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Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

 

FORM 10-Q

 

 

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

For the quarterly period ended March 31, 2014

OR

 

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

For the transition period from                      to                     

Commission file number 814-00789

 

 

THL CREDIT, INC.

(Exact Name of Registrant as Specified in Its Charter)

 

 

 

Delaware   27-0344947

(State or Other Jurisdiction of

Incorporation or Organization)

 

(I.R.S. Employer

Identification No.)

100 Federal St., 31st Floor, Boston, MA   02110
(Address of Principal Executive Offices)   (Zip Code)

Registrant’s Telephone Number, Including Area Code: 800-454-4424

 

 

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

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

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

 

Large accelerated filer   ¨    Accelerated filer   x
Non-Accelerated filer   ¨  (Do not check if a smaller reporting company)    Smaller reporting company   ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Securities Exchange Act of 1934).    Yes  ¨    No  x

The number of shares of the registrant’s common stock, $0.001 par value per share, outstanding at May 12, 2014 was 33,905,202.

 

 

 


Table of Contents

THL CREDIT, INC.

FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2014

Table of Contents

 

    

INDEX

   PAGE
NO.
 

PART I.

  FINANCIAL INFORMATION   

Item 1.

  Financial Statements   
  Consolidated Statements of Assets and Liabilities as of March 31, 2014 (unaudited) and December 31, 2013      2   
  Consolidated Statements of Operations for the three months ended March 31, 2014 and 2013 (unaudited)      3   
  Consolidated Statements of Changes in Net Assets for the three months ended March 31, 2014 and 2013 (unaudited)      4   
  Consolidated Statements of Cash Flows for the three months ended March 31, 2014 and 2013 (unaudited)      5   
  Consolidated Schedules of Investments as of March 31, 2014 (unaudited) and December 31, 2013      6   
  Notes to Consolidated Financial Statements (unaudited)      17   

Item 2.

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

Item 3.

  Quantitative and Qualitative Disclosures About Market Risk      60   

Item 4.

  Controls and Procedures      61   

PART II.

  OTHER INFORMATION   

Item 1.

  Legal Proceedings      61   

Item 1A.

  Risk Factors      61   

Item 2.

  Unregistered Sales of Equity Securities and Use of Proceeds      61   

Item 3.

  Defaults Upon Senior Securities      61   

Item 4.

  Mine Safety Disclosures      61   

Item 5.

  Other Information      62   

Item 6.

  Exhibits      62   

SIGNATURES

       63   

 

1


Table of Contents

THL Credit, Inc. and Subsidiaries

Consolidated Statements of Assets and Liabilities

(in thousands, except per share data)

 

     March 31,
2014
(unaudited)
    December 31,
2013
 

Assets:

    

Investments at fair value:

    

Non-controlled, non-affiliated investments (cost of $736,678 and $645,911, respectively)

   $ 739,019      $ 648,860   

Non-controlled, affiliated investments (cost of $8 and $7, respectively)

     8        7   
  

 

 

   

 

 

 

Total investments at fair value (cost of $736,686 and $645,918, respectively)

   $ 739,027      $ 648,867   

Cash

     13,951        7,829   

Deferred financing costs

     4,297        4,604   

Interest receivable

     7,641        7,225   

Escrow receivable

     1,800        1,800   

Receivable for paydown of investments

     1,006        275   

Due from affiliate

     839        1,025   

Other deferred assets

     779        825   

Prepaid expenses and other assets

     392        441   
  

 

 

   

 

 

 

Total assets

   $ 769,732      $ 672,891   
  

 

 

   

 

 

 

Liabilities:

    

Loans payable

   $ 305,350      $ 204,300   

Payable for investment purchased

     —          4,400   

Accrued incentive fees

     4,486        3,421   

Base management fees payable

     2,524        2,243   

Deferred tax liability

     1,329        2,414   

Accrued expenses

     1,393        1,617   

Income taxes payable

     630        71   

Due to affiliate

     498        474   

Accrued administrator expenses

     427        158   

Other deferred liabilities

     247        —     

Accrued credit facility fees and interest

     223        567   

Interest rate derivative

     230        284   
  

 

 

   

 

 

 

Total liabilities

     317,337        219,949   

Commitments and contingencies (Note 8)

    

Net Assets:

    

Preferred stock, par value $.001 per share, 100,000 preferred shares authorized, no preferred shares issued and outstanding

     —          —     

Common stock, par value $.001 per share, 100,000 common shares authorized, 33,905 shares issued and outstanding at March 31, 2014 and December 31, 2013, respectively

     34        34   

Paid-in capital in excess of par

     449,164        450,043   

Net unrealized appreciation on investments, net of provision for taxes of $1,443 and $2,414, respectively

     897        535   

Net unrealized depreciation on interest rate derivative

     (230     (284

Interest rate derivative periodic interest payments, net

     (726     (613

Accumulated undistributed net realized gains

     —          2,023   

Accumulated undistributed net investment income

     3,256        1,204   
  

 

 

   

 

 

 

Total net assets

     452,395        452,942   
  

 

 

   

 

 

 

Total liabilities and net assets

   $ 769,732      $ 672,891   
  

 

 

   

 

 

 

Net asset value per share

   $ 13.34      $ 13.36   
  

 

 

   

 

 

 

See accompanying notes to these consolidated financial statements

 

2


Table of Contents

THL Credit, Inc. and Subsidiaries

Consolidated Statements of Operations (unaudited)

(in thousands, except per share data)

 

     For the three months ended March 31,  
     2014     2013  

Investment Income:

    

From non-controlled, non-affiliated investments:

    

Interest income

   $ 17,552      $ 13,890   

Dividend income

     2,147        —     

Other income

     442        35   

From non-controlled, affiliated investment:

    

Other income

     754        498   
  

 

 

   

 

 

 

Total investment income

     20,895        14,423   

Expenses:

    

Incentive fees

     2,745        2,312   

Base management fees

     2,524        1,523   

Credit facility interest and fees

     2,089        1,094   

Administrator expenses

     927        889   

Other general and administrative expenses

     585        349   

Amortization of deferred financing costs

     307        496   

Professional fees

     311        227   

Directors’ fees

     149        127   
  

 

 

   

 

 

 

Total expenses

     9,637        7,017   

Income tax provision and excise tax

     558        —     
  

 

 

   

 

 

 

Net investment income

     10,700        7,406   

Realized Gain (Loss) and Change in Unrealized Appreciation on Investments:

    

Net realized gain on non-controlled, non-affiliated investments

     299        —     

Net change in unrealized appreciation on investments:

    

Non-controlled, non-affiliated investments

     (609     1,699   

Non-controlled, affiliated investments

     —          —     
  

 

 

   

 

 

 

Net change in unrealized appreciation on investments

     (609     1,699   
  

 

 

   

 

 

 

Net realized and unrealized (loss) gain from investments

     (310     1,699   

Provision for taxes on realized gain on investments

     (321     —     

Benefit (provision) for taxes on unrealized gain on investments

     971        (529

Interest rate derivative periodic interest payments, net

     (113     (104

Net change in unrealized appreciation (depreciation) on interest rate derivative

     54        142   
  

 

 

   

 

 

 

Net increase in net assets resulting from operations

   $ 10,981      $ 8,614   
  

 

 

   

 

 

 

Net investment income per common share:

    

Basic and diluted

   $ 0.32      $ 0.28   

Net increase in net assets resulting from operations per common share:

    

Basic and diluted

   $ 0.32      $ 0.33   

Dividends declared and paid

   $ 0.34      $ 0.33   

Weighted average shares of common stock outstanding:

    

Basic and diluted

     33,905        26,315   

See accompanying notes to these consolidated financial statements

 

3


Table of Contents

THL Credit, Inc. and Subsidiaries

Consolidated Statements of Changes in Net Assets (unaudited)

(in thousands, except per share data)

 

     For the three months ended March 31,  
     2014     2013  

Increase in net assets from operations:

    

Net investment income

   $ 10,700      $ 7,406   

Interest rate derivative periodic interest payments, net

     (113     (104

Net realized gain on investments

     299        —     

Income tax provision, realized gain

     (321     —     

Net change in unrealized appreciation on investments

     (609     1,699   

Benefit (provision) for taxes on unrealized appreciation on investments

     971        (529

Net change in unrealized appreciation (depreciation) on interest rate derivative

     54        142   
  

 

 

   

 

 

 

Net increase in net assets resulting from operations

     10,981        8,614   

Distributions to stockholders from net investment income

     (9,244     (8,684

Distribution to stockholders from net realized gain

     (2,284     —     
  

 

 

   

 

 

 

Total decrease in net assets

     (547     (70

Net assets at beginning of period

     452,942        347,485   
  

 

 

   

 

 

 

Net assets at end of period

   $ 452,395      $ 347,415   
  

 

 

   

 

 

 

Common shares outstanding at end of period

     33,905        26,315   
  

 

 

   

 

 

 

See accompanying notes to these consolidated financial statements

 

4


Table of Contents

THL Credit, Inc. and Subsidiaries

Consolidated Statements of Cash Flows (unaudited)

(in thousands)

 

     For the three months ended March 31,  
     2014     2013  

Cash flows from operating activities

    

Net increase in net assets resulting from operations

   $ 10,981      $ 8,614   

Adjustments to reconcile net increase in net assets resulting from operations to net cash used for operating activities:

    

Net change in unrealized appreciation on investments

     609        (1,699

Net change in unrealized (appreciation) depreciation on interest rate derivative

     (54     (142

Realized loss on investments

     455        —     

Increase in investments due to PIK

     (535     (1,002

Amortization of deferred financing costs

     307        496   

Accretion of discounts on investments and other fees

     (1,106     (438

Changes in operating assets and liabilities:

