,000           
First American Payment Systems     financial intermediaries       first lien senior secured notes(4)(5)(6)(10)
(5.75%, due October 4, 2018)
      3,980,000       3,984,603       3,989,114           
                second lien senior secured notes(4)(5)(10)
(10.75%, due April 12, 2019)
      15,000,000       14,723,503       15,037,500           
First Data Corporation     financial intermediaries       first lien senior secured notes(4)(5)(9)(10)
(4.19%, due March 23, 2017)
      16,050,721       15,992,259       15,664,541           
                tranche B term loan(4)(9)(10)
(5.19%, due September 24, 2018)
      880,952       880,952       857,827           
Genutec Business Solutions     interactive voice
messaging services
      senior secured notes(5)(7)
(0.0%, due October 30, 2014)
      3,476,000       3,211,014                 
Global Tel Link Corp     telecommunication services       second lien senior secured notes(4)(5)
(9.00%, due November 23, 2020)
      13,000,000       12,842,465       12,718,290           
Grede Holdings LLC     auto parts manufacturer       senior secured notes(4)(5)(6)(9)(10)
(4.50%, due April 3, 2017)
      8,199,413       8,116,702       8,168,665           
GXS Worldwide, Inc.     business services       senior secured notes(5)(9)
(9.75%, due June 15, 2015)
      8,000,000       7,943,358       8,150,000           
Harvard Drug Group, LLC     pharmaceutical       senior secured notes(4)(5)(6)(10)
(5.00%, due October 29, 2019)
      3,460,870       3,460,870       3,465,196           
Healogics, Inc.
(F/K/A “National Healing Corp.”)
      
healthcare
      senior secured notes(4)(5)(6)(10)
(5.25%, due February 5, 2019)
      3,325,000       3,309,245       3,329,156           
                second lien senior secured notes(4)(10)
(9.25%, due February 5, 2020)
      4,000,000       3,961,465       4,060,000           
Help/Systems Holdings, Inc.     software       senior secured notes(4)(5)(9)(10)
(5.50%, due June 28, 2019)
      15,000,000       14,850,000       14,850,000           
                second lien senior secured notes(4)(5)
(9.50%, due June 28, 2020)
      15,000,000       14,775,000       14,775,000           

(Continued on next page)

 
 
See Accompanying Notes.

2


 
 

TABLE OF CONTENTS

TICC CAPITAL CORP.
CONSOLIDATED SCHEDULE OF INVESTMENTS – (Continued)
JUNE 30, 2013
(unaudited)

           
COMPANY(1)   INDUSTRY   INVESTMENT   PRINCIPAL AMOUNT   COST   FAIR VALUE(2)   % of Net
Assets
Senior Secured Notes – (continued)
                                            
HHI Holdings LLC     auto parts manufacturer       senior secured notes(4)(5)(6)(10)
(5.00%, due October 5, 2018)
    $ 4,176,869     $ 4,142,661     $ 4,190,778           
Hoffmaster Group, Inc.     retail       first lien senior secured notes(4)(5)(6)(9)(10)
(6.50%, due January 3, 2018)
      6,684,258       6,660,297       6,667,547           
iEnergizer Limited     printing and publishing       first lien senior secured notes(4)(5)(10)
(7.25%, due May 1, 2019)
      8,000,000       7,851,009       7,860,000           
Immucor, Inc.     healthcare       senior secured term B notes(4)(5)(6)(9)
(5.00%, due August 19, 2018)
      4,421,699       4,289,232       4,429,437           
InfoNXX, Inc     telecommunication services       second lien senior secured notes(4)(5)(6)(9)
(6.45%, due December 1, 2013)
      3,360,000       3,326,107       3,291,624           
Integra Telecom Holdings, Inc     telecommunication services       first lien senior secured notes(4)(5)(6)(9)(10)
(5.25%, due February 22, 2019)
      7,461,300       7,411,024       7,457,569           
                second lien senior secured notes(4)
(9.75%, due February 22, 2020)
      7,000,000       7,000,000       7,157,500           
Jackson Hewitt Tax Service, Inc.     consumer services       second lien senior secured notes(4)(5)(6)(9)(10)
(10.00%, due October 16, 2017)
      24,218,750       23,330,744       23,401,367           
Mercury Payment Systems, LLC     financial intermediaries       senior secured notes(4)(6)(9)(10)
(5.50%, due July 1, 2017)
      4,912,563       4,912,563       4,949,407           
Merrill Communications, LLC     printing and publishing       first lien senior secured notes(4)(5)(6)(10)(14)
(7.25%, due March 8, 2018)
      13,965,000       13,898,382       13,999,913           
Mirion Technologies, Inc     utilities       senior secured notes(4)(5)(6)(9)
(5.75%, due March 30, 2018)
      2,452,014       2,409,533       2,452,014           
Mmodal, Inc.     healthcare       first lien senior secured notes(4)(5)(6)(9)(10)
(7.50%, due August 17, 2019)
      9,541,573       9,438,183       9,261,337           
NAB Holdings, LLC     financial intermediaries       first lien senior secured notes(4)(5)(6)(9)(10)
(7.00%, due April 24, 2018)
      8,518,500       8,489,838       8,550,444           
National Vision, Inc.     retail       senior secured term B notes(4)(5)(6)(9)(10)
(7.00%, due August 2, 2018)
      5,266,667       5,214,654       5,315,120           
New Breed Logistics     logistics       senior secured term B notes(4)(5)(9)(10)
(6.00%, due October 1, 2019)
      9,950,000       9,940,818       9,925,125           
Nextag, Inc.     retail       senior secured notes(4)(5)(6)(9)(10)
(9.25%, due January 27, 2016)
      13,975,956       13,514,351       12,857,880           
Otter Products, LLC     chemicals and plastics       first lien senior secured notes(4)(5)(9)(10)
(5.25%, due April 30, 2020)
      15,040,000       15,040,983       15,058,800           
Packaging Coordinators, Inc.     packaging and
containers
      first lien senior secured notes(4)(5)(10)
(5.50%, due May 10, 2020)
      5,000,000       4,975,000       5,025,000           
Pegasus Solutions, Inc.     enterprise software       second lien senior secured notes(3)(5)(6)
(0.00% Cash/13.00% PIK, due April 15, 2014)
      3,000,000       2,910,439       2,715,000           
Petco, Inc.     retail       senior secured notes(4)(5)(6)(9)
(4.00%, due November 24, 2017)
      4,924,242       4,747,634       4,915,034           
Philips Plastics Corporation     healthcare       senior secured notes(4)(5)(6)(9)
(4.75%, due February 12, 2017)
      2,947,688       2,929,354       2,947,688           
Presidio IS Corp.     business services       senior secured notes(4)(5)(6)(9)(10)
(5.75%, due March 31, 2017)
      9,925,000       9,898,559       9,776,125           
Radnet Management, Inc.     medical services       senior secured notes(4)(6)(10)
(4.25%, due October 10, 2018)
      3,970,005       3,981,624       3,966,710           
RBS Holding Company     printing and publishing       term B senior secured notes(4)(5)(6)(7)(9)(13)
(0%, due March 23, 2017)
      22,656,609       10,330,566       7,986,455           
Renaissance Learning     education       senior secured notes(4)(5)(6)(9)(10)
(5.75%, due November 13, 2018)
      9,925,000       9,851,938       9,937,406           
Renfro Corporation     clothing       senior secured notes(4)(6)(9)(10)
(5.75%, due January 30, 2019)
      4,655,000       4,683,768       4,655,000           
Roundys Supermarkets, Inc.     grocery       term B senior secured notes(4)(5)(6)(10)(11)
(5.75%, due February 13, 2019)
      8,932,093       8,591,317       8,701,377           
SCS Holdings I Inc.
(Sirius Computer Solutions, Inc.)
      
electronics
      senior secured notes(4)(5)(6)(9)
(7.00%, due December 7, 2018)
      4,156,250       4,116,246       4,192,825           

(Continued on next page)

 
 
See Accompanying Notes.

3


 
 

TABLE OF CONTENTS

TICC CAPITAL CORP.
CONSOLIDATED SCHEDULE OF INVESTMENTS – (Continued)
JUNE 30, 2013
(unaudited)

           
COMPANY(1)   INDUSTRY   INVESTMENT   PRINCIPAL AMOUNT   COST   FAIR VALUE(2)   % of Net
Assets
Senior Secured Notes – (continued)
                                            
Securus Technologies, Inc.     telecommunication services       first lien senior secured notes(4)(5)(9)
(4.75%, due April 30, 2020)
    $ 4,000,000     $ 3,960,750     $ 3,962,520           
                second lien senior secured notes(4)(5)
(9.00%, due April 30, 2021)
      6,400,000       6,368,175       6,404,032           
Sedgwick Claims Management Services, Inc.       
insurance
      first lien senior secured notes(4)(10)
(4.25%, due June 12, 2018)
      2,000,000       2,000,000       2,000,000           
                second lien senior secured notes(4)(5)(10)
(8.00%, due December 12, 2018)
      1,500,000       1,492,500       1,503,750           
Sesac Holdco II LLC     radio and television       first lien senior secured notes(4)(5)(6)(10)
(6.00%, due February 8, 2019)
      8,278,400       8,336,298       8,299,096           
                second lien senior secured notes(4)(5)(10)
(10.00%, due July 12, 2019)
      2,000,000       1,971,109       2,055,000           
Six3 Systems, Inc.     IT consulting       term B senior secured notes(4)(5)(6)(9)(10)
(7.00%, due October 4, 2019)
      10,945,000       10,856,850       11,109,175           
Skillsoft Corporation     business services       senior secured notes(4)(5)(6)(10)
(5.00%, due May 26, 2017)
      2,776,306       2,792,104       2,786,717           
Source Hov, LLC     business services       first lien senior secured notes(4)(10)
(5.25%, due April 30, 2018)
      4,800,000       4,800,000       4,821,600           
                second lien senior secured notes(4)(10)
(8.75%, due April 30, 2019)
      2,000,000       2,000,000       2,012,000           
Sportsman's Warehouse Holdings     retail       first lien senior secured notes(4)(5)(6)(9)(10)
(8.50%, due November 13, 2018)
      7,960,000       7,886,349       7,960,000           
Sterling Infosystems, Inc.     business services       senior secured notes(4)(5)(6)(9)
(5.76%, due February 1, 2018)
      2,585,000       2,540,823       2,591,463           
STG-Fairway Acqusitions, Inc.     business services       first lien senior secured notes(4)(5)(6)(9)(10)
(6.25%, due February 28, 2019)
      9,351,563       9,261,689       9,281,426           
Stratus Technologies, Inc.     computer hardware       first lien high yield notes(5)(6)(9)
(12.00%, due March 29, 2015)
      9,282,000       8,891,705       9,282,000           
Sumtotal Systems, Inc.     business services       first lien senior secured notes(4)(5)(6)(9)
(6.25%, due November 16, 2018)
      4,987,500       4,941,641       4,999,969           
                second lien senior secured notes(4)(5)(10)
(10.25%, due May 16, 2019)
      11,250,000       11,037,244       11,193,750           
Technimark LLC     chemicals and plastics       senior secured notes(4)(5)(9)(10)
(5.50%, due April 17, 2019)
      15,114,286       15,057,506       15,189,857           
Teleguam Holdings LLC     telecommunication services       second lien senior secured notes(4)(5)(9)(10)
(8.75%, due June 10, 2019)
      10,000,000       9,913,114       10,050,000           
Travelclick Inc     travel       first lien senior secured notes(4)(5)(6)(9)(10)
(5.75%, due March 16, 2016)
      10,556,096       10,507,457       10,661,657           
Trinet Group, Inc.     business services       first lien senior secured notes(4)(5)(6)(9)(10)
(6.50%, due October 24, 2018)
      7,468,753       7,446,098       7,450,081           
Unitek Global Services, Inc.     IT consulting       tranche B term loan(3)(4)(5)(6)(9)(10)
(11.75%, due April 15, 2018)
      11,227,775       10,991,178       10,273,414           
US FT HoldCo. Inc.
(A/K/A Fundtech)
      
financial intermediaries
      senior secured notes(4)(5)(6)(10)
(4.50%, due November 30, 2017)
      3,491,139       3,491,139       3,484,611           
Vision Solutions     software       second lien senior secured notes(4)(5)(9)(10)
(9.50%, due July 23, 2016)
      10,000,000       9,929,164       9,800,000           
Wall Street Systems     financial intermediaries       first lien senior secured notes(4)(5)(6)(9)(10)
(5.75%, due October 25, 2019)
      4,975,000       4,905,285       4,965,697           
                second lien senior secured notes(4)(5)
(9.25%, due October 23, 2020)
      10,000,000       9,811,325       10,037,500           
Waupaca Foundry, Inc.     IT consulting       senior secured notes(4)(5)(6)(9)(10)
(4.79%, due June 29, 2017)
      15,300,924       15,233,559       15,230,846           
Web.Com Group, Inc.     web hosting       senior secured notes(4)(5)(6)(9)(10)(11)
(5.50%, due October 27, 2017)
      5,677,266       5,625,992       5,710,365           
Total Senior Secured Notes                     $ 647,307,707     $ 644,042,326       125.5%  
Senior Unsecured Notes
                                                     
Merrill Communications, LLC     printing and publishing       senior unsecured PIK notes(3)(5)(9)(14)
(10%, due March 8, 2023)
      5,501,851       2,663,681       5,309,286           
Total Senior Unsecured Notes                     $ 2,663,681     $ 5,309,286       1.0%  

(Continued on next page)

 
 
See Accompanying Notes.

4


 
 

TABLE OF CONTENTS

TICC CAPITAL CORP.
CONSOLIDATED SCHEDULE OF INVESTMENTS – (Continued)
JUNE 30, 2013
(unaudited)

           
COMPANY(1)   INDUSTRY   INVESTMENT   PRINCIPAL AMOUNT   COST   FAIR VALUE(2)   % of Net
Assets
Collateralized Loan Obligation – Debt Investments
                                            
Carlyle Global Market Strategies
2013-2A F
      
structured finance
      CLO secured notes(4)(5)(11)(12)
(5.71%, due April 18, 2025)
    $ 6,000,000     $ 5,111,359     $ 5,151,600           
Catamaran CLO LTD 2012-1A F     structured finance       CLO secured notes(4)(5)(11)(12)
(6.52%, due December 20, 2023)
      6,000,000       5,047,307       5,310,000           
CIFC Funding 2013-II, Ltd.     structured finance       CLO secured notes(4)(5)(11)(12)
(6.08%, due July 18, 2025)
      4,000,000       3,581,007       3,580,000           
Emporia Preferred Funding III
CLO 2007-3A, 3X E
      
structured finance
      CLO secured notes(4)(5)(11)(12)
(3.98%, due April 23, 2021)
      10,991,000       7,948,073       8,921,395           
HarbourView CLO 2006-1 LTD 6X D     structured finance       CLO secured notes(4)(5)(11)(12)
(3.98%, due December 27, 2019)
      5,000,000       3,414,571       4,250,500           
Hewetts Island CDO IV 2006-4 E     structured finance       CDO secured notes(4)(5)(11)(12)
(4.84%, due May 9, 2018)
      7,897,268       5,942,513       7,542,681           
Muir Grove CLO LTD 2007-1X E     structured finance       CDO secured notes(4)(5)(11)(12)
(8.28%, due March 25, 2020)
      7,690,915       6,867,143       7,614,005           
Telos CLO 2013-3 Ltd. Class F     structured finance       CDO secured notes(4)(5)(11)(12)
(5.88%, due January 17, 2024)
      3,000,000       2,716,359       2,586,300           
Total Collateralized Loan
Obligation – Debt Investments
                    $ 40,628,332     $ 44,956,481       8.8%  
Collateralized Loan Obligation – Equity Investments
                                            
ACA CLO 2006-2, Limited Pref     structured finance       CLO preferred equity(11)(12)
            2,200,000       3,550,000           
ACA CLO 2007-1A Sub     structured finance       CLO subordinated notes(11)(12)
            10,583,500       10,248,000           
ACAS CLO 2012-1A Sub     structured finance       CLO subordinated notes(11)(12)
            4,050,000       3,900,000           
AMMC CLO XII, Limited 2013-12 Sub     structured finance       CLO subordinated notes(11)(12)
            9,949,500       9,949,500           
Apidos 2013-3A Sub     structured finance       CLO subordinated notes(11)(12)
            3,569,719       3,569,719           
ARES XXVI CLO Ltd. 2013-26 Sub     structured finance       CLO subordinated notes(11)(12)
            15,234,375       15,187,500           
Benefit Street Partners CLO II Ltd.     structured finance       CLO subordinated notes(11)(12)
            12,870,000       12,870,000           
Carlyle Global Market Strategies 2013-2A Sub     structured finance       CLO subordinated notes(11)(12)             7,955,000       8,579,375           
Cedar Funding II CLO Ltd. 2013-1A Sub     structured finance       CLO subordinated notes(11)(12)
            15,656,250       15,656,250           
Columbus Park CDO Ltd. 2008-1A Sub     structured finance       CLO subordinated notes(11)(12)
            8,150,000       8,500,000           
Catamaran CLO LTD 2012-1A Sub     structured finance       CLO subordinated notes(11)(12)
            20,075,000       17,600,000           
Canaras Summit CLO 2007-1A Ltd Inc.     structured finance       CLO income notes(11)(12)
            4,355,000       4,320,000           
Galaxy XV CLO Ltd. 2013-15A Sub     structured finance       CLO income notes(11)(12)
            7,012,500       7,436,550           
Gale Force 4 2007-4A CLO Inc.     structured finance       CLO income notes(11)(12)
            1,965,000       2,400,000           
GSC Group CDO Fund VIII 2007-8X Sub     structured finance       CLO subordinated notes(11)(12)
            4,110,000       6,000,000           
Halcyon Loan Advisors Funding 2012-2A Sub     structured finance       CLO subordinated notes(11)(12)             6,750,000       7,125,000           
HarbourView CLO 2006-1 LTD 6A Sub     structured finance       CLO subordinated notes(11)(12)
            3,639,870       3,624,400           
Jersey Street CLO 2006-1A LTD     structured finance       CLO income notes(11)(12)
            7,535,613       7,332,000           
Lightpoint CLO III 2005-3X Inc.     structured finance       CLO income notes(11)(12)
            3,330,000       3,154,500           
Lightpoint CLO VII LTD 2007-7X, 7A Sub     structured finance       CLO subordinated notes(11)(12)
            1,562,500       1,120,000           
Lightpoint CLO VIII LTD 2007-8A Sub     structured finance       CLO subordinated notes(11)(12)
            4,612,500       3,300,000           
Marea CLO 2012-1A Inc.     structured finance       CLO income notes(11)(12)
            10,934,215       10,140,110           
Octagon Investment Partners XI 2007-1A Inc.     structured finance       CLO income notes(11)(12)             2,434,163       2,673,000           
Sargas CLO 2006 -1A Sub     structured finance       CLO subordinated notes(11)(12)
            4,945,500       4,545,000           
Sheridan Square CLO Ltd. 2013-1A Inc.     structured finance       CLO subordinated notes(11)(12)
            4,136,511       3,967,674           
Stone Tower CLO VII LTD 2007-7X Sub     structured finance       CLO subordinated notes(11)(12)
            12,739,000       10,530,000           
Telos 2013-3A Sub     structured finance       CLO subordinated notes(11)(12)             8,633,333       8,633,333           
Total Collateralized Loan
Obligation – Equity Investments
                    $ 198,989,049     $ 195,911,911       38.2%  

(Continued on next page)

 
 
See Accompanying Notes.

5


 
 

TABLE OF CONTENTS

TICC CAPITAL CORP.
CONSOLIDATED SCHEDULE OF INVESTMENTS – (Continued)
JUNE 30, 2013
(unaudited)

           
           
COMPANY(1)   INDUSTRY   INVESTMENT   PRINCIPAL AMOUNT   COST   FAIR
VALUE(2)
  % of Net
Assets
Common Stock
                                                                       
Algorithmic Implementations, Inc.
(d/b/a “Ai Squared”)
      
software
      common stock           $ 3,000,000     $ 2,150,000           
Integra Telecom Holdings, Inc.     telecommunication services       common stock(7)  
            1,712,397       2,932,698           
Merrill Communications, LLC     printing and publishing       common equity(7)(9)(14)  
            3,425,244       9,404,186           
Pegasus Solutions, Inc.     enterprise software       common equity(7)  
            62,595                 
Stratus Technologies, Inc.     computer hardware       common equity(7)  
            379,810       24,553           
Total Common Stock Investments                     $ 8,580,046     $ 14,511,437       2.8%  
Preferred Equity
                                                     
GenuTec Business Solutions, Inc.     interactive voice
messaging services
      convertible preferred stock(7)  
            1,500,000                 
Pegasus Solutions, Inc.     enterprise software       preferred equity(3)  
(14.00% PIK dividend)
            1,627,488                 
Stratus Technologies, Inc.     computer hardware       preferred equity(7)  
            217,284       399,765           
Total Preferred Equity Investments                     $ 3,344,772     $ 399,765       0.1%  
Warrants
                                                     
Fusionstorm, Inc.     IT value-added reseller       warrants to purchase common stock(7)  
            725,000       542,649           
Total Warrants                     $ 725,000     $ 542,649       0.1%  
Total Investments                     $ 902,238,586     $ 905,673,855       176.4%  

(1) Other than Algorithmic Implementation, Inc. (d/b/a Ai Squared), which we may be deemed to control, we do not “control” and are not an “affiliate” of any of our portfolio companies, each as defined in the Investment Company Act of 1940 (the “1940 Act”). In general, under the 1940 Act, we would be presumed to “control” a portfolio company if we owned 25% or more of its voting securities and would be an “affiliate” of a portfolio company if we owned 5% or more of its voting securities.
(2) Fair value is determined in good faith by the Board of Directors of the Company.
(3) Portfolio includes $19,729,626 of principal amount of debt investments which contain a PIK provision. Portfolio also includes one preferred equity position which contains a PIK dividend provision.
(4) Notes bear interest at variable rates.
(5) Cost value reflects accretion of original issue discount or market discount.
(6) Cost value reflects repayment of principal.
(7) Non-income producing at the relevant period end.
(8) Aggregate gross unrealized appreciation for federal income tax purposes is $25,763,883; aggregate gross unrealized depreciation for federal income tax purposes is $40,571,406. Net unrealized depreciation is $14,807,523 based upon a tax cost basis of $920,481,438.
(9) All or a portion of this investment represents TICC CLO LLC collateral.
(10) All or a portion of this investment represents TICC CLO 2012-1 LLC collateral.
(11) Indicates assets that the Company believes do not represent “qualifying assets” under Section 55(a) of the Investment Company Act of 1940, as amended. Qualifying assets must represent at least 70% of the Company's total assets at the time of acquisition of any additional non-qualifying assets.
(12) Investment not domiciled in the United States.
(13) Debt investment on non-accrued status at the relevant period end.
(14) Aggregate investments represent greater than 5% of net assets.

 
 
See Accompanying Notes.

6


 
 

TABLE OF CONTENTS

TICC CAPITAL CORP.
CONSOLIDATED SCHEDULE OF INVESTMENTS
DECEMBER 31, 2012

           
COMPANY(1)   INDUSTRY   INVESTMENT   PRINCIPAL AMOUNT   COST   FAIR VALUE(1)   % of Net
Assets
Senior Secured Notes
                                                     
Algorithmic Implementations, Inc.
(d/b/a “Ai Squared”)
      
software
      senior secured notes(4)(5)(6)
(9.84%, due September 11, 2013)
    $ 14,300,000     $ 14,256,179     $ 14,300,000           
Attachmate Corporation     enterprise software       senior secured notes(4)(5)(6)(9)(10)
(7.25%, due November 22, 2017)
      7,700,000       7,554,783       7,757,750           
                second lien senior secured notes(4)(5)(9)
(11.00%, due November 22, 2018)
      13,000,000       12,669,026       12,759,500           
Band Digital Inc. (F/K/A
“WHITTMANHART, Inc.”)
      
IT consulting
      senior secured notes(4)(6)(7)(13)
(0.0%, due December 31, 2013)
      1,901,444       1,773,000       470,513           
Blue Coat System, Inc.     software       first lien senior secured notes(4)(5)(9)(10)
(5.75%, due February 15, 2018)
      9,681,618       9,663,415       9,736,126           
BNY Convergex     financial intermediaries       second lien senior secured notes(4)(9)
(8.75%, due December 17, 2017)
      1,875,000       1,875,000       1,763,681           
Compucom Systems, Inc.     IT outsourcing       first lien senior secured notes(4)(5)(10)
(6.50%, due October 4, 2018)
      5,000,000       4,951,308       5,016,650           
                second lien senior secured notes(4)(5)
(10.25%, due October 4, 2019)
      10,000,000       9,803,805       9,962,500           
Cunningham Lindsey Group Inc.     Insurance       first lien senior secured notes(4)(5)(9)(10)
(5.00%, due December 10, 2019)
      4,000,000       3,960,243       3,985,000           
                second lien senior secured notes(4)(5)
(9.25%, due June 10, 2020)
      4,000,000       3,960,211       4,070,000           
Deltek Systems Inc     enterprise software       first lien senior secured notes(4)(5)(10)
(6.00%, due October 10, 2018)
      4,650,000       4,621,586       4,679,900           
                second lien senior secured notes(4)(5)
(10.00%, due October 10, 2019)
      5,000,000       4,926,687       5,070,850           
DG Fastchannel Inc     advertising       first lien senior secured notes(4)(5)(10)
(5.75%, due July 26, 2018)
      2,984,025       2,911,864       2,852,221  
Drew Marine Partners     shipping and
transportation
      first lien senior secured notes(4)(5)(6)(9)
(6.25%, due September 1, 2014)
      3,412,500       3,377,717       3,421,031           
Endurance International Group,     web hosting       first lien senior secured notes(4)(5)(9)(10)
(6.25%, due November 9, 2019)
      10,000,000       9,901,062       9,991,700           
                second lien senior secured notes(4)(5)
(10.25%, due May 9, 2020)
      18,000,000       17,821,968       17,910,000           
First American Payment Systems     financial intermediaries       first lien senior secured notes(4)(5)(10)
(5.75%, due October 4, 2018)
      4,000,000       4,004,973       3,994,160           
                second lien senior secured notes(4)(5)
(10.75%, due April 12, 2019)
      15,000,000       14,706,660       14,850,000  
First Data Corporation     financial intermediaries       first lien senior secured notes(4)(5)(9)(10)
(5.21%, due March 24, 2017)
      10,000,000       9,888,213       9,807,800           
Genutec Business Solutions     interactive voice
messaging services
      senior secured notes(4)(5)(7)
(0.0%, due October 30, 2014)
      3,476,000       3,199,138        
Global Tel Link Corp     telecommunication services       senior secured notes(4)(5)(6)(9)(10)
(6.00%, due December 14, 2017)
      8,096,192       8,109,800       8,108,741           
Grede Holdings LLC     auto parts manufacturer       senior secured notes(4)(5)(6)(9)(10)
(7.00%, due April 3, 2017)
      8,371,429       8,279,470       8,371,429           
GXS Worldwide, Inc.     business services       senior secured notes(5)(9)
(9.75%, due June 15, 2015)
      8,000,000       7,930,627       8,310,000           
Harvard Drug Group, LLC     pharmaceutical       senior secured notes(4)(5)(10)
(6.00%, due October 29, 2019)
      3,478,261       3,478,261       3,495,652           
HHI Holdings LLC     auto parts manufacturer       senior secured notes(4)(5)(10)
(6.00%, due October 5, 2018)
      4,500,000       4,460,281       4,545,000           
Hoffmaster Group, Inc.     retail       first lien senior secured notes(4)(5)(6)(9)(10)
(6.50%, due January 3, 2018)
      6,824,588       6,797,810       6,784,801           
Immucor, Inc.     healthcare       senior secured term B notes(4)(5)(6)(9)
(5.75%, due August 19, 2018)
      4,443,919       4,306,480       4,495,691           
Info USA, Inc.     enterprise software       first lien senior secured notes(4)(5)(6)(10)
(5.25%, due April 5, 2018)
      2,992,500       3,004,732       3,017,068           
Integra Telecom Holdings, Inc     telecommunication services       first lien senior secured notes(4)(5)(6)(10)
(9.25%, due April 15, 2015)
      7,784,106       7,468,133       7,780,837  
InfoNXX, Inc     telecommunication services       second lien senior secured notes(4)(5)(6)(9)
(6.46%, due December 1, 2013)
      5,028,800       4,919,170       4,727,072           

 
 
See Accompanying Notes.

