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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

 

 

 

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

Commission file number: 814-00827

 

 

Corporate Capital Trust, Inc.

(Exact name of registrant as specified in its charter)

 

 

 

Maryland   27-2857503

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

CNL Center at City Commons  
450 South Orange Avenue  
Orlando, Florida   32801
(Address of principal executive offices)   (Zip Code)

Registrant’s telephone number, including area code (866) 745-3797

 

 

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  ¨

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 definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer   ¨    Accelerated filer   ¨
Non-accelerated filer   x  Do not check if 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 Exchange Act).    Yes  ¨    No  x

The number of shares of common stock of the registrant outstanding as of May 9, 2014 was 164,952,569.

 

 

 


CORPORATE CAPITAL TRUST, INC.

INDEX

 

          PAGE  

PART I. FINANCIAL INFORMATION

  

Item 1.

   Financial Statements:   
   Condensed Consolidated Statements of Assets and Liabilities (unaudited)      2   
   Condensed Consolidated Statements of Operations (unaudited)      3   
   Condensed Consolidated Statements of Changes in Net Assets (unaudited)      4   
   Condensed Consolidated Statements of Cash Flows (unaudited)      5   
   Condensed Consolidated Schedules of Investments (unaudited)      6   
   Notes to Condensed Consolidated Financial Statements (unaudited)      18   

Item 2.

   Management’s Discussion and Analysis of Financial Condition and Results of Operations      40   

Item 3.

   Quantitative and Qualitative Disclosures about Market Risk      60   

Item 4.

   Controls and Procedures      62   
PART II. OTHER INFORMATION   

Item 1.

   Legal Proceedings      62   

Item 1A.

   Risk Factors      62   

Item 2.

   Unregistered Sales of Equity Securities and Use of Proceeds      62   

Item 3.

   Defaults Upon Senior Securities      62   

Item 4.

   Mine Safety Disclosures      63   

Item 5.

   Other Information      63   

Item 6.

   Exhibits      63   

Signatures

     64   

Exhibit Index

     65   


Corporate Capital Trust, Inc. and Subsidiaries

Condensed Consolidated Statements of Assets and Liabilities (unaudited)

(in thousands, except share and per share amounts)

 

     March 31, 2014     December 31, 2013  

Assets

    

Investments, at fair value (amortized cost of $1,893,344 and $2,037,504) - including $136,613 and $244,981 of investments pledged to creditors (Note 11)

   $ 1,945,194      $ 2,074,772   

Cash

     85,938        85,987   

Cash denominated in foreign currency (cost $41 and $218, respectively)

     41        218   

Collateral on deposit with custodian

     36,000        37,501   

Dividends and interest receivable

     34,283        25,613   

Receivable for investments sold

     8,976        46,469   

Principal receivable

     988        795   

Unrealized appreciation on derivative instruments

     964        1,861   

Receivable from advisors

     388        —     

Deferred offering expense

     2,744        3,394   

Prepaid and deferred expenses

     4,305        4,576   
  

 

 

   

 

 

 

Total assets

     2,119,821        2,281,186   
  

 

 

   

 

 

 

Liabilities

    

Revolving credit facilities

   $ 432,059      $ 707,389   

Payable for investments purchased

     82,506        101,014   

Accrued performance-based incentive fees

     18,591        16,412   

Shareholders’ distributions payable

     —          14,923   

Accrued investment advisory fees

     3,534        3,825   

Unrealized depreciation on derivative instruments

     2,457        3,181   

Accrued reimbursement of expense support

     —          1,136   

Accrued directors’ fees

     94        74   

Other accrued expenses and liabilities

     3,172        2,798   
  

 

 

   

 

 

 

Total liabilities

     542,413        850,752   
  

 

 

   

 

 

 

Net Assets

    

Common stock, $0.001 par value per share, 1,000,000,000 shares authorized, 155,727,069 and 143,024,102 shares issued and outstanding at March 31, 2014 and December 31, 2013, respectively

     156        143   

Paid-in capital in excess of par value

     1,530,999        1,401,767   

Distributions in excess of net investment income

     (963     (5,896

Accumulated net unrealized appreciation on investments, derivative instruments and foreign currency translation

     47,216        34,420   
  

 

 

   

 

 

 

Net assets

   $ 1,577,408      $ 1,430,434   
  

 

 

   

 

 

 

Net asset value per share

   $ 10.13      $ 10.00   
  

 

 

   

 

 

 

See notes to condensed consolidated financial statements.

 

2


Corporate Capital Trust, Inc. and Subsidiaries

Condensed Consolidated Statements of Operations (unaudited)

(in thousands, except share and per share amounts)

 

     Three Months Ended March 31,  
     2014     2013  

Investment income

    

Interest income

   $ 49,653      $ 15,239   

Fee income

     276        12   

Dividend income

     4        98   
  

 

 

   

 

 

 

Total investment income

     49,933        15,349   
  

 

 

   

 

 

 

Operating expenses

    

Investment advisory fees

     10,681        4,861   

Performance-based incentive fees

     9,786        4,205   

Interest expense

     4,481        1,317   

Offering expense

     1,875        1,094   

Administrative services

     684        423   

Professional services

     519        348   

Custodian and accounting fees

     196        88   

Director fees and expenses

     167        68   

Other

     833        406   
  

 

 

   

 

 

 

Total operating expenses

     29,222        12,810   

Reimbursement of expense support

     —          1,136   
  

 

 

   

 

 

 

Net expenses

     29,222        13,946   
  

 

 

   

 

 

 

Net investment income

     20,711        1,403   
  

 

 

   

 

 

 

Realized and unrealized gain (loss):

    

Net realized gain on investments

     12,198        1,007   

Net realized gain (loss) on derivative instruments

     (191     868   

Net realized gain (loss) on foreign currency transactions

     (1,022     11   

Net change in unrealized appreciation/depreciation on investments

     14,582        13,504   

Net change in unrealized appreciation/depreciation on derivative instruments

     (173     6,641   

Net change in unrealized appreciation/depreciation on foreign currency translation

     (1,613     9   
  

 

 

   

 

 

 

Net realized and unrealized gain

     23,781        22,040   
  

 

 

   

 

 

 

Net increase in net assets resulting from operations

   $ 44,492      $ 23,443   
  

 

 

   

 

 

 

Net Investment Income Per Share

   $ 0.14      $ 0.02   
  

 

 

   

 

 

 

Diluted and Basic Earnings Per Share

   $ 0.30      $ 0.33   
  

 

 

   

 

 

 

Weighted Average Shares Outstanding

     149,009,440        71,356,247   

Dividends Declared Per Share (Note 8)

   $ 0.18      $ 0.20   
  

 

 

   

 

 

 

See notes to condensed consolidated financial statements.

 

3


Corporate Capital Trust, Inc. and Subsidiaries

Condensed Consolidated Statements of Changes in Net Assets (unaudited)

(in thousands, except share amounts)

 

     Three Months Ended March 31,  
     2014     2013  

Operations

    

Net investment income

   $ 20,711      $ 1,403   

Net realized gain on investments, derivative instruments and foreign currency transactions

     10,985        1,886   

Net change in unrealized appreciation on investments, derivative instruments and foreign currency translation

     12,796        20,154   
  

 

 

   

 

 

 

Net increase in net assets resulting from operations

     44,492        23,443   
  

 

 

   

 

 

 

Distributions to shareholders from

    

Net investment income

     (15,778     (1,403

Realized gains

     (10,985     (1,886

In excess of net investment income and net realized gains

     —          (10,447
  

 

 

   

 

 

 

Net decrease in net assets resulting from shareholders distributions

     (26,763     (13,736
  

 

 

   

 

 

 

Capital share transactions

    

Issuance of shares of common stock

     111,167        179,599   

Reinvestment of shareholders’ distributions

     21,311        6,850   

Repurchase of shares of common stock

     (3,233     (818
  

 

 

   

 

 

 

Net increase in net assets resulting from capital share transactions

     129,245        185,631   
  

 

 

   

 

 

 

Total increase in net assets

     146,974        195,338   

Net assets at beginning of period

     1,430,434        611,484   
  

 

 

   

 

 

 

Net assets at end of period

   $ 1,577,408      $ 806,822   
  

 

 

   

 

 

 

Capital share activity

    

Shares issued from subscriptions

     10,930,795        18,097,872   

Shares issued from reinvestment of distributions

     2,095,496        688,817   

Shares repurchased

     (323,324     (84,075
  

 

 

   

 

 

 

Net increase in shares outstanding

     12,702,967        18,702,614   
  

 

 

   

 

 

 

Distributions in excess of net investment income at end of period

   $ (963   $ (13,822
  

 

 

   

 

 

 

See notes to condensed consolidated financial statements.

 

4


Corporate Capital Trust, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows (unaudited)

(in thousands)

 

     For the three months ended  
     March 31, 2014     March 31, 2013  

Operating Activities:

    

Net increase in net assets resulting from operations

   $ 44,492      $ 23,443   

Adjustments to reconcile net increase in net assets resulting from operations to net cash provided by (used in) operating activities:

    

Purchases of investments

     (286,051     (236,159

Increase (decrease) in payable for investments purchased

     (18,531     35,896   

Paid-in-kind interest

     (1,010     —     

Proceeds from sales of investments

     304,509        49,519   

Proceeds from principal payments

     122,900        42,017   

Net realized gain on investments

     (12,198     (1,006

Net change in unrealized appreciation on investments

     (14,582     (13,503

Net change in unrealized (appreciation) depreciation on derivative instruments

     173        (6,641

Net change in unrealized (appreciation) depreciation on foreign currency translation

     1,613        (9

Amortization of premium/discount - net

     (1,285     (101

Amortization of deferred financing cost

     518        132   

Increase in short-term investments, net

     17,295        (68,813

Decrease (increase) in cash collateral for total return swap

     1,501        (88,055

Increase in dividend and interest receivable

     (8,648     (3,944

Increase in receivable for investments sold

     37,477        33,185   

Increase in principal receivable

     (193     (594

Increase in receivable from advisors

     (388     —     

Increase (decrease) in other assets

     697        (531

Decrease (increase) in accrued investment advisory fees

     (291     385   

Increase in accrued performance-based incentive fees

     2,179        4,205   

Increase (decrease) in other accrued expenses and liabilities

     (742     33   
  

 

 

   

 

 

 

Net cash provided by (used in) operating activities

     189,435        (230,541
  

 

 

   

 

 

 

Financing Activities:

    

Proceeds from issuance of shares of common stock

     111,167        179,599   

Payment on repurchase of shares of common stock

     (3,233     (818

Distributions paid

     (20,375     (6,885

Borrowings under credit facilities

     —          59,820   

Repayments of credit facility

     (276,926     —     

Deferred financing costs paid

     (294     (927
  

 

 

   

 

 

 

Net cash provided by (used in) financing activities

     (189,661     230,789   
  

 

 

   

 

 

 

Effect of exchange rate changes on cash

     —          (1

Net increase (decrease) in cash

     (226     247   

Cash and cash denominated in foreign currency, beginning of period

     86,205        307   
  

 

 

   

 

 

 

Cash and cash denominated in foreign currency, end of period

   $ 85,979      $ 553   
  

 

 

   

 

 

 

Supplemental disclosure of cash flow information and non-cash financing activities:

    

Cash paid for interest

   $ 4,274      $ 1,166   

Distributions reinvested

   $ 21,311      $ 6,850   

Deferred financing costs accrued in other accrued expenses and liabilities

   $ —        $ 108   

See notes to condensed consolidated financial statements.