    

Purchases of investments

     (128,636     (59,418

Proceeds from sale and paydown of investments

     38,322        25,076   

Increase in interest receivable

     (416     (3,946

Decrease (increase) in due from affiliate

     186        (246

Decrease in other deferred assets

     56        —     

Increase in prepaid expenses and other assets

     49        (41

Decrease in payable for investment purchased

     (4,400     —     

Decrease in accrued expenses

     (234     (157

(Decrease) increase in accrued credit facility fees and interest

     (344     158   

Increase in income taxes payable

     559        —     

(Decrease) increase in deferred tax liability

     (1,085     529   

Increase in base management fees payable

     281        9   

Increase (decrease) in accrued administrator expenses

     269        (296

Increase in other deferred liabilities

     247        —     

Increase (decrease) in incentive fees payable

     1,065        (19

Increase in due to affiliate

     24        23   

Decrease in dividend payable

     —          (1,316
  

 

 

   

 

 

 

Net cash used in operating activities

     (83,400     (33,815

Cash flows from financing activities

    

Borrowings under credit facility

     122,550        107,700   

Repayments under credit facility

     (21,500     (67,850

Distributions paid to stockholders

     (11,528     (8,684

Financing and offering costs paid

     —          (1,342
  

 

 

   

 

 

 

Net cash provided by financing activities

     89,522        29,824   
  

 

 

   

 

 

 

Net increase (decrease) in cash and cash equivalents

     6,122        (3,991

Cash and cash equivalents, beginning of period

     7,829        4,819   
  

 

 

   

 

 

 

Cash and cash equivalents, end of period

   $ 13,951      $ 828   
  

 

 

   

 

 

 

Supplemental Disclosure of Cash Flow Information:

    

Cash interest paid

   $ 1,916      $ 599   

PIK income earned

   $ 535      $ 1,002   

See accompanying notes to these consolidated financial statements

 

5


Table of Contents

THL Credit, Inc. and Subsidiaries

Consolidated Schedule of Investments (unaudited)

March 31, 2014

(dollar amounts in thousands)

 

Portfolio company/Type of Investment(1)(21)

 

Industry

 

Interest Rate(2)

  Initial
Acquisition
Date
    Maturity/
Dissolution
Date
    Principal(3)
No. of  Shares /
No. of Units
    Amortized
Cost
    Fair Value  

Non-controlled/non-affiliated
investments —163.36% of net asset value

             

20-20 Technologies Inc.

             

Senior Secured Term Loan(4)

  IT services   10.8% (5)     09/12/12        03/31/19      $ 32,000      $ 31,630      $ 31,680   
           

 

 

   

 

 

 
              31,630        31,680   

Adirondack Park CLO Ltd.

             

Subordinated Notes,
Residual Interest
(4)

  Financial services   12.40% (12)     03/27/13        04/15/24        —        $ 8,731      $ 9,000   
           

 

 

   

 

 

 
              8,731        9,000   

AIM Media Texas Operating, LLC

             

Member interest(7)(8)

  Media, entertainment and leisure       06/21/12        —          0.763636      $ 764      $ 934   
           

 

 

   

 

 

 
              764        934   

Airborne Tactical Advantage Company, LLC

             

Senior Secured Note

  Aerospace & defense   11.0%     09/07/11        03/07/16      $ 4,000      $ 3,904      $ 3,980   

Class A Warrants(9)

        09/07/11        —          511,812        113        100   

Series A Preferred Stock(9)

        09/17/13        —          225,000        169        243   
           

 

 

   

 

 

 
              4,186        4,323   

Allen Edmonds Corporation

             

Second Lien Term Loan

  Consumer products   10% (LIBOR
+ 9.0%)
    11/26/13        05/27/19      $ 7,333      $ 7,194      $ 7,194   
           

 

 

   

 

 

 
              7,194        7,194   

Allied Wireline Services, LLC

             

Senior Secured Term Loan

  Energy / Utilities   9.5% (LIBOR
+ 8.0%)
    02/28/14        02/28/19      $ 10,314      $ 9,837      $ 9,837   

Class A Common Equity(7)(8)(9)

            618,868        619        619   

Warrant for Common (7)(8)(9)

            501,159        175        175   
           

 

 

   

 

 

 
              10,631        10,631   

BeneSys Inc.

             

Senior Secured Term Loan

  Business services   10.8% (LIBOR
+ 9.8%)
    03/31/14        03/31/19      $ 8,333      $ 8,167      $ 8,167   
           

 

 

   

 

 

 
              8,167        8,167   

Blue Coat Systems, Inc.

             

Second Lien Term Loan

  IT services   9.5% (LIBOR + 8.5%)     06/27/13        06/27/20      $ 15,000      $ 14,865      $ 15,450   
           

 

 

   

 

 

 
              14,865        15,450   

C&K Market, Inc.

             

Senior Subordinated Note

  Retail & grocery   18.0%(18)     11/3/2010        11/3/2015      $ 13,650      $ 13,302      $ 10,237   

Warrant for Class B

        11/3/2010        —          156,552        349        —     
           

 

 

   

 

 

 
              13,651        10,237   

Charming Charlie, LLC.

             

Senior Secured Term Loan

  Retail & grocery   9.0% (LIBOR + 8.0%)     12/18/13        12/31/19      $ 27,000      $ 26,608      $ 27,000   
           

 

 

   

 

 

 
              26,608        27,000   

Connecture, Inc.

             

Second Lien Term Loan

  Healthcare   10.0% (LIBOR + 9.0%)     03/18/13        07/15/18      $ 7,000      $ 6,881      $ 6,860   

Second Lien Term Loan

  Healthcare   12.5% (LIBOR + 11.5%)     03/19/14        07/15/18      $ 4,900        4,790        4,949   
           

 

 

   

 

 

 
              11,671        11,809   

Copperweld Bimetallics LLC

             

Senior Secured Term Loan

  Industrials   12.0%     12/11/13        12/11/18      $ 21,450      $ 20,630      $ 21,023   
           

 

 

   

 

 

 
              20,630        21,023   

 

(Continued on next page)

 

See accompanying notes to these consolidated financial statements

 

6


Table of Contents

THL Credit, Inc. and Subsidiaries

Consolidated Schedule of Investments (unaudited) – (Continued)

March 31, 2014

(dollar amounts in thousands)

 

 

Portfolio company/Type of Investment(1)(21)

 

Industry

 

Interest Rate(2)

  Initial
Acquisition
Date
    Maturity/
Dissolution
Date
    Principal(3)
No. of  Shares /
No. of Units
    Amortized
Cost
    Fair Value  

Country Pure Foods, LLC

             

Subordinated Term Loan

  Food & beverage   13.0%     08/13/10        02/13/17      $ 16,181      $ 16,181      $ 16,019   
           

 

 

   

 

 

 
              16,181        16,019   

CRS Reprocessing, LLC

             

Senior Secured Term Loan

  Manufacturing   10.3% (LIBOR + 9.3%)     06/16/11        06/16/15      $ 16,554      $ 16,511      $ 16,554   
           

 

 

   

 

 

 
              16,511        16,554   

Cydcor LLC

             

Senior Secured Term Loan (20)

  Business services   9.8% (LIBOR +7.3%)     06/17/13        06/12/17      $ 13,156      $ 13,156      $ 13,156   
           

 

 

   

 

 

 
              13,156        13,156   

Dr. Fresh, LLC

             

Subordinated Term Loan

  Consumer products   14.0%(6) (12.0% Cash and 2.0% PIK)     05/15/12        11/15/17      $ 14,520      $ 14,306      $ 14,520   
           

 

 

   

 

 

 
              14,306        14,520   

Dryden CLO, Ltd.

             

Subordinated Notes, Residual Interest(4)

  Financial services   13.6%(12)     09/12/13        11/15/25        —        $ 9,159      $ 9,400   
           

 

 

   

 

 

 
              9,159        9,400   

Duff & Phelps Corporation

             

Tax Receivable Agreement Payment Rights(11)

  Financial services   17.0%(12)     06/01/12        12/31/29        —        $ 12,163      $ 13,853   

Senior Secured Term Loan(11)

    4.5% (LIBOR + 3.5%)     05/15/13        04/23/20      $ 248        251        249   
           

 

 

   

 

 

 
              12,414        14,102   

Embarcadero Technologies, Inc.

             

Senior Secured Term Loan

  IT services   10.5%(5)     02/15/13        12/28/17      $ 9,688      $ 9,571      $ 9,639   
           

 

 

   

 

 

 
              9,571        9,639   

Expert Global Solutions, Inc.

             

Second Lien Term Loan

  Business services  

12.5%(6) (LIBOR

+ 10.2% and
0.8% PIK)

    06/21/13        10/03/18      $ 18,727      $ 18,977      $ 18,353   
           

 

 

   

 

 

 
              18,977        18,353   

Express Courier International, Inc.

             

Secured Subordinated Term Loan

  Business services   15.0%(13) (PIK)     01/17/12        07/17/16      $ 8,922      $ 7,652      $ 6,601   
           

 

 

   

 

 

 
              7,652        6,601   

Firebirds International, LLC

             

Common stock(9)

  Restaurants       05/17/11          1,906      $ 191      $ 249   
           

 

 

   

 

 

 
              191        249   

Flagship VII, Ltd.