7


 
 

TABLE OF CONTENTS

TICC CAPITAL CORP.
CONSOLIDATED SCHEDULE OF INVESTMENTS – (Continued)
DECEMBER 31, 2012

           
COMPANY(1)   INDUSTRY   INVESTMENT   PRINCIPAL AMOUNT   COST   FAIR VALUE(1)   % of Net
Assets
    
Senior Secured Notes – (continued)
                                            
Jackson Hewitt Tax
Service, Inc.
      
consumer services
      second lien senior secured notes(4)(5)(9)(10)
(10.00%, due October 16, 2017)
    $ 25,000,000     $ 24,032,274     $ 24,125,000           
Mercury Payment Systems, LLC     financial intermediaries       senior secured notes(4)(6)(9)(10)
(5.50%, due July 1, 2017)
      4,937,521       4,937,521       4,974,552           
Merrill Communications, LLC     printing and publishing       second lien senior secured notes(3)(4)(5)(9)
(12.00% cash/5.01% PIK, due
November 15, 2013)
      6,440,539       6,421,156       5,503,441           
Mirion Technologies, Inc     utilities       senior secured notes(4)(5)(6)(9)
(6.25%, due March 30, 2018)
      2,464,417       2,419,955       2,464,417           
Mmodal, Inc.     healthcare       first lien senior secured notes(4)(5)(6)(9)(10)
(6.75%, due August 17, 2019)
      9,975,281       9,864,517       9,559,611           
National Healing Corp     healthcare       senior secured notes(4)(5)(6)(9)(10)
(8.25%, due November 30, 2017)
      10,697,719       10,449,913       10,724,463           
National Vision, Inc.     retail       senior secured term B notes(4)(5)(6)(9)(10)
(7.00%, due August 2, 2018)
      5,293,333       5,236,855       5,346,266           
New Breed Logistics     logistics       senior secured term B notes(4)(5)(9)(10)
(6.00%, due October 1, 2019)
      10,000,000       9,990,220       9,875,000           
Nextag, Inc.     retail       senior secured notes(4)(5)(6)(9)(10)
(7.00%, due January 27, 2016)
      15,023,278       14,538,665       14,547,492           
NAB Holdings, LLC     financial intermediaries       first lien senior secured notes(4)(5)(6)(9)(10)
(7.00%, due April 24, 2018)
      8,775,000       8,743,346       8,862,750           
Pegasus Solutions, Inc.     enterprise software       first lien senior secured notes(3)(4)(5)(6)(9)(10)
(7.75% cash/0.75% PIK, due April 17, 2013)
      9,029,074       8,828,973       8,607,686           
                second lien senior secured notes(3)(5)(6)
(0.00% Cash/13.00% PIK, due April 15, 2014)
      6,806,299       5,683,076       6,680,382           
Petco, Inc.     retail       senior secured notes(4)(5)(6)(9)
(4.50%, due November 24, 2017)
      4,949,495       4,754,521       4,982,211           
Philips Plastics Corporation     healthcare       senior secured notes(4)(5)(6)(9)
(6.50%, due February 12, 2017)
      2,962,500       2,941,877       2,940,281           
Plato, Inc.     education       first lien senior secured notes(4)(5)(6)(9)
(7.50%, due May 17, 2018)
      4,875,000       4,800,697       4,893,281           
Presidio IS Corp.     business services       senior secured notes(4)(6)(9)(10)
(5.75%, due March 31, 2017)
      9,975,000       9,947,111       9,975,000           
Radnet Management, Inc.     medical services       senior secured notes(4)(6)(10)
(5.50%, due October 10, 2018)
      3,990,000       4,001,997       3,991,676           
RBS Holding Company     printing and publishing       term B senior secured notes(4)(5)(6)(9)
(9.25%, due March 23, 2017)
      4,912,500       4,888,084       2,326,069           
Renaissance Learning     education       senior secured notes(4)(5)(6)(9)(10)
(5.75%, due November 13, 2018)
      9,975,000       9,899,045       9,993,753           
Roundys Supermarkets, Inc.     grocery       term B senior secured notes(4)(5)(6)(10)(11)
(5.75%, due February 13, 2019)
      3,979,950       3,830,541       3,734,944           
Rovi Solutions Corp.     digital media       senior secured notes(4)(5)(6)(10)(11)
(4.00%, due March 29, 2019)
      2,984,962       2,876,998       2,973,768  
Securus Technologies, Inc.     telecommunication services       second lien senior secured notes(4)(5)(9)
(10.75%, due May 18, 2018)
      5,400,000       5,310,431       5,402,268           
Sirius Computer Solutions     electronics       second lien senior secured notes(4)(5)(6)(9)
(8.00%, due December 7, 2018)
      4,658,654       4,612,067       4,687,771           
Six3 Systems, Inc.     IT consulting       term B senior secured notes(4)(5)(9)(10)
(7.00%, due October 4, 2019)
      11,000,000       10,909,200       10,945,000           
Skillsoft Corporation     business services       senior secured notes(4)(5)(6)(9)(10)
(5.00%, due May 26, 2017)
      7,760,711       7,778,381       7,818,916           
Source Hov, LLC     business services       second lien senior secured notes(4)(5)(10)
(10.50%, due April 29, 2018)
      12,000,000       11,031,772       10,860,000           
Sportsman's Warehouse
Holdings
     
retail
      first lien senior secured notes(4)(5)(9)(10)
(8.50%, due November 13, 2018)
      8,000,000       7,921,017       7,920,000           
Sterling Infosystems, Inc.     business services       senior secured notes(4)(5)(6)(9)
(5.75%, due February 1, 2018)
      2,736,250       2,687,979       2,729,409           
Stratus Technologies, Inc.     computer hardware       first lien high yield notes(5)(9)
(12.00%, due March 29, 2015)
      9,520,000       9,040,061       9,520,000           

 
 
See Accompanying Notes.

8


 
 

TABLE OF CONTENTS

TICC CAPITAL CORP.
CONSOLIDATED SCHEDULE OF INVESTMENTS – (Continued)
DECEMBER 31, 2012

           
COMPANY(1)   INDUSTRY   INVESTMENT   PRINCIPAL AMOUNT   COST   FAIR VALUE(1)   % of Net
Assets
Senior Secured Notes – (continued)
                                            
Sumtotal Systems, Inc.     business services       first lien senior secured notes(4)(5)(9)
(6.25%, due November 16, 2018)
    $ 5,000,000     $ 4,950,620     $ 4,965,650           
                second lien senior secured notes(4)(5)
(10.25%, due May 16, 2019)
      11,250,000       11,026,661       11,081,250           
Teleguam Holdings LLC     telecommunication services       second lien senior secured notes(4)(5)(9)
(9.75%, due June 9, 2017)
      4,687,500       4,650,285       4,593,750           
Trinet Group, Inc.     business services       first lien senior secured notes(4)(5)(9)(10)
(6.50%, due October 24, 2018)
      5,000,000       4,975,586       5,006,250           
Unitek Global Services, Inc.     IT consulting       tranche B term loan(4)(5)(6)(9)(10)
(9.00%, due April 15, 2018)
      10,845,000       10,588,639       10,600,988           
US FT HoldCo. Inc.
(A/K/A Fundtech)
    financial intermediaries       senior secured notes(4)(5)(6)(9)(10)
(5.75%, due November 30, 2017)
      5,940,000       5,940,000       5,966,017           
Vision Solutions     software       second lien senior secured notes(4)(5)(9)(10)
(9.50%, due July 23, 2016)
      10,000,000       9,922,165       9,700,000           
Wall Street Systems     financial intermediaries       first lien senior secured notes(4)(5)(9)(10)
(5.75%, due October 25, 2019)
      5,000,000       4,925,809       4,993,750           
                second lien senior secured notes(4)(5)
(9.25%, due October 23, 2020)
      10,000,000       9,801,683       9,966,700           
Web.Com Group, Inc.     web hosting       senior secured notes(4)(5)(6)(9)(10)(11)
(5.50%, due October 27, 2017)
      8,977,500       8,888,659       9,016,821           
Total Senior Secured Notes                     $ 498,629,956     $ 494,892,256       120.8%  
Subordinated Notes
                                                     
Fusionstorm, Inc.     IT value-added reseller       subordinated notes(4)(5)(6)
(11.74%, due February 28, 2013)
      122,500       122,351       122,500           
Total Subordinated Notes                     $ 122,351     $ 122,500       0.0%  
Collateralized Loan Obligation – Debt Investments
                                            
Carlyle Global Market Strategies
2012-3A D
      
structured finance
      CLO secured notes(4)(5)(11)(12)
(6.14%, due October 4, 2024)
      3,000,000       2,624,911       2,731,200           
Catamaran CLO LTD 2012-1A F     structured finance       CLO secured notes(4)(5)(11)(12)
(6.76%, due December 20, 2023)
      6,000,000       5,034,736       5,034,000           
CIFC CLO – 2006-1A B2L     structured finance       CLO secured notes(4)(5)(11)(12)
(4.32%, due October 20, 2020)
      3,247,284       1,776,359       2,604,647           
Emporia CLO 2007-3A, 3X E     structured finance       CLO secured notes(4)(5)(11)(12)
(4.02%, due April 23, 2021)
      10,991,000       7,819,199       8,572,980           
Flagship 2005-4A D     structured finance       CLO secured notes(4)(5)(11)(12)
(5.06%, due June 1, 2017)
      2,612,988       1,769,969       2,387,226           
HarbourView CLO VI LTD 6 6X D     structured finance       CLO secured notes(4)(5)(11)(12)
(4.01%, due December 27, 2019)
      5,000,000       3,332,765       3,953,500           
Hewetts Island CDO III 2005-1A D     structured finance       CDO secured notes(4)(5)(6)(11)(12)
(6.06%, due August 9, 2017)
      6,345,091       3,805,058       5,994,208           
Hewetts Island CDO IV 2006-4 E     structured finance       CDO secured notes(4)(5)(11)(12)
(4.86%, due May 9, 2018)
      7,897,268       5,810,698       6,954,334           
Landmark V CDO
LTD 2005-1X B2L
      
structured finance
      CDO senior secured notes(4)(5)(6)(11)(12)
(5.56%, due June 1, 2017)
      3,646,669       2,412,575       3,304,246           
Lightpoint CLO VIII 2007-8A     structured finance       CDO secured notes(4)(5)(11)(12)
(6.84%, due July 25, 2018)
      5,000,000       3,084,107       4,779,500           
Muir Grove CLO LTD 2007-1X E     structured finance       CDO secured notes(4)(5)(11)(12)
(8.32%, due March 25, 2020)
      7,690,915       6,826,284       7,690,915           
Sargas CLO I LTD 2006-1X D     structured finance       CLO senior secured notes(4)(5)(11)(12)
(4.31%, due August 27, 2020)
      2,000,000       1,599,337       1,650,000           
Total Collateralized Loan Obligation – Debt Investments                     $ 45,895,998     $ 55,656,756       13.6%  
Collateralized Loan Obligation – Equity Investments
                                            
ACA CLO 2006-2, Limited Pref     structured finance       CLO preferred equity(11)(12)
            2,200,000       4,400,000           
ACA CLO 2007-1A Sub     structured finance       CLO subordinated notes(11)(12)
            10,583,500       11,224,000           
ACAS CLO 2012-1A Sub     structured finance       CLO subordinated notes(11)(12)
            4,050,000       4,150,000           
Catamaran CLO LTD 2012-1A Sub     structured finance       CLO subordinated notes(11)(12)
            20,075,000       20,075,000           

 
 
See Accompanying Notes.

9


 
 

TABLE OF CONTENTS

TICC CAPITAL CORP.
CONSOLIDATED SCHEDULE OF INVESTMENTS – (Continued)
DECEMBER 31, 2012

           
           
COMPANY(1)   INDUSTRY   INVESTMENT   PRINCIPAL AMOUNT   COST   FAIR VALUE(1)   % of Net
Assets
Collateralized Loan Obligation – Equity Investments – (continued)
                                            
Canaras Summit CLO 2007-1A Ltd Inc.     structured finance       CLO income notes(11)(12)
    $     $ 4,355,000     $ 5,760,000           
Gale 2007-4A CLO Inc.     structured finance       CLO income notes(11)(12)             1,965,000       2,947,500           
GSC Group CDO 2007-8X Sub     structured finance       CLO subordinated notes(11)(12)             4,110,000       6,300,000           
Halcyon Loan Advisors
Funding 2012-2A Sub
     
structured finance
       
CLO subordinated notes(11)(12)
       
       
6,750,000
       
6,750,000
          
HarbourView CLO VI LTD 6 6A Sub     structured finance       CDO subordinated notes(11)(12)             3,639,870       3,889,600           
Jersey Street 2006-1A CLO LTD Inc.     structured finance       CLO income notes(11)(12)
            4,924,238       5,560,100           
Kingsland LTD 2007-4X Sub     structured finance       CLO subordinated notes(11)(12)             402,500       537,500           
Lightpoint CLO III 2005-3X Inc.     structured finance       CLO income notes(11)(12)
            3,330,000       2,632,500           
Lightpoint CLO VII LTD 2007-7X, 7A Sub      
structured finance
       
CDO subordinated notes(11)(12)
       
       
1,562,500
       
1,760,000
          
Marea CLO 2012-1A Inc.     structured finance       CLO income notes(11)(12)
            10,934,215       11,117,470           
Marlborough Street 2007-1A Inc.     structured finance       CLO income notes(11)(12)
            1,739,000       2,068,000           
Octagon Investment Partners XI 2007-1A Inc.      
structured finance
       
CLO income notes(11)(12)
       
       
2,434,163
       
2,846,250
          
Rampart CLO 2007-1A Sub     structured finance       CDO subordinated notes(11)(12)             3,412,500       3,465,000           
Sargas CLO 2006-1A Sub     structured finance       CDO subordinated notes(11)(12)             4,945,500       6,565,000           
Stone Tower CLO LTD 2007-7X Sub     structured finance       CDO subordinated notes(11)(12)             6,265,000       7,210,000           
Total Collateralized Loan Obligation – Equity Investments                     $ 97,677,985     $ 109,257,920       26.7%  
Common Stock
                                                     
Algorithmic Implementations, Inc.
(d/b/a “Ai Squared”)
      
software
        
common stock
        
        
3,000,000
        
2,150,000
          
Integra Telecom Holdings, Inc.     telecommunication services       common stock(7)
            1,712,397       2,203,403           
Pegasus Solutions, Inc.     enterprise software       common equity(7)

            62,595       37,719           
Stratus Technologies, Inc.     computer hardware       common equity(7)
            377,928                 
Total Common Stock Investments                     $ 5,152,920     $ 4,391,122       1.1%  
Preferred Equity
                                                     
GenuTec Business Solutions, Inc.     interactive voice
messaging services
      convertible preferred stock(7)
            1,500,000                 
Pegasus Solutions, Inc.     enterprise software       preferred equity(3)
(14.00% PIK dividend)
            1,446,874       2,273,481           
Stratus Technologies, Inc.     computer hardware       preferred equity(7)             186,622       413,189           
Total Preferred Equity Investments                     $ 3,133,496     $ 2,686,670       0.7%  
Warrants
                                                     
Band Digital Inc. (F/K/A “WHITTMANHART, Inc.”)      
IT consulting
       
warrants to purchase common stock(7)
       
       
       
          
Fusionstorm, Inc.     IT value-added reseller       warrants to purchase common stock(7)             725,000       542,649           
Total Warrants                     $ 725,000     $ 542,649       0.1%  
Total Investments                     $ 651,337,706     $ 667,549,873       163.0%  

(1) Other than Algorithmic Implementation, Inc. (d/b/a Ai Squared), which we may be deemed to control, we do not “control” and are not an “affiliate” of any of our portfolio companies, each as defined in the Investment Company Act of 1940 (the “1940 Act”). In general, under the 1940 Act, we would be presumed to “control” a portfolio company if we owned 25% or more of its voting securities and would be an “affiliate” of a portfolio company if we owned 5% or more of its voting securities.
(2) Fair value is determined in good faith by the Board of Directors of the Company.
(3) Portfolio includes $22,275,912 of principal amount of debt investments which contain a PIK provision. Portfolio also includes one preferred equity position which contains a PIK dividend provision.
(4) Notes bear interest at variable rates.

 
 
See Accompanying Notes.

10


 
 

TABLE OF CONTENTS

(5) Cost value reflects accretion of original issue discount or market discount.
(6) Cost value reflects repayment of principal.
(7) Non-income producing at the relevant period end.
(8) Aggregate gross unrealized appreciation for federal income tax purposes is $29,973,250; aggregate gross unrealized depreciation for federal income tax purposes is $32,003,935. Net unrealized depreciation is $2,030,685 based upon a tax cost basis of $669,580,558.
(9) All or a portion of this investment represents TICC CLO LLC collateral.
(10) All or a portion of this investment represents TICC CLO 2012-1 LLC collateral.
(11) Indicates assets that the Company believes do not represent “qualifying assets” under Section 55(a) of the Investment Company Act of 1940, as amended. Qualifying assets must represent at least 70% of the Company’s total assets at the time of acquisition of any additional non-qualifying assets.
(12) Investment not domiciled in the United States.
(13) Debt investment on non-accrual status at the relevant period end.

 
 
See Accompanying Notes.

11


 
 

TABLE OF CONTENTS

TICC CAPITAL CORP.
  
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)

       
  Three Months Ended
June 30, 2013
  Three Months Ended
June 30, 2012
  Six Months Ended
June 30, 2013
  Six Months Ended
June 30, 2012
INVESTMENT INCOME
                                   
From non-affiliated/non-control investments:
                                   
Interest income – debt investments   $ 12,391,438     $ 9,540,030     $ 24,295,115     $ 18,250,282  
Distributions from securitization vehicles and equity investments     10,665,842       6,344,134       19,419,046       11,893,781  
Commitment, amendment fee income and other income     2,002,842       4,138,857       2,717,358       4,246,212  
Total investment income from non-affiliated/non-control investments     25,060,122       20,023,021       46,431,519       34,390,275  
From control investments:
                                   
Interest income – debt investments     364,022       378,258       724,084       758,609  
Distributions from equity investments           62,041             62,041  
Total investment income from control investments     364,022       440,299       724,084       820,650  
Total investment income     25,424,144       20,463,320       47,155,603       35,210,925  
EXPENSES
                                   
Compensation expense     303,338       279,354       614,403       549,688  
Investment advisory fees     4,882,271       2,450,664       8,979,742       4,594,021  
Professional fees     450,985       436,210       1,088,173       1,227,037  
Interest expense and other debt financing expenses     4,724,471       816,304       9,003,298       1,653,081  
General and administrative     624,902       434,682       912,943       727,479  
Total expenses before incentive fees     10,985,967       4,417,214       20,598,559       8,751,306  
Net investment income incentive fees     1,382,031       2,164,150       2,634,341       3,357,480  
Capital gains incentive fees     (2,899,772 )      (1,155,520 )      (2,684,418 )      (89,857 ) 
Total incentive fees     (1,517,741 )      1,008,630       (50,077 )      3,267,623  
Total expenses     9,468,226       5,425,844       20,548,482       12,018,929  
Net investment income     15,955,918       15,037,476       26,607,121       23,191,996  
Net change in unrealized (depreciation) appreciation on investments     (16,391,566 )      (7,261,959 )      (12,776,898 )      1,373,108  
Net realized gains on investments     1,892,644       1,484,357       8,468,819       1,778,138  
Net increase in net assets resulting from operations   $ 1,456,996     $ 9,259,874     $ 22,299,042     $ 26,343,242  
Net increase in net assets resulting from net investment income per common share:
                                   
Basic   $ 0.30     $ 0.40     $ 0.54     $ 0.65  
Diluted   $ 0.28     $ 0.40     $ 0.51     $ 0.65  
Net increase in net assets resulting from operations per common share:
                                   
Basic   $ 0.03     $ 0.25     $ 0.45     $ 0.74  
Diluted   $ 0.05     $ 0.25     $ 0.44     $ 0.74  
Weighted average shares of common stock outstanding:
                                   
Basic     52,544,803       37,755,905       49,075,486       35,583,102  
Diluted     62,577,955       37,755,905       59,108,638       35,583,102  

 
 
See Accompanying Notes.

12


 
 

TABLE OF CONTENTS

TICC CAPITAL CORP.
  
CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS
(unaudited)

   
  Six Months Ended
June 30, 2013
  Year
Ended December 31, 2012
Increase in net assets from operations:
                 
Net investment income   $ 26,607,121     $ 37,177,354  
Net realized gains on investments     8,468,819       16,876,880  
Net change in unrealized (depreciation) appreciation on investments     (12,776,898 )      14,268,954  
Net increase in net assets resulting from operations     22,299,042       68,323,188  
Distributions to shareholders     (30,450,266 )      (44,319,394 ) 
Capital share transactions:
                 
Issuance of common stock (net of offering costs of $4,162,377 and $3,545,895, respectively)     110,279,787       78,426,107  
Reinvestment of dividends     1,611,626       2,070,637  
Net increase in net assets from capital share transactions     111,891,413       80,496,744  
Total increase in net assets     103,740,189       104,500,538  
Net assets at beginning of period     409,602,529       305,101,991  
Net assets at end of period (including over distributed net investment income of $8,117,289 and $4,274,144, respectively)   $ 513,342,718     $ 409,602,529  
Capital share activity:
                 
Shares sold     11,087,828       8,337,500  
Shares issued from reinvestment of dividends     173,551       215,358  
Net increase in capital share activity     11,261,379       8,552,858  

 
 
See Accompanying Notes.

13


 
 

TABLE OF CONTENTS

TICC CAPITAL CORP.
  
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)

   
  Six Months
Ended
June 30, 2013
  Six Months
Ended
June 30, 2012
CASH FLOWS FROM OPERATING ACTIVITIES
                 
Net increase in net assets resulting from operations   $ 22,299,042     $ 26,343,242  
Adjustments to reconcile net increase in net assets resulting from operations to net cash used by operating activities:
                 
Amortization of discounts     (2,243,190 )      (2,901,560 ) 
Amortization of discount on notes payable and deferred debt issuance costs     889,951       242,789  
Increase in investments due to PIK     (1,223,928 )      (4,179,470 ) 
Purchases of investments     (357,875,715 )      (127,417,499 ) 
Repayments of principal and reductions to investment cost value     115,635,844       70,592,952  
Proceeds from the sale of investments     51,528,113       11,490,245  
Net realized gains on investments     (8,468,819 )      (1,778,138 ) 
Net change in unrealized depreciation (appreciation) on investments     12,776,898       (1,373,108 ) 
Increase in interest and distributions receivable     (864,409 )      (1,553,521 ) 
(Increase) decrease in other assets     (167,222 )      111,858  
Decrease in accrued interest payable     (1,660,955 )      (564,383 ) 
Increase in investment advisory fee payable     1,333,395       1,719,015  
Decrease in accrued capital gains incentive fee     (4,236,993 )      (89,857 ) 
Increase (decrease) in accrued expenses     547,932       (271,474 ) 
Net cash used by operating activities     (171,730,056 )      (29,628,909 ) 
CASH FLOWS FROM INVESTING ACTIVITIES
                 
Change in restricted cash     (51,771,245 )      9,392,764  
Net cash (used) provided by investing activities     (51,771,245 )      9,392,764  
CASH FLOWS FROM FINANCING ACTIVITIES
                 
Proceeds from the issuance of Notes Payable – TICC CLO 2012-1 LLC (net of discount of $253,875)   $ 119,746,125     $  
Deferred debt issuance costs paid     (1,069,313 )       
Proceeds from the issuance of common stock     114,442,164       48,679,502  
Offering expenses from the issuance of common stock     (4,162,377 )      (2,645,162 ) 
Distributions paid (net of stock issued under dividend reinvestment
plan of $1,611,626 and $949,464, respectively)
    (28,838,640 )      (19,424,923 ) 
Net cash provided by financing activities     200,117,959       26,609,417  
Net (decrease) increase in cash and cash equivalents     (23,383,342 )      6,373,272  
Cash and cash equivalents, beginning of period     51,392,949       4,494,793  
Cash and cash equivalents, end of period   $ 28,009,607     $ 10,868,065  
NON-CASH FINANCING ACTIVITIES
                 
Value of shares issued in connection with dividend reinvestment plan   $ 1,611,626     $ 949,464  
SUPPLEMENTAL DISCLOSURES
                 
Securities sold not settled   $ 2,725,910     $  
Securities purchased not settled   $ 49,462,219     $ 5,542,583  
Cash paid for interest   $ 9,774,301     $ 1,974,676  

 
 
See Accompanying Notes.

14


 
 

TABLE OF CONTENTS

TICC CAPITAL CORP.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2013

NOTE 1. UNAUDITED INTERIM FINANCIAL STATEMENTS

Interim consolidated financial statements of TICC Capital Corp. (“TICC” and, together with its subsidiaries, the “Company”) are prepared in accordance with generally accepted accounting principles (“GAAP”) for interim financial information 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, all adjustments, consisting solely of normal recurring accruals, necessary for the fair statement of consolidated financial results for the interim periods have been included. The current period’s consolidated results of operations are not necessarily indicative of results that may be achieved for the year. The interim consolidated financial statements and notes thereto should be read in conjunction with the financial statements and notes thereto included in the Company’s Form 10-K for the year ended December 31, 2012, as filed with the Securities and Exchange Commission (“SEC”).

NOTE 2. ORGANIZATION

TICC was incorporated under the General Corporation Laws of the State of Maryland on July 21, 2003 and is a non-diversified, closed-end investment company. TICC has elected to be treated as a business development company under the Investment Company Act of 1940, as amended (the “1940 Act”). In addition, TICC has elected to be treated for tax purposes as a regulated investment company (“RIC”), under Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”). The Company’s investment objective is to maximize its total return, by investing primarily in corporate debt securities.

TICC’s investment activities are managed by TICC Management, LLC, (“TICC Management”), a registered investment adviser under the Investment Advisers Act of 1940, as amended. BDC Partners, LLC (“BDC Partners”) is the managing member of TICC Management and serves as the administrator of TICC.

On August 10, 2011, the Company completed a $225.0 million debt securitization financing transaction. The Class A Notes and the subordinated notes offered in the debt securitization were issued by TICC CLO LLC (“2011 Securitization Issuer” or “TICC CLO”), a subsidiary of TICC Capital Corp. 2011-1 Holdings, LLC (“Holdings”), which is in turn a direct subsidiary of TICC. The Class A Notes are secured by the assets held by the 2011 Securitization Issuer. The securitization was executed through a private placement of $101.25 million of secured notes rated AAA/Aaa by Standard & Poor’s Rating Service (“S&P”) and Moody’s Investors Service Inc. (“Moody’s”), respectively, and bearing interest at the three-month LIBOR plus 2.25%. Holdings retained all of the subordinated notes, which totaled $123.75 million (the “2011 Subordinated Notes”), and retained all the membership interests in the 2011 Securitization Issuer. For further information on this securitization, see Note 4.

On August 23, 2012, the Company completed a $160 million debt securitization financing transaction, consisting of $120 million in secured notes and $40 million of subordinated notes. On February 25, 2013 and May 28, 2013, TICC CLO 2012-1 LLC (“TICC CLO 2012-1” or “2012 Securitization Issuer”) issued additional secured notes totaling an aggregate of $120 million and subordinated notes totaling an aggregate of $40 million, which subordinated notes were purchased by the Company, under the “accordion” feature of the debt securitization which allowed, under certain circumstances and subject to the satisfaction of certain conditions, for an increase in the amount of secured and subordinated notes. It is not necessary that the Company own all or any of the notes permitted by this feature, which may affect the accounting treatment of the debt securitization financing transaction. As of June 30, 2013 the secured notes of the 2012 Securitization Issuer have an aggregate face amount of $240 million and were issued in four classes. The class A-1 notes have a current face amount of $176 million, are rated AAA(sf)/Aaa(sf) by Standard & Poor’s Ratings Services (S&P) and Moody’s Investors Service, Inc. (Moody’s), respectively, and bear interest at three-month LIBOR plus 1.75%. The class B-1 notes have a current face amount of $20 million, are rated AA(sf)/Aa2(sf) by S&P and Moody’s, respectively, and bear interest at three-month LIBOR plus 3.50%. The class C-1 notes have a current face amount of $23 million, are rated A(sf) /A2(sf) by S&P and Moody’s, respectively, and bear interest

15


 
 

TABLE OF CONTENTS

TICC CAPITAL CORP.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2013

NOTE 2. ORGANIZATION  – (continued)

at three-month LIBOR plus 4.75%. The class D-1 notes have a current face amount of $21 million, are rated BBB(sf)/Baa2(sf) by S&P and Moody’s, respectively, and bear interest at three-month LIBOR plus 5.75%. TICC presently owns all of the subordinated notes, which totaled $80 million as of June 30, 2013. For further information on this securitization, see Note 4.

The Company consolidated the results of its subsidiaries, Holdings, TICC CLO and TICC CLO 2012-1, in its consolidated financial statements as the subsidiaries are operated solely for investment activities of the Company, and the Company has substantial equity at risk. The creditors of TICC CLO and TICC CLO 2012-1 have received security interests in the assets owned by TICC CLO and TICC CLO 2012-1, respectively, and such assets are not intended to be available to the creditors of TICC (or any other affiliate of TICC).