 

5


Corporate Capital Trust, Inc. and Subsidiaries

Condensed Consolidated Schedule of Investments (unaudited)

As of March 31, 2014

(in thousands, except share amounts)

 

Company (a)(b)    Footnotes    Industry    Interest
Rate
     Base Rate
Floor
     Maturity
Date
            No. Shares/
Principal
Amount (c)
            Cost (d)             Fair Value    

 

 

Senior Secured Loans - First Lien—40.7%

                                

 

 

Algeco/Scotsman (LU)

   (e)(f)(g)    Consumer Durables & Apparel      15.75% PIK            5/1/2018       $           26,464       $           26,590       $           28,846   

 

 

Aspen Dental Management, Inc.

   (g)    Health Care Equipment & Services      L + 550         1.50%         10/6/2016            6,038            5,993            6,057   

 

 

Bluestem Brands, Inc.

   (g)    Consumer Durables & Apparel      L + 650         1.00%         12/6/2018            40,650            39,066            41,107   

 

 

Catalina Marketing Corp.

   (g)    Media      L + 425         1.00%         10/12/2020            5,202            5,190            5,208   

 

 

Charlotte Russe, Inc.

      Retailing      L + 550         1.25%         5/22/2019            6,295            6,170            6,236   

 

 

Continental Building Products, LLC

   (f)(g)    Materials      L + 375         1.00%         8/28/2020            9,180            9,137            9,222   

 

 

Data Device Corp.

   (g)    Capital Goods      L + 650         1.50%         7/11/2018            10,527            10,358            10,540   

 

 

Distribution International, Inc.

      Retailing      L + 650         1.00%         7/16/2019            48,265            47,828            48,386   

 

 

Easton-Bell Sports, Inc.

   (h)    Consumer Durables & Apparel      11.50%            12/31/2015            24,247            24,256            24,247   

 

 

Flagstone Foods Holding Corp.

   (h)    Food & Staples Retailing      L + 575         1.25%         4/15/2018            20,052            19,871            20,052   

 

 

Football Association of Ireland (IE)

   (e)(f)(h)(EUR)    Consumer Durables & Apparel      6.20%            12/20/2020                 44,615            59,632            60,696   

 

 

Greystone & Co., Inc.

   (h)    Diversified Financials      L + 800         1.00%         3/26/2021       $           34,174            33,577            33,832   

 

 

Guitar Center, Inc.

   (g)    Retailing      L + 600            4/9/2017            19,471            19,086            19,455   

 

 

Gymboree Corp.

   (g)(i)    Retailing      L + 350         1.50%         2/23/2018            5,415            4,901            4,891   

 

 

Gypsum Management & Supply, Inc.

   (i)    Capital Goods      L + 375         1.00%         3/26/2021            13,207            13,075            13,174   

 

 

Internet Brands, Inc.

   (g)    Media      L + 500         1.25%         3/18/2019            790            785            796   

 

 

iPayment, Inc.

   (g)    Software & Services      L + 525         1.50%         5/8/2017       $           3,186       $           3,137       $           3,163   

 

 

IPC Systems, Inc.

   (g)    Technology Hardware & Equipment      L + 650         1.25%         7/31/2017            1,487            1,456            1,491   
   (g)         L + 650         1.25%         7/31/2017            6,355            6,260            6,369   

 

 

J. Jill

   (h)    Retailing      L + 850         1.50%         4/29/2017            7,840            7,840            7,840   

 

 

Jacuzzi Brands, Inc. (LU)

   (e)(h)    Capital Goods      L + 650         1.25%         7/3/2019            41,679            40,925            41,596   

 

 

KeyPoint Government Solutions, Inc.

   (h)    Capital Goods      L + 600         1.25%         11/13/2017            30,946            30,462            30,946   

 

 

MCS AMS Sub-Holdings, LLC

      Commercial & Professional Services      L + 600         1.00%         10/15/2019            40,455            39,306            39,444   

 

 

New Enterprise Stone & Lime Co., Inc.

   (h)    Capital Goods      L + 700         1.00%         2/12/2019            56,298            56,298            56,776   

 

 

NewPage Corp.

   (g)    Materials      L + 825         1.25%         2/11/2021            9,646            9,456            9,754   

 

 

OpenLink Financial, Inc.

      Software & Services      L + 500         1.25%         10/30/2017            46            46            46   

 

 

Sportsman’s Warehouse, Inc.

   (h)    Retailing      L + 1075         1.25%         8/20/2019            23,594            23,116            23,795   
   (h)         L + 600         1.25%         8/20/2019            40,110            39,747            40,512   

 

 

Travelport, LLC

   (g)    Software & Services      L + 500         1.25%         6/26/2019            5,402            5,329            5,536   

 

 

Willbros United States Holding, Inc.

   (f)(g)    Energy      L + 975         1.25%         8/5/2019            33,222            32,573            33,652   

 

 

Wilton Brands, LLC

   (g)    Materials      P + 525         2.25%         8/30/2018            8,604            8,469            8,251   

 

 

Total Senior Secured Loans - First Lien

                        $

 

 

 

  

 

    

 

        629,935

 

  

 

   $

 

 

 

  

 

    

 

        641,916

 

  

 

                          

 

 

       

 

 

 

 

See notes to condensed consolidated financial statements.

 

6


Corporate Capital Trust, Inc. and Subsidiaries

Condensed Consolidated Schedule of Investments (unaudited) (continued)

As of March 31, 2014

(in thousands, except share amounts)

 

Company (a)(b)    Footnotes    Industry    Interest
Rate
     Base Rate
Floor
     Maturity
Date
            No. Shares/
Principal
Amount (c)
            Cost (d)             Fair Value    

 

 

Senior Secured Loans - Second Lien—39.1%

                                

 

 

American Casino & Entertainment Properties, LLC

      Consumer Services      L + 1000         1.25%         1/3/2020       $           1,832       $           1,896       $           1,919   

 

 

Angelica Corp.

   (h)    Health Care Equipment & Services      L + 875         1.25%         7/15/2019            50,869            50,869            50,309   

 

 

Arysta Lifescience SPC, LLC

   (f)(g)    Food, Beverage & Tobacco      L + 700         1.25%         11/30/2020            16,305            16,154            16,611   

 

 

AssuredPartners, Inc.

   (i)    Insurance      L + 675         1.00%         4/2/2022            4,158            4,117            4,164   

 

 

Brake Bros Ltd. (UK)

   (e)(f) (GBP)    Food & Staples Retailing     
 
L + 325,
3.00% PIK
  
  
        3/12/2017       £           8,713            12,250            13,981   

 

 

CHG Companies, Inc.

   (g)    Health Care Equipment & Services      L + 775         1.25%         11/19/2020       $           10,485            10,366            10,669   

 

 

CRC Health Group, Inc.

   (i)    Health Care Equipment & Services      L + 800         1.00%         9/28/2021            22,556            22,104            22,640   

 

 

CTI Foods Holding Co., LLC

      Food, Beverage & Tobacco      L + 725         1.00%         6/28/2021            23,219            22,893            23,451   

 

 

Data Device Corp.

      Capital Goods      L + 1000         1.50%         7/11/2019            8,000            7,868            7,920   

 

 

Excelitas Technologies Corp.

   (h)    Technology Hardware & Equipment     
 
L + 975,
1.50% PIK
  
  
     1.00%         4/29/2021            107,758            107,674            109,590   

 

 

EZE Castle Software, Inc.

   (g)    Software & Services      L + 725         1.25%         4/5/2021            12,962            12,923            13,167   

 

 

GENEX Services, Inc.

   (g)    Health Care Equipment & Services      L + 825         1.00%         1/26/2019            21,029            20,835            21,358   

 

 

Greenway Medical Technologies

      Health Care Equipment & Services      L + 825         1.00%         11/4/2021            26,396            26,005            26,792   

 

 

Gruppo Argenta S.p.A. (LU)

   (e)(f)(h)(EUR)    Retailing      12.00% PIK            1/31/2019                 21,459            22,975            24,005   

 

 

Learfield Communications, Inc.

      Media      L + 775         1.00%         10/8/2021       $           4,743            4,697            4,861   

 

 

Lightower Fiber, LLC

   (g)    Telecommunication Services      L + 675         1.25%         4/12/2021       $           2,138       $           2,119       $           2,184   

 

 

Misys Ltd. (UK)

   (e)(f)(g)    Software & Services      12.00%            6/12/2019            3,000            3,350            3,462   

 

 

Monarch (LU)

   (e)(f)(g)    Materials      L + 700         1.25%         4/3/2020            5,416            5,392            5,525   

 

 

NewWave Communications, Inc.

   (g)(i)    Media      L + 800         1.00%         10/30/2020            9,905            9,829            10,029   

 

 

P2 Energy Solutions, Inc.

      Software & Services      L + 800         1.00%         4/30/2021            9,283            9,193            9,474   

 

 

Packaging Coordinators, Inc.

   (h)    Materials      L + 825         1.25%         10/31/2020            11,827            11,719            11,785   

 

 

Polyconcept Finance BV (NL)

   (e)(f)(h)    Consumer Durables & Apparel      L + 875         1.25%         6/28/2020            46,727            46,727            45,839   

 

 

Progressive Solutions

      Health Care Equipment & Services      L + 850         1.00%         10/22/2021            19,903            19,709            20,301   

 

 

RedPrairie Corp.

   (g)    Software & Services      L + 1000         1.25%         12/21/2019            18,150            18,168            18,481   

 

 

Sabine Oil & Gas, LLC

   (f)(g)    Energy      L + 750         1.25%         12/31/2018            14,527            14,405            14,754   

 

 

SafeNet, Inc.

   (h)    Software & Services      L + 750         1.00%         3/5/2021            20,829            20,519            20,517   

 

 

Safety Technology Holdings, Inc.

   (h)    Technology Hardware & Equipment      L + 825         1.00%         6/2/2020            30,402            29,672            30,250   

 

 

Sheridan Holdings, Inc.

   (g)    Health Care Equipment & Services      L + 725         1.00%         12/13/2021            13,899            13,831            14,316   

 

 

StoneRiver Holdings, Inc.

      Insurance      L + 725         1.25%         5/30/2020            5,595            5,569            5,669   

 

 

Talbots, Inc.

   (g)(i)    Retailing      L + 725         1.00%         3/12/2021            11,451            11,336            11,680   

 

 

Travelport, LLC

   (g)    Software & Services      L + 800         1.50%         1/31/2016            18,868            18,562            19,552   

 

 

 

See notes to condensed consolidated financial statements.

 

7


Corporate Capital Trust, Inc. and Subsidiaries

Condensed Consolidated Schedule of Investments (unaudited) (continued)

As of March 31, 2014

(in thousands, except share amounts)

 

Company (a)(b)    Footnotes    Industry    Interest
Rate
     Base Rate
Floor
     Maturity
Date
            No. Shares/
Principal
Amount (c)
            Cost (d)             Fair Value    

 

 

Websense, Inc.

      Technology Hardware & Equipment      L + 725         1.00%         12/24/2020       $           22,131       $           22,028       $           22,297   

 

 
Total Senior Secured Loans - Second Lien                         $

 

 

 

  

 

    

 

605,754

 

  

 

   $

 

 

 

  

 

    

 

617,552

 

  

 

                          

 

 

       

 

 

 

Senior Secured Bonds—8.7%

                                

 

 

American Rock Salt Co., LLC

   (j)(k)    Materials      8.25%            5/1/2018            9,690            9,090            10,102   

 

 

Artesyn Technologies, Inc.