             

Subordinated Notes, Residual Interest (4)

  Financial services   14.2%(12)     12/18/13        01/20/26        —        $ 4,409      $ 4,450   
           

 

 

   

 

 

 
              4,409        4,450   

Food Processing Holdings, LLC

             

Senior Secured Term Loan (14)

  Food & beverage   10.5% (LIBOR + 9.5%)     10/31/13        10/31/18      $ 22,202      $ 21,787      $ 21,980   

Senior Secured Delayed Draw Loan(10)

    10.5% (LIBOR + 9.5%)     10/31/13        10/31/18        —          —          —     

Class A Units(9)

        04/20/10          162.44        163        210   

Class B Units(9)

        04/20/10          406.09        408        300   
           

 

 

   

 

 

 
              22,358        22,490   

Freeport Financial SBIC Fund LP

             

Member interest(16)

  Financial services       06/14/13          —        $ 1,649      $ 1,649   
           

 

 

   

 

 

 
              1,649        1,649   

 

(Continued on next page)

 

See accompanying notes to these consolidated financial statements

 

7


Table of Contents

THL Credit, Inc. and Subsidiaries

Consolidated Schedule of Investments (unaudited) – (Continued)

March 31, 2014

(dollar amounts in thousands)

 

 

Portfolio company/Type of Investment(1)(21)

 

Industry

 

Interest Rate(2)

  Initial
Acquisition
Date
    Maturity/
Dissolution
Date
    Principal(3)
No. of  Shares /
No. of Units
    Amortized
Cost
    Fair Value  

Gold, Inc.

             

Subordinated Term Loan

  Consumer products   11.0%     12/31/12        06/30/19      $ 16,788      $ 16,788      $ 16,788   
           

 

 

   

 

 

 
              16,788        16,788   

Gryphon Partners 3.5, L.P.

             

Partnership interest(16)

  Financial services       11/20/12        12/21/18        —        $ 199      $ 438   
           

 

 

   

 

 

 
              199        438   

Harrison Gypsum, LLC

             

Senior Secured Term Loan

  Industrials   10.5%(6) (LIBOR
+ 8.5% and 0.5% PIK)
    12/21/12        12/21/17      $ 24,114      $ 23,829      $ 23,993   
           

 

 

   

 

 

 
              23,829        23,993   

Hart InterCivic, Inc.

             

Senior Secured Term Loan

  IT services   11.5% (LIBOR
+ 9.0% and 1% PIK)
    07/01/11        07/01/16      $ 8,717      $ 8,628      $ 8,543   

Senior Secured Revolving Loan(10)

    10.5% (LIBOR
+ 9.0%)
    07/01/11        07/01/16      $ 800        773        800   
           

 

 

   

 

 

 
              9,401        9,343   

HEALTHCAREfirst, Inc.

             

Senior Secured Term Loan

  Healthcare   12.5%(5)     08/31/12        08/30/17      $ 9,050      $ 8,848      $ 8,462   
           

 

 

   

 

 

 
              8,848        8,462   

Holland Intermediate Acquisition Corp.

             

Senior Secured Term Loan

  Energy / Utilities   10.0% (LIBOR
+ 9.0%)
    05/29/13        05/29/18      $ 24,227      $ 23,772      $ 24,227   

Senior Secured Revolving Loan(10)

    10.0% (LIBOR
+ 9.0%)
    05/29/13        05/29/18        —          —          —     
           

 

 

   

 

 

 
              23,772        24,227   

Hostway Corporation

             

Senior Secured Term Loan

  IT services   6.0% (LIBOR
+ 4.8%)
    12/27/13        12/13/19      $ 9,938      $ 9,842      $ 9,842   

Second Lien Term Loan

    10.0% (LIBOR
+ 8.8%)
    12/27/13        12/13/20      $ 12,000        11,766        11,766   

Class A Common Equity(9)

        12/27/13        —          20,000        200        200   

Class A Preferred Equity(9)

        12/27/13        —          1,800        1,800        1,800   
           

 

 

   

 

 

 
              23,608        23,608   

Igloo Products Corp.

             

Senior Secured Term Loan

  Consumer products   10.3% (LIBOR
+ 8.8%)
    03/28/14        03/28/20      $ 24,922      $ 24,362      $ 24,362   
           

 

 

   

 

 

 
              24,362        24,362   

Ingenio Acquisition, LLC

             

Senior Secured Term Loan

  Media, entertainment and leisure   11.3% (10.3% Cash + 1.0% PIK)     05/09/13        05/09/18      $ 9,199      $ 9,040      $ 9,199   
           

 

 

   

 

 

 
              9,040        9,199   

Key Brand Entertainment, Inc.

             

Senior Secured Term Loan

  Media, entertainment and leisure   9.8% (LIBOR
+ 8.5%)
    08/08/13        08/08/18      $ 13,178      $ 12,942      $ 13,046   

Senior Secured Revolving Loan(10)(15)

    9.8% (LIBOR
+ 8.5%)
    08/08/13        08/08/18        —          (26     —     
           

 

 

   

 

 

 
              12,916        13,046   

Loadmaster Derrick & Equipment, Inc.

             

Senior Secured Term Loan

  Energy / Utilities   9.3% (LIBOR
+ 8.3%)
    09/28/12        09/28/17      $ 8,828      $ 8,652      $ 8,784   

Senior Secured Revolving Loan(10)(14)

  Energy / Utilities   9.3% (LIBOR
+ 8.3%)
    09/28/12        09/28/17      $ 1,750        1,750        1,750   

Senior Secured Delayed Draw Term Loans(10)

    9.3% (LIBOR
+ 8.3%)
    09/28/12        09/28/17        —          —          —     
           

 

 

   

 

 

 
              10,402        10,534   

 

(Continued on next page)

 

See accompanying notes to these consolidated financial statements

 

8


Table of Contents

THL Credit, Inc. and Subsidiaries

Consolidated Schedule of Investments (unaudited) – (Continued)

March 31, 2014

(dollar amounts in thousands)

 

 

Portfolio company/Type of Investment(1)(21)

 

Industry

 

Interest Rate(2)

  Initial
Acquisition
Date
    Maturity/
Dissolution
Date
    Principal(3)
No. of  Shares /
No. of Units
    Amortized
Cost
    Fair Value  

Martex Fiber Southern Corp.

             

Subordinated Term Loan

  Industrials   13.5%(6) (12.0% Cash and 1.5% PIK)     04/30/12        10/31/19      $ 8,923      $ 8,815      $ 8,388   
           

 

 

   

 

 

 
              8,815        8,388   

NCM Group Holdings, LLC

             

Senior Secured Term Loan

  Industrials   12.5% (LIBOR
+ 11.5%)
    08/29/13        08/29/18      $ 26,727      $ 25,751      $ 27,796   
           

 

 

   

 

 

 
              25,751        27,796   

Oasis Legal Finance Holding Company LLC

             

Second Lien Term Loan

  Financial services   10.5%     09/30/13        09/30/18      $ 13,943      $ 13,686      $ 13,804   
           

 

 

   

 

 

 
              13,686        13,804   

Octagon Income Note XIV, Ltd.

             

Income Notes, Residual Interest(4)

  Financial services   15.5%(12)     12/19/12        01/15/24        —        $ 8,254      $ 8,600   
           

 

 

   

 

 

 
              8,254        8,600   

OEM Group, Inc.

             

Senior Secured Note

  Manufacturing   15.0%(6) (12.5% Cash and 2.5% PIK)     10/07/10        10/07/15      $ 15,257      $ 15,092      $ 14,494   

Warrant for Common

        10/07/10        —          —          —          —     
           

 

 

   

 

 

 
              15,092        14,494   

Sheplers, Inc.

             

Senior Secured Second Lien Term Loan

  Retail & grocery   13.2% (LIBOR
+ 11.7%)
    12/20/11        12/20/16      $ 11,426      $ 11,247      $ 11,484   

Subordinated Term Loan

    17.0%(17) (10.0% Cash and 7.0% PIK)     12/20/11        12/20/17      $ 1,937        1,913        1,947   
           

 

 

   

 

 

 
              13,160        13,431   

Sheridan Square CLO, Ltd

             

Income Notes, Residual Interest(4)

  Financial services   13.2%(12)     03/12/13        04/15/25        —        $ 5,871      $ 6,097   
           

 

 

   

 

 

 
              5,871        6,097   

Specialty Brands Holdings, LLC

             

Second Lien Term Loan

  Restaurants   11.3% (LIBOR
+ 9.8%)
    07/16/13        07/16/18      $ 20,977      $ 20,604      $ 20,610   
           

 

 

   

 

 

 
              20,604        20,610   

The Studer Group, L.L.C.

             

Senior Subordinated Note

  Healthcare   12.0%     09/29/11        01/31/19      $ 16,910      $ 16,910      $ 16,910   
           

 

 

   

 

 

 
              16,910        16,910   

Surgery Center Holdings, Inc.

             

Second Lien Term Loan

  Healthcare   9.8% (LIBOR
+ 8.5%)
    04/19/13        04/11/20      $ 10,000      $ 9,775      $ 9,925   

Member interest(8)(9)

        04/20/10          469,673        —          1,300   
           

 

 

   

 

 

 
              9,775        11,225   

Synarc-Biocore Holdings, LLC

             

Second Lien Term Loan

  Healthcare   9.3% (LIBOR
+ 8.3%)
    03/13/14        03/13/22      $ 11,000      $ 10,890      $ 10,890   
           

 

 

   

 

 

 
              10,890        10,890   

Tectum Holdings, Inc.

             

Second Lien Term Loan

  Transportation   9.0% (LIBOR
+ 8.0%)
    03/12/14        03/12/19      $ 12,000      $ 11,941      $ 11,941   
           

 

 

   

 

 

 
              11,941        11,941   

Tri Starr Management Services, Inc.