On September 26, 2012, the Company closed a private placement of 5-year unsecured 7.50% Senior Convertible Notes Due 2017 (the “Convertible Notes”). A total of $105 million aggregate principal amount of the Convertible Notes were issued at the closing. An additional $10 million aggregate principal amount of the Convertible Notes were issued on October 22, 2012 pursuant to the exercise of the initial purchasers’ option to purchase additional Convertible Notes. The Convertible Notes are convertible into shares of the Company’s common stock based on an initial conversion rate of 87.2448 shares of the Company’s common stock per $1,000 principal amount of Convertible Notes, which is equivalent to an initial conversion price of approximately $11.46 per share of common stock, representing an approximately 10.0% conversion premium over the last reported sale price of the Company’s common stock on September 20, 2012, which was $10.42 per share. The conversion price for the Convertible Notes will be reduced for quarterly cash dividends paid to common shares to the extent that the quarterly dividend exceeds $0.29 cents per share, subject to adjustment. The Convertible Notes bear interest at an annual rate of 7.50%, payable semiannually in arrears on May 1 and November 1 of each year, beginning May 1, 2013. The Convertible Notes mature on November 1, 2017, unless previously converted in accordance with their terms. The Convertible Notes are general unsecured obligations of the Company, rank equally in right of payment with the Company’s future senior unsecured debt, and rank senior in right of payment to any potential subordinated debt, should any be issued in the future.

NOTE 3. INVESTMENT VALUATION

The most significant estimate inherent in the preparation of our consolidated financial statements is the valuation of investments and the related amounts of unrealized appreciation and depreciation of investments recorded. There is no single method for determining fair value in good faith. As a result, determining fair value requires that judgment be applied to the specific facts and circumstances of each portfolio investment while employing a consistently applied valuation process for the types of investments we make. We are required to specifically fair value each individual investment on a quarterly basis.

ASC 820-10, Fair Value Measurements and Disclosure, defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC 820-10 also establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include: Level 1, defined as observable inputs such as quoted prices in active markets; Level 2, which includes inputs such as quoted prices for similar securities in active markets and quoted prices for identical securities in markets that are not active; and Level 3, defined as unobservable inputs for which little or no market data exists, therefore requiring an entity to develop its own assumptions. We have determined that due to the general illiquidity of the market for our investment portfolio, whereby little or no market data exists, substantially all of our investments are based upon “Level 3” inputs.

Our Board of Directors determines the value of our investment portfolio each quarter. In connection with that determination, members of TICC Management’s portfolio management team prepare portfolio company valuations using the most recent portfolio company financial statements and forecasts. Since March 2004, we

16


 
 

TABLE OF CONTENTS

TICC CAPITAL CORP.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2013

NOTE 3. INVESTMENT VALUATION  – (continued)

have engaged third-party valuation firms to provide assistance in valuing our bilateral investments and, more recently, for certain of our syndicated loans, although our Board of Directors ultimately determines the appropriate valuation of each such investment.

Our process for determining the fair value of a bilateral investment begins with determining the enterprise value of the portfolio company. Enterprise value means the entire value of the company to a potential buyer, including the sum of the values of debt and equity securities used to capitalize the enterprise at a point in time. The fair value of our investment is based, in part, on the enterprise value at which the portfolio company could be sold in an orderly disposition over a reasonable period of time between willing parties other than in a forced or liquidation sale. The liquidity event whereby we exit a private investment is generally the sale, the recapitalization or, in some cases, the initial public offering of the portfolio company.

There is no one methodology to determine enterprise value and, in fact, for any one portfolio company, enterprise value is best expressed as a range of fair values, from which we derive a single estimate of enterprise value. To determine the enterprise value of a portfolio company, we analyze the historical and projected financial results, as well as the nature and value of any collateral. We also use industry valuation benchmarks and public market comparables. We also consider other events, including private mergers and acquisitions, a purchase transaction, public offering or subsequent debt or equity sale or restructuring, and include these events in the enterprise valuation process. We generally require portfolio companies to provide annual audited and quarterly unaudited financial statements, as well as annual projections for the upcoming fiscal year.

Typically, our bilateral debt investments are valued on the basis of a fair value determination arrived at through an analysis of the borrower’s financial and operating condition or other factors, as well as consideration of the entity’s enterprise value. The types of factors that we may take into account in valuing our investments include: market trading and transaction comparables, applicable market yields and multiples, security covenants, call protection provisions, the nature and realizable value of any collateral, the portfolio company’s ability to make payments and its earnings and discounted cash flows, among other factors. The fair value of equity interests in portfolio companies is determined based on various factors, including the enterprise value remaining for equity holders after the repayment of the portfolio company’s debt and other preference capital, and other pertinent factors such as recent offers to purchase a portfolio company, recent transactions involving the purchase or sale of the portfolio company’s equity securities, or other liquidity events. The determined equity values are generally discounted when we have a minority position, restrictions on resale, specific concerns about the receptivity of the capital markets to a specific company at a certain time, or other factors.

We will record unrealized depreciation on bilateral investments when we believe that an investment has become impaired, including where collection of a loan or realization of an equity security is doubtful. To the extent that we believe that it has become probable that a loan is not collectible or probable that an equity investment is not realizable, we will classify that amount as a realized loss. We will record unrealized appreciation if we believe that the underlying portfolio company has appreciated in value and our equity security has also appreciated in value. Changes in fair value, other than such changes that are considered probable of non-collection or non-realization, as described above, are recorded in the statement of operations as net change in unrealized appreciation or depreciation.

Under the valuation procedures approved by our Board of Directors, upon the recommendation of the Valuation Committee, a third-party valuation firm will prepare valuations for each of our bilateral investments for which market quotations are not readily available that, when combined with all other investments in the same portfolio company, (i) have a value as of the previous quarter of greater than or equal to 2.5% of our total assets as of the previous quarter, and (ii) have a value as of the current quarter of greater than or equal to 2.5% of our total assets as of the previous quarter, after taking into account any repayment of principal

17


 
 

TABLE OF CONTENTS

TICC CAPITAL CORP.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2013

NOTE 3. INVESTMENT VALUATION  – (continued)

during the current quarter. In addition, the frequency of those third-party valuations of our portfolio securities is based upon the grade assigned to each such security under our credit grading system as follows: Grade 1, at least annually; Grade 2, at least semi-annually; Grades 3, 4, and 5, at least quarterly. TICC Management also retains the authority to seek, on our behalf, additional third party valuations with respect to both our bilateral portfolio securities and our syndicated loan investments. Our Board of Directors retains ultimate authority as to the third-party review cycle as well as the appropriate valuation of each investment.

ASC 820-10-35, “Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly,” provides guidance on factors that should be considered in determining when a previously active market becomes inactive and whether a transaction is orderly. In accordance with ASC 820-10-35, our valuation procedures specifically provide for the review of indicative quotes supplied by the large agent banks that make a market for each security. However, the marketplace for which we obtain indicative bid quotes for purposes of determining the fair value of our syndicated loan investments have shown these attributes of illiquidity as described by ASC-820-10-35. Due to limited market liquidity in the syndicated loan market, TICC believes that the non-binding indicative bids received from agent banks for certain syndicated investments that we own may not be determinative of their fair value and therefore alternative valuation procedures may need to be undertaken. As a result, TICC has engaged third-party valuation firms to provide assistance in valuing certain syndicated investments that we own. In addition, TICC Management prepares an analysis of each syndicated loan, including a financial summary, covenant compliance review, recent trading activity in the security, if known, and other business developments related to the portfolio company. All available information, including non-binding indicative bids which may not be determinative of fair value, is presented to the Valuation Committee to consider in its determination of fair value. In some instances, there may be limited trading activity in a security even though the market for the security is considered not active. In such cases the Valuation Committee will consider the number of trades, the size and timing of each trade, and other circumstances around such trades, to the extent such information is available, in its determination of fair value. The Valuation Committee will evaluate the impact of such additional information, and factor it into its consideration of the fair value that is indicated by the analysis provided by third-party valuation firms. We have considered the factors described in ASC 820-10 and have determined that we are properly valuing the securities in our portfolio.

During the past few years, we have acquired a number of debt and equity positions in CLO investment vehicles. These investments are special purpose financing vehicles. In valuing such investments, we consider the operating metrics of the specific investment vehicle, including compliance with collateralization tests, defaulted and restructured securities, and payment defaults, if any. In addition, we consider the indicative prices provided by the broker who arranges transactions in such investment vehicles, as well as any available information on other relevant transactions in the market. TICC Management or the Valuation Committee may request an additional analysis by a third-party firm to assist in the valuation process of CLO investment vehicles. All information is presented to our Board of Directors for its determination of fair value of these investments.

18


 
 

TABLE OF CONTENTS

TICC CAPITAL CORP.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2013

NOTE 3. INVESTMENT VALUATION  – (continued)

The Company’s assets measured at fair value on a recurring basis at June 30, 2013, were as follows:

       
($ in millions)   Fair Value Measurements at Reporting Date Using  
Assets   Quoted Prices in Active Markets for Identical Assets
(Level 1)
  Significant
Other Observable Inputs
(Level 2)
  Significant Unobservable Inputs
(Level 3)
  Total
Senior Secured Notes   $ 0.0     $ 16.5     $ 627.6     $ 644.1  
Senior Unsecured Notes     0.0       0.0       5.3       5.3  
CLO Debt     0.0       0.0       45.0       45.0  
CLO Equity     0.0       0.0       195.9       195.9  
Subordinated Notes     0.0       0.0       0.0       0.0  
Common Stock     0.0       0.0       14.5       14.5  
Preferred Shares     0.0       0.0       0.4       0.4  
Warrants to purchase equity     0.0       0.0       0.5       0.5  
Total   $ 0.0     $ 16.5     $ 889.2     $ 905.7  

Level 2 securities are valued based on quotations for those identical securities received from independent pricing services or from dealers who make markets in such securities in markets that are not considered active. If there are several different sources of quotations and there is a reasonable level of trading activity, we will categorize these investments as Level 2 in the hierarchy.

Significant Unobservable Inputs for Level 3 Investments

The following table provides quantitative information about the Company’s Level 3 fair value measurements as of June 30, 2013. The Company’s valuation policy, as described above, establishes parameters for the sources and types of valuation analysis, as well as the methodologies and inputs that the Company uses in determining fair value. If the Valuation Committee or TICC Management determines that additional techniques, sources or inputs are appropriate or necessary in a given situation, such additional work will be undertaken. The table, therefore, is not all-inclusive, but provides information on the significant Level 3 inputs that are pertinent to the Company’s fair value measurements. The weighted average calculations in the table below are based on principal balances for all debt related calculations and CLO equity.

       
($ in millions)   Quantitative Information about Level 3 Fair Value Measurements  
Assets   Fair Value as of June 30, 2013   Valuation Techniques/Methodologies   Unobservable Input   Range/Weighted Average
Corporate debt investments
                                   
syndicated   $ 618.9       market quotes       NBIB(1)       35.3% - 102.8%/97.0%  
bilateral     14.0       valuation analysis(2)/
      EBITDA(3)       $3.0/ncm(6)  
                enterprise value       market multiples(3)       5.5x - 6.5x/ncm(6)  
                         ICG(4)       3/3.0  
CLO debt     45.0       market quotes       NBIB(1)       81.2% - 99.0%/88.9%  
CLO equity     195.9       market quotes       NBIB(1)       44.0% - 108.0%/81.9%  
Other investments     15.4       valuation analysis(2)/       EBITDA(3)       $21.4 - $180.6/ncm(6)  
                enterprise value       market multiples(3)       6.0x - 8.0x/ncm(6)  
                      discount rates(5)       20.0% - 35.0%/ncm(6)  
Total Fair Value for Level 3 Investments   $ 889.2                    

19


 
 

TABLE OF CONTENTS

TICC CAPITAL CORP.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2013

NOTE 3. INVESTMENT VALUATION  – (continued)

(1) The Company generally uses prices provided by an independent pricing service, or broker or agent bank non-binding indicative bid prices (NBIB) on or near the valuation date as the primary basis for the fair value determinations for syndicated notes, and CLO debt and equity investments. These bid prices are non-binding, and may not be determinative of fair value. Each bid price is evaluated by the Valuation Committee in conjunction with additional information compiled by TICC Management, including financial performance, recent business developments, and, in the case of CLO debt and equity investments, performance and covenant compliance information as provided by the independent trustee.
(2) For the Company’s bilateral debt investments and equity investments, third-party valuation firms evaluate the financial and operational information of the portfolio companies that the Company provides to them, as well as independent market and industry information that they consider appropriate in forming an opinion as to the fair value of the Company’s securities. In those instances where the carrying value and/or internal credit rating of the investment does not require the use of a third-party valuation firm, a valuation is prepared by TICC Management, which may include liquidation analysis or which may utilize a subsequent transaction to provide an indication of fair value.
(3) EBITDA, or earnings before interest expense, taxes, depreciation and amortization, is an unobservable input which is generally based on most recently available twelve month financial statements provided by the portfolio company. Market multiples, also an unobservable input, represent an estimation of where market participants might value an enterprise based upon information available for comparable companies in the market.
(4) The Company has adopted a credit grading system for its debt investments as part of the valuation process. The internal credit grading (ICG), which ranges from 1 (highest) to 5 (lowest), is an unobservable input which represents a proprietary grading system developed by TICC Management.
(5) Discount rate represents the rate at which future cash flows are discounted to calculate a present value, reflecting market assumptions for risk.
(6) The calculation of weighted average for a range of values, for multiple investments within a given asset category, is not considered to provide a meaningful representation (“ncm”).

Significant increases or decreases in any of the unobservable inputs in isolation may result in a significantly lower or higher fair value measurement.

The following table provides quantitative information about the Company’s Level 3 fair value measurements as of December 31, 2012:

       
($ in millions)   Quantitative Information about Level 3 Fair Value Measurements
Assets   Fair Value
as of December 31,
2012
  Valuation Techniques/Methodologies   Unobservable
Input
  Range/Weighted Average
Corporate debt investments
                                   
syndicated   $ 470.3       market quotes       NBIB(1)       47.4% - 103.9%/98.3%  
bilateral     14.9       valuation analysis(2)/       EBITDA(3)       $3.1 - $14.2/ncm(6)  
                enterprise value       market multiples(3)       3.3 - 6.5x/ncm(6)  
                         ICG(4)       3 - 5/3.1  
CLO debt     55.6       market quotes       NBIB(1)       78.0% - 100.0%/87.7%  
CLO equity     109.3       market quotes       NBIB(1)       58.5% - 128.0%/90.9%  
Other investments     7.6       valuation analysis(2)/       EBITDA(3)       $3.1 - $171.9/ncm(6)  
                enterprise value       market multiples(3)       3.3 - 7.5x/ncm(6)  
                      discount rates(5)       20% - 35.0%/ncm(6)  
Total Fair Value for Level 3 Investments   $ 657.7                    

20


 
 

TABLE OF CONTENTS

TICC CAPITAL CORP.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2013

NOTE 3. INVESTMENT VALUATION  – (continued)

(1) The Company generally uses prices provided by an independent pricing service, or broker or agent bank non-binding indicative bid prices (NBIB) on or near the valuation date as the primary basis for the fair value determinations for syndicated notes, and CLO debt and equity investments. These bid prices are non-binding, and may not be determinative of fair value. Each bid price is evaluated by the Valuation Committee in conjunction with additional information compiled by TICC Management, including financial performance, recent business developments, and, in the case of CLO debt and equity investments, performance and covenant compliance information as provided by the independent trustee.
(2) For the Company’s bilateral debt investments and equity investments, third-party valuation firms evaluate the financial and operational information of the portfolio companies that the Company provides to them, as well as independent market and industry information that they consider appropriate in forming an opinion as to the fair value of the Company’s securities. In those instances where the carrying value and/or internal credit rating of the investment does not require the use of a third-party valuation firm, a valuation is prepared by TICC Management, which may include liquidation analysis or which may utilize a subsequent transaction to provide an indication of fair value.
(3) EBITDA, or earnings before interest expense, taxes, depreciation and amortization, is an unobservable input which is generally based on most recently available twelve month financial statements provided by the portfolio company. Market multiples, also an unobservable input, represent an estimation of where market participants might value an enterprise based upon information available for comparable companies in the market.
(4) The Company has adopted a credit grading system for its debt investments as part of the valuation process. The internal credit grading (ICG), which ranges from 1 (highest) to 5 (lowest), is an unobservable input which represents a proprietary grading system developed by TICC Management.
(5) Discount rate represents the rate at which future cash flows are discounted to calculate a present value, reflecting market assumptions for risk.
(6) The calculation of weighted average for a range of values, for multiple investments within a given asset category, is not considered to provide a meaningful representation (“ncm”).

Significant increases or decreases in any of the unobservable inputs in isolation may result in a significantly lower or higher fair value measurement.

21


 
 

TABLE OF CONTENTS

TICC CAPITAL CORP.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2013

NOTE 3. INVESTMENT VALUATION  – (continued)

Financial Instruments Disclosed, But Not Carried, At Fair Value

The following table presents the carrying value and fair value of the Company’s financial liabilities disclosed, but not carried, at fair value as of June 30, 2013 and the level of each financial liability within the fair value hierarchy.

         
($ in thousands)   Carrying Value   Fair Value   Level 1   Level 2   Level 3
TICC CLO LLC Class A Notes, net of discount   $ 99,961     $ 100,997     $     $     $ 100,997  
TICC CLO 2012-1 LLC Class A-1 Notes, net of discount     173,973       175,120                   175,120  
TICC CLO 2012-1 LLC Class B-1 Notes, net of discount     19,444       19,950                   19,950  
TICC CLO 2012-1 LLC Class C-1 Notes, net of discount     22,060       22,943                   22,943  
TICC CLO 2012-1 LLC Class D-1 Notes, net of discount     19,937       20,947                   20,947  
2017 Convertible Notes     115,000       119,025                         119,025  
Total   $ 450,375     $ 458,982     $     $     $ 458,982  

The following table presents the carrying value and fair value of the Company’s financial liabilities disclosed, but not carried, at fair value as of December 31, 2012 and the level of each financial liability within the fair value hierarchy:

         
($ in thousands)   Carrying Value   Fair Value   Level 1   Level 2   Level 3
TICC CLO LLC Class A Notes, net of discount   $ 99,883     $ 101,250     $     $     $ 101,250  
TICC CLO 2012-1 LLC Class A-1 Notes, net of discount     86,149       87,780                   87,780  
TICC CLO 2012-1 LLC Class B-1 Notes, net of discount     9,455       9,875                   9,875  
TICC CLO 2012-1 LLC Class C-1 Notes, net of discount     10,501       11,155                   11,155  
TICC CLO 2012-1 LLC Class D-1 Notes, net of discount     9,347       10,382                   10,382  
2017 Convertible Notes     115,000       113,131                         113,131  
Total   $ 330,335     $ 333,573     $     $     $ 333,573  

The fair values of the Company’s debt are determined in accordance with ASC 820, which defines fair value in terms of the price that would be paid to transfer a liability in an orderly transaction between market participants at the measurement date under current market conditions. Fair value is based upon quotations received from dealers who make markets in these securities. Such quotations are based upon actual trades or actual bids and offers, to the extent that they are available, or by reference to comparable securities in the marketplace. As of June 30, 2013 and December 31, 2012, the debt would be deemed to be level 3 of the fair value hierarchy due to the general illiquidity of the market for these instruments.

22


 
 

TABLE OF CONTENTS

TICC CAPITAL CORP.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2013

NOTE 3. INVESTMENT VALUATION  – (continued)

A reconciliation of the fair value of investments for the three months ended June 30, 2013, utilizing significant unobservable inputs, is as follows:

                 
($ in millions)   Senior Secured Note Investments   Senior Unsecured Note Investments   Collateralized Loan
Obligation Debt Investments
  Collateralized Loan
Obligation Equity Investments
  Subordinated Note Investments   Common Stock Investments   Preferred Share Equity Investments   Warrants to Purchase Equity Investments   Total
Balance at March 31, 2013   $ 557.3     $ 5.3     $ 44.8     $ 192.3     $ 0.0     $ 11.5     $ 2.1     $ 0.5     $ 813.8  
Realized gains (losses) included in earnings     0.3       0.0       2.4       (0.8 )      0.0       0.0       0.0       0.0       1.9  
Unrealized (depreciation) appreciation included in earnings     (4.8 )      0.0       (2.4 )      (9.9 )      0.0       3.0       (1.8 )      0.0       (15.9 ) 
Accretion of discount     0.7       0.0       0.3       0.0       0.0       0.0       0.0       0.0       1.0  
Purchases(1)     165.5       0.0       6.3       19.1       0.0       0.0       0.0       0.0       190.9  
Repayments and Sales     (92.3 )      0.0       (6.4 )      (4.8 )      0.0       0.0       0.0       0.0       (103.5 ) 
Payment in Kind income     0.9       0.0       0.0       0.0       0.0       0.0       0.1       0.0       1.0  
Transfers in and/or out of level 3     0.0       0.0       0.0       0.0       0.0       0.0       0.0       0.0       0.0  
Balance at June 30, 2013   $ 627.6     $ 5.3     $ 45.0     $ 195.9     $ 0.0     $ 14.5     $ 0.4     $ 0.5     $ 889.2  
The amount of total gains or losses for the period included in earnings attributable to the change in unrealized gains or losses relating to our Level 3 assets still held at the reporting date and reported within the net change in unrealized gains or losses on investments in our Statement of Operations   $ (4.0 )    $ 0.0     $ (0.2 )    $ (10.3 )    $ 0.0     $ 3.0     $ (1.8 )    $ 0.0     $ (13.3 ) 

(1) Includes rounding adjustments to reconcile period balances.

23


 
 

TABLE OF CONTENTS

TICC CAPITAL CORP.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2013

NOTE 3. INVESTMENT VALUATION  – (continued)

A reconciliation of the fair value of investments for the six months ended June 30, 2013, utilizing significant unobservable inputs, is as follows:

                 
($ in millions)   Senior Secured Note Investments   Senior Unsecured Note Investments   Collateralized Loan
Obligation Debt Investments
  Collateralized Loan
Obligation Equity Investments
  Subordinated Note Investments   Common Stock Investments   Preferred Share Equity Investments   Warrants to Purchase Equity Investments   Total
Balance at December 31, 2012   $ 485.1     $ 0.0     $ 55.6     $ 109.3     $ 0.1     $ 4.4     $ 2.7     $ 0.5     $ 657.7  
Realized gains (losses) included in earnings     1.1       0.6       7.6       (0.8 )      0.0       0.0       0.0       0.0       8.5  
Unrealized (depreciation) appreciation included in earnings     0.7       2.7       (5.4 )      (14.7 )      0.0       6.7       (2.5 )      0.0       (12.5 ) 
Accretion of discount     1.5       0.0       0.7       0.0       0.0       0.0       0.0       0.0       2.2  
Purchases(1)     270.6       3.1       11.4       106.9       0.0       3.4       0.0       0.0       395.4  
Repayments and
Sales(1)
    (132.4 )      (1.1 )      (24.9 )      (4.8 )      (0.1 )      0.0       0.0       0.0       (163.3 ) 
Payment in Kind
income
    1.0       0.0       0.0       0.0       0.0       0.0       0.2       0.0       1.2  
Transfers in and/or out of level 3     0.0       0.0       0.0       0.0       0.0       0.0       0.0       0.0       0.0  
Balance at June 30, 2013   $ 627.6     $ 5.3     $ 45.0     $ 195.9     $ 0.0     $ 14.5     $ 0.4     $ 0.5     $ 889.2  
The amount of total gains or losses for the period included in earnings attributable to the change in unrealized gains or losses relating to our Level 3 assets still held at the reporting date and reported within the net change in unrealized gains or losses on investments in our Statement of Operations   $ 1.3     $ 2.7     $ 1.0     $ (15.1 )    $ 0.0     $ 6.7     $ (2.5 )    $ 0.0     $ (5.9 ) 

(1) Includes rounding adjustments to reconcile period balances.

24


 
 

TABLE OF CONTENTS

TICC CAPITAL CORP.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2013

NOTE 3. INVESTMENT VALUATION  – (continued)

Our assets measured at fair value on a recurring basis subject to the disclosure requirements of ASC 820-10-35 at December 31, 2012, were as follows:

       
($ in millions)   Fair Value Measurements at
Reporting Date Using
 
Assets   Quoted Prices in Active Markets for Identical Assets
(Level 1)
  Significant Other Observable Inputs
(Level 2)
  Significant Unobservable Inputs
(Level 3)
  Total
Senior Secured Notes   $ 0.0     $ 9.8     $ 485.1     $ 494.9  
CLO Debt     0.0       0.0       55.6       55.6  
CLO Equity     0.0       0.0       109.3       109.3  
Subordinated Notes     0.0       0.0       0.1       0.1  
Common Stock     0.0       0.0       4.4       4.4  
Preferred Shares     0.0       0.0       2.7       2.7  
Warrants to purchase equity     0.0       0.0       0.5       0.5  
Total   $ 0.0     $ 9.8     $ 657.7     $ 667.5  

A reconciliation of the fair value of investments for the year ended December 31, 2012, utilizing significant unobservable inputs, is as follows:

               
($ in millions)   Senior Secured Note Investments   Collateralized Loan
Obligation Debt Investments
  Collateralized Loan
Obligation Equity Investments
  Subordinated Note Investments   Common Stock Investments   Preferred Share Equity Investments   Warrants to Purchase Equity Investments   Total
Balance at December 31, 2011   $ 279.2     $ 51.0     $ 39.3     $ 4.9     $ 3.1     $ 2.5     $ 0.8     $ 380.8  
Realized gains included in earnings     4.0       12.4       0.0       0.1       0.0       0.0       0.1       16.6  
Unrealized (depreciation) appreciation included in earnings     (2.6 )      4.5       11.3       0.2       1.3       (0.2 )      0.1       14.6  
Accretion of discount     2.9       2.8       0.0       0.0       0.0       0.0       0.0       5.7  
Purchases     398.7       27.3       58.7       0.0       0.0       0.0       0.0       484.7  
Repayments and Sales(1)     (201.6 )      (42.4 )      0.0       (5.2 )      0.0       0.0       (0.5 )      (249.7 ) 
Payment in Kind income     4.5       0.0       0.0       0.1       0.0       0.4       0.0       5.0  
Transfers in and/or out of
level 3
    0.0       0.0       0.0       0.0       0.0       0.0       0.0       0.0  
Balance at December 31, 2012   $ 485.1     $ 55.6     $ 109.3     $ 0.1     $ 4.4     $ 2.7     $ 0.5     $ 657.7  
The amount of total gains or losses for the period included in earnings attributable to the change in unrealized gains or losses relating to our Level 3 assets still held at the reporting date and reported within the net change in unrealized gains or losses on investments in our Statement of Operations   $ (1.7 )    $ 8.0     $ 11.3     $ 0.1     $ 1.3     $ (0.1 )    $ 0.0     $ 18.9  

(1) Includes rounding adjustments to reconcile period balances.

25


 
 

TABLE OF CONTENTS

TICC CAPITAL CORP.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2013

NOTE 3. INVESTMENT VALUATION  – (continued)

The following table shows the fair value of TICC’s portfolio of investments by asset class as of June 30, 2013 and December 31, 2012:

       
  June 30, 2013   December 31, 2012
     Investments at Fair Value   Percentage of Total Portfolio   Investments at Fair Value   Percentage of Total Portfolio
     (dollars in millions)   (dollars in millions)
Senior Secured Notes   $ 644.1       71.1 %    $ 494.9       74.1 % 
Senior Unsecured Notes     5.3       0.6 %      0.0       0.0 % 
CLO Debt     45.0       5.0 %      55.6       8.3 % 
CLO Equity     195.9       21.6 %      109.3       16.4 % 
Subordinated Notes     0.0       0.0 %      0.1       0.0 % 
Common Stock     14.5       1.6 %      4.4       0.7 % 
Preferred Shares     0.4       0.0 %      2.7       0.4 % 
Warrants     0.5       0.1 %      0.5       0.1 % 
Total   $ 905.7       100.0 %    $ 667.5       100.0 % 

NOTE 4. BORROWINGS

In accordance with the 1940 Act, with certain limited exceptions, the Company is only allowed to borrow amounts such that its asset coverage, as defined in the 1940 Act, is at least 200% after such borrowing. As of June 30, 2013, the Company’s asset coverage for borrowed amounts was 211%.