   (f)(j)    Technology Hardware & Equipment      9.75%            10/15/2020            3,567            3,567            3,371   

 

 

Avaya, Inc.

   (g)(j)    Technology Hardware & Equipment      7.00%            4/1/2019            3,722            3,448            3,694   

 

 

Guitar Center, Inc.

   (i)(j)    Retailing      6.50%            4/15/2019            21,542            21,314            21,407   

 

 

Hot Topic, Inc.

   (j)    Consumer Durables & Apparel      9.25%            6/15/2021            2,419            2,398            2,613   

 

 

Louisiana Public Facilities Authority

   (h)    Energy      11.50%            1/1/2020            50,580            49,147            50,529   

 

 

New Enterprise Stone & Lime Co., Inc.

   (k)    Capital Goods     
 
5.00%,
8.00% PIK
  
  
        3/15/2018            10,474            10,564            12,045   

 

 

OAG Holdings, LLC

   (f)(h)    Energy     
 
8.00%,
2.00% PIK
  
  
        12/20/2020            20,108            17,326            18,198   

 

 

Ryerson, Inc.

   (g)    Materials      9.00%            10/15/2017            5,814            5,814            6,279   

 

 

SquareTwo Financial Corp.

   (k)    Banks      11.63%            4/1/2017            6,344            6,587            6,376   

 

 

Wise Metals Group, LLC

   (j)(k)    Materials      8.75%            12/15/2018            2,148            2,148            2,304   

 

 

Total Senior Secured Bonds

                        $

 

 

 

  

 

    

 

131,403

 

  

 

   $

 

 

 

  

 

    

 

136,918

 

  

 

                          

 

 

       

 

 

 

Total Senior Debt—88.5%

                        $

 

 

 

  

 

    

 

    1,367,092

 

  

 

   $

 

 

 

  

 

    

 

    1,396,386

 

  

 

                          

 

 

       

 

 

 

Subordinated Debt—20.0%

                                

 

 

Algeco/Scotsman (UK)

   (e)(f)(j)(k)    Consumer Durables & Apparel      10.75%            10/15/2019         $         179       $           181       $           198   

 

 

CDW Corp.

   (f)(k)    Technology Hardware & Equipment      12.54%            10/12/2017            864            911            903   

 

 

Cemex Materials, LLC

   (j)(k)    Materials      7.70%            7/21/2025            23,312            22,944            25,410   

 

 

Ceridian Corp.

   (k)    Commercial & Professional Services      11.00%            3/15/2021            16,201            17,543            18,672   

 

 

CHS/Community Health Systems, Inc.

   (f)(j)(k)    Health Care Equipment & Services      6.88%            2/1/2022            114            114            119   

 

 

CRC Health Group, Inc.

   (k)    Health Care Equipment & Services      10.75%            2/1/2016            6,021            6,043            6,006   

 

 

Datatel, Inc.

   (g)(j)    Software & Services     
 
9.63% or
10.38% PIK
  
  
        12/1/2018            9,287            9,198            9,728   

 

 

Education Management, LLC

   (f)(k)    Consumer Services      15.00%            7/1/2018            1,299            1,307            1,403   

 

 

Essar Steel Algoma, Inc. (CA)

   (e)(f)(j)(k)    Materials      9.88%            6/15/2015            6,781            4,993            4,408   

 

 

GCI, Inc.

   (k)    Telecommunication Services      8.63%            11/15/2019            8,575            9,025            9,175   
   (k)         6.75%            6/1/2021            158            151            160   

 

 

Global Closure Systems (FR)

   (e)(f)(h)(EUR)    Materials     
 
12.00% or
13.00% PIK
  
  
        11/15/2019                 17,828            23,443            25,151   

 

 

Griffins Foods, Ltd. (NZ)

   (e)(f)(h)(NZD)    Food, Beverage & Tobacco      13.75% PIK            1/31/2019         N$         47,417            36,930            41,274   

 

 

Gruppo Argenta S.p.A. (LU)

   (e)(f)(h)(EUR)    Retailing      15.00% PIK            11/11/2018                 635            875            875   

 

 

Gymboree Corp.

   (k)    Retailing      9.13%            12/1/2018         $         3,335            3,205            2,822   

 

 

 

See notes to condensed consolidated financial statements.

 

8


Corporate Capital Trust, Inc. and Subsidiaries

Condensed Consolidated Schedule of Investments (unaudited) (continued)

As of March 31, 2014

(in thousands, except share amounts)

 

Company (a)(b)    Footnotes    Industry    Interest
Rate
     Base Rate
Floor
     Maturity
Date
            No. Shares/
Principal
Amount (c)
            Cost (d)             Fair Value    

 

 

Hilding Anders (SE)

   (e)(f)(h)(EUR)    Consumer Durables & Apparel     
 
12.00% or
13.00% PIK
  
  
        6/30/2021                 81,478       $           95,799       $           101,023   

 

 

Hot Topic, Inc.

   (j)    Consumer Durables & Apparel     
 
12.00% or
12.75% PIK
  
  
        5/15/2019       $           8,113            7,956            8,235   

 

 

iPayment, Inc.

   (i)(k)    Software & Services      10.25%            5/15/2018            9,395            7,810            6,929   

 

 

JC Penney Corp., Inc.

   (f)(k)    Retailing      5.65%            6/1/2020            11,803            8,874            9,678   

 

 

Summit Materials, LLC

   (j)(k)    Materials      10.50%            1/31/2020            9,711            10,564            10,949   

 

 

The TelX Group, Inc.

   (h)(j)    Telecommunication Services     
 
10.00%,
2.00% PIK
  
  
        9/26/2019            5,517            5,938            5,849   

 

 

Towergate Finance PLC (UK)

   (e)(f)(j)(k)(GBP)    Insurance      10.50%            2/15/2019       £           14,608            23,332            25,815   

 

 

Total Subordinated Debt

                        $

 

 

 

  

 

    

 

        297,136

 

  

 

   $

 

 

 

  

 

    

 

        314,782

 

  

 

                          

 

 

       

 

 

 

Structured Products—3.6%

                                

 

 
KKR BPT Holdings Aggregator, LLC    (f)(h)(l)*    Diversified Financials             $           2,500            2,500            2,500   

 

 

Trade Finance Funding I, Ltd. 2013-1A Class B (KY)

   (e)(f)(h)(j)    Diversified Financials      10.75%            11/13/2018            28,221            28,221            27,854   

 

 

VSK Holdings, Ltd. (KY)(EUR)

   (e)(f)(h)(m)*    Diversified Financials                       620            21,474            26,965   

 

 

Total Structured Products

                        $

 

 

 

  

 

    

 

52,195

 

  

 

   $

 

 

 

  

 

    

 

57,319

 

  

 

                          

 

 

       

 

 

 

Equity / Other—2.8%

                                

 

 

Cengage Learning Holdings II, LP Common Stock

   (g)(h)*    Media                  227,802            7,529            7,529   

 

 

Excelitas Technologies Corp., Common Stock

   (h)*    Technology Hardware & Equipment                  5,636,153            5,636            5,518   

 

 

Genesys Telecommunications Laboratories, Inc., Common Stock

   (h)*    Software & Services                  448,908       $           449       $           768   

 

 

Global Closure Systems (FR), Common Stock

   (e)(f)(h)*(EUR)    Materials                  597,989            823            1,631   

 

 

Gruppo Argenta S.p.A. (LU)(EUR)

   (e)(f)(h)*    Retailing                  225,289            5,341            5,309   

 

 

Hilding Anders (SE), Equity Options

   (e)(f)(h)*(SEK)    Consumer Durables & Apparel            12/31/2020            236,160,807            14,988            14,595   

 

 

OAG Holdings, LLC, Overriding Royalty Interest

   (f)(h)*    Energy                  2,353,940            2,354            2,081   

 

 

Star Mountain SMB Multi-Manager Credit Platform, LP, Limited Partnership Interest

   (f)(h)    Diversified Financials                  7,192,792            7,193            6,668   

 

 

Total Equity / Other

                        $

 

 

 

  

 

    

 

44,313

 

  

 

   $

 

 

 

  

 

    

 

44,099

 

  

 

                          

 

 

       

 

 

 

Total Investments, excluding Short Term Investments—114.9%

                        $

 

 

 

  

 

    

 

    1,760,736

 

  

 

   $

 

 

 

  

 

    

 

    1,812,586

 

  

 

                          

 

 

       

 

 

 

Short Term Investments—8.4%

                                

 

 

Goldman Sachs Financial Square Funds - Prime Obligations Fund, FST Preferred Shares

   (g)(n)                     132,390,173       $           132,390       $           132,390   

State Street Institutional Liquid Reserves Fund, Institutional Class

   (n)            0.08%               218,196            218            218   

 

 

Total Short Term Investments

                        $

 

 

 

  

 

    

 

132,608

 

  

 

   $

 

 

 

  

 

    

 

132,608

 

  

 

                          

 

 

       

 

 

 

 

See notes to condensed consolidated financial statements.

 

9


Corporate Capital Trust, Inc. and Subsidiaries

Condensed Consolidated Schedule of Investments (unaudited) (continued)

As of March 31, 2014

(in thousands, except share amounts)

 

Company (a)(b)    Footnotes    Industry    Interest
Rate
     Base Rate
Floor
   Maturity
Date
            No. Shares/
Principal
Amount (c)
            Cost (d)             Fair Value    

 

 
TOTAL INVESTMENTS —123.3%(o)                         $

 

 

 

  

 

    

 

    1,893,344

 

  

 

   $

 

 

 

  

 

    

 

    1,945,194

 

  

 

                          

 

 

       

 

 

 
LIABILITIES IN EXCESS OF OTHER ASSETS—(23.3%)                             

 

(367,786

 

 

                                

 

 

 

 

NET ASSETS—100.0%

                              $

 

 

 

  

 

  

 

 

 

 

1,577,408

 

 

  

 

                                

 

 

 

Collateral on Deposit with Custodian—2.3%

                                

 

 

Bank of Nova Scotia - Certificate of Deposit

                 6/30/2014       $           36,000       $           36,000       $           36,000   

 

 

Total Collateral on Deposit with Custodian

                        $

 

 

 

  

 

    

 

36,000

 

  

 

   $

 

 

 

  

 

    

 

36,000

 

  

 

                          

 

 

       

 

 

 

Derivative Instruments—(0.1%)

                                

 

 

Foreign currency forward contracts

   (f)         N/A           
 
4/2014 -
1/2015
  
  
         $                 $           (2,262

Total return swaps

   (f)(h)         N/A            1/15/2016             $                 $           769   

 

 

Total Derivative Instruments

                        $

 

 

 

  

 

    

 

 

  

 

   $

 

 

 

  

 

    

 

(1,493

 

 

                          

 

 

       

 

 

 

 