             

Senior Subordinated Note

  IT services   15.8%(6) (12.5% Cash and 3.3% PIK)     03/04/13        03/04/19      $ 18,456      $ 18,141      $ 18,086   
           

 

 

   

 

 

 
              18,141        18,086   

 

(Continued on next page)

 

See accompanying notes to these consolidated financial statements

 

9


Table of Contents

THL Credit, Inc. and Subsidiaries

Consolidated Schedule of Investments (unaudited) – (Continued)

March 31, 2014

(dollar amounts in thousands)

 

 

Portfolio company/Type of Investment(1)(21)

 

Industry

 

Interest Rate(2)

  Initial
Acquisition
Date
    Maturity/
Dissolution
Date
    Principal(3)
No. of  Shares /
No. of Units
    Amortized
Cost
    Fair Value  

TriMark USA, LLC

             

Second Lien Term Loan

  Food & beverage   10.0% (LIBOR
+ 9.0%)
    02/18/14        08/11/19      $ 20,000        19,606        19,606   
           

 

 

   

 

 

 
              19,606        19,606   

Trinity Services Group, Inc.

             

Senior Subordinated Note

  Food & beverage   14.5%(6) (12.0% Cash and 2.5% PIK)     03/29/12        09/29/17      $ 22,911      $ 22,636      $ 22,796   
           

 

 

   

 

 

 
              22,636        22,796   

Vision Solutions, Inc.

             

Second Lien Term Loan

  IT services   9.5% (LIBOR
+ 8.0%)
    03/31/11        07/23/17      $ 11,625      $ 11,565      $ 11,625   
           

 

 

   

 

 

 
              11,565        11,625   

Washington Inventory Service

             

Senior Secured Term Loan

  Business services   10.3% (LIBOR
+ 9.0%)
    12/27/12        06/20/19      $ 11,000      $ 10,867      $ 11,055   
           

 

 

   

 

 

 
              10,867        11,055   

Wheels Up Partners, LLC

             

Senior Secured Term Loan

  Transportation   9.6% (LIBOR
+ 8.6%)
    01/31/14        10/15/20      $ 5,377        5,240        5,240   

Common stock(7)(8)(9)

            1,000,000        1,000        1,000   
           

 

 

   

 

 

 
              6,240        6,240   

Wingspan Portfolio Holdings, Inc.

             

Subordinated Term Loan

  Financial services   15.5%(19)     05/21/13        11/21/16      $ 18,768      $ 18,447      $ 14,545   
           

 

 

   

 

 

 
              18,447        14,545   

YP Equity Investors, LLC

             

Member interest(7)(8)

  Media, entertainment and leisure       05/08/12        —          —        $ —        $ 2,250   
           

 

 

   

 

 

 
              —          2,250   
           

 

 

   

 

 

 

Non-controlled/non-affiliated investments—163.36% of net asset value

            $ 736,678      $ 739,019   
           

 

 

   

 

 

 

Non-controlled/affiliated investments—0.00% of net asset value

             

THL Credit Greenway Fund LLC

             

Member interest(8)(16)

  Financial services       01/27/11        1/14/2021        —        $ 5      $ 5   
           

 

 

   

 

 

 
              5        5   

THL Credit Greenway Fund II LLC

             

Member interest(8)(16)

  Financial services       03/01/13        10/10/2021        —        $ 3      $ 3   
           

 

 

   

 

 

 
              3        3   
           

 

 

   

 

 

 

Total investments—163.36% of net asset value

            $ 736,686      $ 739,027   
           

 

 

   

 

 

 
             

 

Derivative Instruments  
Counterparty    Instrument    Interest Rate    Expiration
Date
     # of Contracts    Notional      Cost      Fair Value  

ING Capital Markets, LLC

   Interest Rate Swap –
Pay Fixed/Receive
Floating
   1.1425%/LIBOR      5/10/2017       1    $ 50,000       $ —         $ (230
                 

 

 

    

 

 

 

Total derivative instruments—0.05% of net asset value

            $ —         $ (230
                 

 

 

    

 

 

 

 

(Continued on next page)

 

See accompanying notes to these consolidated financial statements

 

10


Table of Contents

THL Credit, Inc. and Subsidiaries

Consolidated Schedule of Investments (unaudited)

March 31, 2014

(dollar amounts in thousands)

 

(1) All debt investments are income-producing, unless otherwise noted. Equity and member interests are non-income-producing unless otherwise noted.
(2) Variable interest rate investments bear interest in reference to LIBOR or ABR, which are effective as of March 31, 2014. These variable rates reset monthly or quarterly, subject to interest rate floors.
(3) Principal includes accumulated PIK, or paid-in-kind, interest and is net of repayments.
(4) Foreign company at the time of investment and, as a result, is not a qualifying asset under Section 55(a) of the Investment Company Act of 1940.
(5) Unitranche investment; interest rate reflected represents the implied interest rate earned on the investment for the most recent quarter.
(6) At the option of the issuer, interest can be paid in cash or cash and PIK. The percentage of PIK shown is the maximum PIK that can be elected by the company.
(7) Interest held by a wholly owned subsidiary of THL Credit, Inc.
(8) Member interests of limited liability companies are the equity equivalents of the stock of corporations.
(9) Equity ownership may be held in shares or units of companies related to the portfolio company.
(10) Issuer pays 0.50% unfunded commitment fee on revolving loan facility.
(11) Publicly-traded company with a market capitalization in excess of $250 million at the time of investment and, as a result, is not a qualifying asset under Section 55(a) of the Investment Company Act of 1940.
(12) Income-producing security with no stated coupon; interest rate reflects an estimation of the effective yield to expected maturity as of March 31, 2014.
(13) Loan was on non-accrual status as of March 31, 2014. Issuer’s contractual rate was 15.0% PIK until December 31, 2013 and then for each of the quarters ending March 31, 2014 and June 30, 2014, the lesser of excess cash flow for the quarter or 12% paid in cash with the remainder amount paid in PIK up to a total rate of 15%.
(15) The negative cost is the result of the capitalized discount being greater than the principal amount outstanding on the loan.
(14) Debt investment interest held in companies related to the portfolio company.
(16) Non-registered investment company at the time of investment and, as a result, is not a qualifying asset under Section 55(a) of the Investment Company Act of 1940.
(17) Issuer has the option to increase its aggregate interest rate to 18.5% all PIK for a period of time under certain conditions in the credit agreement.
(18) C&K Market, Inc. filed for bankruptcy in November 2013. Loan was on non-accrual status as of March 31, 2014. Contractual default rate of interest is 18.0%.
(19) Contractual default rate of interest is 15.5%. Loan was on non-accrual status as of March 31, 2014. Previously accrued and unpaid interest totaling $1,391 that was deferred until April 15, 2014 was reversed during the quarter against interest income in connection with the loan going on non-accrual status.
(20) Of the $13,156 senior secured term loans outstanding, $11,695 is based in the United States and $1,461 is based in Canada. The Canadian investment is not a qualifying asset under Section 55(a) of the Investment Company Act of 1940
(21) All investments are pledged as collateral under the Revolving Facility and Term Loan Facility.

 

See accompanying notes to these consolidated financial statements

 

11


Table of Contents

THL Credit, Inc. and Subsidiaries

Consolidated Schedule of Investments

December 31, 2013

(dollar amounts in thousands)

 

Portfolio company/Type of Investment (1)

 

Industry

 

Interest Rate(2)

  Initial
Acquisition
Date
    Maturity/
Dissolution
Date
    Principal(3)
No. of  Shares /
No. of Units
    Amortized
Cost
    Fair Value  

Non-controlled/non-affiliated investments —143.26% of net asset value

             

20-20 Technologies Inc.

             

Senior Secured Term Loan(4)

  IT services   13.6%(5)     09/12/12        09/12/17      $ 13,650      $ 13,378      $ 13,582   
           

 

 

   

 

 

 
              13,378        13,582   

Adirondack Park CLO Ltd.

             

Subordinated Notes, Residual Interest(4)

  Financial
services
  13.7%(12)     03/27/13        04/15/24        —        $ 9,171      $ 9,110   
           

 

 

   

 

 

 
              9,171        9,110   

AIM Media Texas Operating, LLC

             

Member interest(7)(8)

  Media,
entertainment
and leisure
      06/21/12        —          0.763636      $ 764      $ 1,000   
           

 

 

   

 

 

 
              764        1,000   

Airborne Tactical Advantage Company, LLC

             

Senior Secured Note

  Aerospace &
defense
  11.0%     09/07/11        03/07/16      $ 4,000      $ 3,894      $ 3,970   

Class A Warrants(9)

        09/07/11        —          512        113        135   

Series A Preferred Stock(9)

        09/17/13        —          225        169        255   
           

 

 

   

 

 

 
              4,176        4,360   

Allen Edmonds Corporation

             

Second Lien Term Loan

  Consumer
products
  10% (LIBOR + 9.0%)     11/26/13        05/27/19      $ 7,333      $ 7,189      $ 7,189   
           

 

 

   

 

 

 
              7,189        7,189   

Blue Coat Systems, Inc.

             

Second Lien Term Loan

  IT services   9.5% (LIBOR
+ 8.5%)
    06/27/13        06/27/20      $ 15,000      $ 14,860      $ 15,150   
           

 

 

   

 

 

 
              14,860        15,150   

C&K Market, Inc.