The following are the Company’s outstanding principal amounts, carrying values and fair values of the Company’s notes payable as of June 30, 2013 and December 31, 2012. Fair values of our notes payable are based upon the bid price provided by the placement agent at the measurement date:

           
           
  As of
     June 30, 2013   December 31, 2012
($ in thousands)   Principal Amount   Carrying Value   Fair Value   Principal Amount   Carrying Value   Fair Value
TICC CLO LLC 2021 Notes   $ 101,250     $ 99,961 (1)    $ 100,997     $ 101,250     $ 99,883 (1)    $ 101,250  
TICC CLO 2012-1 LLC Class A-1 2023 Notes(2)     176,000       173,973 (1)      175,120       88,000       86,149 (1)      87,780  
TICC CLO 2012-1 LLC Class B-1 2023 Notes(2)     20,000       19,444 (1)      19,950       10,000       9,455 (1)      9,875  
TICC CLO 2012-1 LLC Class C-1 2023 Notes(2)     23,000       22,060 (1)      22,943       11,500       10,501 (1)      11,155  
TICC CLO 2012-1 LLC Class D-1 2023 Notes(2)     21,000       19,937 (1)      20,947       10,500       9,347 (1)      10,382  
Sub-total TICC CLO 2012-1, LLC     240,000       235,414       238,960       120,000       115,452       119,192  
2017 Convertible Notes     115,000       115,000       119,025       115,000       115,000       113,131  
     $ 456,250     $ 450,375     $ 458,982     $ 336,250     $ 330,335     $ 333,573  

(1) Represents the aggregate principal amount outstanding less the unaccreted discount. The total unaccreted discount for the 2021 Notes, the 2023 Class A Notes, the 2023 Class B Notes, the 2023 Class C Notes and the 2023 Class D Notes was approximately $1,289, $2,027, $556, $940 and $1,063, respectively. As of December 31, 2012, the total unaccreted discount for the 2021 Notes, the 2023 Class A Notes, the 2023 Class B Notes, the 2023 Class C Notes and the 2023 Class D Notes was approximately $1,367, $1,851, $545, $999 and $1,153, respectively.
(2) The TICC CLO 2012-1 debt securitization financing transaction has an “accordion” feature which allows, under certain circumstances and subject to the satisfaction of certain conditions, for an increase in the amount of secured and subordinated notes issued by the special purpose vehicle. On February 25, 2013, the special purpose vehicle issued additional secured notes of $60 million and subordinated notes of $20 million under the “accordion” feature. Additionally, on May 28, 2013, the special purpose vehicle

26


 
 

TABLE OF CONTENTS

TICC CAPITAL CORP.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2013

NOTE 4. BORROWINGS  – (continued)

issued additional secured notes of $60 million and subordinated notes of $20 million under the “accordion” feature and, as a result of the all TICC CLO 2012-1 issuances, the maximum aggregate increase limit of $160 million was reached-refer to “Notes Payable – TICC CLO 2012-1 LLC,” below.

The weighted average stated interest rate and weighted average maturity on all our debt outstanding as of June 30, 2013 were 3.93% and 8.25 years, respectively, and as of December 31, 2012 were 4.50% and 8.1 years, respectively.

Debt Securitization

Notes Payable — TICC CLO LLC

On August 10, 2011, the Company completed a $225.0 million debt securitization financing transaction. The Class A Notes and the subordinated notes offered in the debt securitization were issued by TICC CLO, a subsidiary of Holdings, which is in turn a direct subsidiary of TICC. The Class A Notes are secured by the assets held by the 2011 Securitization Issuer. The securitization was executed through a private placement of $101.25 million of secured notes rated AAA/Aaa by S&P and Moody’s, respectively, and bearing interest at the three-month LIBOR plus 2.25%. Holdings retained all of the subordinated notes, which totaled $123.75 million, and retained all the membership interests in the 2011 Securitization Issuer. The notes were sold at a discount to par, and the amount of the discount is being amortized over the term of the notes. The Class A Notes are included in the June 30, 2013 consolidated statements of assets and liabilities. For the three months and six months ended June 30, 2013, respectively, the Class A note holders were paid interest on the Class A notes of approximately $0.6 million and $1.3 million. Holdings retained all of the 2011 Subordinated Notes totaling $123.75 million and all of the membership interests in the 2011 Securitization Issuer. The 2011 Subordinated Notes do not bear interest, but are entitled to the residual economic interest in the 2011 Securitization Issuer.

During a period of up to three years from the closing date, all principal collections received on the underlying collateral may be used by the Securitization Issuer to purchase new collateral under our direction in our capacity as collateral manager of the 2011 Securitization Issuer and in accordance with our investment strategy, allowing us to maintain the initial leverage in the securitization for such three-year period. The Class A Notes are scheduled to mature on July 25, 2021.

The proceeds of the private placement of the Class A Notes, net of discount and debt issuance costs, were used for investment purposes. As part of the securitization, we entered into a master loan sale agreement with Holdings and the 2011 Securitization Issuer under which we agreed to sell or contribute certain senior secured and second lien loans (or participation interests therein) to Holdings, and Holdings agreed to sell or contribute such loans (or participation interests therein) to the 2011 Securitization Issuer and to purchase or otherwise acquire subordinated notes issued by the Securitization Issuer. The Class A Notes are the secured obligations of the 2011 Securitization Issuer, and an indenture governing the Notes includes customary covenants and events of default.

We serve as collateral manager to the 2011 Securitization Issuer under a collateral management agreement. We are entitled to a deferred fee for our services as collateral manager. The deferred fee is eliminated in consolidation.

As of June 30, 2013, there were 46 investments in portfolio companies with a total fair value of approximately $219.6 million, securing the Class A Notes. The pool of loans in the securitization must meet certain requirements, including asset mix and concentration, collateral coverage, term, agency rating, minimum coupon, minimum spread and sector diversity requirements.

Effective January 1, 2013 and through January 24, 2013, the interest rate of 2.57% charged under the securitization was based on three-month LIBOR of 0.32%. Effective January 25, 2013 and through April 24, 2013, the interest rate of 2.55% charged under the securitization was based on three-month LIBOR of 0.30%.

27


 
 

TABLE OF CONTENTS

TICC CAPITAL CORP.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2013

NOTE 4. BORROWINGS  – (continued)

Effective April 25, 2013 and through June 30, 2013, the interest rate of 2.53% charged under the securitization was based on three-month LIBOR of 0.28%.

Deferred debt issuance costs represent fees and other direct incremental costs incurred in connection with the Company’s debt securitization. As of June 30, 2013, the Company had deferred debt issuance costs of approximately $2.4 million. Discount on the notes of the 2011 Securitization Issuer at the time of issuance totaled approximately $1.6 million. These amounts are being amortized and included in interest expense in the consolidated statements of operations over the term of the debt securitization.

The following table sets forth the components of interest expense, effective annualized average interest rates and cash paid for interest for the three months and six months ended June 30, 2013 and 2012, respectively:

       
TICC CLO LLC   Three
Months Ended June 30, 2013
  Six
Months Ended June 30, 2013
  Three
Months Ended June 30, 2012
  Six
Months Ended June 30, 2012
Stated interest expense   $ 648,111     $ 1,294,794     $ 701,412     $ 1,410,291  
Amortization of deferred issuance costs     75,422       150,015       75,422       150,844  
Note discount expense     39,533       78,617       39,470       91,946  
Total interest expense   $ 763,066     $ 1,523,426     $ 816,304     $ 1,653,081  
Effective annualized average interest rate     3.02 %      3.03 %      3.23 %      3.27 % 
Cash paid for interest   $ 645,722     $ 1,309,480     $ 719,210     $ 1,974,676  

Notes Payable — TICC CLO 2012-1 LLC

On August 23, 2012, the Company completed a $160 million debt securitization financing transaction, consisting of $120 million in secured notes and $40 million of subordinated notes. On February 25, 2013 and May 28, 2013, TICC CLO 2012-1 LLC issued additional secured notes totaling an aggregate of $120 million and subordinated notes totaling an aggregate of $40 million, which subordinated notes were purchased by the Company, under the “accordion” feature of the debt securitization which allowed, under certain circumstances and subject to the satisfaction of certain conditions, for an increase in the amount of secured and subordinated notes. It is not necessary that the Company own all or any of the notes permitted by this feature, which may affect the accounting treatment of the debt securitization financing transaction. As of June 30, 2013 the secured notes of the 2012 Securitization Issuer have an aggregate face amount of $240 million and were issued in four classes. The class A-1 notes have a current face amount of $176 million, are rated AAA(sf)/Aaa(sf) by Standard & Poor’s Ratings Services (S&P) and Moody’s Investors Service, Inc. (Moody’s), respectively, and bear interest at three-month LIBOR plus 1.75%. The class B-1 notes have a current face amount of $20 million, are rated AA(sf)/Aa2(sf) by S&P and Moody’s, respectively, and bear interest at three-month LIBOR plus 3.50%. The class C-1 notes have a current face amount of $23 million, are rated A(sf)/A2(sf) by S&P and Moody’s, respectively, and bear interest at three-month LIBOR plus 4.75%. The class D-1 notes have a current face amount of $21 million, are rated BBB (sf)/Baa2 (sf) by S&P and Moody’s, respectively, and bear interest at three-month LIBOR plus 5.75%. TICC presently owns all of the subordinated notes, which totaled $80 million as of June 30, 2013.

During a period of up to four years from the closing date, all principal collections received on the underlying collateral may be used by the 2012 Securitization Issuer to purchase new collateral under the direction of TICC in its capacity as collateral manager of the 2012 Securitization Issuer and in accordance with the Company’s investment strategy, allowing the Company to maintain the initial leverage in the securitization for such four-year period. All note classes are scheduled to mature on August 25, 2023.

The proceeds of the private placement of the Classes A, B, C, D and 2012 Subordinated Notes of the 2012 Securitization Issuer, net of discount and debt issuance costs, were used for investment purposes. As part

28


 
 

TABLE OF CONTENTS

TICC CAPITAL CORP.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2013

NOTE 4. BORROWINGS  – (continued)

of the securitization, TICC entered into a master loan sale agreement with TICC CLO 2012-1 pursuant to which TICC agreed to sell or contribute certain senior secured and second lien loans (or participation interests therein) to TICC CLO 2012-1, and to purchase or otherwise acquire the 2012 Subordinated Notes. The Classes A, B, C, D and 2012 Subordinated Notes of the 2012 Securitization Issuer are the secured obligations of TICC CLO 2012-1, and an indenture governing the notes of the 2012 Securitization Issuer includes customary covenants and events of default.

As of June 30, 2013, there were 51 investments in portfolio companies with a total fair value of approximately $286.1 million, collateralizing the secured notes of the 2012 Securitization Issuer. The pool of loans in the securitization must meet certain requirements, including asset mix and concentration, collateral coverage, term, agency rating, minimum coupon, minimum spread and sector diversity requirements.

Deferred debt issuance costs represent fees and other direct incremental costs incurred in connection with the Company’s debt securitization. As of June 30, 2013, the Company had deferred debt issuance costs of approximately $3.5 million. Aggregate net discount on the notes of the 2012 Securitization Issuer at the time of issuance totaled approximately $4.9 million. These amounts are being amortized and included in interest expense in the consolidated statements of operations over the term of the debt securitization. The following table sets forth the components of interest expense, effective annualized average interest rates and cash paid for interest of the Class A-1, B-1, C-1 and D-1 for the three months and six months ended June 30, 2013, respectively:

   
TICC CLO 2012-1 LLC   Three
Months Ended June 30, 2013
  Six
Months Ended June 30, 2013
Stated interest expense   $ 1,440,154     $ 2,530,010  
Amortization of deferred issuance costs     77,659       141,935  
Note discount expense     110,856       216,005  
Total interest expense   $ 1,628,669     $ 2,887,950  
Effective annualized average interest rate     3.24 %      3.43 % 
Cash paid for interest   $ 1,297,859     $ 3,313,779  

Effective January 1, 2013 and through February 24, 2013, the interest charged under the securitization was based on six-month LIBOR, which was 0.72%. Effective February 25, 2013 and through May 27, 2013, the interest charged under the securitization was based on three month LIBOR, which was approximately 0.29%. Effective May 28, 2013 and as of June 30, 2013, the interest charged under the securitization was based on three-month LIBOR, which was approximately 0.27%.

29


 
 

TABLE OF CONTENTS

TICC CAPITAL CORP.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2013

NOTE 4. BORROWINGS  – (continued)

The classes, interest rates, spread over LIBOR, cash paid for interest, stated interest expense and note discount expense of each of the Class A-1, B-1, C-1 and D-1 for the three and six months ended June 30, 2013 are as follows:

               
      Three Months Ended June 30, 2013   Six Months Ended June 30, 2013
TICC CLO 2012-1 LLC   Stated Interest Rate   LIBOR Spread
(basis points)
  Cash Paid
for Interest
  Stated Interest Expense   Note Discount Expense   Cash Paid
for Interest
  Stated Interest Expense   Note Discount Expense
Class A-1 Notes     2.02275 %      175     $ 687,519     $ 762,189     $ 49,290     $ 1,809,705     $ 1,355,574     $ 94,082  
Class B-1 Notes     3.77275 %      350       145,210       161,231       13,305       363,148       280,918       25,903  
Class C-1 Notes     5.02275 %      475       222,096       246,708       22,919       546,995       427,274       45,416  
Class D-1 Notes     6.02275 %      575       243,034       270,026       25,342       593,931       466,244       50,604  
Total               $ 1,297,859     $ 1,440,154     $ 110,856     $ 3,313,779     $ 2,530,010     $ 216,005  

The amounts, ratings and interest rates (expressed as a spread to LIBOR) of the Class A-1, B-1, C-1, D-1 and 2012 Subordinated Notes are as follows:

         
         
Description   Class A-1 Notes   Class B-1 Notes   Class C-1 Notes   Class D-1 Notes   Subordinated
Notes
Type     Senior Secured
Floating Rate
      Senior Secured
Floating Rate
      Secured
Deferrable
Floating Rate
      Secured
Deferrable
Floating Rate
      Subordinated  
Amount Outstanding     $176,000,000       $20,000,000       $23,000,000       $21,000,000       $80,000,000  
Moody’s Rating     “Aaa”       “Aa2”       “A2”       “Baa2”       N/A  
Standard & Poor’s Rating     “AAA”       “AA”       “A”       “BBB”       N/A  
Interest Rate     LIBOR + 1.75%       LIBOR + 3.50%       LIBOR + 4.75%       LIBOR + 5.75%       N/A  
Stated Maturity     August 25, 2023       August 25, 2023       August 25, 2023       August 25, 2023       August 25, 2023  
Junior Classes     B-1, C-1, D-1
and Subordinated
      C-1, D-1
and Subordinated
      D-1 and
Subordinated
      Subordinated       None  

TICC serves as collateral manager to the 2012 Securitization Issuer under a collateral management agreement. TICC is entitled to a deferred fee for its services as collateral manager. The deferred fee is eliminated in consolidation.

30


 
 

TABLE OF CONTENTS

TICC CAPITAL CORP.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2013

NOTE 4. BORROWINGS  – (continued)

2017 Convertible Notes

On September 26, 2012, the Company issued $105,000,000 aggregate principal amount of the Convertible Notes and an additional $10,000,000 aggregate principal amount of the Convertible Notes was issued on October 22, 2012 pursuant to the exercise of the initial purchasers’ option to purchase additional Convertible Notes. The Convertible Notes bear interest at a rate of 7.50% per year, payable semi-annually in arrears on May 1 and November 1 of each year, commencing on May 1, 2013. The Convertible Notes are convertible into shares of our common stock based on an initial conversion rate of 87.2448 shares of our common stock per $1,000 principal amount of Convertible Notes, which is equivalent to an initial conversion price of approximately $11.46 per share of common stock. The conversion price for the Convertible Notes will be reduced for quarterly cash dividends paid to common shares to the extent that the quarterly dividend exceeds $0.29 cents per share, subject to adjustment. The Convertible Notes mature on November 1, 2017, unless previously converted in accordance with their terms. The Company does not have the right to redeem the Convertible Notes prior to maturity. The following table sets forth the components of interest expense, effective annualized average interest rates and cash paid for interest of the 2017 Convertible Notes for the three months and six months ended June 30, 2013:

   
2017 Convertible Notes   Three
Months Ended June 30, 2013
  Six
Months Ended June 30, 2013
Stated interest expense   $ 2,180,208     $ 4,288,542  
Amortization of deferred issuance costs     152,528       303,380  
Total interest expense   $ 2,332,736     $ 4,591,922  
Effective annualized average interest rate     8.14 %      8.05 % 
Cash paid for interest   $ 5,151,042     $ 5,151,042  

In certain circumstances, the Convertible Notes will be convertible into shares of the Company’s common stock at its initial conversion rate (listed below) subject to customary anti-dilution adjustments and the requirements of its indenture, at any time on or prior to the close of business on the business day immediately preceding the maturity date. We will in certain circumstances increase the conversion rate by a number of additional shares.

 
  November 2017 Convertible Notes
Conversion premium     10.00%  
Closing stock price     $10.42  
Closing stock price date     September 20, 2012  
Initial conversion price     $11.46  
Initial conversion rate (shares per one thousand dollar principal amount)     87.2448  
Maturity date     November 1, 2017  

As of June 30, 2013, the principal amount of the Convertible Notes exceeded the value of the underlying shares multiplied by the per share closing price of the Company’s common stock.

The Convertible Notes are the Company’s general, unsecured obligations and rank equal in right of payment with all of the Company’s existing and future senior, unsecured indebtedness and senior in right of payment to any of the Company’s subordinated indebtedness. As a result, the Convertible Notes will be effectively subordinated to the Company’s existing and future secured indebtedness to the extent of the value of the assets securing such indebtedness and structurally subordinated to any existing and future liabilities and other indebtedness of the Company’s subsidiaries.

31


 
 

TABLE OF CONTENTS

TICC CAPITAL CORP.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2013

NOTE 5. EARNINGS PER SHARE

The following table sets forth the computation of basic and diluted net increase in net assets resulting from investment income per share for the three and six months ended June 30, 2013 and 2012, respectively:

       
  Three
Months Ended June 30, 2013
  Three
Months Ended June 30, 2012
  Six
Months Ended June 30, 2013
  Six
Months Ended June 30, 2012
Earnings per common share – basic:
                                   
Net increase in net assets resulting from investment income   $ 15,955,918     $ 15,037,476     $ 26,607,121     $ 23,191,996  
Weighted average common shares outstanding – basic     52,544,803       37,755,905       49,075,486       35,583,102  
Earnings per common share – basic   $ 0.30     $ 0.40     $ 0.54     $ 0.65  
Earnings per common share – diluted:
                                   
Net increase in net assets resulting from investment income, before adjustments   $ 15,955,918     $ 15,037,476     $ 26,607,121     $ 23,191,996  
Adjustments for interest on convertible senior notes, base management fees and incentive fees     1,877,238       N/A       3,696,107       N/A  
Net increase in net assets resulting from investment income, as adjusted   $ 17,833,156     $ 15,037,476     $ 30,303,228     $ 23,191,996  
Weighted average common shares outstanding – basic     52,544,803       37,755,905       49,075,486       35,583,102  
Adjustments for dilutive effect of convertible notes     10,033,152       N/A       10,033,152       N/A  
Weighted average common shares
outstanding – diluted
    62,577,955       37,755,905       59,108,638       35,583,102  
Earnings per common share – diluted   $ 0.28     $ 0.40     $ 0.51     $ 0.65  

The following table sets forth the computation of basic and diluted net increase in net assets resulting from operations per share for the three and six months ended June 30, 2013 and 2012, respectively:

       
  Three
Months Ended June 30, 2013
  Three
Months Ended June 30, 2012
  Six
Months Ended June 30, 2013
  Six
Months Ended June 30, 2012
Earnings per common share – basic:
                                   
Net increase in net assets resulting from operations   $ 1,456,996     $ 9,259,874     $ 22,299,042     $ 26,343,242  
Weighted average common shares outstanding – basic     52,544,803       37,755,905       49,075,486       35,583,102  
Earnings per common share – basic   $ 0.03     $ 0.25     $ 0.45     $ 0.74  
Earnings per common share – diluted:
                                   
Net increase in net assets resulting from operations, before adjustments   $ 1,456,996     $ 9,259,874     $ 22,299,042     $ 26,343,242  
Adjustments for interest on convertible senior notes, deferred issuance costs and incentive fees     1,877,238       N/A       3,696,107       N/A  
Net increase in net assets resulting from operations,
as adjusted
  $ 3,334,234     $ 9,259,874     $ 25,995,149     $ 26,343,242  
Weighted average common shares outstanding – basic     52,544,803       37,755,905       49,075,486       35,583,102  
Adjustments for dilutive effect of convertible notes     10,033,152       N/A       10,033,152       N/A  
Weighted average common shares
outstanding – diluted
    62,577,955       37,755,905       59,108,638       35,583,102  
Earnings per common share – diluted   $ 0.05     $ 0.25     $ 0.44     $ 0.74  

32


 
 

TABLE OF CONTENTS

TICC CAPITAL CORP.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2013

NOTE 6. RELATED PARTY TRANSACTIONS

TICC has entered into an investment advisory agreement with TICC Management (the “Investment Advisory Agreement”) under which TICC Management, subject to the overall supervision of TICC’s Board of Directors, manages the day-to-day operations of, and provides investment advisory services to, TICC. For providing these services TICC Management receives a fee from TICC, consisting of two components: a base management fee (the “Base Fee”) and an incentive fee. The Base Fee is calculated at an annual rate of 2.00%. The Base Fee is payable quarterly in arrears, and is calculated based on the average value of TICC’s gross assets at the end of the two most recently completed calendar quarters, and appropriately adjusted for any equity or debt capital raises, repurchases or redemptions during the current calendar quarter. Accordingly, the Base Fee will be payable regardless of whether the value of TICC’s gross assets have decreased during the quarter.

The incentive fee has two parts. The first part is calculated and payable quarterly in arrears based on the Company’s “Pre-Incentive Fee Net Investment Income” for the immediately preceding calendar quarter. For this purpose, “Pre-Incentive Fee Net Investment Income” means interest income, dividend income and any other income (including any other fees, such as commitment, origination, structuring, diligence and consulting fees or other fees that TICC receives from portfolio companies) accrued during the calendar quarter, minus the Company’s operating expenses for the quarter (including the Base Fee, expenses payable under the Company’s administration agreement with BDC Partners (the “Administration Agreement”), and any interest expense and dividends paid on any issued and outstanding preferred stock, but excluding the incentive fee). Pre-Incentive Fee Net Investment Income includes, in the case of investments with a deferred interest feature (such as original issue discount, debt instruments with PIK interest and zero coupon securities), accrued income that the Company has not yet received in cash. Pre-Incentive Fee Net Investment Income does not include any realized capital gains, realized capital losses or unrealized capital appreciation or depreciation. Pre-Incentive Fee Net Investment Income, expressed as a rate of return on the value of the Company’s net assets at the end of the immediately preceding calendar quarter, is compared to one- fourth of an annual “hurdle rate.” Given that this portion of the incentive fee is payable without regard to any capital gain, capital loss or unrealized depreciation that may occur during the quarter, this portion of TICC Management’s incentive fee may also be payable notwithstanding a decline in net asset value that quarter.

For each year commencing on or after January 1, 2005, the annual hurdle rate has been determined as of the immediately preceding December 31st by adding 5.0% to the interest rate then payable on the most recently issued five-year U.S. Treasury Notes, up to a maximum annual hurdle rate of 10.0%. The annual hurdle rates for the 2012, 2011 and 2010 calendar years were 5.83% 7.01% and 7.69%, respectively. The current hurdle rate for the 2013 calendar year, calculated as of December 31, 2012, is 5.72%.

The second part of the incentive fee is determined and payable in arrears as of the end of each calendar year (or upon termination of the Investment Advisory Agreement, as of the termination date), and equals 20% of the Company’s “Incentive Fee Capital Gains,” which consist of the Company’s realized capital gains for each calendar year, computed net of all realized capital losses and unrealized capital depreciation for that calendar year. For accounting purposes only, in order to reflect the theoretical capital gains incentive fee that would be payable for a given period as if all unrealized gains were realized, we will accrue a capital gains incentive fee based upon net realized capital gains and unrealized capital depreciation for that calendar year (in accordance with the terms of the Investment Advisory Agreement), plus unrealized capital appreciation on investments held at the end of the period. It should be noted that a fee so calculated and accrued would not necessarily be payable under the Investment Advisory Agreement, and may never be paid based upon the computation of capital gains incentive fees in subsequent periods. Amounts paid under the Investment Advisory Agreement will be consistent with the formula reflected in the Investment Advisory Agreement.

Incentive fees, based upon pre-incentive fee net investment income, were approximately $1.4 million and $2.2 million for the three months ended June 30, 2013 and 2012, respectively; for the six month periods ended June 30, 2013 and 2012, TICC incurred pre-incentive fee net investment income incentive fees of

33


 
 

TABLE OF CONTENTS

TICC CAPITAL CORP.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2013

NOTE 6. RELATED PARTY TRANSACTIONS  – (continued)

approximately $2.6 and $3.4 million, respectively. The net investment income incentive fee payable to TICC Management as of June 30, 2013 and 2012, was approximately $1.4 million and $2.2 million, respectively.

For the quarter ended June 30, 2013, the capital gains incentive fee was reduced by approximately $2.9 million compared with an expense reduction of approximately $1.2 million for the quarter ended June 30, 2012. For the six months ended June 30, 2013, the capital gains incentive fee liability was reduced by approximately $2.7 million compared with a reduction of approximately $90,000 for the six months ended June 30, 2012. The amount of capital gains incentive fee related to the hypothetical liquidation of the portfolio (and assuming no other changes in realized or unrealized gains and losses) would only become payable to TICC Management in the event of a complete liquidation of TICC’s portfolio as of period end and the termination of the Investment Advisory Agreement on such date. Also, it should be noted that the capital gains incentive fee fluctuates with the Company’s overall investment results. The accrued capital gains incentive fee payable as of June 30, 2013 and 2012, was approximately $2.4 million and $1.0 million, respectively.

In addition, in the event the Company recognizes payment-in-kind, or “PIK,” interest income in excess of its available capital, the Company may be required to liquidate assets in order to pay a portion of the incentive fee. TICC Management, however, is not required to reimburse the Company for the portion of any incentive fees attributable to PIK loan interest income in the event of a subsequent default.

TICC Management is controlled by BDC Partners, its managing member. Charles M. Royce, as the non-managing member, holds a minority, non-controlling interest in TICC Management. BDC Partners, as the managing member of TICC Management, manages the business and internal affairs of TICC Management. In addition, BDC Partners provides TICC with office facilities and administrative services pursuant to an amended and restated administration agreement (the “Administration Agreement”). Jonathan H. Cohen, the Company’s Chief Executive Officer, as well as a Director, is the managing member of BDC Partners. Saul B. Rosenthal, the Company’s President and Chief Operating Officer, is also the President and Chief Operating Officer of TICC Management and a member of BDC Partners. Messrs. Cohen and Rosenthal have an equal equity interest in BDC Partners. Charles M. Royce, the Company’s non-executive Chairman of the Board of Directors, does not take part in the management or participate in the operations of TICC Management; however, Mr. Royce is expected to be available from time to time to TICC Management to provide certain consulting services without compensation.

Messrs. Cohen and Rosenthal also currently serve as Chief Executive Officer and President, respectively, for T2 Advisers, LLC, which serves as the Collateral Manager of T2 Income Fund CLO I Ltd. BDC Partners is the managing member of T2 Advisers, LLC. Further, Messrs. Cohen and Rosenthal currently serve as Chief Executive Officer and President, respectively, of Oxford Lane Capital Corp., a non-diversified closed-end management investment company that currently invests primarily in CLO debt and equity tranches, and its investment adviser, Oxford Lane Management. BDC Partners provides Oxford Lane Capital Corp. with office facilities and administrative services pursuant to an administration agreement and also serves as the managing member of Oxford Lane Management. In addition, Patrick F. Conroy, the Chief Financial Officer, Chief Compliance Officer and Corporate Secretary of TICC Management, BDC Partners and TICC, serves in the same capacities for Oxford Lane Capital Corp. and Oxford Lane Management and also serves as the Chief Financial Officer, Chief Compliance Officer and Treasurer of T2 Advisers, LLC. Because of these possible conflicts of interest, these individuals may direct potential business and investment opportunities to other entities rather than to the Company or such individuals may undertake or otherwise engage in activities or conduct on behalf of such other entities that is not in, or which may be adverse to, the Company’s best interests.

BDC Partners has adopted a written policy with respect to the allocation of investment opportunities among the Company, Oxford Lane Capital Corp. and T2 Income Fund CLO I Ltd. in view of the potential conflicts of interest raised by the relationships described above.

34


 
 

TABLE OF CONTENTS

TICC CAPITAL CORP.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2013

NOTE 6. RELATED PARTY TRANSACTIONS  – (continued)

Under the Administration Agreement, BDC Partners provides administrative services for TICC. The Company pays BDC Partners an allocable portion of overhead and other expenses incurred by BDC Partners in performing its obligations under the Administration Agreement, including a portion of the rent and the compensation of the chief financial officer, chief compliance officer, controller and other administrative support personnel, which creates potential conflicts of interest that the Board of Directors must monitor.