* Non-income producing security.
(a) Security may be an obligation of one or more entities affiliated with the named company.
(b) Non-Controlled/Non-Affiliate Investments as defined by the Investment Company Act of 1940, as amended (“1940 Act”), unless otherwise indicated. Non-Controlled/Non-Affiliate Investments are investments that are neither Controlled Investments nor Affiliate Investments.
(c) Denominated in U.S. Dollars unless otherwise noted.
(d) Represents amortized cost for debt securities and cost for common stocks translated to U.S. dollars.
(e) A portfolio company domiciled in a foreign country. The jurisdiction of the security issuer may be a different country than the domicile of the portfolio company.
(f) The investment is not a qualifying asset as defined in Section 55(a) under the Investment Company Act of 1940, as amended, or the 1940 Act. A business development company may not acquire any asset other than qualifying assets, unless, at the time the acquisition is made, qualifying assets represent at least 70% of the company’s total assets. The Company calculates its compliance with the qualifying assets test on a “look through” basis by disregarding the value of the Company’s total return swaps and treating each loan underlying the total return swaps as either a qualifying asset or non-qualifying asset based on whether the obligor is an eligible portfolio company. On this basis, 71.6% of the Company’s total assets represented qualifying assets as of March 31, 2014.
(g) Security or portion thereof is held within CCT Funding, LLC and is pledged as collateral supporting the amounts outstanding under the revolving credit facility with Deutsche Bank.
(h) Investments classified as Level 3 whereby fair value was determined by the Company’s Board of Directors (see Note 2).
(i) Position or portion thereof unsettled as of March 31, 2014.
(j) This security was acquired in a transaction that was exempt from the registration requirements of the Securities Act of 1933, as amended (the “Securities Act”), pursuant to Rule 144A thereunder. This security may be resold only in transactions that are exempt from the registration requirements of the Securities Act, normally to qualified institutional buyers.
(k) Security or portion thereof is held within Paris Funding, LLC and is pledged as collateral supporting the amounts outstanding under the committed facility agreement with BNP Paribas Prime Brokerage, Inc. and eligible to be hypothecated as allowed under Rule 15c2-1(a)(1) of the Exchange Act subject to the limits of the Rehypothecation Agreement.
(l) Controlled investment as defined by the 1940 Act, whereby the Company owns more than 25% of the portfolio company’s outstanding voting securities or maintains the ability to nominate greater than 50% of the board representation.
(m) Affiliate investment as defined by the 1940 Act, whereby the Company owns between 5% and 25% of the portfolio company’s outstanding voting securities and the investments are not classified as Controlled investments.
(n) 7-day effective yield as of March 31, 2014.
(o) As of March 31, 2014, the aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost was $57,637; the aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value was $5,787; the net unrealized appreciation was $51,850; the aggregate cost of securities for Federal income tax purposes was $1,893,344.

 

See notes to condensed consolidated financial statements.

 

10


Corporate Capital Trust, Inc. and Subsidiaries

Condensed Consolidated Schedule of Investments (unaudited) (continued)

As of March 31, 2014

(in thousands, except share amounts)

 

Abbreviations:

EUR - Euro; local currency investment amount is denominated in Euros. €1 / US $1.375 as of March 31, 2014.

GBP - British Pound Sterling; local currency investment amount is denominated in Pound Sterling. £1 / US $1.664 as of March 31, 2014.

NZD - New Zealand Dollar; local currency investment amount is denominated in New Zealand Dollars. N$1 / US $0.865 as of March 31, 2014.

SEK - Swedish Krona; local currency investment amount is denominated in Swedish Kronas. SEK1 / US $0.154 as of March 31, 2014.

CA - Canada

FR - France

IE - Ireland

KY - Cayman Islands

LU - Luxembourg

NL - The Netherlands

NZ - New Zealand

SE - Sweden

UK - United Kingdom

L = LIBOR - London Interbank Offered Rate, typically 3-Month

P = PRIME - U.S. Prime Rate

PIK - Payment-in-kind

 

See notes to condensed consolidated financial statements.

 

11


Corporate Capital Trust, Inc. and Subsidiaries

Consolidated Schedule of Investments

As of December 31, 2013

(in thousands, except share amounts)

 

Company (a)(b)    Footnotes    Industry    Interest
Rate
    

EURIBOR

/LIBOR
Floor

   Maturity
Date
            No. Shares/
Principal
Amount (c)
            Cost (d)             Fair Value    

 

 

Senior Secured Loans - First Lien—44.7%

                          

 

 

Algeco/Scotsman (LU)

   (e)(f)    Consumer Durables & Apparel      15.75% PIK            5/1/2018         $         26,464         $         26,243         $         27,787   

 

 

Aspen Dental Management, Inc.

   (g)    Health Care Equipment & Services      L + 550       1.50%      10/6/2016            6,053            6,005            6,008   

 

 

Avaya, Inc.

   (g)    Technology Hardware & Equipment      L + 675       1.25%      3/31/2018            33,909            33,105            34,468   

 

 

Bluestem Brands, Inc.

   (g)(h)    Consumer Durables & Apparel      L + 650       1.00%      12/6/2018            57,731            55,422            57,154   

 

 

Catalina Marketing Corp.

   (g)    Media      L + 425       1.00%      10/12/2020            5,215            5,273            5,295   

 

 

Cemex S.A.B. de C.V. (MX)

   (e)(f)    Materials      L + 450            2/14/2017            3,441            3,222            3,411   

 

 

Cengage Learning Acquisitions, Inc.

   (g)(i)    Media      L + 550            7/5/2017            2,701            2,036            2,119   

 

 

Continental Building Products, LLC

   (g)    Materials      L + 375       1.00%      8/28/2020            9,203            9,159            9,221   

 

 

Data Device Corp.

   (g)    Capital Goods      L + 650       1.50%      7/11/2018            10,873            10,683            10,900   

 

 

Distribution International, Inc.

      Retailing      L + 650       1.00%      7/16/2019            48,387            47,932            48,174   

 

 

Easton-Bell Sports, Inc.

   (j)    Consumer Durables & Apparel      11.50%            12/31/2015            24,247            24,259            24,247   

 

 

Flagstone Foods Holding Corp.

   (j)    Food & Staples Retailing      L + 575       1.25%      4/15/2018            20,103            19,916            20,017   

 

 

Football Association of Ireland (IE)

   (e)(f)(j)(EUR)    Consumer Durables & Apparel      6.20%            12/20/2020                 44,390            59,588            59,843   

 

 

Greenway Medical Technologies

      Health Care Equipment & Services      L + 500       1.00%      11/4/2020         $         20,413            20,182            20,413   

 

 

Guitar Center, Inc.

   (g)    Retailing      L + 600            4/9/2017            19,523            19,111            19,096   

 

 

Internet Brands, Inc.

      Media      L + 500       1.25%      3/18/2019            31,792            30,254            31,991   

 

 

iPayment, Inc.

   (g)    Software & Services      L + 525       1.50%      5/8/2017            3,186            3,134            3,107   

 

 

IPC Systems, Inc.

   (g)    Technology Hardware & Equipment      L + 650       1.25%      7/31/2017            1,487            1,455            1,492   
   (g)         L + 650       1.25%      7/31/2017            6,372            6,270            6,352   

 

 

J. Jill

   (j)    Retailing      L + 850       1.50%      4/29/2017            7,954            7,954            7,954   

 

 

Jacuzzi Brands, Inc. (LU)

   (f)(j)    Capital Goods      L + 650       1.25%      7/3/2019            41,938            41,151            41,854   

 

 

KeyPoint Government Solutions, Inc.

   (j)    Capital Goods      L + 600       1.25%      11/13/2017            31,383            30,871            31,383   

 

 

MCS AMS Sub-Holdings, LLC

      Commercial & Professional Services      L + 600       1.00%      10/15/2019            50,455            48,973            48,879   

 

 

North American Breweries Holdings, LLC

      Food, Beverage & Tobacco      L + 625       1.25%      12/11/2018            4,920            4,836            4,821   

 

 

OpenLink Financial, Inc.

      Software & Services      L + 625       1.50%      10/30/2017            46            46            46   

 

 

Sportsman’s Warehouse, Inc.

   (j)    Retailing      L + 1075       1.25%      8/20/2019            23,654            23,159            23,760   
   (j)         L + 600       1.25%      8/20/2019            40,211            39,830            40,593   

 

 

Travelport, LLC

   (g)    Software & Services      L + 500       1.25%      6/26/2019            5,416            5,338            5,565   

 

 

Willbros United States Holding, Inc.

   (e)    Energy      L + 975       1.25%      8/5/2019            33,614            32,477            34,118   

 

 

Wilton Brands, LLC

   (g)    Materials      L + 625       1.25%      8/30/2018            8,720            8,573            8,335   

 

 

Total Senior Secured Loans - First Lien

                        $          

 

        626,457

 

  

 

   $          

 

        638,403

 

  

 

                          

 

 

       

 

 

 

See notes to consolidated financial statements.

 

12


Corporate Capital Trust, Inc. and Subsidiaries

Consolidated Schedule of Investments (continued)

As of December 31, 2013

(in thousands, except share amounts)

 

Company (a)(b)    Footnotes    Industry   

Interest

Rate

    

EURIBOR

/LIBOR
Floor

   Maturity
Date
            No. Shares/
Principal
Amount (c)
            Cost (d)             Fair Value    

 

 

Senior Secured Loans - Second Lien—46.9%

                          

 

 

American Casino & Entertainment Properties, LLC

      Consumer Services      L + 1000       1.25%      1/3/2020            1,832            1,897            1,915   

 

 

Angelica Corp.

   (j)    Health Care Equipment & Services      L + 875       1.25%      7/15/2019            50,869            50,869            50,512   

 

 

Applied Systems, Inc.

   (g)    Software & Services      L + 725       1.00%      6/8/2017            5,895            5,969            5,932   

 

 

Arysta Lifescience SPC, LLC

   (e)(g)    Food, Beverage & Tobacco      L + 700       1.25%      11/30/2020            16,305            16,150            16,606   

 

 

Brake Bros Ltd. (UK)

   (e)(f)(GBP)    Food & Staples Retailing     
 
L + 325, 3.00%
PIK
  
  
        3/12/2017         £         8,650         $         12,049         $         13,661   

 

 

CHG Companies, Inc.

   (g)    Health Care Equipment & Services      L + 775       1.25%      11/19/2020         $         10,485            10,363            10,669   

 

 

Continental Building Products, LLC

   (g)(h)    Materials      L + 775       1.00%      2/26/2021            19,378            19,509            19,475   

 

 

CSM Bakery Products

   (e)    Food, Beverage & Tobacco      L + 750       1.00%      7/3/2021            15,175            15,322            15,336   

 

 

CTI Foods Holding Co., LLC

      Food, Beverage & Tobacco      L + 725       1.00%      6/28/2021            23,219            22,884            23,451   

 

 

Data Device Corp.

      Capital Goods      L + 1000       1.50%      7/11/2019            8,000            7,864            7,680   

 

 

Excelitas Technologies Corp.

   (j)    Technology Hardware & Equipment     
 
L + 975, 1.50%
PIK
  
  
   1.00%      4/29/2021            107,355            107,355            107,033   

 

 

EZE Castle Software, Inc.

   (g)    Software & Services      L + 725       1.25%      4/5/2021            12,962            12,922            13,210   

 

 

GENEX Services, Inc.

   (g)    Health Care Equipment & Services      L + 825       1.00%      1/26/2019            21,029            20,828            21,266   

 

 

Greenway Medical Technologies

      Health Care Equipment & Services      L + 825       1.00%      11/4/2021            26,396            25,998            26,660   

 

 

Hudson’s Bay Co. (CA)

   (e)(f)    Retailing      L + 725       1.00%      11/4/2021            2,933            2,904            3,039   

 

 

Learfield Communications, Inc.

      Media      L + 775       1.00%      10/8/2021            4,743            4,696            4,861   

 

 

Lightower Fiber, LLC

   (g)    Telecommunication Services      L + 675       1.25%      4/12/2021            3,381            3,349            3,420   

 

 

Misys Ltd. (UK)

   (e)(f)(g)    Software & Services      12.00%            6/12/2019            3,000            3,367            3,463   

 

 

Monarch (LU)

   (e)(f)(g)    Materials      L + 700       1.25%      4/3/2020            5,416            5,392            5,576   

 

 

NewWave Communications, Inc.