             

Senior Subordinated Note

  Retail &
grocery
  18.0%(18)     11/3/2010        11/3/2015      $ 13,650      $ 13,303      $ 10,237   

Warrant for Class B

        11/3/2010        —          156,552        349        —     
           

 

 

   

 

 

 
              13,652        10,237   

Charming Charlie, LLC.

             

Senior Secured Term Loan

  Retail &
grocery
  9.0% (LIBOR
+ 8.0%)
    12/18/13        12/31/19      $ 27,000      $ 26,595      $ 26,595   
           

 

 

   

 

 

 
              26,595        26,595   

Connecture, Inc.

             

Second Lien Term Loan

  Healthcare   10.0% (LIBOR
+ 9.0%)
    03/18/13        07/15/18      $ 7,000      $ 6,875      $ 7,000   
           

 

 

   

 

 

 
              6,875        7,000   

Copperweld Bimetallics LLC

             

Senior Secured Term Loan

  Industrials   12.0%     12/11/13        12/11/18      $ 21,725      $ 20,863      $ 20,863   
           

 

 

   

 

 

 
              20,863        20,863   

Country Pure Foods, LLC

             

Subordinated Term Loan

  Food & beverage   13.0%     08/13/10        02/13/17      $ 16,181      $ 16,181      $ 16,060   
           

 

 

   

 

 

 
              16,181        16,060   

CRS Reprocessing, LLC

             

Senior Secured Term Loan

  Manufacturing   10.5% (LIBOR
+ 9.5%)
    06/16/11        06/16/15      $ 17,647      $ 17,588      $ 17,647   
           

 

 

   

 

 

 
              17,588        17,647   

Cydcor LLC

             

Senior Secured Term Loan(20)

  Business
services
  9.8% (LIBOR + 7.3%)     06/17/13        06/12/17      $ 13,442      $ 13,442      $ 13,442   
           

 

 

   

 

 

 
              13,442        13,442   

 

(Continued on next page)

See accompanying notes to these consolidated financial statements

 

12


Table of Contents

THL Credit, Inc. and Subsidiaries

Consolidated Schedule of Investments – (continued)

December 31, 2013

(dollar amounts in thousands)

 

Portfolio company/Type of Investment(1)

 

Industry

 

Interest Rate(2)

  Initial
Acquisition
Date
    Maturity/
Dissolution
Date
    Principal(3)
No. of  Shares /
No. of Units
    Amortized
Cost
    Fair Value  

Dr. Fresh, LLC

             

Subordinated Term Loan

  Consumer
products
  14.0%(6) (12.0% Cash and 2.0%
PIK)
    05/15/12        11/15/17      $ 14,447      $ 14,223      $ 14,375   
           

 

 

   

 

 

 
              14,223        14,375   

Dryden CLO, Ltd.

             

Subordinated Notes, Residual Interest(4)

  Financial
services
  13.6%(12)     09/12/13        11/15/25        —        $ 9,128      $ 9,300   
           

 

 

   

 

 

 
              9,128        9,300   

Duff & Phelps Corporation

             

Tax Receivable Agreement Payment Rights(11)

  Financial
services
  16.2%(12)     06/01/12        12/31/29        —        $ 12,163      $ 13,844   

Senior Secured Term Loan(11)

    4.5% (LIBOR
+ 3.5%)
    05/15/13        04/23/20      $ 249        252        249   
           

 

 

   

 

 

 
              12,415        14,093   

Embarcadero Technologies, Inc.

             

Senior Secured Term Loan

  IT services   10.7%(5)     02/15/13        12/28/17      $ 9,817      $ 9,692      $ 9,743   
           

 

 

   

 

 

 
              9,692        9,743   

Expert Global Solutions, Inc.

             

Second Lien Term Loan

  Business
services
  12.5%(6)
(LIBOR
+ 10.2% and
0.8% PIK)
    06/21/13        10/03/18      $ 18,727      $ 18,988      $ 18,821   
           

 

 

   

 

 

 
              18,988        18,821   

Express Courier International, Inc.

             

Secured Subordinated Term Loan

  Business
services
  15.0%(13)
(PIK)
    01/17/12        07/17/16      $ 8,595      $ 7,652      $ 6,601   
           

 

 

   

 

 

 
              7,652        6,601   

Firebirds International, LLC

             

Common stock(9)

  Restaurants       05/17/11          1,906      $ 191      $ 257   
           

 

 

   

 

 

 
              191        257   

Flagship VII, Ltd.

             

Subordinated Notes, Residual Interest(4)

  Financial
services
  13.9%(12)     12/18/13        01/20/26        —        $ 4,400      $ 4,400   
           

 

 

   

 

 

 
              4,400        4,400   

Food Processing Holdings, LLC

             

Senior Secured Term Loan(14)

  Food &
beverage
  10.5%
(LIBOR
+ 9.5%)
    10/31/13        10/31/18      $ 22,202      $ 21,770      $ 21,770   

Senior Secured Delayed Draw Loan(10)

    10.5%
(LIBOR
+ 9.5%)
    10/31/13        10/31/18        —          —          —     

Class A Units(9)

        04/20/10          162.44        163        202   

Class B Units(9)

        04/20/10          406.09        408        150   
           

 

 

   

 

 

 
              22,341        22,122   

Freeport Financial SBIC Fund LP

             

Member interest(16)

  Financial
services
      06/14/13          —        $ 801      $ 801   
           

 

 

   

 

 

 
              801        801   

Gold, Inc.

             

Subordinated Term Loan

  Consumer
products
  11.0%     12/31/12        06/30/19      $ 16,788      $ 16,788      $ 16,788   
           

 

 

   

 

 

 
              16,788        16,788   

Gryphon Partners 3.5, L.P.

             

Partnership interest(16)

  Financial
services
      11/20/12        12/21/18        —        $ 199      $ 384   
           

 

 

   

 

 

 
              199        384   

Harrison Gypsum, LLC

             

Senior Secured Term Loan

  Industrials   10.5%(6)
(LIBOR + 8.5%
and 0.5% PIK)
    12/21/12        12/21/17      $ 24,369      $ 24,065      $ 24,247   
           

 

 

   

 

 

 
              24,065        24,247   

Hart InterCivic, Inc.

             

Senior Secured Term Loan

  IT services   11.5% (LIBOR
+ 9.0% and
1% PIK)
(6)
    07/01/11        07/01/16      $ 8,696      $ 8,597      $ 8,522   

Senior Secured Revolving Loan(10)

    10.5% (LIBOR
+ 9.0%)
    07/01/11        07/01/16      $ 800        770        800   
           

 

 

   

 

 

 
              9,367        9,322   

HEALTHCAREfirst, Inc.

             

Senior Secured Term Loan

  Healthcare   11.9%(5)     08/31/12        08/30/17      $ 9,175      $ 8,958      $ 8,624   
           

 

 

   

 

 

 
              8,958        8,624   

 

(Continued on next page)

See accompanying notes to these consolidated financial statements

 

13


Table of Contents

THL Credit, Inc. and Subsidiaries

Consolidated Schedule of Investments—(Continued)

December 31, 2013

(dollar amounts in thousands)

 

Portfolio company/Type of Investment(1)

 

Industry

 

Interest Rate(2)

  Initial
Acquisition
Date
    Maturity/
Dissolution
Date
    Principal(3)
No. of  Shares /
No. of Units
    Amortized
Cost
    Fair Value  

Holland Intermediate Acquisition Corp.

             

Senior Secured Term Loan

  Energy /
Utilities
  10.0% (LIBOR
+ 9.0%)
10.0% (LIBOR
+ 9.0%)
    05/29/13        05/29/18      $ 24,227      $ 23,751      $ 24,227   

Senior Secured Revolving
Loan
(10)

        05/29/13        05/29/18        —          —          —     
           

 

 

   

 

 

 
              23,751        24,227   

Hostway Corporation

             

Senior Secured Term Loan

  IT services   6.0% (LIBOR
+ 4.8%) 10.0%
(LIBOR
+ 8.8%)
    12/27/13        12/13/19      $ 10,000      $ 9,900      $ 9,900   

Second Lien Term Loan

        12/27/13        12/13/20      $ 12,000        11,760        11,760   

Class A Common Equity(9)

        12/27/13        —          20        200        200   

Class A Preferred Equity(9)

        12/27/13        —          2        1,800        1,800   
           

 

 

   

 

 

 
              23,660        23,660   

Ingenio Acquisition, LLC

             

Senior Secured Term Loan

  Media,
entertainment
and leisure
  12.8%(6)
(11.3% Cash
and 1.5% PIK)
    05/09/13        05/09/18      $ 9,606      $ 9,433      $ 9,558   
           

 

 

   

 

 

 
              9,433        9,558   

Jefferson Management Holdings, LLC

             

Member interest(7)(8)

  Healthcare       04/20/10          1,393      $ 1,393      $ 938   
           

 

 

   

 

 

 
              1,393        938   

Key Brand Entertainment, Inc.

             

Senior Secured Term Loan

  Media,
entertainment
and leisure
  9.8% (LIBOR
+ 8.5%) 9.8%
(LIBOR
+ 8.5%)
    08/08/13        08/08/18      $ 13,178      $ 12,931      $ 12,947   

Senior Secured Revolving
Loan
(10)

        08/08/13        08/08/18      $ 1,478        1,451        1,478   
           

 

 

   

 

 

 
              14,382        14,425   

LCP Capital Fund LLC

             

Member interest(8)(15)(16)

  Financial
services
  12.6%(12)     04/20/10        02/15/15      $ 8,354      $ 8,354      $ 8,354   
           

 

 

   

 

 

 
              8,354        8,354   

Loadmaster Derrick & Equipment, Inc.