For the quarters ended June 30, 2013 and 2012, respectively, TICC incurred base investment advisory fees of approximately $4.9 million and $2.5 million in accordance with the terms of the Investment Advisory Agreement; for the first two quarters of 2013 and 2012, TICC incurred investment advisory fees of approximately $9.0 and $4.6 million, respectively, of which amounts $4.9 million and $2.5 million remained payable to TICC Management at the end of each respective period. For the quarters ended June 30, 2013 and 2012, respectively, TICC incurred approximately $303,000 and $279,000, respectively, in compensation expenses for the services of employees allocated to the administrative activities of TICC, pursuant to the Administration Agreement with BDC Partners; for the six months ended June 30, 2013 and 2012, TICC incurred compensation expenses of approximately $614,000 and 550,000, respectively, of which amounts approximately $315,000 and $300,000 were accrued for compensation expense at the end of each respective period. In addition, TICC incurred approximately $20,000 and $17,000 for reimbursement of facility costs allocated under the Administration Agreement for the quarters ended June 30, 2013 and 2012, respectively; for the six months ended June 30, 2013 and 2012, TICC incurred approximately $42,000 and $34,000, respectively, of which $0 remained payable at the end of each respective period.

NOTE 7. DIVIDENDS

The Company intends to continue to operate so as to qualify to be taxed as a RIC under the Code and, as such, the Company would not be subject to federal income tax on the portion of its taxable income and gains distributed to stockholders. To qualify as a RIC, the Company is required, among other requirements, to distribute at least 90% of its annual investment company taxable income, as defined by the Code. The amount to be paid out as a dividend is determined by the Board of Directors each quarter and is based upon the annual earnings estimated by the management of the Company. To the extent that the Company’s investment company taxable income falls below the amount of dividends declared, however, a portion of the total amount of the Company’s dividends for the fiscal year may be deemed a return of capital for tax purposes to the Company’s stockholders.

The Company intends to comply with the applicable provisions of the Code pertaining to regulated investment companies to make distributions of taxable income sufficient to relieve it of substantially all Federal income taxes. The Company, at its discretion, may carry forward taxable income in excess of calendar year distributions and pay a 4% excise tax on this income. The Company will accrue excise tax on estimated excess taxable income, if any, as required.

On June 28, 2013, the Company paid a dividend of $0.29 per share. The Company has a dividend reinvestment plan under which all distributions are paid to stockholders in the form of additional shares, unless a stockholder elects to receive cash. The plan was amended to provide a 5% discount for shares purchased under the dividend reinvestment plan.

NOTE 8. NET ASSET VALUE PER SHARE

The Company’s net asset value per share at June 30, 2013 was $9.75, and at December 31, 2012 was $9.90. In determining the Company’s net asset value per share, the Board of Directors determined in good faith the fair value of the Company’s portfolio investments for which reliable market quotations are not readily available.

35


 
 

TABLE OF CONTENTS

TICC CAPITAL CORP.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2013

NOTE 9. PAYMENT-IN-KIND

The Company has investments in its portfolio which contain a payment-in-kind, or PIK, provision. The PIK interest and PIK fee is added to the cost basis of the investment and recorded as income. To maintain the Company’s status as a RIC (as discussed in Note 7 above), this non-cash source of 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 or the liquidation of certain investments. For the three months ended June 30, 2013 and 2012, the Company recorded approximately $1.0 and $4.0 million in PIK income, respectively. For the six months ended June 30, 2013 and 2012, the Company recorded approximately $1.2 and $4.2 million in PIK income, respectively.

In addition, the Company recorded original issue discount income of approximately $1.0 million and $1.5 million for the three months ended June 30, 2013 and 2012, respectively, representing the amortization of the discount attributed to certain debt securities purchased by the Company, including original issue discount (“OID”) and market discount. The Company had discount income of approximately $2.2 million and $2.9 million for the six months ended June 30, 2013 and 2012, respectively.

NOTE 10. OTHER INCOME

Other income generally includes closing fees, origination fees and amendment fees associated with investments in portfolio companies. Such fees may be paid at closing of the Company’s investments or at the time the terms of the underlying loan agreement are revised and are generally fully earned, non-refundable, and non-recurring.

For the three months ended June 30, 2013 and 2012, respectively, the Company recorded approximately $2.0 million and $4.1 million in other income. The Company received approximately $2.7 million and $4.2 million for the six months ended June 30, 2013 and 2012, respectively.

The 1940 Act requires that a business development company make available managerial assistance to its portfolio companies. The Company may receive fee income for managerial assistance it renders to portfolio companies in connection with its investments. For the three and six months ended June 30, 2013 and 2012, respectively, the Company received no fee income for managerial assistance.

NOTE 11. DISTRIBUTIONS FROM SECURITIZATION VEHICLES AND EQUITY INVESTMENTS

The Company receives distributions on the “equity” tranches of securitization vehicles in which it invests. These tranches represent the residual economic interests in such securitization vehicles, and those distributions are determined by the respective trustee on a quarterly basis. The distributions are recognized in the period that they are finally determined and payable. The Company earned approximately $10.7 million in such distributions during the quarter ended June 30, 2013, compared to approximately $6.3 million during the quarter ended June 30, 2012. The Company earned approximately $19.4 million in such distributions during the six months ended June 30, 2013, compared to approximately $11.9 million during the six months ended June 30, 2012.

36


 
 

TABLE OF CONTENTS

TICC CAPITAL CORP.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2013

NOTE 12. FINANCIAL HIGHLIGHTS

Financial highlights for the three and six months ending June 30, 2013 and 2012, respectively, are as follows:

       
  Three
Months Ended June 30, 2013 (unaudited)
  Three
Months Ended June 30, 2012 (unaudited)
  Six
Months Ended June 30, 2013 (unaudited)
  Six
Months Ended June 30, 2012 (unaudited)
Per Share Data
                                   
Net asset value at beginning of period   $ 10.02     $ 9.50     $ 9.90     $ 9.30  
Net investment income(1)     0.30       0.40       0.54       0.65  
Net realized and unrealized capital gains     (0.27 )      (0.15 )      (0.09 )      0.09  
Total from net investment operations     0.03       0.25       0.45       0.74  
Distributions per share from net investment income     (0.29 )      (0.27 )      (0.58 )      (0.54 ) 
Distributions based on weighted average share impact     (0.01 )      (0.01 )      (0.03 )      (0.03 ) 
Distributions from net realized capital gains                        
Tax return of capital distributions                        
Total distributions(2)     (0.30 )      (0.28 )      (0.55 )      (0.57 ) 
Effect of shares issued, net of offering expenses                 0.01        
Net asset value at end of period   $ 9.75     $ 9.47     $ 9.75     $ 9.47  
Per share market value at beginning of period   $ 9.95     $ 9.74     $ 10.12     $ 8.65  
Per share market value at end of period   $ 9.62     $ 9.69     $ 9.62     $ 9.69  
Total return(3)(4)     (0.40 )%      2.26 %      0.78 %      18.34 % 
Shares outstanding at end of period     52,632,665       37,806,232       52,632,665       37,806,232  
Ratios/Supplemental Data
                                   
Net assets at end of period (000’s)     513,343       358,055       513,343       358,055  
Average net assets (000’s)     523,048       356,762       488,381       336,458  
Ratio of expenses to average net assets:
                                   
Expenses before incentive fees(4)     8.40 %      4.95 %      8.44 %      5.20 % 
Net investment income incentive fees(4)     1.06 %      2.43 %      1.08 %      1.99 % 
Capital gains incentive fees(4)     (2.22 )%      (1.30 )%      (1.10 )%      (0.05 )% 
Total ratio of expenses to average net assets(4)     7.24 %      6.08 %      8.42 %      7.14 % 
Ratio of expenses, excluding interest expense, to average net assets(4)     3.63 %      5.17 %      4.73 %      6.16 % 
Ratio of net investment income to average
net assets(4)
    12.20 %      16.86 %      10.90 %      13.79 % 

(1) Represents per share net investment income for the period, based upon average shares outstanding.
(2) Management monitors available taxable earnings, including net investment income and realized capital gains, to determine if a tax return of capital may occur for the year. To the extent the Company’s taxable earnings fall below the total amount of the Company’s distributions for that fiscal year, a portion of those distributions may be deemed a tax return of capital to the Company’s stockholders. The tax character of distributions will be determined at the end of the fiscal year.
(3) Total return equals the increase or decrease of ending market value over beginning market value, plus distributions, divided by the beginning market value, assuming dividend reinvestment prices obtained under the Company’s dividend reinvestment plan. Total return is not annualized.
(4) Annualized.

37


 
 

TABLE OF CONTENTS

TICC CAPITAL CORP.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2013

NOTE 13. CASH AND CASH EQUIVALENTS

At June 30, 2013 and December 31, 2012, respectively, cash and cash equivalents consisted of:

   
  June 30, 2013   December 31, 2012
Cash Equivalents   $     $  
Cash     28,009,607       51,392,949  
Restricted Cash     73,011,753       21,240,508  
Total Cash and Cash Equivalents   $ 101,021,360     $ 72,633,457  

Restricted cash represents amounts that are collected and are held by Bank of New York as trustee and custodian of the assets for both of the Company’s debt securitization vehicles. Restricted cash is held by the trustee for payment of interest expense and principal on the outstanding borrowings or reinvestment in new assets.

NOTE 14. COMMITMENTS

In the normal course of business, the Company enters into a variety of undertakings containing warranties and indemnifications that may expose the Company to some risk of loss. The risk of future loss arising from such undertakings, while not quantifiable, is expected to be remote.

As of June 30, 2013, the Company had commitments of approximately $16 million to purchase additional debt investments and $10 million to purchase additional equity investments.

The Company is not currently subject to any material legal proceedings. From time to time, the Company may be a party to certain legal proceedings in the ordinary course of business, including proceedings related to the enforcement of the Company’s rights under contracts with its portfolio companies. While the outcome of these legal proceedings cannot be predicted with certainty, the Company does not expect that these proceedings will have a material impact upon its financial condition or results of operations.

NOTE 15. SUBSEQUENT EVENTS

On July 30, 2013, the Board of Directors declared a distribution of $0.29 per share for the third quarter, payable on September 30, 2013 to shareholders of record as of September 16, 2013.

38


 
 

TABLE OF CONTENTS

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements that involve substantial risks and uncertainties. These forward-looking statements are not historical facts, but rather are based on current expectations, estimates and projections about TICC, our current and prospective portfolio investments, our industry, our beliefs, and our assumptions. Words such as “anticipates,” “expects,” “intends,” “plans,” “will,” “may,” “continue,” “believes,” “seeks,” “estimates,” “would,” “could,” “should,” “targets,” “projects,” and variations of these words and similar expressions are intended to identify forward-looking statements. The forward-looking statements contained in this Quarterly Report on Form 10-Q involve risks and uncertainties, including statements as to:

our future operating results;
our business prospects and the prospects of our portfolio companies;
the impact of investments that we expect to make;
our contractual arrangements and relationships with third parties;
the dependence of our future success on the general economy and its impact on the industries in which we invest;
the ability of our portfolio companies to achieve their objectives;
our expected financings and investments;
the adequacy of our cash resources and working capital; and
the timing of cash flows, if any, from the operations of our portfolio companies.

These statements are not guarantees of future performance and are subject to risks, uncertainties, and other factors, some of which are beyond our control and difficult to predict and could cause actual results to differ materially from those expressed or forecasted in the forward-looking statements, including without limitation:

an economic downturn could impair our portfolio companies’ ability to continue to operate, which could lead to the loss of some or all of our investments in such portfolio companies;
a contraction of available credit and/or an inability to access the equity markets could impair our lending and investment activities;
interest rate volatility could adversely affect our results, particularly if we elect to use leverage as part of our investment strategy;
currency fluctuations could adversely affect the results of our investments in foreign companies, particularly to the extent that we receive payments denominated in foreign currency rather than U.S. dollars; and
the risks, uncertainties and other factors we identify in Item 1A. — Risk Factors contained in our Annual Report on Form 10-K for the year ended December 31, 2012, elsewhere in this Quarterly Report on Form 10-Q and in our filings with the SEC.

Although we believe that the assumptions on which these forward-looking statements are based are reasonable, any of those assumptions could prove to be inaccurate, and as a result, the forward-looking statements based on those assumptions also could be inaccurate. Important assumptions include our ability to originate new loans and investments, certain margins and levels of profitability and the availability of additional capital. In light of these and other uncertainties, the inclusion of a projection or forward-looking statement in this Quarterly Report on Form 10-Q should not be regarded as a representation by us that our plans and objectives will be achieved. These risks and uncertainties include those described or identified in Item 1A. — Risk Factors contained in our Annual Report on Form 10-K for the year ended December 31,

39


 
 

TABLE OF CONTENTS

2012, and elsewhere in this Quarterly Report on Form 10-Q. You should not place undue reliance on these forward-looking statements, which apply only as of the date of this Quarterly Report on Form 10-Q.

Except where the context requires otherwise, the terms “TICC,” “Company,” “we,” “us” and “our” refer to TICC Capital Corp. together with its subsidiaries, TICC Capital Corp. 2011-1 Holdings LLC (“Holdings”), TICC CLO LLC (“2011 Securitization Issuer” or “TICC CLO”) and TICC CLO 2012-1 LLC (“2012 Securitization Issuer” or “TICC CLO 2012-1”); “TICC Management” refers to TICC Management, LLC; and “BDC Partners” refers to BDC Partners, LLC.

The following analysis of our financial condition and results of operations should be read in conjunction with our financial statements and the related notes thereto contained elsewhere in this Quarterly Report on Form 10-Q.

40


 
 

TABLE OF CONTENTS

OVERVIEW

Our investment objective is to maximize our portfolio’s total return. Our primary focus is to seek current income by investing in corporate debt securities. We have also invested and may continue to invest in structured finance investments, including CLO vehicles, which own debt securities. We may also invest in publicly traded debt and/or equity securities. We operate as a closed-end, non-diversified management investment company and have elected to be treated as a business development company under the Investment Company Act of 1940, as amended (the “1940 Act”). We have elected to be treated for tax purposes as a regulated investment company (“RIC”), under the Internal Revenue Code of 1986, as amended (the “Code”), beginning with our 2003 taxable year.

Our investment activities are managed by TICC Management, a registered investment adviser under the Investment Advisers Act of 1940, as amended. TICC Management is owned by BDC Partners, its managing member, and Charles M. Royce, our non-executive Chairman, who holds a minority, non-controlling interest in TICC Management. Jonathan H. Cohen, our Chief Executive Officer, and Saul B. Rosenthal, our President and Chief Operating Officer, are the members of BDC Partners. Under an investment advisory agreement (the “Investment Advisory Agreement”), we have agreed to pay TICC Management an annual base fee calculated on gross assets, and an incentive fee based upon our performance. Under an amended and restated administration agreement (the “Administration Agreement”), we have agreed to pay or reimburse BDC Partners, as administrator, for certain expenses incurred in operating TICC. Our executive officers and directors, and the executive officers of TICC Management and BDC Partners, serve or may serve as officers and directors of entities that operate in a line of business similar to our own. Accordingly, they may have obligations to investors in those entities, the fulfillment of which might not be in the best interests of us or our stockholders.

On August 10, 2011, we completed a $225.0 million debt securitization financing transaction. On August 23, 2012, we completed our second such transaction, a $160.0 million debt securitization financing. On February 25, 2013 and on May 28, 2013, we completed the sale of an aggregate of $120.0 million of additional secured notes and an aggregate of $40.0 million of subordinated notes in connection with these transactions. On September 26, 2012, we completed a private placement of 5-year unsecured 7.50% Senior Convertible Notes Due 2017 (the “Convertible Notes”). A total of $105.0 million aggregate principal amount of the Convertible Notes were issued at the closing. An additional $10.0 million aggregate principal amount of the Convertible Notes were issued on October 22, 2012 pursuant to the exercise of the initial purchasers’ option to purchase additional Convertible Notes. For more information about these transactions, see “— Liquidity and Capital Resources — Borrowings.”

We generally expect to invest between $5 million and $50 million in each of our portfolio companies, although this investment size may vary proportionately as the size of our capital base changes and market conditions warrant, and accrue interest at fixed or variable rates. We expect that our investment portfolio will be diversified among a large number of investments with few investments, if any, exceeding 5% of the total portfolio. As of June 30, 2013, our debt investments had stated interest rates of between 3.98% and 13.00% (excluding our investment in GenuTec Business Solutions, Inc. which carries a zero interest rate through October 30, 2014) and maturity dates of between 5 and 145 months. In addition, our total portfolio had a weighted average yield on debt investments of approximately 8.5% including GenuTec Business Solutions, Inc.

Our loans may carry a provision for deferral of some or all of the interest payments and amendment fees, which will be added to the principal amount of the loan. This form of deferred income is referred to as “payment-in-kind,” or “PIK,” interest or other income and, when earned, is recorded as interest or other income and an increase in the principal amount of the loan. For the quarter ended June 30, 2013, we recognized approximately $1.0 million from PIK interest and dividend income associated with our investments in Pegasus Solutions, Inc., Unitek Global Services, Inc. and Stratus Technologies, Inc. compared to PIK interest of approximately $4.0 million for the quarter ended June 30, 2012. In the event we recognize deferred loan interest income in excess of our available capital as a result of our receipt of PIK income, we may be required to liquidate assets in order to pay a portion of the incentive fee due to TICC Management.

41


 
 

TABLE OF CONTENTS

We have historically and may continue to borrow funds to make investments. As a result, we are exposed to the risks of leverage, which may be considered a speculative investment technique. Borrowings, also known as leverage, magnify the potential for gain and loss on amounts invested and therefore increase the risks associated with investing in our securities. In addition, the costs associated with our borrowings, including any increase in the management fee payable to TICC Management, will be borne by our common stockholders.

In addition, as a BDC under the 1940 Act, we are required to make available significant managerial assistance, for which we may receive fees, to our portfolio companies. These fees would be generally non-recurring, however in some instances they may have a recurring component. We have received no fee income for managerial assistance to date.

Prior to making an investment, we may enter into a non-binding term sheet with the potential portfolio company. These term sheets are generally subject to a number of conditions, including but not limited to the satisfactory completion of our due diligence investigations of the company’s business and legal documentation for the loan.

To the extent possible, our loans will be collateralized by a security interest in the borrower’s assets or guaranteed by a principal to the transaction. Interest payments, if not deferred, are normally payable quarterly with most debt investments having scheduled principal payments on a monthly or quarterly basis. When we receive a warrant to purchase stock in a portfolio company, the warrant will typically have a nominal strike price, and will entitle us to purchase a modest percentage of the borrower’s stock.

During the quarter ended June 30, 2013, we closed approximately $190.8 million in portfolio investments, including additional investments of approximately $82.9 million in existing portfolio companies and approximately $107.9 million in new portfolio companies. During the quarter ended June 30, 2013, we recognized a total of $85.8 million from repayments on debt investments, and we recognized approximately $17.7 million from the sale of portfolio investments. We realized net gains on investments during the quarter ended June 30, 2013 in the amount of approximately $1.9 million. For the quarter ended June 30, 2013, we had net unrealized depreciation of approximately $16.4 million.

42


 
 

TABLE OF CONTENTS

CRITICAL ACCOUNTING POLICIES

The preparation of financial statements and related disclosures in conformity with generally accepted accounting principles in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and revenues and expenses during the periods reported. Actual results could materially differ from those estimates. We have identified our investment valuation policy as a critical accounting policy.

Investment Valuation

The most significant estimate inherent in the preparation of our consolidated financial statements is the valuation of investments and the related amounts of unrealized appreciation and depreciation of investments recorded. There is no single method for determining fair value in good faith. As a result, determining fair value requires that judgment be applied to the specific facts and circumstances of each portfolio investment while employing a consistently applied valuation process for the types of investments we make. We are required to specifically fair value each individual investment on a quarterly basis.

ASC 820-10, Fair Value Measurements and Disclosure, defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC 820-10 also establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include: Level 1, defined as observable inputs such as quoted prices in active markets; Level 2, which includes inputs such as quoted prices for similar securities in active markets and quoted prices for identical securities in markets that are not active; and Level 3, defined as unobservable inputs for which little or no market data exists, therefore requiring an entity to develop its own assumptions. We have determined that due to the general illiquidity of the market for our investment portfolio, whereby little or no market data exists, substantially all of our investments are based upon “Level 3” inputs.

Our Board of Directors determines the value of our investment portfolio each quarter. In connection with that determination, members of TICC Management’s portfolio management team prepare portfolio company valuations using the most recent portfolio company financial statements and forecasts. Since March 2004, we have engaged third-party valuation firms to provide assistance in valuing our bilateral investments and, more recently, for certain of our syndicated loans, although our Board of Directors ultimately determines the appropriate valuation of each such investment.

Our process for determining the fair value of a bilateral investment begins with determining the enterprise value of the portfolio company. Enterprise value means the entire value of the company to a potential buyer, including the sum of the values of debt and equity securities used to capitalize the enterprise at a point in time. The fair value of our investment is based, in part, on the enterprise value at which the portfolio company could be sold in an orderly disposition over a reasonable period of time between willing parties other than in a forced or liquidation sale. The liquidity event whereby we exit a private investment is generally the sale, the recapitalization or, in some cases, the initial public offering of the portfolio company.

There is no one methodology to determine enterprise value and, in fact, for any one portfolio company, enterprise value is best expressed as a range of fair values, from which we derive a single estimate of enterprise value. To determine the enterprise value of a portfolio company, we analyze the historical and projected financial results, as well as the nature and value of any collateral. We also use industry valuation benchmarks and public market comparables. We also consider other events, including private mergers and acquisitions, a purchase transaction, public offering or subsequent debt or equity sale or restructuring, and include these events in the enterprise valuation process. We generally require portfolio companies to provide annual audited and quarterly unaudited financial statements, as well as annual projections for the upcoming fiscal year.

Typically, our bilateral debt investments are valued on the basis of a fair value determination arrived at through an analysis of the borrower’s financial and operating condition or other factors, as well as consideration of the entity’s enterprise value. The types of factors that we may take into account in valuing our investments include: market trading and transaction comparables, applicable market yields and multiples, security covenants, call protection provisions, the nature and realizable value of any collateral, the portfolio company’s ability to make payments and its earnings and discounted cash flows, among other factors. The fair

43


 
 

TABLE OF CONTENTS

value of equity interests in portfolio companies is determined based on various factors, including the enterprise value remaining for equity holders after the repayment of the portfolio company’s debt and other preference capital, and other pertinent factors such as recent offers to purchase a portfolio company, recent transactions involving the purchase or sale of the portfolio company’s equity securities, or other liquidity events. The determined equity values are generally discounted when we have a minority position, restrictions on resale, specific concerns about the receptivity of the capital markets to a specific company at a certain time, or other factors.

We will record unrealized depreciation on bilateral investments when we believe that an investment has become impaired, including where collection of a loan or realization of an equity security is doubtful. To the extent that we believe that it has become probable that a loan is not collectible or probable that an equity investment is not realizable, we will classify that amount as a realized loss. We will record unrealized appreciation if we believe that the underlying portfolio company has appreciated in value and our equity security has also appreciated in value. Changes in fair value, other than such changes that are considered probable of non-collection or non-realization, as described above, are recorded in the statement of operations as net change in unrealized appreciation or depreciation.

Under the valuation procedures approved by our Board of Directors, upon the recommendation of the Valuation Committee, a third-party valuation firm will prepare valuations for each of our bilateral investments for which market quotations are not readily available that, when combined with all other investments in the same portfolio company, (i) have a value as of the previous quarter of greater than or equal to 2.5% of our total assets as of the previous quarter, and (ii) have a value as of the current quarter of greater than or equal to 2.5% of our total assets as of the previous quarter, after taking into account any repayment of principal during the current quarter. In addition, the frequency of those third-party valuations of our portfolio securities is based upon the grade assigned to each such security under our credit grading system as follows: Grade 1, at least annually; Grade 2, at least semi-annually; Grades 3, 4, and 5, at least quarterly. TICC Management also retains the authority to seek, on our behalf, additional third party valuations with respect to both our bilateral portfolio securities and our syndicated loan investments. Our Board of Directors retains ultimate authority as to the third-party review cycle as well as the appropriate valuation of each investment.

ASC 820-10-35, “Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly,” which provides guidance on factors that should be considered in determining when a previously active market becomes inactive and whether a transaction is orderly. In accordance with ASC 820-10-35, our valuation procedures specifically provide for the review of indicative quotes supplied by the large agent banks that make a market for each security. However, the marketplace for which we obtain indicative bid quotes for purposes of determining the fair value of our syndicated loan investments have shown these attributes of illiquidity as described by ASC-820-10-35. Due to limited market liquidity in the syndicated loan market, TICC believes that the non-binding indicative bids received from agent banks for certain syndicated investments that we own may not be determinative of their fair value and therefore alternative valuation procedures may need to be undertaken. As a result, TICC has engaged third-party valuation firms to provide assistance in valuing certain syndicated investments that we own. In addition, TICC Management prepares an analysis of each syndicated loan, including a financial summary, covenant compliance review, recent trading activity in the security, if known, and other business developments related to the portfolio company. All available information, including non-binding indicative bids which may not be determinative of fair value, is presented to the Valuation Committee to consider in its determination of fair value. In some instances, there may be limited trading activity in a security even though the market for the security is considered not active. In such cases the Valuation Committee will consider the number of trades, the size and timing of each trade, and other circumstances around such trades, to the extent such information is available, in its determination of fair value. The Valuation Committee will evaluate the impact of such additional information, and factor it into its consideration of the fair value that is indicated by the analysis provided by third-party valuation firms. We have considered the factors described in ASC 820-10 and have determined that we are properly valuing the securities in our portfolio.

44


 
 

TABLE OF CONTENTS

During the past few years, we have acquired a number of debt and equity positions in CLO investment vehicles. These investments are special purpose financing vehicles. In valuing such investments, we consider the operating metrics of the specific investment vehicle, including compliance with collateralization tests, defaulted and restructured securities, and payment defaults, if any. In addition, we consider the indicative prices provided by the broker who arranges transactions in such investment vehicles, as well as any available information on other relevant transactions in the market. TICC Management or the Valuation Committee may request an additional analysis by a third-party firm to assist in the valuation process of CLO investment vehicles. All information is presented to our Board of Directors for its determination of fair value of these investments.

Our assets measured at fair value on a recurring basis subject to the disclosure requirements of ASC 820-10 at June 30, 2013, were as follows:

       
($ in millions)   Fair Value Measurements at
Reporting Date Using
 
Assets   Quoted Prices in Active Markets for Identical Assets
(Level 1)
  Significant
Other Observable Inputs
(Level 2)
  Significant Unobservable
Inputs
(Level 3)
  Total
Senior Secured Notes   $ 0.0     $ 16.5     $ 627.6     $ 644.1  
Senior Unsecured Notes     0.0       0.0       5.3       5.3  
CLO Debt     0.0       0.0       45.0       45.0  
CLO Equity     0.0       0.0       195.9       195.9  
Subordinated Notes     0.0       0.0       0.0       0.0  
Common Stock     0.0       0.0       14.5       14.5  
Preferred Shares     0.0       0.0       0.4       0.4  
Warrants to purchase equity     0.0       0.0       0.5       0.5  
Total   $ 0.0     $ 16.5     $ 889.2     $ 905.7  

A reconciliation of the fair value of investments for the three months ended June 30, 2013, utilizing significant unobservable inputs, is as follows:

                 
                 
($ in millions)   Senior Secured Note Investments   Senior Unsecured Note Investments   Collateralized Loan Obligation Debt Investments   Collateralized Loan Obligation Equity Investments   Subordinated Note Investments   Common Stock Investments   Preferred Share Equity Investments   Warrants to Purchase Equity Investments   Total
Balance at March 31, 2013   $ 557.3     $ 5.3     $ 44.8     $ 192.3     $ 0.0     $ 11.5     $ 2.1     $ 0.5     $ 813.8  
Realized gains (losses) included in earnings     0.3       0.0       2.4       (0.8 )      0.0       0.0       0.0       0.0       1.9  
Unrealized (depreciation) appreciation included in earnings     (4.8 )      0.0       (2.4 )      (9.9 )      0.0       3.0       (1.8 )      0.0       (15.9 ) 
Accretion of discount     0.7       0.0       0.3       0.0       0.0       0.0       0.0       0.0       1.0  
Purchases(1)     165.5       0.0       6.3       19.1       0.0       0.0       0.0       0.0       190.9  
Repayments and Sales     (92.3 )      0.0       (6.4 )      (4.8 )      0.0       0.0       0.0       0.0       (103.5 ) 
Payment in Kind income     0.9       0.0       0.0       0.0       0.0       0.0       0.1       0.0       1.0  
Transfers in and/or out of level 3     0.0       0.0       0.0       0.0       0.0       0.0       0.0       0.0       0.0  
Balance at June 30, 2013   $ 627.6     $ 5.3     $ 45.0     $ 195.9     $ 0.0     $ 14.5     $ 0.4     $ 0.5     $ 889.2  
The amount of total gains or losses for the period included in earnings attributable to the change in unrealized gains or losses relating to our Level 3 assets still held at the reporting date and reported within the net change in unrealized gains or losses on investments in our Statement of Operations   $ (4.0 )    $ 0.0     $ (0.2 )    $ (10.3 )    $ 0.0     $ 3.0     $ (1.8 )    $ 0.0     $ (13.3 ) 

(1) Includes rounding adjustments to reconcile period balances.