      Media      L + 800       1.00%      10/30/2020            8,339            8,264            8,506   

 

 

P2 Energy Solutions, Inc.

      Software & Services      L + 800       1.00%      4/30/2021            9,283            9,191            9,469   

 

 

Packaging Coordinators, Inc.

   (j)    Materials      L + 825       1.25%      10/31/2020            11,827            11,716            11,886   

 

 

Polyconcept Finance BV (NL)

   (e)(f)(j)    Consumer Durables & Apparel      L + 875       1.25%      6/28/2020         $         46,727         $         46,727         $         45,886   

 

 

Progressive Solutions

   (h)    Health Care Equipment & Services      L + 850       1.00%      10/22/2021            19,903            19,704            20,002   

 

 

RedPrairie Corp.

   (g)    Software & Services      L + 1000       1.25%      12/21/2019            18,150            18,169            18,691   

 

 

Sabine Oil & Gas, LLC

   (e)(g)    Energy      L + 750       1.25%      12/31/2018            14,527            14,400            14,708   

 

 

Safety Technology Holdings, Inc.

   (j)    Technology Hardware & Equipment      L + 825       1.25%      6/2/2020            30,402            29,651            29,642   

 

 

Sedgwick Claims Management Services Holdings, Inc.

      Insurance      L + 700       1.00%      12/15/2018            25,735            25,615            26,217   

 

 

 

See notes to consolidated financial statements.

 

13


Corporate Capital Trust, Inc. and Subsidiaries

Consolidated Schedule of Investments (continued)

As of December 31, 2013

(in thousands, except share amounts)

 

Company (a)(b)    Footnotes    Industry   

Interest

Rate

    

EURIBOR

/LIBOR
Floor

   Maturity
Date
            No. Shares/
Principal
Amount (c)
            Cost (d)             Fair Value    

 

 

Sheridan Holdings, Inc.

   (h)    Health Care Equipment & Services      L + 725       1.00%      12/13/2021            13,899            13,830            14,030   

 

 

StoneRiver Holdings, Inc.

      Insurance      L + 725       1.25%      5/30/2020            15,860            15,782            16,029   

 

 

Talbots, Inc.

   (j)    Retailing      L + 800       1.25%      8/30/2018            50,000            50,000            50,450   

 

 

Travelport, LLC

   (g)    Software & Services      L + 800       1.50%      1/31/2016            18,868            18,533            19,582   

 

 

Websense, Inc.

      Technology Hardware & Equipment      L + 725       1.00%      12/24/2020            32,018            31,866            32,098   

 

 

Total Senior Secured Loans - Second Lien

                  $          

 

        663,135

 

  

 

   $          

 

        670,961

 

  

 

                          

 

 

       

 

 

 

Senior Secured Bonds—11.5%

                          

 

 

Allen Systems Group, Inc.

   (k)(l)    Software & Services      10.50%            11/15/2016            106            73            57   

 

 

American Rock Salt Co., LLC

   (k)(l)    Materials      8.25%            5/1/2018            9,690            9,051            9,763   

 

 

Artesyn Technologies, Inc.

   (e)(k)    Technology Hardware & Equipment      9.75%            10/15/2020            3,567            3,567            3,745   

 

 

Avaya, Inc.

   (g)(k)    Technology Hardware & Equipment      7.00%            4/1/2019            3,722            3,436            3,648   
   (k)         9.00%            4/1/2019            7,048            7,035            7,365   

 

 

Cengage Learning Acquisitions, Inc.

   (i)(k)(l)    Media      11.50%            4/15/2020         $         12,154         $         12,398         $         9,738   

 

 

Hot Topic, Inc.

   (k)(l)    Consumer Durables & Apparel      9.25%            6/15/2021            27,300            27,464            28,597   

 

 

Louisiana Public Facilities Authority

   (j)    Energy      11.50%            1/1/2020            50,580            49,070            49,063   

 

 

New Enterprise Stone & Lime Co., Inc.

   (l)    Capital Goods     
 
5.00%, 8.00%
PIK
  
  
        3/15/2018            10,071            10,162            11,381   

 

 

OAG Holdings, LLC

   (e)(j)    Energy     
 
8.00%, 2.00%
PIK
  
  
        12/20/2020            20,008            17,163            17,153   

 

 

Pinnacle Agriculture Holdings, LLC

   (k)(l)    Materials      9.00%            11/15/2020            2,193            2,193            2,327   

 

 

Ryerson, Inc.

   (g)    Materials      9.00%            10/15/2017            5,814            5,814            6,163   

 

 

SquareTwo Financial Corp.

   (l)    Banks      11.63%            4/1/2017            6,309            6,566            6,522   

 

 

Wise Metals Group, LLC

   (k)(l)    Materials      8.75%            12/15/2018            2,148            2,148            2,261   

 

 

Xella Holdco Finance SA (LU)

   (e)(f)(k)(l)(EUR)    Materials     
 
9.13% or
9.88% PIK
  
  
        9/15/2018                 5,097            6,860            7,345   

 

 

Total Senior Secured Bonds

                    $        

 

        163,000

 

  

 

   $          

 

        165,128

 

  

 

                          

 

 

       

 

 

 

Total Senior Debt—103.1%

                    $        

 

    1,452,592

 

  

 

   $          

 

    1,474,492

 

  

 

                          

 

 

       

 

 

 

Subordinated Debt—25.9%

                          

 

 

Algeco/Scotsman (LU)

   (e)(f)(k)(l)    Consumer Durables & Apparel      10.75%            10/15/2019         $         179            181            189   

 

 

CDW Corp.

   (e)    Technology Hardware & Equipment      12.54%            10/12/2017            1,879            1,986            1,964   

 

 

Cemex Materials, LLC

   (k)(l)    Materials      7.70%            7/21/2025            23,312            22,941            24,128   

 

 

Cequel Communications Holdings, LLC

   (k)(l)    Media      5.13%            12/15/2021            5,000            4,834            4,688   

 

 

 

See notes to consolidated financial statements.

 

14


Corporate Capital Trust, Inc. and Subsidiaries

Consolidated Schedule of Investments (continued)

As of December 31, 2013

(in thousands, except share amounts)

 

Company (a)(b)    Footnotes    Industry   

Interest

Rate

    

EURIBOR

/LIBOR
Floor

   Maturity
Date
            No. Shares/
Principal
Amount (c)
            Cost (d)             Fair Value    

 

 

Ceridian Corp.

   (l)    Commercial & Professional Services      11.00%            3/15/2021         $         16,201         $         17,574         $         18,672   

 

 

Commscope, Inc.

   (k)(l)    Technology Hardware & Equipment     
 
6.63% or
7.38% PIK
  
  
        6/1/2020            5,000            4,976            5,200   

 

 

CompuCom Systems, Inc.

   (k)(l)    Software & Services      7.00%            5/1/2021            9,847            9,566            9,773   

 

 

ConvaTec Healthcare E SA (LU)

   (e)(f)(k)(l)    Health Care Equipment & Services     

 

8.25% or

9.00% PIK

  

  

        1/15/2019            2,545            2,521            2,605   

 

 

CRC Health Group, Inc.

   (l)    Health Care Equipment & Services      10.75%            2/1/2016            6,021            6,047            6,036   

 

 

Datatel, Inc.

   (g)(k)    Software & Services     
 
9.63% or 9.63%
PIK
  
  
        12/1/2018            9,287            9,195            9,566   

 

 

Education Management, LLC

   (e)    Consumer Services      15.00%            7/1/2018            1,299            1,307            1,409   

 

 

Epicor Software Corp.

   (k)(l)    Software & Services     

 

9.00% or

9.75% PIK

  

  

        6/15/2018            39,815            39,090            41,507   

 

 

GCI, Inc.

   (l)    Telecommunication Services      8.63%            11/15/2019            8,575            9,041            9,111   
   (l)         6.75%            6/1/2021            14,381            13,737            13,770   

 

 

Genesys Telecommunications Laboratories, Inc.

   (j)(EUR)    Software & Services      12.50%            1/31/2020                 2,044            2,637            2,924   

 

 

Global Closure Systems (FR)

   (e)(f)(j)(EUR)    Materials     
 
12.00% or
13.00% PIK
  
  
        11/15/2019            17,828            23,443            25,140   

 

 

Griffins Foods, Ltd. (NZ)

   (e)(f)(j)(NZD)    Food, Beverage & Tobacco      13.75% PIK            1/31/2019         N$         47,417            36,916            39,035   

 

 

Gymboree Corp.

   (l)    Retailing      9.13%            12/1/2018         $         3,335            3,199            3,072   

 

 

Hilding Anders (SE)

   (e)(f)(j)(EUR)    Consumer Durables & Apparel     
 
12.00% or
13.00% PIK
  
  
        6/30/2021                 81,478            95,634            98,974   

 

 

Hot Topic, Inc.

   (k)(l)    Consumer Durables & Apparel     
 
12.00% or
12.75% PIK
  
  
        5/15/2019         $         8,113         $         7,951         $         8,032   

 

 

iPayment, Inc.

      Software & Services      10.25%            5/15/2018            4,634            4,289            3,800   

 

 

JC Penney Corp., Inc.

   (e)    Retailing      5.65%            6/1/2020            11,139            8,338            8,744   

 

 

Summit Materials, LLC

   (l)    Materials      10.50%            1/31/2020            462            518            508   

 

 

The TelX Group, Inc.

   (j)(k)    Telecommunication Services     
 
 
12.00% or
10.00%, 2.00%
PIK
  
  
  
        9/26/2019            5,517            5,952            5,848   

 

 

Towergate Finance PLC (UK)

   (e)(f)(k)(l)(GBP)    Insurance      10.50%            2/15/2019         £         14,608            23,366            25,436   

 

 

Total Subordinated Debt

                    $        

 

        355,239

 

  

 

     $        

 

        370,131

 

  

 

                          

 

 

       

 

 

 

Structured Products—3.9%

                          

 

 

KKR BPT Holdings Aggregator, LLC

   (e)(j)*    Diversified Financials               $         2,500            2,500            2,500   

 

 

Start CLO Ltd. 2010-6A Class A (KY)

   (e)(f)(j)(k)(m)    Diversified Financials      L + 1600            4/1/2014            3,310            3,325            3,359   

 

 

Trade Finance Funding I, Ltd. 2013-1A Class B

   (e)(j)(k)    Diversified Financials      10.75%            11/13/2018            28,221            28,221            28,235   

 

 

VSK Holdings, Ltd. (KY)

   (e)(f)(j)*    Diversified Financials                  620            21,474            21,481   

 

 

Total Structured Products

                          $        

 

        55,520

 

  

 

     $        

 

        55,575

 

  

 

                          

 

 

       

 

 

 

 

See notes to consolidated financial statements.