             

Senior Secured Term Loan

  Energy /
Utilities
 

9.3% (LIBOR
+ 8.3%)

9.3% (LIBOR
+ 8.3%)

9.3% (LIBOR
+ 8.3%)

    09/28/12        09/28/17      $ 8,828      $ 8,642      $ 8,608   

Senior Secured Revolving Loan(10)

        09/28/12        09/28/17        —          —          —     

Senior Secured Delayed Draw Term Loans(10)

        09/28/12        09/28/17        —          —          —     
           

 

 

   

 

 

 
              8,642        8,608   

Martex Fiber Southern Corp.

             

Subordinated Term Loan

  Industrials   13.5%(6)
(12.0% Cash
and 1.5% PIK)
    04/30/12        10/31/19      $ 8,890      $ 8,778      $ 8,445   
           

 

 

   

 

 

 
              8,778        8,445   

NCM Group Holdings, LLC

             

Senior Secured Term Loan

  Industrials   12.5% (LIBOR
+ 11.5%)
    08/29/13        08/29/18      $ 26,727      $ 25,711      $ 26,193   
           

 

 

   

 

 

 
              25,711        26,193   

Oasis Legal Finance Holding Company LLC

             

Second Lien Term Loan

  Financial
services
  10.5%     09/30/13        09/30/18      $ 13,943      $ 13,676      $ 13,676   
           

 

 

   

 

 

 
              13,676        13,676   

Octagon Income Note XIV, Ltd.

             

Income Notes, Residual
Interest
(4)

  Financial
services
  15.5%(12)     12/19/12        01/15/24        —        $ 8,579      $ 8,656   
           

 

 

   

 

 

 
              8,579        8,656   

OEM Group, Inc.

             

Senior Secured Note

  Manufacturing   15.0%(6)
(12.5% Cash
and 2.5% PIK)
    10/07/10        10/07/15      $ 15,162      $ 14,974      $ 14,480   

Warrant for Common

        10/07/10        —          —          —          —     
           

 

 

   

 

 

 
              14,974        14,480   

 

(Continued on next page)

 

See accompanying notes to these consolidated financial statements.

 

14


Table of Contents

THL Credit, Inc. and Subsidiaries

Consolidated Schedule of Investments—(Continued)

December 31, 2013

(dollar amounts in thousands)

 

Portfolio company/Type of Investment(1)

 

Industry

 

Interest Rate(2)

  Initial
Acquisition
Date
    Maturity/
Dissolution
Date
    Principal(3)
No. of  Shares /
No. of Units
    Amortized
Cost
    Fair Value  

SeaStar Solutions (f.k.a. Marine Acquisition Corp)

             

Senior Subordinated Note

  Manufacturing   13.5%(6)
(11.5% Cash
and 2.0% PIK)
    09/18/12        05/18/17      $ 16,500      $ 16,209      $ 16,830   
           

 

 

   

 

 

 
              16,209        16,830   

Sheplers, Inc.

             

Senior Secured Second Lien Term Loan

  Retail &
grocery
 

13.2% (LIBOR
+ 11.7%)

17.0%(17)
(10.0% Cash
and 7.0% PIK)

    12/20/11        12/20/16      $ 11,426      $ 11,233      $ 11,426   

Subordinated Term Loan

        12/20/11        12/20/17      $ 1,904        1,879        1,904   
           

 

 

   

 

 

 
              13,112        13,330   

Sheridan Square CLO, Ltd

             

Income Notes, Residual Interest(4)

  Financial
services
  13.2%(12)     03/12/13        04/15/25        —        $ 6,064      $ 6,152   
           

 

 

   

 

 

 
              6,064        6,152   

Specialty Brands Holdings, LLC

             

Second Lien Term Loan

  Restaurants   11.3% (LIBOR
+ 9.8%)
    07/16/13        07/16/18      $ 20,977      $ 20,587      $ 20,587   
           

 

 

   

 

 

 
              20,587        20,587   

The Studer Group, L.L.C.

             

Senior Subordinated Note

  Healthcare   12.0%     09/29/11        01/31/19      $ 16,910      $ 16,910      $ 16,910   
           

 

 

   

 

 

 
              16,910        16,910   

Surgery Center Holdings, Inc.

             

Second Lien Term Loan

  Healthcare   9.8% (LIBOR
+ 8.5%)
    04/19/13        04/11/20      $ 15,000      $ 14,652      $ 15,000   

Member interest(8)(9)

        04/20/10          469,673        —          2,000   
           

 

 

   

 

 

 
              14,652        17,000   

Tri Starr Management Services, Inc.

             

Senior Subordinated Note

  IT services   15.8%(6)
(12.5% Cash
and 3.3% PIK)
    03/04/13        03/04/19      $ 18,307      $ 17,981      $ 17,941   
           

 

 

   

 

 

 
              17,981        17,941   

Trinity Services Group, Inc.

             

Senior Subordinated Note

  Food &
beverage
  14.5%(6)
(12.0% Cash
and 2.5% PIK)
    03/29/12        09/29/17      $ 14,411      $ 14,252      $ 14,122   
           

 

 

   

 

 

 
              14,252        14,122   

Vision Solutions, Inc.

             

Second Lien Term Loan

  IT services   9.5% (LIBOR
+ 8.0%)
    03/31/11        07/23/17      $ 11,625      $ 11,561      $ 11,625   
           

 

 

   

 

 

 
              11,561        11,625   

Washington Inventory Service

             

Senior Secured Term Loan

  Business
services
  10.3% (LIBOR
+ 9.0%)
    12/27/12        06/20/19      $ 11,000      $ 10,861      $ 11,165   
           

 

 

   

 

 

 
              10,861        11,165   

Wingspan Portfolio Holdings, Inc.

             

Subordinated Term Loan

  Financial
services
  15.5% (19)     05/21/13        11/21/16      $ 18,768      $ 18,447      $ 15,765   
           

 

 

   

 

 

 
              18,447        15,765   

YP Equity Investors, LLC

             

Member interest(7)(8)

  Media,
entertainment
and leisure
      05/08/12        —          —        $ —        $ 4,100   
           

 

 

   

 

 

 
              —          4,100   
           

 

 

   

 

 

 

Non-controlled/non-affiliated investments—143.26% of net asset value

            $ 645,911      $ 648,860   
           

 

 

   

 

 

 

 

(Continued on next page)

 

See accompanying notes to these consolidated financial statements.

 

15


Table of Contents

THL Credit, Inc. and Subsidiaries

Consolidated Schedule of Investments—(Continued)

December 31, 2013

(dollar amounts in thousands)

 

Portfolio company/Type of Investment(1)

 

Industry

 

Interest Rate(2)

  Initial
Acquisition
Date
    Maturity/
Dissolution
Date
    Principal(3)
No. of  Shares /
No. of Units
    Amortized
Cost
    Fair Value  

Non-controlled/affiliated investments—0.00% of net asset value

             

THL Credit Greenway Fund LLC

             

Member interest(8)(16)

  Financial
services
      01/27/11        1/14/2021        —        $ 5      $ 5   
           

 

 

   

 

 

 
              5        5   

THL Credit Greenway Fund II LLC

             

Member interest(8)(16)

  Financial
services
      03/01/13        10/10/2021        —        $ 2      $ 2   
           

 

 

   

 

 

 
              2        2   
           

 

 

   

 

 

 

Total investments—143.26% of net asset value

            $ 645,918      $ 648,867   
           

 

 

   

 

 

 
             

 

Derivative Instruments  
Counterparty    Instrument    Interest Rate    Expiration
Date
     # of Contracts    Notional      Cost      FairValue  

ING Capital Markets, LLC

  

Interest Rate Swap –

Pay Fixed/Receive
Floating

   1.1425%/LIBOR      5/10/2017       1    $ 50,000       $ —         $ (284
                 

 

 

    

 

 

 

Total derivative instruments—0.06% of net asset value

            $ —         $ (284
                 

 

 

    

 

 

 

 

(1) All debt investments are income-producing. Equity and member interests are non-income-producing unless otherwise noted.
(2) Variable interest rate investments bear interest in reference to LIBOR or ABR, which are effective as of December 31, 2013. These variable rates reset monthly or quarterly, subject to interest rate floors.
(3) Principal includes accumulated PIK, or paid-in-kind, interest and is net of repayments.
(4) Foreign company at the time of investment and, as a result, is not a qualifying asset under Section 55(a) of the Investment Company Act of 1940.
(5) Unitranche investment; interest rate reflected represents the implied interest rate earned on the investment for the most recent quarter.
(6) At the option of the issuer, interest can be paid in cash or cash and PIK. The percentage of PIK shown is the maximum PIK that can be elected by the company.
(7) Interest held by a wholly owned subsidiary of THL Credit, Inc.
(8) Member interests of limited liability companies are the equity equivalents of the stock of corporations.
(9) Equity ownership may be held in shares or units of companies related to the portfolio company.
(10) Issuer pays 0.50% unfunded commitment fee on revolving loan facility.
(11) Publicly-traded company with a market capitalization in excess of $250 million at the time of investment and, as a result, is not a qualifying asset under Section 55(a) of the Investment Company Act of 1940.
(12) Income-producing security with no stated coupon; interest rate reflects an estimation of the effective yield to expected maturity as of December 31, 2013.
(13) Loan was on non-accrual status as of December 31, 2013. Issuer’s contractual rate is 15.0% PIK until December 31, 2013 and then for each of the quarters ending March 31, 2014 and June 30, 2014, the lesser of excess cash flow for the quarter or 12% paid in cash with the remainder amount paid in PIK up to a total rate of 15%.
(14) Debt investment interest held in companies related to the portfolio company.
(15) The Company’s investment in LCP Capital Fund LLC is in the form of membership interests and its contributed capital is for the most recent quarter maintained in a collateral account held by a custodian and acts as collateral for certain credit default swaps for the Series 2005-1 equity interest. See Note 2 in the Notes to the Consolidated Financial Statements.
(16) Non-registered investment company at the time of investment and, as a result, is not a qualifying asset under Section 55(a) of the Investment Company Act of 1940.
(17) Issuer has the option to increase its aggregate interest rate to 18.5% all PIK for a period of time under certain conditions in the credit agreement.
(18) C&K Market, Inc. filed for bankruptcy in November 2013. Loan was on non-accrual status as of December 31, 2013. Contractual default rate of interest is 18.0%.
(19) Contractual default rate of interest is 15.5%. Certain interest payments have been deferred until April 15, 2014.
(20) Of the $13,442 senior secured term loans outstanding, $11,981 is based in the United States and $1,461 is based in Canada.