45


 
 

TABLE OF CONTENTS

A reconciliation of the fair value of investments for the six months ended June 30, 2013, utilizing significant unobservable inputs, is as follows:

                 
                 
($ in millions)   Senior Secured Note Investments   Senior Unsecured Note Investments   Collateralized Loan Obligation Debt Investments   Collateralized Loan Obligation Equity Investments   Subordinated Note Investments   Common Stock Investments   Preferred Share Equity Investments   Warrants to Purchase Equity Investments   Total
Balance at December 31, 2012   $ 485.1     $ 0.0     $ 55.6     $ 109.3     $ 0.1     $ 4.4     $ 2.7     $ 0.5     $ 657.7  
Realized gains (losses) included in earnings     1.1       0.6       7.6       (0.8 )      0.0       0.0       0.0       0.0       8.5  
Unrealized (depreciation) appreciation included in earnings     0.7       2.7       (5.4 )      (14.7 )      0.0       6.7       (2.5 )      0.0       (12.5 ) 
Accretion of discount     1.5       0.0       0.7       0.0       0.0       0.0       0.0       0.0       2.2  
Purchases(1)     270.6       3.1       11.4       106.9       0.0       3.4       0.0       0.0       395.4  
Repayments and Sales(1)     (132.4 )      (1.1 )      (24.9 )      (4.8 )      (0.1 )      0.0       0.0       0.0       (163.3 ) 
Payment in Kind income     1.0       0.0       0.0       0.0       0.0       0.0       0.2       0.0       1.2  
Transfers in and/or out of level 3     0.0       0.0       0.0       0.0       0.0       0.0       0.0       0.0       0.0  
Balance at June 30, 2013   $ 627.6     $ 5.3     $ 45.0     $ 195.9     $ 0.0     $ 14.5     $ 0.4     $ 0.5     $ 889.2  
The amount of total gains or losses for the period included in earnings attributable to the change in unrealized gains or losses relating to our Level 3 assets still held at the reporting date and reported within the net change in unrealized gains or losses on investments in our Statement of Operations   $ 1.3     $ 2.7     $ 1.0     $ (15.1 )    $ 0.0     $ 6.7     $ (2.5 )    $ 0.0     $ (5.9 ) 

(1) Includes rounding adjustments to reconcile period balances.

Our assets measured at fair value on a recurring basis subject to the disclosure requirements of ASC 820-10 at December 31, 2012, were as follows:

       
($ in millions)   Fair Value Measurements at
Reporting Date Using
 
Assets   Quoted Prices in Active Markets for Identical Assets
(Level 1)
  Significant
Other Observable Inputs
(Level 2)
  Significant Unobservable
Inputs
(Level 3)
  Total
Senior Secured Notes   $ 0.0     $ 9.8     $ 485.1     $ 494.9  
CLO Debt     0.0       0.0       55.6       55.6  
CLO Equity     0.0       0.0       109.3       109.3  
Subordinated Notes     0.0       0.0       0.1       0.1  
Common Stock     0.0       0.0       4.4       4.4  
Preferred Shares     0.0       0.0       2.7       2.7  
Warrants to purchase equity     0.0       0.0       0.5       0.5  
Total   $ 0.0     $ 9.8     $ 657.7     $ 667.5  

46


 
 

TABLE OF CONTENTS

A reconciliation of the fair value of investments for the year ended December 31, 2012, utilizing significant unobservable inputs, is as follows:

               
               
($ in millions)   Senior Secured Note Investments   Collateralized Loan Obligation Debt Investments   Collateralized Loan Obligation Equity Investments   Subordinated Note Investments   Common Stock Investments   Preferred Share Equity Investments   Warrants to Purchase Equity Investments   Total
Balance at December 31, 2011   $ 279.2     $ 51.0     $ 39.3     $ 4.9     $ 3.1     $ 2.5     $ 0.8     $ 380.8  
Realized gains included in earnings     4.0       12.4       0.0       0.1       0.0       0.0       0.1       16.6  
Unrealized (depreciation) appreciation included in earnings     (2.6 )      4.5       11.3       0.2       1.3       (0.2 )      0.1       14.6  
Accretion of discount     2.9       2.8       0.0       0.0       0.0       0.0       0.0       5.7  
Purchases     398.7       27.3       58.7       0.0       0.0       0.0       0.0       484.7  
Repayments and Sales(1)     (201.6 )      (42.4 )      0.0       (5.2 )      0.0       0.0       (0.5 )      (249.7 ) 
Payment in Kind income     4.5       0.0       0.0       0.1       0.0       0.4       0.0       5.0  
Transfers in and/or out of level 3     0.0       0.0       0.0       0.0       0.0       0.0       0.0       0.0  
Balance at December 31, 2012   $ 485.1     $ 55.6     $ 109.3     $ 0.1     $ 4.4     $ 2.7     $ 0.5     $ 657.7  
The amount of total gains or losses for the period included in earnings attributable to the change in unrealized gains or losses relating to our Level 3 assets still held at the reporting date and reported within the net change in unrealized gains or losses on investments in our Statement of Operations   $ (1.7 )    $ 8.0     $ 11.3     $ 0.1     $ 1.3     $ (0.1 )    $ 0.0     $ 18.9  

(1) Includes rounding adjustments to reconcile period balances.

47


 
 

TABLE OF CONTENTS

PORTFOLIO COMPOSITION AND INVESTMENT ACTIVITY

The total fair value of our investment portfolio was approximately $905.7 million and $667.5 million as of June 30, 2013 and December 31, 2012, respectively. The increase in investments during the six month period was due primarily to purchases of investments of approximately $407.3 million, partially offset by debt repayments and sales of securities totaling approximately $168.3 million. Funding for these new investments was provided by equity capital raises, the issuance by TICC CLO 2012-1 of additional secured notes totaling $120 million and the deployment of capital available as of December 31, 2012.

In certain instances, we receive payments based on scheduled amortization of the outstanding balances and sales of portfolio investments. In addition, we receive repayments of some of our debt investments prior to their scheduled maturity date. The frequency or volume of these repayments may fluctuate significantly from period to period. For the quarter ended June 30, 2013, we recognized proceeds approximately $17.7 million largely from the sales of our debt investment in Pegasus Solutions, Inc. second lien notes ($3.8 million), Info USA, Inc. ($2.7 million) and aggregate proceeds from the sale of several of our CLO debt investments ($6.4 million), whereas for the year ended December 31, 2012, we recognized proceeds of approximately $191.2 million from the sales of securities. Also, during the quarter ended June 30, 2013, we had repayments and amortization payments of approximately $85.8 million, whereas, for the year ended December 31, 2012, we had repayments and amortization payments of approximately $69.3 million.

As of June 30, 2013, we had investments in debt securities of, or loans to, 77 portfolio companies, with a fair value of approximately $694.3 million, and equity investments in 34 portfolio companies, with a fair value of approximately $211.4 million. As of December 31, 2012, we had investments in debt securities of, or loans to, 73 portfolio companies, with a fair value of approximately $550.6 million, and equity investments in 26 portfolio companies, with a fair value of approximately $116.9 million.

A reconciliation of the investment portfolio for the six months ended June 30, 2013 and the year ended December 31, 2012 follows:

   
  June 30, 2013   December 31, 2012
     (dollars in millions)   (dollars in millions)
Beginning Investment Portfolio   $ 667.5     $ 391.5  
Portfolio Investments Acquired     407.3       494.6  
Debt repayments     (115.6 )      (191.2 ) 
Sales of securities     (52.7 )      (69.3 ) 
Payment in Kind     1.2       4.9  
Original Issue Discount(1)     2.3       5.8  
Net Unrealized Appreciation     (12.8 )      14.3  
Net Realized Gains     8.5       16.9  
     $ 905.7     $ 667.5  

(1) table includes rounding adjustments to reconcile period balances.

48


 
 

TABLE OF CONTENTS

The following table indicates the quarterly portfolio investment activity for the past six quarters:

     
  New Investments   Debt Repayments   Sales of Securities
     (dollars in millions)   (dollars in millions)   (dollars in millions)
Quarter ended
                          
June 30, 2013   $ 190.8     $ 85.8     $ 17.7  
March 31, 2013     216.5       29.8       35.0  
Total   $ 407.3     $ 115.6     $ 52.7  
December 31, 2012   $ 247.0     $ 75.3     $ 48.8  
September 30, 2012     128.0       45.3       9.0  
June 30, 2012     62.1       66.2       2.5  
March 31, 2012     57.5       4.4       9.0  
Total   $ 494.6     $ 191.2     $ 69.3  

The following table shows the fair value of our portfolio of investments by asset class as of June 30, 2013 and December 31, 2012:

       
  June 30, 2013   December 31, 2012
     Investments at Fair Value   Percentage of Total Portfolio   Investments at Fair Value   Percentage of Total Portfolio
     (dollars in millions)        (dollars in millions)     
Senior Secured Notes   $ 644.1       71.1 %    $ 494.9       74.1 % 
Senior Unsecured Notes     5.3       0.6 %      0.0       0.0 % 
CLO Debt     45.0       5.0 %      55.6       8.3 % 
CLO Equity     195.9       21.6 %      109.3       16.4 % 
Subordinated Notes     0.0       0.0 %      0.1       0.0 % 
Common Stock     14.5       1.6 %      4.4       0.7 % 
Preferred Shares     0.4       0.0 %      2.7       0.4 % 
Warrants     0.5       0.1 %      0.5       0.1 % 
Total   $ 905.7       100.0 %    $ 667.5       100.0 % 

49


 
 

TABLE OF CONTENTS

The following table shows our portfolio of investments by industry at fair value, as of June 30, 2013 and December 31, 2012:

       
  June 30, 2013   December 31, 2012
     Investments at Fair Value   Percentage of Fair Value   Investments at Fair Value   Percentage of
Fair Value
     (dollars in millions)        (dollars in millions)     
Structured finance   $ 240.9       26.6 %    $ 164.9       24.7 % 
Software     70.4       7.8 %      35.9       5.4 % 
Financial intermediaries     67.5       7.4 %      65.2       9.8 % 
Business services     63.1       6.9 %      60.7       9.1 % 
Telecommunication services     54.0       6.0 %      32.8       4.9 % 
Printing and publishing     44.6       4.9 %      7.8       1.2 % 
Retail     44.2       4.9 %      39.6       5.9 % 
Enterprise software     42.7       4.7 %      50.9       7.6 % 
IT consulting     36.6       4.0 %      22.0       3.3 % 
Web hosting     33.8       3.7 %      36.9       5.5 % 
Chemicals and plastics     30.2       3.3 %      0.0       0.0 % 
Healthcare     24.0       2.6 %      27.7       4.2 % 
Consumer services     23.4       2.6 %      24.1       3.6 % 
Education     16.6       1.8 %      14.9       2.2 % 
Auto parts manufacturer     12.4       1.4 %      12.9       1.9 % 
Travel     10.7       1.2 %      0.0       0.0 % 
Insurance     10.6       1.2 %      8.0       1.2 % 
Radio and television     10.4       1.1 %      0.0       0.0 % 
Logistics     9.9       1.1 %      9.9       1.5 % 
Computer hardware     9.7       1.1 %      9.9       1.5 % 
Grocery     8.7       1.0 %      3.7       0.6 % 
IT outsourcing     6.9       0.8 %      15.0       2.2 % 
Packaging and glass     6.5       0.8 %      0.0       0.0 % 
Advertising     5.2       0.5 %      2.9       0.4 % 
Clothing     4.7       0.5 %      0.0       0.0 % 
Electronics     4.2       0.5 %      4.7       0.7 % 
Medical services     4.0       0.4 %      4.0       0.6 % 
Pharmaceutical     3.5       0.4 %      3.5       0.5 % 
Shipping and transportation     3.3       0.4 %      3.4       0.5 % 
Utlities     2.5       0.3 %      2.5       0.4 % 
IT value-added reseller     0.5       0.1 %      0.7       0.1 % 
Digital media     0.0       0.0 %      3.0       0.5 % 
Total   $ 905.7       100.0 %    $ 667.5       100.0 % 

50


 
 

TABLE OF CONTENTS

PORTFOLIO GRADING

We have adopted a credit grading system to monitor the quality of our debt investment portfolio. As of June 30, 2013 and December 31, 2012, our portfolio had a weighted average grade of 2.2 and 2.1, respectively, based upon the fair value of the debt investments in the portfolio. Equity securities are not graded.

At June 30, 2013, and December 31, 2012, our debt investment portfolio was graded as follows:

         
    June 30, 2013
Grade   Summary Description   Principal Value   Percentage of Total Portfolio   Portfolio at Fair Value   Percentage of Total Portfolio
          (dollars in millions)        (dollars in millions)     
1     Company is ahead of expectations and/or out
performing financial covenant requirements and
such trend is expected to continue.
    $       0.0 %    $       0.0 % 
2     Full repayment of principal and interest is expected       610.9       84.5 %      603.3       86.9 % 
3     Closer monitoring is required. Full repayment
of principal and interest is expected.
      86.0       11.9 %      83.1       12.0 % 
4     A reduction of interest income has occurred or
is expected to occur. No loss of principal is expected.
            0.0 %            0.0 % 
5     A loss of some portion of principal is expected.       26.1       3.6 %      8.0       1.1 % 
           $ 723.0       100.0 %    $ 694.4       100.0 % 

         
    December 31, 2012
Grade   Summary Description   Principal Value   Percentage of Total Portfolio   Portfolio at Fair Value   Percentage of Total Portfolio
          (dollars in millions)        (dollars in millions)     
1     Company is ahead of expectations and/or out
performing financial covenant requirements and
such trend is expected to continue.
    $       0.0 %    $       0.0 % 
2     Full repayment of principal and interest is expected       495.5       86.7 %      483.3       87.8 % 
3     Closer monitoring is required. Full repayment
of principal and interest is expected.
      59.7       10.4 %      59.1       10.7 % 
4     A reduction of interest income has occurred or
is expected to occur. No loss of principal is expected.
      6.4       1.1 %      5.5       1.0 % 
5     A loss of some portion of principal is expected.       10.3       1.8 %      2.8       0.5 % 
           $ 571.9       100.0 %    $ 550.7       100.0 % 

We expect that a portion of our investments will be in the grades 3, 4 or 5 categories from time to time, and, as such, we will be required to work with troubled portfolio companies to improve their business and protect our investment. The number and amount of investments included in grades 3, 4 or 5 may fluctuate from period to period.

Further discussion regarding the other investments which experienced significant unrealized depreciation is presented in “Results of Operations.”

51


 
 

TABLE OF CONTENTS

RESULTS OF OPERATIONS

Set forth below is a comparison of our results of operations for the three months ended June 30, 2013 to the three months ended June 30, 2012.

Investment Income

As of June 30, 2013, our debt investments had stated interest rates of between 3.98% and 13.00% (excluding our investment in GenuTec Business Solutions, Inc. which carries a zero interest rate through October 30, 2014) and maturity dates of between 5 and 145 months. In addition, our total portfolio had a weighted average yield on debt investments of approximately 8.5% including GenuTec Business Solutions, Inc., compared with 11.2% as of June 30, 2012. The reduction in the weighted average yield on our debt portfolio over the past year is primarily a result of the investment restrictions of the securitization vehicles that we have sponsored, which require us to generally invest in higher-rated and/or larger corporate loans which carry correspondingly lower yields, as well as the refinancing and repricing of many of those loans at lower rates due to current market conditions.

Investment income for the three months ended June 30, 2013 was approximately $25.4 million compared to approximately $20.5 million for the three months ended June 30, 2012. This increase was due in part to an increase in the amount of distributions from the equity interests in our CLO vehicle investments and the amount of performing assets in the portfolio. The total principal value of income producing debt investments as of June 30, 2013 and June 30, 2012 was approximately $696.9 million and $413.7 million, respectively. For the quarter ended June 30, 2013, investment income consisted of approximately $10.5 million in cash interest from portfolio investments, approximately $1.0 million in amortization of original issue and market discount, approximately $0.2 million of discount income derived from unscheduled principal cash remittances at par on discounted debt securities, approximately $10.7 million in distributions from the equity interest in securitized vehicle investments and an equity investment, as well as approximately $1.0 million in PIK interest income.

For the quarter ended June 30, 2013 we had one loan on non-accrual status, RBS International Direct Marketing, with a par amount of approximately $22.7 million and a fair value of approximately $8.0 million. The majority of this investment was purchased during the first quarter of 2013 at a price of 32% of par. While we do not generally focus on distressed debt investments, we have been and remain open to those opportunities where the potential for highly attractive risk-adjusted returns exists.

For the quarter ended June 30, 2013, other income of approximately $2.0 million was recorded, compared to other income of approximately $4.1 million for the quarter ended June 30, 2012. Other income generally includes closing fees, origination fees and amendment fees associated with investments in portfolio companies. Such fees may be paid at closing of our investments or at the time the terms of the underlying loan agreement are revised and are generally fully earned, non-refundable, and non-recurring.

Operating Expenses

Total expenses for the quarter ended June 30, 2013 were approximately $9.5 million, which includes the capital gains incentive fee accrual reduction of approximately $2.9 million.

Expenses before incentive fees, for the quarter ended June 30, 2013, were approximately $11.0 million. This amount consisted of investment advisory fees, interest expense and other debt financing expenses, professional fees, compensation expense, and general and administrative expenses. Expenses before incentive fees increased approximately $6.6 million from the quarter ended June 30, 2012, attributable primarily to higher interest expense associated with the secured notes issued under our debt securitization transactions and convertible notes issued in September 2012 and increased investment advisory fees (consisting of the base management fee). Expenses before incentive fees for the quarter ended June 30, 2012 were approximately $4.4 million.

The investment advisory fee for the second quarter of 2013 was approximately $4.9 million, representing the base fee as provided for in the Investment Advisory Agreement. The investment advisory fee in the comparable period in 2012 was approximately $2.5 million. The increase of approximately $2.4 million is due to an increase in average gross assets. At each of June 30, 2013 and December 31, 2012, respectively,

52


 
 

TABLE OF CONTENTS

approximately $6.3 million and $4.9 million of investment advisory fees remained payable to TICC Management, including the net investment income incentive fee discussed below.

Interest expense and other debt financing expenses for the second quarter of 2013 was approximately $4.7 million, which was directly related to our debt securitization financing transactions as well as our convertible note transaction. Interest expense for the second quarter of 2012 was approximately $816,000.

TICC CLO LLC

In August 2011, secured notes in the amount of $101,250,000 were issued by a newly formed special purpose vehicle in which a wholly-owned subsidiary of TICC owns all of the equity. Under this structure, the notes bear interest, after the effective date, at three-month London Inter Bank Offered Rate (“LIBOR”) plus 2.25% (prior to the effective date, the Class A Notes bear interest at five-month LIBOR plus 2.25%). For the three months ended June 30, 2013, the total interest expense under the securitization was approximately $763,000, comprised of stated interest expense (approximately $648,000), accreted discount (approximately $40,000) and amortized deferred debt issuance costs (approximately $75,000). The accrued interest payable on the Class A Notes during the second quarter of 2013 was approximately $476,000. At December 31, 2012, interest expense of approximately $491,000 million remained payable. For further information on this securitization, see Note 4.

TICC CLO 2012-1 LLC

On August 23, 2012, the Company completed a $160 million debt securitization financing transaction, consisting of $120 million in secured notes and $40 million of subordinated notes. On February 25, 2013 and May 28, 2013, TICC CLO 2012-1 issued additional secured notes totaling an aggregate of $120 million and subordinated notes totaling an aggregate of $40 million, which subordinated notes were purchased by the Company, under the “accordion” feature of the debt securitization which allowed, under certain circumstances and subject to the satisfaction of certain conditions, for an increase in the amount of secured and subordinated notes. It is not necessary that the Company own all or any of the notes permitted by this feature, which may affect the accounting treatment of the debt securitization financing transaction. As of June 30, 2013 the secured notes of the 2012 Securitization Issuer have an aggregate face amount of $240 million and were issued in four classes. The class A-1 notes have a current face amount of $176 million, are rated AAA(sf)/Aaa(sf) by Standard & Poor’s Ratings Services (S&P) and Moody’s Investors Service, Inc. (Moody’s), respectively, and bear interest at three-month LIBOR plus 1.75%. The class B-1 notes have a current face amount of $20 million, are rated AA(sf)/Aa2(sf) by S&P and Moody’s, respectively, and bear interest at three-month LIBOR plus 3.50%. The class C-1 notes have a current face amount of $23 million, are rated A(sf)/A2(sf) by S&P and Moody’s, respectively, and bear interest at three-month LIBOR plus 4.75%. The class D-1 notes have a current face amount of $21 million, are rated BBB(sf)/Baa2(sf) by S&P and Moody’s, respectively, and bear interest at three-month LIBOR plus 5.75%. TICC presently owns all of the subordinated notes, which totaled $80 million as of June 30, 2013. For further information on this securitization, see Note 4.

For the three months ended June 30, 2013, the aggregate interest expense under the securitization was approximately $1.6 million, comprised of stated interest expense (approximately $1.4 million), accreted discount (approximately $0.1 million) and amortized deferred debt issuance costs (approximately $0.1 million). The aggregate accrued interest payable on the notes of the 2012 Securitization Issuer during the second quarter of 2013 was approximately $636,000. At December 31, 2012, aggregate interest expense of approximately $1.4 million remained payable.

2017 Convertible Notes

On September 26, 2012, we issued $105,000,000 aggregate principal amount of the Convertible Notes. An additional $10.0 million aggregate principal amount of the Convertible Notes were issued on October 22, 2012 pursuant to the exercise of the initial purchasers’ option to purchase additional Convertible Notes. The Convertible Notes mature on November 1, 2017. The Convertible Notes bear interest at a rate of 7.50% per year, payable semi-annually in arrears on May 1 and November 1 of each year, commencing on May 1, 2013. For the three months ended June 30, 2013, the aggregate interest expense on the Convertible Notes was approximately $2.3 million, comprised of stated interest expense (approximately $2.2 million) and amortized

53


 
 

TABLE OF CONTENTS

deferred debt issuance costs (approximately $0.1 million). The accrued interest payable on the Convertible Notes during the second quarter of 2013 was approximately $1.5 million. At December 31, 2012, aggregate interest expense on the Convertible Notes of approximately $2.3 million remained payable.

The table below summarizes the components of interest expense for the three months ended June 30, 2013 and 2012:

               
  Three Months Ended June 30, 2013   Three Months Ended June 30, 2012
(dollars in thousands)   Stated Interest Expense   Note Discount Expense   Amortization of Deferred Debt Issuance Costs   Total   Stated Interest Expense   Note Discount Expense   Amortization of Deferred Debt Issuance Costs   Total
TICC CLO LLC Class A Notes   $ 648.1     $ 39.6     $ 75.4     $ 763.1     $ 701.4     $ 39.5     $ 75.4     $ 816.3  
TICC CLO 2012-1 LLC Class A-1 Notes     762.2       49.3             811.5                          
TICC CLO 2012-1 LLC Class B-1 Notes     161.2       13.3             174.5                          
TICC CLO 2012-1 LLC Class C-1 Notes     246.7       22.9             269.6                          
TICC CLO 2012-1 LLC Class D-1 Notes     270.0       25.4             295.4                          
TICC CLO 2012-1 amortization of deferred debt                 77.7       77.7                          
2017 Convertible Notes     2,180.2             152.5       2,332.7                          
Total   $ 4,268.4     $ 150.5     $ 305.6     $ 4,724.5     $ 701.4     $ 39.5     $ 75.4     $ 816.3  

Professional fees, consisting of legal, valuation, audit and tax fees, were approximately $451,000 for the quarter ended June 30, 2013, compared to approximately $436,000 for the quarter ended June 30, 2012. This increase was the result of audit fees which were higher by approximately $150,000, partially offset by legal fees which were lower by approximately $131,000.

Compensation expenses were approximately $303,000 for the quarter ended June 30, 2013 compared to approximately $279,000 for the quarter ended June 30, 2012 reflecting the allocation of compensation expenses for the services of our chief financial officer, chief compliance officer, controller and senior accountants, and other administrative support personnel. At June 30, 2013 and December 31, 2012, respectively, approximately $315,000 and $0 of compensation expenses remained payable.

General and administrative expenses, consisting primarily of directors’ fees, insurance, listing fees, transfer agent and custodian fees, office supplies, facilities costs and other expenses, were approximately $625,000 for the three months ended June 30, 2013 compared to approximately $435,000 for the same period in 2012. Office supplies, facilities costs and other expenses are allocated to us under the terms of the Administration Agreement.

Incentive Fees

The net investment income incentive fee for the second quarter of 2013 was approximately $1.4 million compared to $2.2 million in the second quarter of 2012. The net investment income incentive fee is calculated and payable quarterly in arrears based on our “Pre-Incentive Fee Net Investment Income” for the immediately preceding calendar quarter subject to a hurdle rate which is determined as of December 31 of the preceding year. For this purpose, “Pre-Incentive Fee Net Investment Income” means interest income, dividend income and any other income accrued during the calendar quarter minus our operating expenses for the quarter (including the base fee, expenses payable under the Administration Agreement with BDC Partners, and any interest expense and dividends paid on any issued and outstanding preferred stock, but excluding the incentive fee).

The capital gains incentive fee expense for the second quarter ended June 30, 2013 resulted in an accrual reversal of approximately $2.9 million. The capital gains incentive fee expense, as reported under generally

54


 
 

TABLE OF CONTENTS

accepted accounting principles, is calculated on the basis of net realized and unrealized gains and losses at the end of each period. The expense related to the hypothetical liquidation of the portfolio (and assuming no other changes in realized or unrealized gains and losses) would only have become payable to our investment adviser in the event of a complete liquidation of our portfolio as of period end and the termination of the Investment Advisory Agreement on such date. The $2.4 million capital gains incentive fee accrual as of June 30, 2013 relates entirely this hypothetical liquidation calculation. For the quarter ended June 30, 2012, an accrual reversal of approximately $1.2 million was recorded under the hypothetical liquidation calculation.

The amount of the capital gains incentive fee which will actually be payable is determined in accordance with the terms of the Investment Advisory Agreement and is calculated as of the end of each calendar year (or upon termination of the Investment Advisory Agreement). The terms of the Investment Advisory Agreement state that the capital gains incentive fee calculation is based on net realized gains, if any, offset by gross unrealized depreciation for the calendar year. No effect is given to gross unrealized appreciation in this calculation. For the year ended December 31, 2012, the amount calculated, and payable, under the terms of the Investment Advisory Agreement was approximately $1,553,000.

Realized and Unrealized Gains/Losses on Investments

For the quarter ended June 30, 2013, we recorded net realized gains on investments of approximately $1.9 million, which primarily represents the gain on the sale of several of our CLO debt and equity investments which totaled approximately $1.6 million.

55


 
 

TABLE OF CONTENTS

Based upon the fair value determinations made in good faith by the Board of Directors, during the quarter ended June 30, 2013, we had net unrealized depreciation of approximately $16.4 million, comprised of $6.4 million in gross unrealized appreciation, $20.2 million in gross unrealized depreciation and approximately $2.6 million relating to the reversal of prior period net unrealized appreciation as investments were realized. The most significant changes in net unrealized appreciation and depreciation during the quarter ended June 30, 2013 were as follows (in millions):

 
Portfolio Company   Changes in Unrealized appreciation (depreciation)
Merrill Communications, LLC   $ 2.4  
Band Digital Inc     1.5  
Carlyle 2013-2 Sub     0.6  
Integra Telecom Holdings, Inc.     0.6  
Rampart 2007-1A CLO Equity     0.5  
Galaxy 2013-15A Sub     0.4  
Columbus Park 2008-1A Sub     0.4  
Jersey Street 2006-1A CLO LTD     (0.4 ) 
Gale 2007-4A CLO     (0.4 ) 
Compucom Systems, Inc.     (0.4 ) 
ACA CLO 2006-2, Limited     (0.5 ) 
First Data Corporation     (0.5 ) 
Canaras CLO Equity – 2007-1A, 1X     (0.6 ) 
Lightpoint CLO VII LTD 2007-8     (0.7 ) 
ACA CLO 2007-1a sub     (0.7 ) 
Unitek Global Services, Inc     (0.8 ) 
Marea 2012-1A CLO     (0.9 ) 
Pegasus Solutions, Inc.     (0.9 ) 
SourceHov, LLC     (0.9 ) 
Jackson Hewitt, Inc     (1.4 ) 
Sargas CLO 2006-1A     (1.6 ) 
Pegasus Solutions, Inc.     (1.7 ) 
Stone Tower CLO LTD 2007 7X     (1.9 ) 
Hewetts Island CDO III 2005-1A D     (2.2 ) 
Catamaran CLO Ltd     (2.4 ) 
Net all other     (3.9 ) 
Total   $ (16.4 ) 

For the quarter ended June 30, 2012, we recorded net realized gains on investments of approximately $1.5 million.