 

15


Corporate Capital Trust, Inc. and Subsidiaries

Consolidated Schedule of Investments (continued)

As of December 31, 2013

(in thousands, except share amounts)

 

Company (a)(b)    Footnotes    Industry   

Interest

Rate

    

EURIBOR

/LIBOR
Floor

   Maturity
Date
            No. Shares/
Principal
Amount (c)
            Cost (d)             Fair Value    

 

 

Equity / Other—1.7%

                          

 

 

Excelitas Technologies Corp., Common Stock

   (j)*    Technology Hardware & Equipment                  5,636,153            5,636            5,566   

 

 

Genesys Telecommunications Laboratories, Inc., Common Stock

   (j)*    Software & Services                  448,908            449            672   

 

 

Global Closure Systems (FR), Common Stock

   (e)(f)(j)*    Materials                  597,989         $         823         $         823   

 

 

Hilding Anders (SE), Equity Options

   (e)(f)(j)*    Consumer Durables & Apparel            12/31/2020            236,160,807            14,988            15,256   

 

 

OAG Holdings, LLC, Overriding Royalty Interest

   (e)(j)*    Energy                  2,353,940            2,354            2,354   

 

 

Total Equity / Other

                       $        

 

        24,250

 

  

 

     $        

 

        24,671

 

  

 

                          

 

 

       

 

 

 

Total Investments, excluding Short Term Investments – 134.6%

                    $        

 

        1,887,601

 

  

 

     $        

 

    1,924,869

 

  

 

                          

 

 

       

 

 

 

Short Term Investments—10.5%

                          

 

 

Goldman Sachs Financial Square Funds - Prime Obligations Fund, FST Preferred Shares

   (g)(n)         0.01%                  149,800,957         $         149,801         $         149,801   

State Street Institutional Liquid Reserves Fund, Institutional Class

   (n)         0.06%                  102,061            102            102   

 

 

Total Short Term Investments

                    $        

 

        149,903

 

  

 

     $        

 

        149,903

 

  

 

                          

 

 

       

 

 

 

TOTAL INVESTMENTS — 145.1%(o)

                          $        

 

    2,037,504

 

  

 

       

 

    2,074,772

 

  

 

                          

 

 

       

 

 

 

LIABILITIES IN EXCESS OF OTHER ASSETS—(45.1%)

                                  

 

(644,338)

 

  

 

                                

 

 

 

NET ASSETS—100.0%

                                $        

 

1,430,434

 

  

 

                                

 

 

 

Collateral on Deposit with Custodian—2.6%

                          

 

 

Bank of Nova Scotia - Certificate of Deposit

           0.16%            3/31/2014         $         37,501         $         37,501         $         37,501   

 

 

Total Collateral on Deposit with Custodian

                    $        

 

        37,501

 

  

 

     $        

 

        37,501

 

  

 

                          

 

 

       

 

 

 

Derivative Instruments—(0.1%)

                          

 

 

Foreign currency forward contracts

   (e)         N/A           
 
1/2014 -
1/2015
  
  
           $                 $         (3,181)   

Total return swaps

   (e)(j)         N/A            1/15/2016                             1,861   

 

 

Total Derivative Instruments

                    $        

 

 

  

 

     $        

 

(1,320)

 

  

 

                          

 

 

       

 

 

 

 

* Non-income producing security.
(a) Security may be an obligation of one or more entities affiliated with the named company.

 

See notes to consolidated financial statements.

 

16


Corporate Capital Trust, Inc. and Subsidiaries

Consolidated Schedule of Investments (continued)

As of December 31, 2013

(in thousands, except share amounts)

 

(b) Non-Controlled/Non-Affiliate investments as defined by the Investment Company Act of 1940, as amended (“1940 Act”). Non-Controlled/Non-Affiliate Investments are investments that are neither Control Investments nor Affiliate Investments. Controlled investments are defined by the 1940 Act as investments in which more than 25% of the voting securities are owned or where the ability to nominate greater than 50% of the board representation is maintained. Affiliate investments are defined by the 1940 Act as investments in which between 5% and 25% of the voting securities are owned and the investments are not classified as Controlled investments.
(c) Denominated in U.S. Dollars unless otherwise noted.
(d) Represents amortized cost for debt securities and cost for common stocks translated to U.S. dollars.
(e) The investment is not a qualifying asset as defined in Section 55(a) under the Investment Company Act of 1940, as amended, or the 1940 Act. A business development company may not acquire any asset other than qualifying assets, unless, at the time the acquisition is made, qualifying assets represent at least 70% of the company’s total assets. The Company calculates its compliance with the qualifying assets test on a “look through” basis by disregarding the value of the Company’s total return swaps and treating each loan underlying the total return swaps as either a qualifying asset or non-qualifying asset based on whether the obligor is an eligible portfolio company. On this basis, 75.8% of the Company’s total assets represented qualifying assets as of December 31, 2013.
(f) A portfolio company domiciled in a foreign country. The jurisdiction of the security issuer may be in a different country than the domicile of the portfolio company.
(g) Security or portion thereof is held within CCT Funding, LLC and is pledged as collateral supporting the amounts outstanding under the revolving credit facility with Deutsche Bank.
(h) Position or portion thereof unsettled as of December 31, 2013.
(i) Investment was on non-accrual status as of December 31, 2013.
(j) Investments classified as Level 3 whereby fair value was determined by the Company’s Board of Directors (see Note 2).
(k) This security was acquired in a transaction that was exempt from the registration requirements of the Securities Act of 1933, as amended (the “Securities Act”), pursuant to Rule 144A thereunder. This security may be resold only in transactions that are exempt from the registration requirements of the Securities Act, normally to qualified institutional buyers.
(l) Security or portion thereof is held within Paris Funding, LLC and is pledged as collateral supporting the amounts outstanding under the committed facility agreement with BNP Paribas Prime Brokerage, Inc. and eligible to be hypothecated as allowed under Rule 15c2-1(a)(1) of the Exchange Act subject to the limits of the Rehypothecation Agreement.
(m) A portfolio company investment structured as a credit-linked floating rate note.
(n) 7-day effective yield as of December 31, 2013.
(o) As of December 31, 2013, the aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost was $43,062; the aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value was $5,918; the net unrealized appreciation was $37,144; the aggregate cost of securities for Federal income tax purposes was $2,037,628.

Abbreviations:

EUR - Euro; loan principal amount is denominated in Euros currency. €1 / US $1.377 as of December 31, 2013.

GBP - British Pound Sterling; loan principal amount is denominated in Pound Sterling. £1 / US $1.649 as of December 31, 2013.

NZD - New Zealand Dollar; loan principal amount is denominated in New Zealand Dollars. N$1 / US $0.816 as of December 31, 2013.

CA - Canada

FR - France

IE - Ireland

KY - Cayman Islands

LU - Luxembourg

MX - Mexico

NL - The Netherlands

NZ - New Zealand

SE - Sweden

SG - Singapore

UK - United Kingdom

L = LIBOR - London Interbank Offered Rate, typically 3-Month

PIK - Payment-in-kind

 

See notes to consolidated financial statements.

 

17


CORPORATE CAPITAL TRUST, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements ($ amounts in thousands, except share and per share amounts)

1.       Principal Business and Organization

Corporate Capital Trust, Inc. (the “Company”) was incorporated under the general corporation laws of the State of Maryland on June 9, 2010. The Company is a non-diversified closed-end management investment company and it is regulated as a business development company (“BDC”) under the Investment Company Act of 1940 (the “40 Act”). The Company’s investment objective is to provide its shareholders with current income and, to a lesser extent, long-term capital appreciation, by investing primarily in the debt of privately owned U.S. companies with a focus on originated transactions sourced through the networks of its advisors. The Company commenced business operations on June 17, 2011 and it commenced investment operations on July 1, 2011. The Company has elected to be treated as a regulated investment company, (“RIC”), under the Internal Revenue Code of 1986, as amended (the “Code”) and operates in a manner so as to qualify for the tax treatment applicable to RICs.

The Company is externally managed by CNL Fund Advisors Company (“CNL”) and KKR Asset Management LLC (“KKR”) (collectively the “Advisors”), which are responsible for sourcing potential investments, analyzing and conducting due diligence on prospective investment opportunities, structuring investments and monitoring the Company’s investment portfolio on an ongoing basis. Both Advisors are registered as investment advisers with the Securities and Exchange Commission (“SEC”). CNL also provides the administrative services necessary for the Company to operate.

The Company is currently offering and selling shares of its common stock pursuant to a registration statement on Form N-2 (Registration No. 333-189544) (the “Follow-On Registration Statement”) covering its follow-on continuous public offering of up to 209 million shares of common stock for an approximate maximum offering amount of $2.3 billion (the “Follow-On Offering”). Immediately prior to the commencement of the Follow-On Offering in November 2013, the Company terminated its initial continuous public offering (the “Initial Offering”). Through the termination date of the Initial Offering, the Company sold approximately 141 million shares of common stock, including reinvestment of distributions, for total gross proceeds of approximately $1.5 billion. The Initial Offering and Follow-On Offering are collectively referred to as the “Offerings”.

As of March 31, 2014, the Company had three wholly owned financing subsidiaries. CCT Funding LLC (“CCT Funding”) and Paris Funding LLC (“Paris Funding”) were established on July 15, 2011 and August 13, 2013, respectively, both for the purpose of arranging secured, revolving credit facilities with banks and to borrow money to invest in portfolio companies. Halifax Funding LLC (“Halifax Funding”) was established on October 11, 2012 for the purpose of entering into total return swaps (“TRS”). The Company has also formed FCF LLC, a taxable subsidiary (the “Taxable Subsidiary”), which is taxed as a corporation for federal income tax purposes. The Taxable Subsidiary allows the Company to hold equity securities of portfolio companies organized as pass-through entities while continuing to satisfy the RIC requirements.

2.       Significant Accounting Policies

Basis of Presentation and Principles of Consolidation - The accompanying financial statements of the Company are prepared in accordance with the instructions to Form 10-Q and accounting principles generally accepted in the United States of America (“GAAP”). In the opinion of management, all material adjustments, consisting solely of normal recurring accruals, considered necessary for the fair presentation of financial statements for the interim periods, have been included. The results of operations for interim periods are not indicative of results to be expected for the full year.

Certain financial information that is normally included in annual financial statements, including certain financial statement footnotes, prepared in accordance with GAAP, is not required for interim reporting purposes and has been condensed or omitted herein. These financial statements should be read in conjunction with the Company’s financial statements and notes related thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2013, which was filed with the SEC on March 20, 2014. The condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries.

Use of Estimates - The preparation of condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect (i) the reported amounts of assets and liabilities at the date of the condensed consolidated financial statements, (ii) the reported amounts of income and expenses during the reported period and (iii) disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements. Actual results could differ from those estimates.

Cash and Cash Equivalents - Cash and cash equivalents consist of demand deposits, foreign currency, and highly liquid investments with original maturities of three months or less.

 

18


Valuation of Investments - The Company measures the value of its investments in accordance with Accounting Standards Codification Topic 820, Fair Value Measurements and Disclosure (“ASC Topic 820”), issued by the Financial Accounting Standards Board (“FASB”). Fair value is 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 Topic 820 also defines hierarchical levels directly related to the amount of subjectivity associated with the inputs to fair valuations of these assets and liabilities, and the hierarchical levels are described as follows:

Level 1 – Quoted prices are available in active markets for identical investments as of the reporting date. Publicly listed equities and debt securities, publicly listed derivatives, money market fund/ short term investment funds and foreign currency are generally included in Level 1. The Company does not adjust the quoted price for these investments.

Level 2 – Pricing inputs are other than quoted prices in active markets, which are either directly or indirectly observable as of the reporting date, and fair value is determined through the use of models or other valuation methodologies. In certain cases, debt and equity securities are valued on the basis of prices from orderly transactions for similar investments in active markets between market participants and provided by reputable dealers or independent pricing services. In determining the value of a particular investment, pricing services may use certain information with respect to transactions in such investments, quotations from dealers, pricing matrices, market transactions in comparable investments, and various relationships between investments. Investments generally included in this category are corporate bonds and loans, convertible debt indexed to publicly listed securities, foreign currency forward contracts and certain over-the-counter derivatives.