 

See accompanying notes to these consolidated financial statements.

 

16


Table of Contents

THL Credit, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (unaudited)

March 31, 2014

(in thousands, except per share data)

1. Organization

THL Credit, Inc., or the Company, was organized as a Delaware corporation on May 26, 2009. The Company has elected to be regulated as a business development company, or BDC, under the Investment Company Act of 1940, as amended, or 1940 Act. The Company has elected to be treated for tax purposes as a regulated investment company, or RIC, under the Internal Revenue Code of 1986, or the Code, as amended. In 2009, the Company was treated for tax purposes as a corporation. The Company’s investment objective is to generate both current income and capital appreciation, primarily through privately negotiated investments in debt and equity securities of middle market companies.

On April 20, 2010, in anticipation of completing an initial public offering and formally commencing principal operations, the Company entered into a purchase and sale agreement with THL Credit Opportunities, L.P. and THL Credit Partners BDC Holdings, L.P., or BDC Holdings, an affiliate of the Company, to effectuate the sale by THL Credit Opportunities, L.P. to the Company of certain securities valued at $62,107, as determined by the Company’s board of directors, and on the same day issued 4,140 shares of common stock to BDC Holdings valued at $15.00 per share, pursuant to such agreement, in exchange for the aforementioned securities. Subsequently, the Company filed an election to be regulated as a BDC.

On April 21, 2010, the Company completed its initial public offering, formally commencing principal operations, and sold 9,000 shares of its common stock through a group of underwriters at a price of $13.00 per share, less an underwriting discount and commissions totaling $0.8125 per share. Concurrently, the Company sold 6,308 shares of its common stock to BDC Holdings at $13.00 per share, the sale of which was not subject to an underwriting discount and commission. On April 27, 2010, the Company closed the sale of the aforementioned 15,308 shares and received $190,684 of net proceeds, which includes an underwriting discount and offering expenses.

On May 26, 2010, the underwriters exercised their over-allotment option under the underwriting agreement and elected to purchase an additional 337 shares of common stock at $13.00 per share resulting in additional net proceeds of $3,892, which includes an underwriting discount and offering expenses.

On September 25, 2012, the Company closed a public equity offering selling 6,095 shares of its common stock through a group of underwriters at a price of $14.09 per share, less an underwriting discount and offering expenses, and received $81,657 in net proceeds.

On June 24, 2013, the Company closed a public equity offering selling 7,590 shares of its common stock through a group of underwriters at a price of $14.62 per share, less an underwriting discount and offering expenses, and received $106,179 in net proceeds.

The Company has established wholly owned subsidiaries, THL Credit AIM Media Holdings Inc., THL Credit Holdings, Inc. and THL Credit YP Holdings Inc, which are structured as Delaware entities, or tax blockers, to hold equity or equity-like investments in portfolio companies organized as limited liability companies, or LLCs (or other forms of pass-through entities). Tax blockers are not consolidated for income tax purposes and may incur income tax expense as a result of their ownership of portfolio companies.

The Company has a wholly owned subsidiary, THL Corporate Finance, Inc. and THL Corporate Finance, LLC, its wholly owned subsidiary, serves as the administrative agent on certain investment transactions.

THL Credit SBIC, LP, or SBIC LP, and its general partner, THL Credit SBIC GP, LLC, or SBIC GP, were organized in Delaware on August 25, 2011 as a limited partnership and limited liability company, respectively. On January 16, 2013, the Company withdrew its application with the Investment Division of the U.S. Small Business Administration, or SBA, to license a small business investment company, or SBIC. Both the SBIC LP and SBIC GP remain consolidated wholly owned subsidiaries of the Company.

2. Significant Accounting Policies

Basis of Presentation

The Company is an investment company following the accounting and reporting guidance under the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 946, Financial Services Investment Companies.

The consolidated financial statements include the accounts of the Company and its subsidiaries. All inter-company accounts and transactions have been eliminated in consolidation. In accordance with Article 6 of Regulation S-X under the Securities Act of 1933, as amended, and the Securities and Exchange Act of 1934, as amended, the Company generally will not consolidate its interest in any company other than in investment company subsidiaries and controlled operating companies substantially all of whose business consists of providing services to the Company.

 

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The accompanying consolidated financial statements of the Company have been presented in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and pursuant to the requirements for reporting on Form 10-Q and Article 10 of Regulation S-X. Accordingly, certain disclosures accompanying annual financial statements prepared in accordance with GAAP are omitted. In the opinion of management, the unaudited financial results included herein contain all adjustments, consisting solely of normal accruals, considered necessary for the fair statement of financial statements for the interim period included herein. The current period’s results of operations are not necessarily indicative of the operating results to be expected for the period ended December 31, 2014. The financial results of our portfolio companies are not consolidated in the financial statements. The accounting records of the Company are maintained in U.S. dollars.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that may affect the reported amounts and disclosures in the financial statements. Changes in the economic environment, financial markets, credit worthiness of our portfolio companies and any other parameters used in determining these estimates could cause actual results to differ and these differences could be material.

Cash

Cash consists of funds held in demand deposit accounts at several financial institutions and, at certain times, balances may exceed the Federal Deposit Insurance Corporation insured limit and is therefore subject to credit risk. There were no cash equivalents as of March 31, 2014 and December 31, 2013.

Deferred Financing Costs

Deferred financing costs consist of fees and expenses paid in connection with the closing of credit facilities and are capitalized at the time of payment. Deferred financing costs are amortized using the straight line method over the term of the credit facilities.

Deferred Offering Costs

Deferred offering costs consist of fees and expenses incurred in connection with the offer and sale of the Company’s common stock, including legal, accounting, printing fees and other related expenses, as well as costs incurred in connection with the filing of a shelf registration statement. These costs are capitalized when incurred and recognized as a reduction of offering proceeds when the offering becomes effective.

Escrow Receivable

Escrow receivable represents the Company’s claims to amounts set aside for indemnification claims or purchase price adjustments from the sale of certain investments. Escrow receivable is presented at net realizable value on the Consolidated Statements of Assets and Liabilities. There is a risk that some or all of the escrow amounts may not be ultimately collected by the Company. A current claim against the escrow in excess of the company’s reserve against the receivable is in arbitration.

Interest Rate Derivative

The Company recognizes derivatives as either interest rate derivative assets or liabilities at fair value on its Consolidated Statements of Assets and Liabilities with valuation changes and interest rate payments recorded as net change in unrealized appreciation (depreciation) on interest rate derivative and interest rate derivative periodic interest payments, net, respectively, on the Consolidated Statements of Operations. See also the disclosure in Note 7, Interest Rate Derivative.

Partial Loan Sales

The Company follows the guidance in ASC Topic 860 when accounting for loan participations and other partial loan sales. Such guidance requires a participation or other partial loan sale to meet the definition of a “participating interest”, as defined in the guidance as a pro-rata ownership interest in an entire financial asset, in order for sale treatment to be allowed. Participations or other partial loan sales which do not meet the definition of a participating interest remain on the Company’s consolidated statements of asset and liabilities and the proceeds are recorded as a secured borrowing until the definition is met.

Fair Value of Financial Instruments

The carrying amounts of the Company’s financial instruments, including cash, accounts payable and accrued expenses, approximate fair value due to their short-term nature. The carrying amounts and fair values of the Company’s long-term obligations are disclosed in Note 6, Credit Facility.

 

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Valuation of Investments

Investments, for which market quotations are readily available, are valued using market quotations, which are generally obtained from an independent pricing service or broker-dealers or market makers. Debt and equity securities, for which market quotations are not readily available or are not considered to be the best estimate of fair value, are valued at fair value as determined in good faith by the Company’s board of directors. Because the Company expects that there will not be a readily available market value for many of the investments in the Company’s portfolio, it is expected that many of the Company’s portfolio investments’ values will be determined in good faith by the Company’s board of directors in accordance with a documented valuation policy that has been reviewed and approved by our board of directors in accordance with GAAP. Due to the inherent uncertainty of determining the fair value of investments that do not have a readily available market value, the fair value of our investments may differ significantly from the values that would have been used had a readily available market value existed for such investments, and the differences could be material.