56


 
 

TABLE OF CONTENTS

Based upon the fair value determinations made in good faith by the Board of Directors, during the quarter ended June 30, 2012, we had net unrealized depreciation of approximately $7.3 million, comprised of $2.9 million in gross unrealized appreciation, $9.8 million in gross unrealized depreciation and approximately $0.4 million relating to the reversal of prior period net unrealized appreciation as an investment was realized. The most significant changes in net unrealized appreciation and depreciation during the quarter ended June 30, 2012 were as follows (in millions):

 
Portfolio Company   Unrealized appreciation (depreciation)
SourceHOV, LLC   $ 0.7  
Sargas CLO 2006-1A     0.6  
Power Tools, Inc.     0.4  
GSC 2007-8X CLO     0.3  
Lightpoint CLO 2005-3X     (0.3 ) 
Stone Tower CLO LTD 2007 7X     (0.3 ) 
ACA CLO 2006-2, Limited     (0.4 ) 
Integra Telecom Holdings, Inc.     (0.7 ) 
Pegasus Solutions, Inc.     (1.1 ) 
Merrill Communications, LLC     (1.8 ) 
Net all other     (4.7 ) 
Total   $ (7.3 ) 

Please see “— Portfolio Grading” for more information.

Net Increase in Net Assets Resulting from Net Investment Income

Net investment income for the quarter ended June 30, 2013 and 2012 was $16.0 million and $15.0 million, respectively. This increase was due to an increase in the amount of performing assets in the portfolio and distributions from the CLO equity investments in our portfolio as well as lower capital gains incentive fees. These were partially offset by increased interest expense as well as a higher base management fee.

Excluding the impact of the capital gains incentive fee accrual reduction of approximately $2.9 million, core net investment income for the quarter ended June 30, 2013 was approximately $13.1 million compared to approximately $13.9 million for the same period in 2012.

Based on weighted-average shares outstanding of 52,544,803 (basic) and 62,577,955 (diluted), the net increase in net assets resulting from net investment income per common share for the quarter ended June 30, 2013 was approximately $0.30 (basic) and $0.28 (diluted), compared to approximately $0.40 per share (basic and diluted) for the same period in 2012.

Excluding the impact of the capital gains incentive fee accrual reduction, the net increase in net assets resulting from core net investment income per common share would have been $0.25 (basic) and $0.24 (diluted), compared to $0.37 per share (basic and diluted), for the same period in 2012.

Please see “— Supplemental Information Regarding Core Net Investment Income and Core Net Increase in Net Assets Resulting from Operations” below for more information.

Net Increase in Net Assets Resulting from Operations

We had a net increase in net assets resulting from operations of approximately $1.5 million for the quarter ended June 30, 2013, compared to a net increase of approximately $9.3 million for the comparable period in 2012. This decrease was attributable to greater interest expense, increased management fees as well as greater unrealized depreciation. This decrease was partially offset by an increase in the amount of performing assets in the portfolio and distributions from the CLO equity investments in our portfolio and lower capital gains incentive fees.

57


 
 

TABLE OF CONTENTS

Based on weighted-average shares outstanding of 52,544,803 (basic) and 62,577,955 (diluted), the net increase in net assets resulting from operations per common share for the quarter ended June 30, 2013 was approximately $0.03 (basic) and approximately $0.05 (diluted), compared to a net increase in net assets resulting from operations of approximately $0.25 per share (basic and diluted) for the same period in 2012.

Excluding the impact of the capital gains incentive fee accrual reduction, we would have had a core net decrease in net assets resulting from operations per common share of $0.03 (basic) and a core net increase in net assets resulting from operations per common share of $0.01 (diluted), compared to $0.22 per share (basic and diluted) for the same period in 2012.

Please see “— Supplemental Information Regarding Core Net Investment Income and Core Net Increase in Net Assets Resulting from Operations” below for more information.

Set forth below is a comparison of our results of operations for the six months ended June 30, 2013 to the six months ended June 30, 2012.

Investment Income

As of June 30, 2013, our debt investments had stated interest rates of between 3.98% and 13.00% (excluding our investment in GenuTec Business Solutions, Inc. which carries a zero interest rate through October 30, 2014) and maturity dates of between 5 and 145 months. In addition, our total portfolio had a weighted average yield on debt investments of approximately 8.5% including GenuTec Business Solutions, Inc., compared with 11.2% as of June 30, 2012. The reduction in the weighted average yield on our debt portfolio over the past year is primarily a result of the investment restrictions of the securitization vehicles that we have sponsored, which require us to generally invest in higher-rated and/or larger corporate loans which carry correspondingly lower yields, as well as the refinancing and repricing of many of those loans at lower rates due to current market conditions.

Investment income for the six months ended June 30, 2013 was approximately $47.2 million compared to approximately $35.2 million for the six months ended June 30, 2012. This increase was due in part to an increase in the amount of distributions from the equity interests in our CLO vehicle investments and the amount of performing assets in the portfolio. The total principal value of income producing debt investments as of June 30, 2013 and June 30, 2012 was approximately $696.9 million and $413.7 million, respectively. For the six months ended June 30, 2013, investment income consisted of approximately $21.5 million in cash interest from portfolio investments, approximately $2.2 million in amortization of original issue and market discount, approximately $0.2 million of discount income derived from unscheduled principal cash remittances at par on discounted debt securities, approximately $19.4 million in distributions from the equity interest in securitized vehicle investments and an equity investment, as well as approximately $1.2 million in PIK interest income.

For the six months ended June 30, 2013 we had one loan on non-accrual status, RBS International Direct Marketing, with a par amount of approximately $22.7 million and a fair value of approximately $8.0 million. The majority of this investment was purchased during the first quarter of 2013 at a price of 32% of par. While we do not generally focus on distressed debt investments, we have been and remain open to those opportunities where the potential for highly attractive risk-adjusted returns exists.

For the six months ended June 30, 2013, other income of approximately $2.7 million was recorded, compared to other income of approximately $4.2 million for the six months ended June 30, 2012. Other income generally includes closing fees, origination fees and amendment fees associated with investments in portfolio companies. Such fees may be paid at closing of our investments or at the time the terms of the underlying loan agreement are revised and are generally fully earned, non-refundable, and non-recurring.

Operating Expenses

Total expenses for the six months ended June 30, 2013 were approximately $20.5 million, which includes the reduction of the accrued capital gains incentive fee of approximately $2.7 million.

Expenses before incentive fees, for the six months ended June 30, 2013, were approximately $20.6 million. This amount consisted of investment advisory fees, interest expense and other debt financing expenses, professional fees, compensation expense, and general and administrative expenses. Expenses before

58


 
 

TABLE OF CONTENTS

incentive fees increased approximately $11.8 million from the six months ended June 30, 2012, attributable primarily to higher interest expense associated with the secured notes issued under our debt securitization transactions and convertible notes issued in September 2012 and increased investment advisory fees (consisting of the base management fee). Expenses before incentive fees for the six months ended June 30, 2012 were approximately $8.8 million.

The investment advisory fee for the six months ended June 30, 2013 was approximately $9.0 million, representing the base fee as provided for in the Investment Advisory Agreement. The investment advisory fee in the comparable period in 2012 was approximately $4.6 million. The increase of approximately $4.4 million is due to an increase in average gross assets. At each of June 30, 2013 and December 31, 2012, respectively, approximately $6.3 million and $4.9 million of investment advisory fees remained payable to TICC Management, including the net investment income incentive fee discussed below.

Interest expense and other debt financing expenses for the six months ended June 30, 2013 was approximately $9.0 million, which was directly related to our debt securitization financing transactions as well as our convertible note transaction. Interest expense for the six months ended June 30, 2012 was approximately $1.7 million.

TICC CLO LLC

In August 2011, secured notes in the amount of $101,250,000 were issued by a newly formed special purpose vehicle in which a wholly-owned subsidiary of TICC owns all of the equity. Under this structure, the notes bear interest, after the effective date, at three-month London Inter Bank Offered Rate (“LIBOR”) plus 2.25% (prior to the effective date, the Class A Notes bear interest at five-month LIBOR plus 2.25%). For the six months ended June 30, 2013, the total interest expense under the securitization was approximately $1.5 million, comprised of stated interest expense (approximately $1.3 million), accreted discount (approximately $79,000) and amortized deferred debt issuance costs (approximately $150,000). The accrued interest payable on the Class A Notes during the second quarter of 2013 was approximately $476,000. At December 31, 2012, interest expense of approximately $491,000 million remained payable. For further information on this securitization, see Note 4.

TICC CLO 2012-1 LLC

On August 23, 2012, the Company completed a $160 million debt securitization financing transaction, consisting of $120 million in secured notes and $40 million of subordinated notes. On February 25, 2013 and May 28, 2013, TICC CLO 2012-1 issued additional secured notes totaling an aggregate of $120 million and subordinated notes totaling an aggregate of $40 million, which subordinated notes were purchased by the Company, under the “accordion” feature of the debt securitization which allowed, under certain circumstances and subject to the satisfaction of certain conditions, for an increase in the amount of secured and subordinated notes. It is not necessary that the Company own all or any of the notes permitted by this feature, which may affect the accounting treatment of the debt securitization financing transaction. As of June 30, 2013 the secured notes of the 2012 Securitization Issuer have an aggregate face amount of $240 million and were issued in four classes. The class A-1 notes have a current face amount of $176 million, are rated AAA(sf)/Aaa(sf) by Standard & Poor’s Ratings Services (S&P) and Moody’s Investors Service, Inc. (Moody’s), respectively, and bear interest at three-month LIBOR plus 1.75%. The class B-1 notes have a current face amount of $20 million, are rated AA(sf)/Aa2(sf) by S&P and Moody’s, respectively, and bear interest at three-month LIBOR plus 3.50%. The class C-1 notes have a current face amount of $23 million, are rated A(sf)/A2(sf) by S&P and Moody’s, respectively, and bear interest at three-month LIBOR plus 4.75%. The class D-1 notes have a current face amount of $21 million, are rated BBB(sf)/Baa2(sf) by S&P and Moody’s, respectively, and bear interest at three-month LIBOR plus 5.75%. TICC presently owns all of the subordinated notes, which totaled $80 million as of June 30, 2013. For further information on this securitization, see Note 4.

59


 
 

TABLE OF CONTENTS

For the six months ended June 30, 2013, the aggregate interest expense under the securitization was approximately $2.9 million, comprised of stated interest expense (approximately $2.5 million), accreted discount (approximately $0.2 million) and amortized deferred debt issuance costs (approximately $0.2 million). The aggregate accrued interest payable on the notes of the 2012 Securitization Issuer during the second quarter of 2013 was approximately $636,000. At December 31, 2012, aggregate interest expense of approximately $1.4 million remained payable.

2017 Convertible Notes

On September 26, 2012, we issued $105,000,000 aggregate principal amount of the Convertible Notes. An additional $10.0 million aggregate principal amount of the Convertible Notes were issued on October 22, 2012 pursuant to the exercise of the initial purchasers’ option to purchase additional Convertible Notes. The Convertible Notes mature on November 1, 2017. The Convertible Notes bear interest at a rate of 7.50% per year, payable semi-annually in arrears on May 1 and November 1 of each year, commencing on May 1, 2013. For the six months ended June 30, 2013, the aggregate interest expense on the Convertible Notes was approximately $4.6 million, comprised of stated interest expense (approximately $4.3 million) and amortized deferred debt issuance costs (approximately $0.3 million). The accrued interest payable on the Convertible Notes during the second quarter of 2013 was approximately $1.5 million. At December 31, 2012, aggregate interest expense on the Convertible Notes of approximately $2.3 million remained payable.

The table below summarizes the components of interest expense for the six months ended June 30, 2013 and 2012:

               
  Six Months Ended June 30, 2013   Six Months Ended June 30, 2012
(dollars in thousands)   Stated Interest Expense   Note Discount Expense   Amortization of Deferred Debt Issuance Costs   Total   Stated Interest Expense   Note Discount Expense   Amortization of Deferred Debt Issuance Costs   Total
TICC CLO LLC Class A Notes   $ 1,294.8     $ 78.6     $ 150.0     $ 1,523.4     $ 1,410.3     $ 92.0     $ 150.8     $ 1,653.1  
TICC CLO 2012-1 LLC Class A-1 Notes     1,355.6       94.1             1,449.7                          
TICC CLO 2012-1 LLC Class B-1 Notes     280.9       25.9             306.8                          
TICC CLO 2012-1 LLC Class C-1 Notes     427.3       45.4             472.7                          
TICC CLO 2012-1 LLC Class D-1 Notes     466.2       50.6             516.8                          
TICC CLO 2012-1 amortization of deferred debt                 142.0       142.0                          
2017 Convertible Notes     4,288.5             303.4       4,591.9                          
Total   $ 8,113.3     $ 294.6     $ 595.4     $ 9,003.3     $ 1,410.3     $ 92.0     $ 150.8     $ 1,653.1  

Professional fees, consisting of legal, valuation, audit and tax fees, were approximately $1.1 million for the six months ended June 30, 2013, compared to approximately $1.2 million for the six months ended June 30, 2012. This decrease was the result of legal fees which were lower by approximately $414,000, partially offset by audit fees which were higher by approximately $308,000.

Compensation expenses were approximately $614,000 for the six months ended June 30, 2013 compared to approximately $550,000 for the six months ended June 30, 2012 reflecting the allocation of compensation expenses for the services of our chief financial officer, chief compliance officer, controller and senior accountants, and other administrative support personnel. At June 30, 2013 and December 31, 2012, respectively, approximately $315,000 and $0 of compensation expenses remained payable.

60


 
 

TABLE OF CONTENTS

General and administrative expenses, consisting primarily of directors’ fees, insurance, listing fees, transfer agent and custodian fees, office supplies, facilities costs and other expenses, were approximately $913,000 for the six months ended June 30, 2013 compared to approximately $727,000 for the same period in 2012. Office supplies, facilities costs and other expenses are allocated to us under the terms of the Administration Agreement.

Incentive Fees

The net investment income incentive fee for the first six months of 2013 was approximately $2.6 million compared to $3.4 million for the six months ended June 30, 2012. The net investment income incentive fee is calculated and payable quarterly in arrears based on our “Pre-Incentive Fee Net Investment Income” for the immediately preceding calendar quarter subject to a hurdle rate which is determined as of December 31 of the preceding year. For this purpose, “Pre-Incentive Fee Net Investment Income” means interest income, dividend income and any other income accrued during the calendar quarter minus our operating expenses for the quarter (including the base fee, expenses payable under the Administration Agreement with BDC Partners, and any interest expense and dividends paid on any issued and outstanding preferred stock, but excluding the incentive fee).

The capital gains incentive fee expense for the six months ended June 30, 2013 resulted in an accrual reversal of approximately $2.7 million. The capital gains incentive fee expense, as reported under generally accepted accounting principles, is calculated on the basis of net realized and unrealized gains and losses at the end of each period. The expense related to the hypothetical liquidation of the portfolio (and assuming no other changes in realized or unrealized gains and losses) would only become payable to our investment adviser in the event of a complete liquidation of our portfolio as of period end and the termination of the Investment Advisory Agreement on such date. The $2.4 million capital gains incentive fee accrual as of June 30, 2013 relates entirely this hypothetical liquidation calculation. For the six months ended June 30, 2012, an accrual reversal of approximately $90,000 was recorded under the hypothetical liquidation calculation.

The amount of the capital gains incentive fee which will actually be payable is determined in accordance with the terms of the Investment Advisory Agreement and is calculated as of the end of each calendar year (or upon termination of the Investment Advisory Agreement). The terms of the Investment Advisory Agreement state that the capital gains incentive fee calculation is based on net realized gains, if any, offset by gross unrealized depreciation for the calendar year. No effect is given to gross unrealized appreciation in this calculation. For the year ended December 31, 2012, the amount calculated, and payable, under the terms of the Investment Advisory Agreement was approximately $1,553,000.

Realized and Unrealized Gains/Losses on Investments

For the six months ended June 30, 2013, we recorded net realized gains on investments of approximately $8.5 million, which primarily represents the gain on the sale of several of our CLO debt and equity investments which totaled approximately $6.8 million.

61


 
 

TABLE OF CONTENTS

Based upon the fair value determinations made in good faith by the Board of Directors, during the six months ended June 30, 2013, we had net unrealized depreciation of approximately $12.8 million, comprised of $22.4 million in gross unrealized appreciation, $28.6 million in gross unrealized depreciation and approximately $6.6 million relating to the reversal of prior period net unrealized appreciation as investments were realized. The most significant changes in net unrealized appreciation and depreciation during the six months ended June 30, 2013 were as follows (in millions):

 
Portfolio Company   Changes in Unrealized appreciation (depreciation)
Merrill Communications, LLC   $ 9.6  
Band Digital Inc     1.3  
Carlyle 2013-2 Sub     0.6  
Integra Telecom Holdings, Inc.     0.6  
Lightpoint CLO 2005-3X     0.5  
Gale 2007-4A CLO     (0.5 ) 
Flagship 2005-4A D     (0.6 ) 
Nextag, Inc     (0.7 ) 
Lightpoint CLO VII LTD 2007-8     (0.7 ) 
Unitek Global Services, Inc     (0.7 ) 
ACA CLO 2007-1a sub     (0.7 ) 
CIFC CLO – 2006-1A B2L     (0.8 ) 
Jersey Street 2006-1A CLO LTD     (0.8 ) 
ACA CLO 2006-2, Limited     (0.9 ) 
Landmark V CDO LTD     (0.9 ) 
Marea 2012-1A CLO     (1.0 ) 
Lightpoint CLO VII LTD 2007-7     (1.3 ) 
Canaras CLO Equity – 2007-1A, 1X     (1.4 ) 
Lightpoint CLO 2007-8A     (1.7 ) 
Sargas CLO 2006-1A     (2.0 ) 
Hewetts Island CDO III 2005-1A D     (2.2 ) 
Catamaran CLO Ltd     (2.5 ) 
Stone Tower CLO LTD 2007 7X     (3.2 ) 
Pegasus Solutions, Inc     (3.5 ) 
Net all other     0.7  
Total   $ (12.8 ) 

For the six months ended June 30, 2012, we recorded net realized gains on investments of approximately $1.8 million.

62


 
 

TABLE OF CONTENTS

Based upon the fair value determinations made in good faith by the Board of Directors, during the six months ended June 30, 2012, we had net unrealized appreciation of approximately $1.4 million, comprised of $18.7 million in gross unrealized appreciation, $16.8 million in gross unrealized depreciation and approximately $0.5 million relating to the reversal of prior period net unrealized appreciation as an investment was realized. The most significant changes in net unrealized appreciation and depreciation during the six months ended June 30, 2012 were as follows (in millions):

 
Portfolio Company   Unrealized appreciation (depreciation)
Algorithmic Implementations, Inc.   $ 1.0  
Integra Telecom Holdings, Inc.     1.0  
Power Tools, Inc.     0.9  
Hewetts Island CDO IV 2006-4 E     0.8  
Harbourview – 2006A CLO Equity     0.8  
SourceHOV, LLC     0.7  
Prospero CLO II BV     0.6  
Sargas CLO 2006-1A     0.6  
Harch 2005-2A BB CLO     0.5  
Marlborough Street 2007-1A     0.5  
Canaras CLO Equity – 2007-1A, 1X     0.5  
GALE 2007-4A CLO     0.5  
Emporia CLO 2007 3A E     0.4  
Lightpoint CLO 2007-8A     0.4  
RBS Holding Company     (0.9 ) 
Stratus Technologies, Inc.     (1.3 ) 
Merrill Communications, LLC     (1.8 ) 
GenuTec Business Solutions, Inc.     (2.0 ) 
Pegasus Solutions, Inc.     (2.4 ) 
Net all other     0.6  
Total   $ 1.4  

Please see “— Portfolio Grading” for more information.

Net Increase in Net Assets Resulting from Net Investment Income

Net investment income for the six months ended June 30, 2013 and 2012 was $26.6 million and $23.2 million, respectively. This increase was due to an increase in the amount of performing assets in the portfolio and distributions from the CLO equity investments in our portfolio as well as lower capital gains incentive fees. These were partially offset by increased interest expense as well as higher base management fees.

Excluding the impact of the capital gains incentive fee accrual reduction of approximately $2.7 million, core net investment income for the six months ended June 30, 2013 was approximately $23.9 million compared to approximately $23.1 million for the same period in 2012.

Based on weighted-average shares outstanding of 49,075,486 (basic) and 59,108,638 (diluted), the net increase in net assets resulting from net investment income per common share for the six months ended June 30, 2013 was approximately $0.54 (basic) and $0.51 (diluted), compared to approximately $0.65 per share (basic and diluted) for the same period in 2012.

Excluding the impact of the accrued capital gains incentive fee, the net increase in net assets resulting from core net investment income per common share would have been $0.49 (basic) and $0.47 (diluted), compared to $0.65 per share (basic and diluted), for the same period in 2012.

Please see “— Supplemental Information Regarding Core Net Investment Income and Core Net Increase in Net Assets Resulting from Operations” below for more information.

63


 
 

TABLE OF CONTENTS

Net Increase in Net Assets Resulting from Operations

We had a net increase in net assets resulting from operations of approximately $22.3 million for the six month ended June 30, 2013, compared to a net increase of approximately $26.3 million for the comparable period in 2012. This decrease was attributable to greater interest expense, increased management fees as well as greater unrealized depreciation, partially offset by an increase in the amount of performing assets in the portfolio and distributions from the CLO equity investments in our portfolio and lower capital gains incentive fees.

Based on weighted-average shares outstanding of 49,075,486 (basic) and 59,108,638 (diluted), the net increase in net assets resulting from operations per common share for the six months ended June 30, 2013 was approximately $0.45 (basic) and approximately $0.44 (diluted), compared to a net increase in net assets resulting from operations of approximately $0.74 per share (basic and diluted) for the same period in 2012.

Excluding the impact of the accrued capital gains incentive fee, the core net increase in net assets resulting from operations per common share would have remained at $0.40 (basic) and $0.39 (diluted), compared to $0.74 per share (basic and diluted) for the same period in 2012.

Please see “— Supplemental Information Regarding Core Net Investment Income and Core Net Increase in Net Assets Resulting from Operations” below for more information.

On a supplemental basis, we provide information relating to core net investment income, its ratio to net assets, and core net increase in net assets resulting from operations, which are non-GAAP measures. These measures are provided in addition to, but not as a substitute for, net investment income and net increase in net assets resulting from operations. The Company’s non-GAAP measures may differ from similar measures by other companies, even if similar terms are used to identify such measures. Core net investment income represents net investment income excluding our capital gains incentive fee. Core net increase in net assets resulting from operations represents net increase in net assets resulting from operations excluding the capital gains incentive fee. As the capital gains incentive fee is based on a hypothetical event that did not occur, we believe that core net investment income and core net increase in net assets resulting from operations are useful indicators of performance during this period. Further, as the capital gains incentive fee is not a currently tax deductible expense and as the RIC requirements are to distribute taxable earnings, the core net investment income provides an indication of taxable income for the year to date.

64


 
 

TABLE OF CONTENTS

The following tables provide a reconciliation of net investment income to core net investment income (for the three and six months ended June 30, 2013 and 2012, respectively):

       
  Three Months Ended
June 30, 2013
  Six Months Ended
June 30, 2013
     Amount   Per Share Amounts   Amount   Per Share Amounts
Net investment income   $ 15,955,918     $ 0.304     $ 26,607,121     $ 0.542  
Capital gains incentive fee     (2,899,772 )      (0.055 )      (2,684,418 )      (0.055 ) 
Core net investment income   $ 13,056,146     $ 0.249     $ 23,922,703     $ 0.487  

       
  Three Months Ended
June 30, 2012
  Six Months Ended
June 30, 2012
     Amount   Per Share Amounts   Amount   Per Share Amounts
Net investment income   $ 15,037,476     $ 0.40     $ 23,191,996     $ 0.65  
Capital gains incentive fee     (1,155,520 )      (0.03 )      (89,857 )       
Core net investment income   $ 13,881,956     $ 0.37     $ 23,102,139     $ 0.65  

The following tables provide a reconciliation of net increase in net assets resulting from operations to core net increase in net assets resulting from operations (for the three and six months ended June 30, 2013 and 2012, respectively):

       
  Three Months Ended
June 30, 2013
  Six Months Ended
June 30, 2013
     Amount   Per Share Amounts   Amount   Per Share Amounts
Net increase in net assets resulting from operations   $ 1,456,996     $ 0.028     $ 22,299,042     $ 0.454  
Capital gains incentive fee     (2,899,772 )      (0.055 )      (2,684,418 )      (0.055 ) 
Core net (decrease) increase in net assets resulting from operations   $ (1,442,774 )    $ (0.027 )    $ 19,614,624     $ 0.399  

       
  Three Months Ended
June 30, 2012
  Six Months Ended
June 30, 2012
     Amount   Per Share Amounts   Amount   Per Share Amounts
Net increase in net assets resulting from operations   $ 9,259,874     $ 0.25     $ 26,343,242     $ 0.74  
Capital gains incentive fee     (1,155,520 )      (0.03 )      (89,857 )       
Core net increase in net assets resulting from operations   $ 8,104,354     $ 0.22     $ 26,253,385     $ 0.74  

In addition, the following ratio is presented to supplement the financial highlights included in Note 10 to the financial statements:

       
  2013   2012
     Three Months Ended
June 30, 2013
  Six Months Ended
June 30, 2013
  Three Months Ended
June 30, 2012
  Six Months
Ended
June 30, 2012
Ratio of core net investment income to average net assets, for the three and six month periods ended June 30, 2013 and 2012, respectively     9.98 %      9.80 %      3.89 %      6.86 % 

65


 
 

TABLE OF CONTENTS

The following table provides a reconciliation of the ratio of net investment income to average net assets to the ratio of core net investment income to average net assets, for the three and six month periods ended June 30, 2013 and 2012, respectively.

       
  2013   2012
     Three Months Ended
June 30, 2013
  Six Months Ended
June 30, 2013
  Three Months Ended
June 30, 2012
  Six Months
Ended
June 30, 2012
Ratio of net investment income to average net assets     12.20 %      10.90 %      4.21 %      6.89 % 
Ratio of capital gain incentive fee to average net assets     (2.22 )%      (1.10 )%      (0.32 )%      (0.03 )% 
Ratio of core net investment income to average net assets     9.98 %      9.80 %      3.89 %      6.86 % 

66


 
 

TABLE OF CONTENTS

LIQUIDITY AND CAPITAL RESOURCES

During the six months ended June 30, 2013, we issued approximately 11.1 million shares in two equity offerings and in connection with an “at-the-market” share issuance plan.

During the six months ended June 30, 2013, cash and cash equivalents decreased from approximately $51.4 million at the beginning of the period to approximately $28.0 million at the end of the period. Net cash used by operating activities for the period, consisting primarily of the items described in “— Results of Operations,” was approximately $171.7 million, largely reflecting purchases of new investments of approximately $357.9 million partially offset by proceeds from principal repayments and sales of investments of approximately $167.2 million. Net cash used by investing activities reflects the change in restricted cash in the debt securitization entity. During the period, net cash provided by financing activities was approximately $200.1 million reflecting primarily the net proceeds of approximately $118.7 million from the February 11, 2013 and May 28, 2013 sale of an aggregate $120.0 million of incremental secured debt in connection with the collateralized loan obligation transaction that originally closed on August 23, 2012 and $110.4 million resulting from two equity offerings and participation in an “at-the-market” share issuance plan, partially offset by the distribution of dividends and deferred debt issuance costs.

Equity Follow-On Offerings

On February 11, 2013, we completed a public offering of 6,325,000 shares of our common stock at a public offering price of $10.36 per share for total gross proceeds of approximately $65.5 million.

On March 22, 2013, we completed a public offering of 3,450,000 shares of our common stock at a public offering price of $10.20 per share for total gross proceeds of approximately $35.2 million.

“At-the-Market” Share Issuance Plan

During the first quarter of 2013, we sold 1,312,828 shares of our common stock pursuant to an “at-the-market” share issuance plan. Barclays Capital Inc. acted as the sales agent. The total amount of capital raised under these issuances was approximately $13.7 million and net proceeds were approximately $13.5 million after deducting sales agent’s commissions and offering expenses. We have used, and will continue to use, the net proceeds from these offerings for investing in debt or equity securities, and other general corporate purposes.

Contractual Obligations

We have certain obligations with respect to the investment advisory and administration services we receive. See “— Overview”. We incurred approximately $9.0 million for investment advisory services, excluding pre-incentive net investment income incentive fees and approximately $913,000 for administrative services for the six months ended June 30, 2013.

A summary of our significant contractual payment obligations is as follows as of June 30, 2013. See Note 4 “Borrowings.”

         
Contractual obligations   Total   Payments Due by Period
  Less than
1 year
  1 – 3 years   3 – 5 years   More than
5 years
Long-term debt obligations:
                                            
TICC CLO LLC   $ 101,250,000     $     $     $     $ 101,250,000  
TICC CLO 2012-1 LLC     240,000,000                         240,000,000  
TICC Convertible Notes     115,000,000                   115,000,000        
Total   $ 456,250,000     $    —     $    —     $ 115,000,000     $ 341,250,000  

Off-Balance Sheet Arrangements

We currently have no off-balance sheet arrangements, including any risk management of commodity pricing or other hedging practices.