Level 3 – Pricing inputs are unobservable for the investment and include situations where there is little, if any, market activity for the investment. The inputs into the determination of fair value require significant judgment or estimation. Investments generally included in this category are total return swap agreements, corporate bonds and loans, common and preferred stock investments, and equity options that lack observable market pricing.

In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, an investment’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and it considers factors specific to the investment.

Investments for which market quotations are readily available are valued using market quotations, which are generally obtained from independent pricing services, broker-dealers or market makers. With respect to the Company’s portfolio investments for which market quotations are not readily available, the Company’s board of directors is responsible for determining in good faith the fair value in accordance with the valuation policy approved by the board of directors, based on, among other things, the input of the Company’s Advisors, audit committee and independent third-party valuation firms under a valuation policy and a consistently applied valuation process. The Company’s board of directors has the final responsibility for reviewing and approving, in good faith, the Company’s determination of the fair value of its investments for which market quotations are not readily available.

The board of directors makes this fair value determination on a quarterly basis and any other time when a decision regarding the fair value of the portfolio investments is required. A determination of fair value involves subjective judgments and estimates. Due to the inherent uncertainty of determining the fair value of portfolio investments that do not have a readily available market value, the fair value of the 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. Further, such investments are generally less liquid than publicly traded securities. If the Company was required to liquidate a portfolio investment that does not have a readily available market value in a forced or liquidation sale, the Company could realize significantly less than the value recorded by Company.

The Company and its Advisors undertake a multi-step valuation process each quarter for debt and equity securities whose market prices are not otherwise readily available, as described below:

 

  The quarterly valuation process initially begins with each portfolio company or investment being initially valued by KKR (internal valuation) and/or the Company’s independent third party valuation firm (external valuation) which provides a valuation range.

 

  Valuation recommendations are formulated and documented by KKR and reviewed by KKR’s valuation committee. The valuation committee then provides its valuation recommendation for each investment, along with supporting documentation, to CNL and the Company where the valuation recommendations and internal/external valuation documentation are reviewed by CNL and the Company’s management.

 

19


  The Company’s audit committee then reviews the valuation recommendations and supporting documentation.

 

  The Company’s board of directors then discusses the investment valuation recommendations with the Advisors and determines the fair value of these investments in good faith.

Depending on the relative liquidity in the markets for certain assets, the Company may transfer assets to Level 3 if it determines that observable quoted prices, obtained directly or indirectly, are not available. The valuation techniques used for the assets and liabilities that are valued using Level 3 of the fair value hierarchy are described below.

Corporate Debt Securities and Corporate Loans, at Estimated Fair Value: Corporate debt securities and corporate loans, at estimated fair value are initially valued at transaction price and are subsequently valued using market data for similar instruments (e.g., recent transactions or indicative broker quotes), comparisons to benchmark derivative indices or valuation models. Valuation models are based on yield analysis and discounted cash flow techniques, where the key inputs are based on relative value analyses and the assignment of risk-adjusted discounted rates, based on the analysis of similar instruments from similar issuers. In addition, an illiquidity discount is applied where appropriate.

Equity Investments, at Estimated Fair Value: Equity investments, at estimated fair value, are initially valued at transaction price and are subsequently valued using observable market prices, if available, or internally developed models in the absence of readily observable market prices. Valuation models are generally based on market and income (discounted cash flow) approaches, in which various internal and external factors are considered. Factors include key financial inputs and recent public and private transactions for comparable investments. Key inputs used for the discounted cash flow approach include the weighted average cost of capital and assumed inputs used to calculate terminal values, such as earnings before interest, taxes, depreciation and amortization (“EBITDA”) exit multiples. The fair value recorded for a particular investment will generally be within the range suggested by the two approaches. Upon completion of the valuations conducted, an illiquidity discount is applied where appropriate.

Total Return Swaps, at Estimated Fair Value: The Company values its TRS in accordance with the TRS agreements between the Company (or its wholly owned subsidiary) and the TRS counter-party, which collectively established the TRS. Pursuant to the TRS agreements, the value of the TRS is based on (i) the increase or decrease in the value of the TRS reference assets relative to the notional amounts, together with (ii) accrued interest income and fee income, (iii) TRS financing costs on the TRS settled notional amount, and (iv) certain other expenses incurred under the TRS. The TRS reference assets are valued pursuant to the valuation algorithm specified in the TRS Agreements, including reliance on indicative bid prices provided by independent third-party pricing services. Bid prices reflect the highest price that market participants may be willing to pay. On a quarterly basis, the Company’s management reviews, tests and compares (i) the indicative bid prices assigned to each TRS reference asset by the TRS counter-party, based on the inputs provided by third-party pricing services with (ii) pricing inputs that are independently sourced by the Company’s management and/or its Advisors from third-party pricing services. Additionally, the Company’s management reviews the calculations of both collected and accrued interest, TRS financing costs, and realized gains and losses that also determine the aggregate fair value of the TRS. For additional disclosures on the Company’s TRS, including quantitative disclosures of the current period conclusions of the fair value components, refer to Note 4.

Key unobservable inputs that have a significant impact on the Company’s Level 3 valuations as described above are included in Note 5. The Company utilizes several unobservable pricing inputs and assumptions in determining the fair value of its Level 3 investments. These unobservable pricing inputs and assumptions may differ by asset and in the application of the Company’s valuation methodologies. The reported fair value estimates could vary materially if the Company had chosen to incorporate different unobservable pricing inputs and other assumptions.

Security Transactions, Realized/Unrealized Gains or Losses, and Income Recognition - Security transactions are recorded on a trade-date basis. The Company measures realized gains or losses from the repayment or sale of investments using the specific identification method. The amortized cost basis of investments includes (i) the original cost and (ii) adjustments for the accretion/amortization of market discounts and premiums, original issue discount and loan origination fees. The Company reports changes in fair value of investments that are measured at fair value as a component of net change in unrealized appreciation (depreciation) on investments in the condensed consolidated statements of operations.

Interest income is recorded on an accrual basis and includes amortization of premiums to par value and accretion of discounts to par value. Discounts and premiums to par value on securities purchased are accreted/amortized into interest income over the life of the respective security using the effective interest method. Premiums and discounts are determined based on the cash flows expected to be collected for a particular investment. In its role as the Company’s investment adviser, KKR may provide assistance to portfolio companies and in return may receive fees for capital structuring services. KKR is obligated to remit to the Company any earned capital structuring fees based on the pro-rata portion of the Company’s investment. These fees are generally non-recurring and are recognized as earned revenue by the Company upon closing of the associated investment. Loan origination, closing, commitment and

 

20


other fees received directly from borrowers in connection with the closing of investments are accreted over the contractual life of the loan based on the effective interest method as interest income. Upon prepayment of a debt investment, any prepayment penalties and unamortized loan fees and discounts are recorded as interest income.

The Company has investments in debt securities which contain a contractual payment-in-kind (“PIK”) interest provision. PIK interest computed at the contractual rate specified in the investment’s credit agreement is accrued into income and reflected as interest receivable up to the capitalization date. PIK investments offer issuers either the option or the obligation at each interest payment date of making payments in cash or in additional securities. When additional securities are received, they typically have the same terms, including maturity dates and interest rates as the original securities issued. On these payment dates, the Company capitalizes the accrued interest receivable as additional principal due from the borrower. PIK generally becomes due at maturity of the investment or upon the investment being called by the issuer. If the portfolio company valuation indicates a value of the PIK investment that is not sufficient to cover the contractual PIK interest, the Company will not accrue PIK interest income on the PIK investment and will record an allowance for any accrued PIK interest receivable as a reduction of interest or dividend income in the period the Company determines it is not collectible. To maintain the Company’s status as a RIC, PIK interest income, which is considered taxable income, could create an additional distribution requirement, even though the Company has not yet collected the cash.

Dividend income on preferred equity securities is recorded as dividend income on an accrual basis to the extent that such amounts are payable by the portfolio company and are expected to be collected. Dividend income on common equity securities is recorded on the record date for private portfolio companies or on the ex-dividend date for publicly traded portfolio companies.

Loans or debt securities are placed on non-accrual status when principal or interest payments are at least 90 days past due or when there is reasonable doubt that principal or interest will be collected. Generally, accrued interest is reversed when a loan or a debt security is placed on non-accrual status. Interest payments received on non-accrual loans or debt securities may be recognized as income or applied to principal depending upon management’s judgment. Non-accrual loans and debt securities are restored to accrual status when past due principal and interest is paid and, in management’s judgment, are likely to remain current. The Company may make exceptions to this treatment if the loan has sufficient collateral value and is in the process of collection. The contractual interest associated with a loan or debt security that has been placed on non-accrual status might increase taxable income, which could create an additional distribution requirement to maintain the Company’s status as a RIC.

Derivative Instruments - The Company’s derivative instruments include foreign currency forward contracts and total return swaps. The Company marks the value of its derivative instruments to market value through net change in unrealized appreciation (depreciation) on derivative instruments in the condensed consolidated statements of operations. TRS unrealized appreciation (depreciation) is composed of the net accrued interest income and accrued TRS financing charges owed and the overall change in fair value of the TRS reference assets. Realized gains and losses that occur upon the cash settlement of the derivative instruments are included in net realized gain (loss) on derivative instruments in the condensed consolidated statements of operations. TRS realized gains and losses are composed of any realized gains or losses on the TRS reference assets and the net interest received or paid on the quarterly TRS settlement date.

Deferred Financing Costs - Deferred financing costs represent fees and other direct costs incurred in connection with arranging the Company’s borrowings and total return swaps. These amounts are initially recorded as prepaid and deferred expenses on the condensed consolidated statements of assets and liabilities and then subsequently amortized over the contractual term of the credit facilities and total return swap agreements as interest expense.

Paid In Capital - The Company records the proceeds from the sale of its common stock on a net basis to (i) capital stock and (ii) paid in capital in excess of par value, excluding all commissions and marketing support fees.

Foreign Currency Translation, Transactions and Gains/Losses - Foreign currency amounts are translated into U.S. dollars on the following basis: (i) at the exchange rate on the last business day of the reporting period for the fair value of investment securities, other assets and liabilities; and (ii) at the rates of exchange prevailing on the respective recording dates for the purchase and sale of investment securities, income, expenses, gains and losses.

Net assets and fair values are presented based on the applicable foreign exchange rates described above and the Company does not isolate that portion of the results of operations resulting from changes in foreign exchange rates on investments from the fluctuations arising from changes in fair values of investments held; therefore the fluctuations related to foreign exchange rate conversion are included with the net realized gain (loss) and unrealized appreciation (depreciation) on investments.

Net realized foreign exchange gains or losses arise from activity in foreign currency forward contracts, sales of foreign currency, currency gains or losses realized between the trade and settlement dates on securities transactions, and the difference between the amounts of dividends, interest, and foreign withholding taxes recorded by the Company and the U.S. dollar equivalent of the amounts actually received or paid by the Company. Unrealized appreciation (depreciation) from currency translation for foreign currency

 

21


forward contracts is included in net change in unrealized appreciation (depreciation) on derivative instruments on the condensed consolidated statements of operations and is included with unrealized appreciation (depreciation) on derivative instruments on the condensed consolidated statements of assets and liabilities. Unrealized appreciation (depreciation) from foreign currency translation for other receivables or payables is presented as net change in unrealized appreciation (depreciation) on foreign currency translation in the condensed consolidated statements of operations.