With respect to investments for which market quotations are not readily available, the Company’s board of directors undertakes a multi-step valuation process each quarter, as described below:

 

   

the Company’s quarterly valuation process begins with each portfolio company or investment being initially valued by the investment professionals responsible for the portfolio investment;

 

   

preliminary valuation conclusions are then documented and discussed with senior management of the Advisor;

 

   

to the extent determined by the audit committee of the Company’s board of directors, independent valuation firms engaged by the Company conduct independent appraisals and review the Advisor’s preliminary valuations in light of their own independent assessment;

 

   

the audit committee of the Company’s board of directors reviews the preliminary valuations of the Advisor and independent valuation firms and, if necessary, responds and supplements the valuation recommendation of the independent valuation firm to reflect any comments; and

 

   

the Company’s board of directors discusses valuations and determines the fair value of each investment in the Company’s portfolio in good faith based on the input of the Advisor and the respective independent valuation firms.

The types of factors that the Company may take into account in fair value pricing our investments include, as relevant, the nature and realizable value of any collateral, the portfolio company’s ability to make payments and its earnings and discounted cash flows, the markets in which the portfolio company does business, comparison to publicly traded securities and other relevant factors. The Company utilizes an income approach to value its debt investments and a combination of income and market approaches to value its equity investments. With respect to unquoted securities, the Advisor and the Company’s board of directors, in consultation with the Company’s independent third party valuation firm, values each investment considering, among other measures, discounted cash flow models, comparisons of financial ratios of peer companies that are public and other factors, which valuation is then approved by the board of directors. For debt investments, the Company determines the fair value primarily using an income, or yield, approach that analyzes the discounted cash flows of interest and principal for the debt security, as set forth in the associated loan agreements, as well as the financial position and credit risk of each portfolio investments. The Company’s estimate of the expected repayment date is generally the legal maturity date of the instrument. The yield analysis considers changes in leverage levels, credit quality, portfolio company performance and other factors.

The Company values its interest rate derivative agreement using an income approach that analyzes the discounted cash flows associated with the interest rate derivative agreement. Significant inputs to the discounted cash flows methodology include the forward interest rate yield curves in effect as of the end of the measurement period and an evaluation of the counterparty’s credit risk.

The Company values its residual interest investments in collateralized loan obligations using an income approach that analyzes the discounted cash flows of our residual interest. The discounted cash flows model utilizes prepayment, re-investment and loss assumptions based on historical experience and projected performance, economic factors, the characteristics of the underlying cash flow, and comparable yields for similar collateralized loan obligation fund subordinated notes or equity, when available. Specifically, the Company uses Intex cash flow models, or an appropriate substitute to form the basis for the valuation of the Company’s residual interest. The models use a set of assumptions including projected default rates, recovery rates, reinvestment rates and prepayment rates in order to arrive at estimated cash flows. The assumptions are based on available market data and projections provided by third parties as well as management estimates.

The Company values its investment in payment rights using an income approach that analyzes the discounted projected future cash flow streams assuming an appropriate discount rate, which will among other things consider other transactions in the market, the current credit environment, performance of the underlying portfolio company and the length of the remaining payment stream.

 

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The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities (including a business). The income approach uses valuation techniques to convert future cash flows or earnings to a single present amount (discounted). The measurement is based on the value indicated by current market expectations about those future amounts. In following these approaches, the types of factors that the Company may take into account in fair value pricing the Company’s investments include, as relevant: available current market data, including relevant and applicable market trading and transaction comparables, applicable market yields and multiples, the current investment performance rating, security covenants, call protection provisions, information rights, the nature and realizable value of any collateral, the portfolio company’s ability to make payments, its earnings and discounted cash flows, the markets in which the portfolio company does business, comparisons of financial ratios of peer companies that are public, transaction comparables, our principal market as the reporting entity and enterprise values, among other factors.

In accordance with the authoritative guidance on fair value measurements and disclosures under GAAP, the Company discloses the fair value of its investments in a hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The guidance establishes three levels of the fair value hierarchy as follows:

Level 1—Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;

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

Level 3—Prices or valuations that require inputs that are both significant to the fair value measurement and unobservable.

The level of an asset or liability within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. However, the determination of what constitutes “observable” requires significant judgment by management.

The Company considers whether the volume and level of activity for the asset or liability have significantly decreased and identifies transactions that are not orderly in determining fair value. Accordingly, if the Company determines that either the volume and/or level of activity for an asset or liability has significantly decreased (from normal conditions for that asset or liability) or price quotations or observable inputs are not associated with orderly transactions, increased analysis and management judgment will be required to estimate fair value. Valuation techniques such as an income approach might be appropriate to supplement or replace a market approach in those circumstances.

The Company has adopted the authoritative guidance under GAAP for estimating the fair value of investments in investment companies that have calculated net asset value per share in accordance with the specialized accounting guidance for Investment Companies. Accordingly, in circumstances in which net asset value per share of an investment is determinative of fair value, the Company estimates the fair value of an investment in an investment company using the net asset value per share of the investment (or its equivalent) without further adjustment. If the net asset value per share of the investment is determined in accordance with the specialized accounting guidance for investment companies as of the reporting entity’s measurement date.

Investment Risk

The value of investments will generally fluctuate with, among other things, changes in prevailing interest rates, federal tax rates, counterparty risk, general economic conditions, the condition of certain financial markets, developments or trends in any particular industry and the financial condition of the issuer. During periods of limited liquidity and higher price volatility, the Company’s ability to dispose of investments at a price and time that the Company deems advantageous may be impaired. The extent of this exposure is reflected in the carrying value of these financial assets and recorded in the Consolidated Statements of Assets and Liabilities.

Lower-quality debt securities involve greater risk of default or price changes due to changes in the credit quality of the issuer. The value of lower-quality debt securities often fluctuates in response to company, political, or economic developments and can decline significantly over short periods of time or during periods of general or regional economic difficulty. Lower-quality debt securities can be thinly traded or have restrictions on resale, making them difficult to sell at an acceptable price. The default rate for lower-quality debt securities is likely to be higher during economic recessions or periods of high interest rates.

Security Transactions, Payment-in-Kind, Income Recognition, Realized/Unrealized Gains or Losses

Security transactions are recorded on a trade-date basis. The Company measures realized gains or losses by the difference between the net proceeds from the repayment or sale and the amortized cost basis of the investment, using the specific identification method. The Company reports changes in fair value of investments that are measured at fair value as a component of net change in unrealized appreciation on investments in the Consolidated Statements of Operations. The Company reports changes in fair value of the interest rate derivative that is measured at fair value as a component of net change in unrealized appreciation or depreciation on interest rate derivative in the Consolidated Statements of Operations.

 

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Interest income, adjusted for amortization of premium and accretion of discount, is recorded on an accrual basis to the extent that the Company expects to collect such amounts. Dividend income is recognized on the ex-dividend date. Original issue discount, principally representing the estimated fair value of detachable equity or warrants obtained in conjunction with the acquisition of debt securities, and market discount or premium are capitalized and accreted or amortized into interest income over the life of the respective security using the effective yield method. The amortized cost of investments represents the original cost adjusted for the accretion/amortization of discounts and premiums and upfront loan origination fees.

Loans are placed on non-accrual status when principal or interest payments are past due 30 days or more and/or when it is no longer probable that principal or interest will be collected. However, the Company may make exceptions to this policy if the loan has sufficient collateral value and is in the process of collection. The Company records the reversal of any previously accrued income against the same income category reflected in the Consolidated Statement of Operations. As of March 31, 2014, the Company had three loans on non-accrual with an amortized cost basis of $39,401 and fair value of $31,384. As of December 31, 2013, the Company had two loans on non-accrual with an amortized cost basis of $20,954 and fair value of $16,838.

The Company has investments in its portfolio which contain a contractual paid-in-kind, or PIK, interest provision. PIK interest is computed at the contractual rate specified in each investment agreement, is added to the principal balance of the investment, and is recorded as income. The Company will cease accruing PIK interest if there is insufficient value to support the accrual or if it does not expect amounts to be collectible. To maintain the Company’s status as a RIC, PIK interest income, which is considered investment company taxable income, must be paid out to stockholders in the form of dividends even though the Company has not yet collected the cash. Amounts necessary to pay these dividends may come from available cash.

The following shows a rollforward of PIK income activity for the three months ended March 31, 2014 and 2013:

 

     Three months ended      Three months ended  
     March 31, 2014      March 31, 2013  

Accumulated PIK balance, beginning of period

   $ 6,064       $ 5,807   

PIK income capitalized/receivable

     535         1,092   
  

 

 

    

 

 

 

Accumulated PIK balance, end of period

   $ 6,599       $ 6,899   
  

 

 

    

 

 

 

Interest income from the Company’s TRA and CLO residual interests is recorded based upon an estimation of an effective yield to expected maturity using anticipated cash flows. Amounts in excess of income recognized are recorded as a reduction to the cost basis of the investment. The Company monitors the anticipated cash flows from its TRA and CLO residual interests and will adjust its effective yield periodically as needed.

The Company capitalizes and amortizes upfront loan origination fees received in connection with the closing of investments. The unearned income from such fees is accreted into interest income over the contractual life of the loan based on the effective interest method. Upon prepayment of a loan or debt security, any prepayment premiums, unamortized upfront loan origination fees, and unamortized discounts are recorded as interest income.

In certain investment transactions, the Company may provide advisory services. For services that are separately identifiable and external evidence exists to substantiate fair value, income is recognized as earned. The Company had no income from advisory services related to portfolio companies for the three months ended March 31, 2014 and 2013.

Other income includes commitment fees, fees related to the management of Greenway and Greenway II, structuring fees, amendment fees and unused commitment fees associated with investments in portfolio companies. These fees are recognized as income when earned by the Company per the terms of the applicable management or credit agreements.

 

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The following is a summary of the levels within the fair value hierarchy in which the Company invests as of March 31, 2014:

 

Description

   Fair Value         Level 1          Level 2     Level 3  

First lien secured debt

   $ 329,307