67


 
 

TABLE OF CONTENTS

Borrowings

On August 10, 2011, the Company completed a $225.0 million debt securitization financing transaction. The Class A Notes offered in the securitization were issued by TICC CLO, and are secured by the assets held by the trustee on behalf of the 2011 Securitization Issuer. The notes are an obligation of TICC CLO. The securitization was executed through a private placement of $101.25 million of Aaa/AAA Class A Notes which bear interest, after the effective date, at three-month LIBOR plus 2.25% (prior to the effective date, the Class A Notes bear interest at five-month LIBOR plus 2.25%). The notes were sold at a discount to par, and the amount of the discount is being amortized over the term of the notes. The Class A Notes are included in the June 30, 2013 consolidated statements of assets and liabilities. For the three months period ended June 30, 2013, the Class A note holders were paid interest on the Class A notes of approximately $0.7 million. Holdings retained all of the 2011 Subordinated Notes totaling $123.75 million and all of the membership interests in the 2011 Securitization Issuer. The 2011 Subordinated Notes do not bear interest, but are entitled to the residual economic interest in the 2011 Securitization Issuer.

On August 23, 2012, the Company completed a $160 million debt securitization financing transaction, consisting of $120 million in secured notes and $40 million of subordinated notes. On February 25, 2013 and May 28, 2013, TICC CLO 2012-1 issued an additional secured notes totaling an aggregate of $120 million and subordinated notes totaling an aggregate of $40 million, which subordinated notes were purchased by the Company, under the “accordion” feature of the debt securitization which allowed, under certain circumstances and subject to the satisfaction of certain conditions, for an increase in the amount of secured and subordinated notes. It is not necessary that the Company own all or any of the notes permitted by this feature, which may affect the accounting treatment of the debt securitization financing transaction. As of June 30, 2013 the secured notes of the 2012 Securitization Issuer have an aggregate face amount of $240 million and were issued in four classes. The class A-1 notes have a current face amount of $176 million, are rated AAA(sf)/Aaa(sf) by Standard & Poor’s Ratings Services (S&P) and Moody’s Investors Service, Inc. (Moody’s), respectively, and bear interest at three-month LIBOR plus 1.75%. The class B-1 notes have a current face amount of $20 million, are rated AA(sf)/Aa2(sf) by S&P and Moody’s, respectively, and bear interest at three-month LIBOR plus 3.50%. The class C-1 notes have a current face amount of $23 million, are rated A(sf)/A2(sf) by S&P and Moody’s, respectively, and bear interest at three-month LIBOR plus 4.75%. The class D-1 notes have a current face amount of $21 million, are rated BBB(sf)/Baa2(sf) by S&P and Moody’s, respectively, and bear interest at three-month LIBOR plus 5.75%. TICC presently owns all of the subordinated notes, which totaled $80 million as of June 30, 2013.

On September 26, 2012, the Company issued $105,000,000 aggregate principal amount of the Convertible Notes and an additional $10,000,000 aggregate principal amount of the Convertible Notes was issued on October 22, 2012. The Convertible Notes are convertible into shares of our common stock based on an initial conversion rate of 87.2448 shares of our common stock per $1,000 principal amount of Convertible Notes, which is equivalent to an initial conversion price of approximately $11.46 per share of common stock. The conversion price for the Convertible Notes will be reduced for quarterly cash dividends paid to common shares to the extent that the quarterly dividend exceeds $0.29 cents per share, subject to adjustment. The Convertible Notes mature on November 1, 2017, unless previously converted in accordance with their terms. The Convertible Notes are our general unsecured obligations, rank equally in right of payment with our future senior unsecured debt, and rank senior in right of payment to any potential subordinated debt, should any be issued in the future.

Distributions

In order to qualify as a regulated investment company and to avoid corporate level tax on the income we distribute to our stockholders, we are required, under Subchapter M of the Code, to distribute at least 90% of our ordinary income and short-term capital gains to our stockholders on an annual basis.

68


 
 

TABLE OF CONTENTS

The following table reflects the cash distributions, including dividends and returns of capital, if any, per share that we have declared on our common stock since the beginning of 2010:

     
Date Declared   Record Date   Payment Date   Amount
Fiscal 2013
                          
July 30, 2013     September 16, 2013       September 30, 2013     $ 0.29  
April 30, 2013     June 14, 2013       June 28, 2013       0.29  
February 28, 2013     March 22, 2013       March 29, 2013       0.29  
Total (2013)               $ 0.87  
Fiscal 2012
                          
November 1, 2012     December 17, 2012       December 31, 2012     $ 0.29  
July 26, 2012     September 14, 2012       September 28, 2012       0.29  
May 2, 2012     June 15, 2012       June 29, 2012       0.27  
March 1, 2012     March 21, 2012       March 30, 2012       0.27  
Total (2012)               $ 1.12 (1) 
Fiscal 2011
                          
November 3, 2011     December 16, 2011       December 30, 2011     $ 0.25  
July 28, 2011     September 16, 2011       September 30, 2011       0.25  
May 3, 2011     June 16, 2011       June 30, 2011       0.25  
March 3, 2011     March 21, 2011       March 31, 2011       0.24  
Total (2011)               $ 0.99 (1) 
Fiscal 2010
                          
November 2, 2010     December 10, 2010       December 31, 2010     $ 0.24  
July 29, 2010     September 10, 2010       September 30, 2010       0.22  
April 29, 2010     June 10, 2010       June 30, 2010       0.20  
March 4, 2010     March 24, 2010       March 31, 2010       0.15  
Total (2010)               $ 0.81 (1) 

(1) Distributions for the fiscal years ended December 31, 2012, 2011 and 2010 were funded from undistributed net investment income.

Related Parties

We have a number of business relationships with affiliated or related parties, including the following:

We have entered into the Investment Advisory Agreement with TICC Management. TICC Management is controlled by BDC Partners, its managing member. Charles M. Royce, as the non-managing member, holds a minority, non-controlling interest in TICC Management. BDC Partners, as the managing member of TICC Management, manages the business and internal affairs of TICC Management. In addition, BDC Partners provides us with office facilities and administrative services pursuant to the Administration Agreement.
Messrs. Cohen and Rosenthal currently serve as Chief Executive Officer and President, respectively, for T2 Advisers, LLC, which serves as the collateral manager of T2 Income Fund CLO I Ltd. BDC Partners is the managing member of T2 Advisers, LLC. In addition, Mr. Conroy serves as the Chief Financial Officer, Chief Compliance Officer and Treasurer of T2 Advisers, LLC.
Messrs. Cohen and Rosenthal currently serve as Chief Executive Officer and President, respectively, of Oxford Lane Capital Corp., a non-diversified closed-end management investment company that invests primarily in leveraged corporate loans, and its investment adviser, Oxford Lane Management, LLC (“Oxford Lane Management”). BDC Partners provides Oxford Lane Capital Corp. with office facilities and administrative services pursuant to an administration agreement and also serves as the managing member of Oxford Lane Management. In addition, Patrick F. Conroy serves as the Chief Financial Officer, Chief Compliance Officer and Corporate Secretary of Oxford Lane Capital Corp. and Chief Financial Officer, Chief Compliance Officer and Treasurer of Oxford Lane Management.

69


 
 

TABLE OF CONTENTS

BDC Partners has adopted a written policy with respect to the allocation of investment opportunities among TICC, Oxford Lane Capital Corp. and T2 Income Fund CLO I Ltd. in view of the potential conflicts of interest raised by the relationships described above.

In the ordinary course of business, we may enter into transactions with portfolio companies that may be considered related party transactions. In order to ensure that we do not engage in any prohibited transactions with any persons affiliated with us, we have implemented certain policies and procedures whereby our executive officers screen each of our transactions for any possible affiliations between the proposed portfolio investment, us, companies controlled by us and our employees and directors. We will not enter into any agreements unless and until we are satisfied that doing so will not raise concerns under the 1940 Act or, if such concerns exist, we have taken appropriate actions to seek board review and approval or exemptive relief for such transaction. Our Board of Directors reviews these procedures on an annual basis.

We have also adopted a Code of Ethics which applies to, among others, our senior officers, including our Chief Executive Officer and Chief Financial Officer, as well as all of our officers, directors and employees. Our Code of Ethics requires that all employees and directors avoid any conflict, or the appearance of a conflict, between an individual’s personal interests and our interests. Pursuant to our Code of Ethics, each employee and director must disclose any conflicts of interest, or actions or relationships that might give rise to a conflict, to our Chief Compliance Officer. Our Audit Committee is charged with approving any waivers under our Code of Ethics. As required by the NASDAQ Global Select Market corporate governance listing standards, the Audit Committee of our Board of Directors is also required to review and approve any transactions with related parties (as such term is defined in Item 404 of Regulation S-K).

70


 
 

TABLE OF CONTENTS

RECENT DEVELOPMENTS

On July 30, 2013, the Board of Directors declared a distribution of $0.29 per share for the third quarter, payable on September 30, 2013 to shareholders of record as of September 16, 2013.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are subject to financial market risks, including changes in interest rates. As of June 30, 2013, five debt investments in our portfolio were at a fixed rate, and the remaining eighty-eight debt investments were at variable rates, representing approximately $29.3 million and $693.7 million in principal debt, respectively. At June 30, 2013, $671.1 million of our variable rate investments were income producing. The variable rates are based upon the five-year Treasury note, the Prime rate or LIBOR, and, in the case of our bilateral investments, are generally reset annually, whereas our non-bilateral investments generally reset quarterly. We expect that future debt investments will generally be made at variable rates. Many of the variable rate investments contain floors.

To illustrate the potential impact of a change in the underlying interest rate on our net increase in net assets resulting from operations, we have assumed a 1% increase or decrease in the underlying five-year Treasury note, the Prime rate or LIBOR, and no other change in our portfolio as of June 30, 2013. We have also assumed outstanding borrowings, which bear interest at variable rates, of $341,250,000. Under this analysis, net investment income would decrease by approximately $1.7 million on an annual basis, due to the amount of investments in our portfolio which have implied floors that would be unaffected by a 1% change in the underlying interest rate. However, if the increase in rates was more significant, such as 5%, the net effect on the net increase in net assets resulting from operations would be an increase of approximately $13.3 million. To the extent that the rate underlying certain investments, as well as our borrowings, is at an historic low, it may not be possible for the underlying rate to decrease by 1% or 5%, and the impact of that reality is reflected in this analysis. It should also be noted that as the available cash is invested, the impact of this analysis will change. Although management believes that this analysis is indicative of our existing interest rate sensitivity, it does not adjust for changes in the credit quality, size and composition of our portfolio, and other business developments, including a change in the level of our borrowings, that could affect the net increase in net assets resulting from operations. Accordingly, no assurances can be given that actual results would not differ materially from the results under this hypothetical analysis.

We may in the future hedge against interest rate fluctuations by using standard hedging instruments such as futures, options and forward contracts. While hedging activities may insulate us against adverse changes in interest rates, they may also limit our ability to participate in the benefits of lower interest rates with respect to the investments in our portfolio with fixed interest rates.

ITEM 4. CONTROLS AND PROCEDURES.

As of June 30, 2013, we, including our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934). Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective in timely alerting management, including the Chief Executive Officer and Chief Financial Officer, of material information about us required to be included in periodic SEC filings.

There have been no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934) that occurred during the quarter ended June 30, 2013 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

71


 
 

TABLE OF CONTENTS

PART II — OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

We are not currently subject to any material legal proceedings. From time to time, we may be a party to certain legal proceedings in the ordinary course of business, including proceedings relating to the enforcement of our rights under contracts with our portfolio companies. While the outcome of these legal proceedings cannot be predicted with certainty, we do not expect that these proceedings will have a material effect upon our financial condition or results of operations.

ITEM 1A. RISK FACTORS

We are permitted to borrow money, which magnifies the potential for gain or loss on amounts invested and may increase the risk of investing in us.

On August 10, 2011, we completed a $225.0 million debt securitization financing transaction. The Class A Notes and the subordinated notes offered in the debt securitization were issued by TICC CLO LLC (“2011 Securitization Issuer” or “TICC CLO”), a subsidiary of TICC Capital Corp. 2011-1 Holdings, LLC (“Holdings”), which is in turn a direct subsidiary of TICC. The Class A Notes are secured by the assets held by the 2011 Securitization Issuer. The securitization was executed through a private placement of $101.25 million of secured notes rated AAA/Aaa by Standard & Poor’s Rating Service (“S&P”) and Moody’s Investors Service Inc. (“Moody’s”), respectively, and bearing interest at the three-month LIBOR plus 2.25%. Holdings retained all of the subordinated notes, which totaled $123.75 million (the “2011 Subordinated Notes”), and retained all the membership interests in the 2011 Securitization Issuer.

On August 23, 2012, the Company completed a $160 million debt securitization financing transaction, consisting of $120 million in secured notes and $40 million of subordinated notes. On February 25, 2013 and May 28, 2013, TICC CLO 2012-1 LLC (“TICC CLO 2012-1” or the “2012 Securitization Issuer”) issued additional secured notes totaling an aggregate of $120 million and subordinated notes totaling an aggregate of $40 million, which subordinated notes were purchased by the Company, under the “accordion” feature of the debt securitization which allowed, under certain circumstances and subject to the satisfaction of certain conditions, for an increase in the amount of secured and subordinated notes. It is not necessary that the Company own all or any of the notes permitted by this feature, which may affect the accounting treatment of the debt securitization financing transaction. As of June 30, 2013 the secured notes of the 2012 Securitization Issuer have an aggregate face amount of $240 million and were issued in four classes. The class A-1 notes have a current face amount of $176 million, are rated AAA(sf)/Aaa(sf) by Standard & Poor’s Ratings Services (S&P) and Moody’s Investors Service, Inc. (Moody’s), respectively, and bear interest at three-month LIBOR plus 1.75%. The class B-1 notes have a current face amount of $20 million, are rated AA(sf)/Aa2(sf) by S&P and Moody’s, respectively, and bear interest at three-month LIBOR plus 3.50%. The class C-1 notes have a current face amount of $23 million, are rated A(sf) /A2(sf) by S&P and Moody’s, respectively, and bear interest at three-month LIBOR plus 4.75%. The class D-1 notes have a current face amount of $21 million, are rated BBB(sf)/Baa2(sf) by S&P and Moody’s, respectively, and bear interest at three-month LIBOR plus 5.75%. TICC presently owns all of the subordinated notes, which totaled $80 million as of June 30, 2013.

On September 26, 2012, we completed a private placement of Convertible Notes. A total of $105.0 million aggregate principal amount of the Convertible Notes were issued at the closing. An additional $10.0 million aggregate principal amount of the Convertible Notes were issued on October 22, 2012 pursuant to the exercise of the initial purchasers’ option to purchase additional Convertible Notes. The Convertible Notes are convertible into shares of our common stock based on an initial conversion rate of 87.2448 shares of our common stock per $1,000 principal amount of Convertible Notes, which is equivalent to an initial conversion price of approximately $11.46 per share of common stock. The conversion price for the Convertible Notes will be reduced for quarterly cash dividends paid to common shares to the extent that the quarterly dividend exceeds $0.29 cents per share, subject to adjustment. The Convertible Notes will bear interest at an annual rate of 7.50%, payable semiannually in arrears on May 1 and November 1 of each year, beginning May 1, 2013. The Convertible Notes bear interest at an annual rate of 7.50%, payable semiannually in arrears on May 1 and November 1 of each year, beginning May 1, 2013. The Convertible Notes mature on November 1, 2017, unless previously converted in accordance with their terms. The Convertible Notes are our general unsecured obligations, rank equally in right of payment with our future senior unsecured debt, and rank senior in right of payment to any potential subordinated debt, should any be issued in the future.

72


 
 

TABLE OF CONTENTS

Borrowings (including through the securitization transactions described above, which are consolidated in our financial statements), also known as leverage, magnify the potential for gain or loss on amounts invested and, therefore, increase the risks associated with investing in our securities. We may borrow from and issue senior debt securities to banks, insurance companies, and other lenders. Lenders of these senior securities have fixed dollar claims on our assets that are superior to the claims of our common stockholders. If the value of our assets increases, then leveraging would cause the net asset value attributable to our common stock to increase more sharply than it would have had we not leveraged. Conversely, if the value of our assets decreases, leveraging would cause net asset value to decline more sharply than it otherwise would have had we not leveraged. Similarly, any increase in our income in excess of interest payable on the borrowed funds would cause our net income to increase more than it would without the leverage, while any decrease in our income would cause net income to decline more sharply than it would have had we not borrowed. Such a decline could negatively affect our ability to make common stock dividend payments. Leverage is generally considered a speculative investment technique. Our ability to service any debt that we incur will depend largely on our financial performance and will be subject to prevailing economic conditions and competitive pressures. Moreover, as the management fee payable to TICC Management will be payable on our gross assets, including those assets acquired through the use of leverage, TICC Management may have a financial incentive to incur leverage which may not be consistent with our stockholders’ interests. In addition, our common stockholders will bear the burden of any increase in our expenses as a result of leverage, including any increase in the management fee payable to TICC Management.

Illustration.  The following table illustrates the effect of leverage on returns from an investment in our common stock assuming various annual returns on the portfolio, net of expenses. The calculations in the table below are hypothetical and actual returns may be higher or lower than those appearing in the table below.

         
  Assumed total return on our portfolio
(net of expenses)
     (10.0)%   (5.0)%   0.0%   5.0%   10.0%
Corresponding return to stockholder(1)     (21.2 )%      (12.2 )%      (3.1 )%      5.9 %      14.9 % 

(1) Assumes $1.025 billion in total assets and $456.3 million in total debt outstanding, which reflects our total assets and total debt outstanding as of June 30, 2013, and a cost of funds of approximately 3.93%.

There are significant potential conflicts of interest between TICC and our management team.

In the course of our investing activities, we pay management and incentive fees to TICC Management, and reimburse BDC Partners for certain expenses it incurs. As a result, investors in our common stock invest on a “gross” basis and receive distributions on a “net” basis after expenses, resulting in, among other things, a lower rate of return than one might achieve through direct investments. As a result of this arrangement, there may be times when the management team of TICC Management has interests that differ from those of our stockholders, giving rise to a conflict.

TICC Management receives a quarterly incentive fee based, in part, on our “Pre-Incentive Fee Net Investment Income,” if any, for the immediately preceding calendar quarter. This incentive fee is subject to a quarterly hurdle rate before providing an incentive fee return to TICC Management. To the extent we or TICC Management are able to exert influence over our portfolio companies, the quarterly pre-incentive fee may provide TICC Management with an incentive to induce our portfolio companies to accelerate or defer interest or other obligations owed to us from one calendar quarter to another.

In addition, our executive officers and directors, and the executive officers of TICC Management, and its managing member, BDC Partners, serve or may serve as officers and directors of entities that operate in a line of business similar to our own. Accordingly, they may have obligations to investors in those entities, the fulfillment of which might not be in the best interests of us or our stockholders. Charles M. Royce, the non-executive Chairman of our Board of Directors, holds a minority, non-controlling interest in our investment adviser.

Messrs. Cohen and Rosenthal also currently serve as Chief Executive Officer and President, respectively, for T2 Advisers, LLC, which serves as the Collateral Manager of T2 Income Fund CLO I Ltd. BDC Partners is the managing member of T2 Advisers, LLC. Further, Messrs. Cohen and Rosenthal currently serve as Chief

73


 
 

TABLE OF CONTENTS

Executive Officer and President, respectively, of Oxford Lane Capital Corp., a non-diversified closed-end management investment company that currently invests primarily in CLO debt and equity tranches, and its investment adviser, Oxford Lane Management. BDC Partners provides Oxford Lane Capital Corp. with office facilities and administrative services pursuant to an administration agreement and also serves as the managing member of Oxford Lane Management. In addition, Patrick F. Conroy, the Chief Financial Officer, Chief Compliance Officer and Corporate Secretary of TICC Management, BDC Partners and TICC, serves in the same capacities for Oxford Lane Capital Corp. and Oxford Lane Management and also serves as the Chief Financial Officer, Chief Compliance Officer and Treasurer of T2 Advisers, LLC. Because of these possible conflicts of interest, these individuals may direct potential business and investment opportunities to other entities rather than to us or such individuals may undertake or otherwise engage in activities or conduct on behalf of such other entities that is not in, or which may be adverse to, our best interests.

BDC Partners has adopted a written policy with respect to the allocation of investment opportunities among TICC, Oxford Lane Capital Corp. and T2 Income Fund CLO Ltd. in view of the potential conflicts of interest raised by the relationships described above.

In the ordinary course of business, we may enter into transactions with portfolio companies that may be considered related party transactions. In order to ensure that we do not engage in any prohibited transactions with any persons affiliated with us, we have implemented certain policies and procedures whereby our executive officers screen each of our transactions for any possible affiliations between the proposed portfolio investment, us, companies controlled by us and our employees and directors. We will not enter into any agreements unless and until we are satisfied that doing so will not raise concerns under the 1940 Act or, if such concerns exist, we have taken appropriate actions to seek board review and approval or exemptive relief for such transaction. Our Board of Directors reviews these procedures on an annual basis.

We have also adopted a Code of Ethics which applies to, among others, our senior officers, including our Chief Executive Officer and Chief Financial Officer, as well as all of our officers, directors and employees. Our Code of Ethics requires that all employees and directors avoid any conflict, or the appearance of a conflict, between an individual’s personal interests and our interests. Pursuant to our Code of Ethics, each employee and director must disclose any conflicts of interest, or actions or relationships that might give rise to a conflict, to our Chief Compliance Officer. Our Audit Committee is charged with approving any waivers under our Code of Ethics. As required by the NASDAQ Global Select Market corporate governance listing standards, the Audit Committee of our Board of Directors is also required to review and approve any transactions with related parties (as such term is defined in Item 404 of Regulation S-K).

In addition to the other information set forth in this report, you should carefully consider the factors discussed in Item 1A. Risk Factors in our Annual Report on Form 10-K for the fiscal year ended December 31, 2012, which could materially affect our business, financial condition and/or operating results. The risks described above and in our Annual Report on Form 10-K are not the only risks facing our company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially and adversely affect our business, financial condition and/or operating results. There have been no other material changes during the six months ended June 30, 2013 to the risk factors discussed in Item 1A. Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2012.

74


 
 

TABLE OF CONTENTS

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

While we did not engage in unregistered sales of equity securities during the six months ended June 30, 2013, we issued a total of 173,551 shares of common stock under our dividend reinvestment plan. This issuance was not subject to the registration requirements of the Securities Act of 1933, as amended. The aggregate valuation price for the shares of common stock issued under the dividend reinvestment plan was approximately $1,611,626.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION.

None.

75


 
 

TABLE OF CONTENTS

ITEM 6. EXHIBITS.

The following exhibits are filed as part of this report or hereby incorporated by reference to exhibits previously filed with the SEC:

 
 3.1   Articles of Incorporation (Incorporated by reference to the Registrant’s Registration Statement on Form N-2 (File No. 333-109055), filed on September 23, 2003).
 3.2   Articles of Amendment (Incorporated by reference to Current Report on Form 8-K (File No. 814-00638) filed December 3, 2007).
 3.3   Amended and Restated Bylaws (Incorporated by reference to Pre-Effective Amendment No. 2 to the Registrant’s Registration Statement on Form N-2 (File No. 333-109055), filed on November 19, 2003).
 4.1   Form of Share Certificate (Incorporated by reference to the Registrant’s Registration Statement on Form N-2 (File No. 333-109055), filed on September 23, 2003).
 4.2   Indenture, dated September 26, 2012, relating to the 7.50% Senior Convertible Notes due 2017, by and between the Registrant and the Bank of New York Mellon, as trustee (Incorporated by reference to Exhibit 4.1 to the Registrant’s report on Form 8-K filed on September 27, 2012).
10.1   Investment Advisory Agreement between Registrant and TICC Management, LLC (Incorporated by reference to Exhibit 10.1 to the Registrant’s report on Form 8-K filed on July 1, 2011).
10.2   Custodian Agreement between Registrant and State Street Bank and Trust Company (Incorporated by reference to Pre-Effective Amendment No. 2 to the Registrant’s Registration Statement on Form N-2 (File No. 333-109055), filed on November 19, 2003).
10.3   Amended and Restated Administration Agreement between Registrant and BDC Partners, LLC. (Incorporated by reference to Exhibit 10.3 to the Registrant’s quarterly report on Form 10-Q filed on May 10, 2012).
10.4   Amended and Restated Dividend Reinvestment Plan (Incorporated by reference to Exhibit 4.1 to the Registrant’s report on Form 8-K filed on May 30, 2012).
10.5   Purchase Agreement by and among the Registrant, TICC Capital Corp. 2011-1 Holdings, LLC, TICC CLO LCC and Guggenheim Securities, LLC (Incorporated by reference to Exhibit 10.1 to the Registrant’s report on Form 8-K filed on August 11, 2011).
10.6   Master Loan Sale Agreement by and among the Registrant, TICC Capital Corp. 2011-1 Holdings, LLC and TICC CLO LLC (Incorporated by reference to Exhibit 10.2 to the Registrant’s report on Form 8-K filed on August 11, 2011).
10.7   Indenture by and between TICC CLO LLC and The Bank of New York Mellon Trust Company, National Association (Incorporated by reference to Exhibit 10.3 to the Registrant’s report on Form 8-K filed on August 11, 2011).
10.8   Collateral Management Agreement by and between TICC CLO LLC and the Registrant (Incorporated by reference to Exhibit 10.4 to the Registrant’s report on Form 8-K filed on August 11, 2011).
10.9   Collateral Administration Agreement by and among TICC CLO LLC, the Registrant and The Bank of New York Mellon Trust Company, National Association (Incorporated by reference to Exhibit 10.5 to the Registrant’s report on Form 8-K filed on August 11, 2011).
10.10   Purchase Agreement, dated August 13, 2012, by and among TICC Capital Corp., TICC CLO 2012-1 LLC and Guggenheim Securities, LLC (Incorporated by reference to Exhibit 10.1 to the Registrant’s report on Form 8-K filed on August 23, 2012).
10.11   Master Loan Sale Agreement, dated August 23, 2012, by and among TICC Capital Corp. and TICC CLO 2012-1 LLC (Incorporated by reference to Exhibit 10.2 to the Registrant’s report on Form 8-K filed on August 23, 2012).
10.12   Indenture, dated August 23, 2012, by and between TICC CLO 2012-1 LLC and The Bank of New York Mellon Trust Company, National Association (Incorporated by reference to Exhibit 10.3 to the Registrant’s report on Form 8-K filed on August 23, 2012).

76


 
 

TABLE OF CONTENTS

 
10.13   Collateral Management Agreement, dated August 23, 2012, by and between TICC CLO 2012-1 LLC and TICC Capital Corp. (Incorporated by reference to Exhibit 10.4 to the Registrant’s report on Form 8-K filed on August 23, 2012).
10.14   Collateral Administration Agreement, dated August 23, 2012, by and among TICC CLO 2012-1 LLC, TICC Capital Corp. and The Bank of New York Mellon Trust Company, National Association (Incorporated by reference to Exhibit 10.5 to the Registrant’s report on Form 8-K filed on August 23, 2012).
10.15   Upsize Purchase Agreement, dated January 24, 2013, by and among TICC Capital Corp., TICC CLO 2012-1 LLC and Guggenheim Securities, LLC (Incorporated by reference to the Registrant’s report on Form 8-K filed on February 26, 2013).
10.16   Subordinated Note Purchase Agreement, dated February 25, 2013, by and among TICC Capital Corp. and TICC CLO 2012-1 LLC (Incorporated by reference to the Registrant’s report on Form 8-K filed on February 26, 2013).
10.17   Second Upsize Purchase Agreement, dated May 21, 2013, by and among TICC Capital Corp., TICC CLO 2012-1 LLC and Guggenheim Securities, LLC (Incorporated by reference to the Registrant’s report on Form 8-K filed on May 29, 2013).
10.18   Subordinated Note Purchase Agreement, dated May 28, 2013, by and among TICC Capital Corp. and TICC CLO 2012-1 LLC (Incorporated by reference to the Registrant’s report on Form 8-K filed on May 29, 2013).
11   Computation of Per Share Earnings (included in the notes to the financial statements contained in this report).
31.1   Certification of Chief Executive Officer pursuant to Rule 13a-14 of the Securities Exchange Act of 1934, as amended.
31.2   Certification of Chief Financial Officer pursuant to Rule 13a-14 of the Securities Exchange Act of 1934, as amended.
32.1   Certification of Chief Executive Officer pursuant to section 906 of The Sarbanes-Oxley Act of 2002.
32.2   Certification of Chief Financial Officer pursuant to section 906 of The Sarbanes-Oxley Act of 2002.

77


 
 

TABLE OF CONTENTS

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 
    
     TICC CAPITAL CORP.
       
Date: August 8, 2013  

By:

/s/ Jonathan H. Cohen
Jonathan H. Cohen
Chief Executive Officer
(Principal Executive Officer)

Date: August 8, 2013  

By:

/s/ Patrick F. Conroy
Patrick F. Conroy
Chief Financial Officer
(Principal Financial and Accounting Officer)

78