Management Fees - The Company accrues for the base management fee (recorded as investment advisory fees) and performance-based incentive fees, including (i) a subordinated incentive fee on income and (ii) an incentive fee on capital gains. The Company records the liability for the incentive fee on capital gains based on a hypothetical liquidation of its investment portfolio at the end of each reporting period. Therefore the accrual for incentive fee on capital gains includes the recognition of incentive fee on both net realized gains and net unrealized appreciation, if any, although any such incentive fee associated with net unrealized appreciation is neither earned nor payable to the Advisors until net unrealized appreciation is realized as net realized gains. Additionally the determination of whether the accrued incentive fee associated with net realized gains is earned and payable to the Advisors can only be made at the end of the calendar year. The two components of performance-based incentive fees are combined and expensed on the condensed consolidated statements of operations and accrued on the condensed consolidated statements of assets and liabilities as accrued performance-based incentive fees.

Organization and Offering Expenses - Organization expenses, including reimbursement payments to Advisors, are expensed on the Company’s condensed consolidated statements of operations. Continuous offering expenses, including reimbursement payments to Advisors, but excluding commission and marketing support fees, are accumulated monthly and capitalized on the condensed consolidated statements of assets and liabilities as deferred offering expenses and then subsequently expensed over a 12-month period.

Earnings per Share - Earnings per share is calculated based upon the weighted average number of shares of common stock outstanding during the reporting period.

Distributions - Distributions are generally declared by the Company’s board of directors each calendar quarter and recognized as distribution liabilities on the record date. Distributions are paid monthly. The Company has adopted a distribution reinvestment plan that provides for reinvestment of distributions on behalf of shareholders. Shareholders who have elected to participate in the distribution reinvestment plan will have their cash distribution automatically reinvested in additional shares of common stock at a price per share equivalent to the public offering price on the distribution payment date, net of commissions and marketing support fees.

Federal Income Taxes - The Company has elected to be treated for federal income tax purposes, and intends to maintain its qualification as RIC under Subchapter M of the Code. Generally, a RIC is not subject to federal income taxes on distributed income and gains if it distributes at least 90% of “Investment Company Taxable Income,” as defined in the Code. The Company intends to distribute sufficient dividends to maintain its RIC status each year and it does not anticipate paying a material level of federal income taxes.

The Company is also generally subject to nondeductible federal excise taxes if it does not distribute an amount at least equal to the sum (i) 98% of net ordinary income for a calendar year, (ii) 98.2% of the Company’s capital gains in excess of capital losses for the one-year period generally ending on October 31 of the calendar year and (iii) any ordinary income and net capital gains for preceding years that were not distributed during such years and on which the Company paid no federal income tax. The Company, at its discretion, may carry forward taxable income in excess of calendar year distributions and pay a 4% federal excise tax on this excess taxable income.

The Taxable Subsidiary holds certain portfolio investments of the Company. The Taxable Subsidiary is consolidated for GAAP reporting purposes, and the portfolio investments held by it are included in the consolidated financial statements. The Taxable Subsidiary is not consolidated with the Company for income tax purposes and may generate income tax expense, or benefit, and the related tax assets and liabilities. This income tax expense, or benefit, if any, and the related tax assets and liabilities are recorded in the Company’s condensed consolidated financial statements. Deferred tax assets and liabilities are recorded for temporary differences between the tax basis of assets and liabilities and their reported amounts in the financial statements, using statutory tax rates in effect for the year in which the temporary differences are expected to reverse. A valuation allowance is provided against deferred tax assets when it is more likely than not that some portion or all of the deferred tax asset will not be realized.

The Company recognizes in its condensed consolidated financial statements the effect of a tax position when it is more likely than not, based on the technical merits, that the position will be sustained upon examination. Tax benefits of positions not deemed to meet the more-likely-than-not threshold would be recorded as a tax expense in the current year. The Company did not have any uncertain tax positions that met the recognition or measurement criteria of ASC 740-10-25, Income Taxes – Overall –Recognition, nor did it have any unrecognized tax benefits as of the periods presented herein. Although the Company and the Taxable Subsidiary file federal and state tax returns, its major tax jurisdiction is federal.

 

22


Book and tax basis differences relating to permanent book and tax differences are reclassified among the Company’s capital accounts, as appropriate. Additionally, the tax character of distributions is determined in accordance with the Code which differs from GAAP.

Reclassifications - Certain prior period amounts in the condensed consolidated financial statements have been reclassified to conform to the current year presentation.

3.       Investments

The Company is engaged in a strategy to invest primarily in the debt of privately owned U.S. companies. The primary investment concentrations include (i) senior debt securities and (ii) subordinated debt securities. The Company’s investments may, in some cases, be accompanied by warrants, options or other forms of equity participation. The Company may separately purchase common or preferred equity interests or limited partnership interests in transactions. The Company may also invest in structured products such as collateralized loan obligations. The fair value of the Company’s investments will generally fluctuate with, among other things, changes in prevailing interest rates, the general supply of, and demand for, debt capital among private and public companies, general domestic and global economic conditions, the condition of certain financial markets, developments or trends in any particular industry and changes in the financial condition and credit quality of each security’s issuer.

Investment purchases, sales and principal payments/paydowns are summarized below for the three months ended March 31, 2014 and 2013. These purchase and sale amounts exclude short-term investments (i.e. money market fund investments) and derivative instruments.

 

     Three Months Ended March 31,  
     2014      2013  

Investment purchases, at cost

     $         286,051          $         236,159    

Investment sales, proceeds

     304,509          49,519    

Principal payments/paydown proceeds

     122,900          42,017    

As of March 31, 2014 and 2013, there were no debt investments on non-accrual status.

As of March 31, 2014, the Company’s investment portfolio consisted of the following:

 

                  Percentage of
Investment
     Percentage of  
Asset Category    Cost     Fair Value      Portfolio      Net Assets  

Senior debt

     $ 1,367,092         $ 1,396,386          77.0%           88.5%    

Subordinated debt

     297,136         314,782          17.4              20.0        

Structured products

     52,195         57,319          3.2              3.6        

Equity/Other

     44,313         44,099          2.4              2.8        
  

 

 

   

 

 

    

 

 

    

 

 

 

Subtotal

     1,760,736         1,812,586                      100.0%                      114.9        
       

 

 

    

Short term investments

     132,608         132,608             8.4        
  

 

 

   

 

 

       

 

 

 

Total investments

     $       1,893,344         $       1,945,194             123.3%    
  

 

 

   

 

 

       

 

 

 

 

As of December 31, 2013, the Company’s investment portfolio consisted of the following:

 

  

                  Percentage of
Investment
     Percentage of  
Asset Category    Cost     Fair Value      Portfolio      Net Assets  

Senior debt

     $ 1,452,592         $ 1,474,492          76.6%           103.1%    

Subordinated debt

     355,239 (1)       370,131          19.2              25.9        

Structured products

     55,520         55,575          2.9              3.9        

Equity/Other

     24,250         24,671          1.3              1.7        
  

 

 

   

 

 

    

 

 

    

 

 

 

Subtotal

     1,887,601         1,924,869          100.0%          134.6        
       

 

 

    

Short term investments

     149,903         149,903             10.5        
  

 

 

   

 

 

       

 

 

 

Total investments

     $ 2,037,504         $ 2,074,772             145.1%    
  

 

 

   

 

 

       

 

 

 

 

(1)  This number has been corrected for a typographical error in the Company’s Form 10-K for the year ended December 31, 2013, as filed with the SEC on March 20, 2014, wherein it had been incorrectly reported as $305,239.

 

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The industry composition, geographic dispersion, and local currencies of the Company’s investment portfolio at fair value, excluding short-term investments and derivative instruments, as of March 31, 2014 and December 31, 2013 was as follows:

 

Industry Composition

   March 31, 2014      December 31, 2013  

Consumer Durables & Apparel

     18.1%            19.0%      

Retailing

     12.5               10.6         

Technology Hardware & Equipment

     10.1               12.4         

Health Care Equipment & Services

     9.9               9.3         

Capital Goods

     9.5               5.4         

Materials

     7.2               7.1         

Energy

     6.6               6.1         

Software & Services

     6.1               7.7         

Diversified Financials

     5.4               2.9         

Food, Beverage & Tobacco

     4.5               5.2         

Commercial & Professional

     3.2               3.5         

Insurance

     2.0               3.5         

Food & Staples Retailing

     1.9               1.7         

Media

     1.6               3.5         

Telecommunication Services

     1.0               1.7         

Remaining Industries

     0.4               0.4         
  

 

 

    

 

 

 

Total

     100.0%           100.0%     
  

 

 

    

 

 

 

Geographic Dispersion (1)

     

United States

     73.7%            76.9%      

Sweden

     6.4               5.9         

Luxembourg

     4.7               4.4         

Ireland

     3.3               3.1         

Cayman Islands

     3.0               1.3         

Netherlands

     2.5               2.4         

United Kingdom

     2.4               2.2         

New Zealand

     2.3               2.0         

Remaining Countries

     1.7               1.8         
  

 

 

    

 

 

 

Total

                                              100.0%                                                    100.0%     
  

 

 

    

 

 

 

Local Currency

     

U.S. Dollar

     81.2%            84.0%      

Euro

     13.6               11.2         

New Zealand Dollar

     2.3               2.0         

British Pound Sterling

     2.2               2.0         

Swedish Krona

     0.7               0.8         
  

 

 

    

 

 

 

Total

     100.0%           100.0%     
  

 

 

    

 

 

 

 

(1) The geographic dispersion is determined by the portfolio company’s country of domicile or the jurisdiction of the security issuer.

 

4. Derivative Instruments

The following is a summary of the fair value and location of the Company’s derivative instruments on the condensed consolidated statements of assets and liabilities:

 

          Fair Value  
Derivative Instrument                        Statement Location                    March 31, 2014      December 31, 2013  

Foreign currency forward contracts

   Unrealized appreciation (depreciation) on derivative instruments      $ (2,262)         $ (3,181)   

TRS

   Unrealized appreciation on derivative instruments      769          1,861    
     

 

 

    

 

 

 

Total

        $     (1,493)         $         (1,320)   
     

 

 

    

 

 

 

Realized and unrealized gains and losses on derivative instruments recorded by the Company for the three months ended March 31, 2014 and 2013 are in the following location on the condensed consolidated statements of operations:

 

24


          Realized Gain (Loss)
Three Months Ended March 31,
 
Derivative Instrument                        Statement Location                    2014      2013  

Foreign currency forward contracts

   Net realized loss on derivative instruments      $     (2,053)         $ 639    

TRS

   Net realized gain on derivative instruments      1,862                  229    
     

 

 

    

 

 

 

Total

        $ (191)         $ 868    
     

 

 

    

 

 

 
          Unrealized Gain (Loss)
Three Months Ended March 31,
 
Derivative Instrument                        Statement Location                    2014      2013  

Foreign currency forward contracts

  

Net change in unrealized appreciation on derivative instruments

     $ 919          $ 159    

TRS

  

Net change in unrealized depreciation on derivative instruments

     (1,092)         6,482    
     

 

 

    

 

 

 

Total

        $ (173)          $ 6,641    
     

 

 

    

 

 

 

Foreign Currency Forward Contracts:

The Company may enter into foreign currency forward contracts from time to time to facilitate settlement of purchases and sales of investments denominated in foreign currencies and to economically hedge the impact that an adverse change in foreign exchange rates would have on the value of the Company’s investments denominated in foreign currencies. A foreign currency forward contract is a commitment to purchase or sell a foreign currency at a future date at a negotiated forward rate. These contracts are marked-to-market by recognizing the difference between the contract exchange rate and the current market exchange rate as unrealized appreciation or depreciation. Realized gains or losses are recognized when forward contracts are settled. Risks may arise as a result of the potential inability of the counterparties to meet the terms of their contracts; the Company attempts to limit counterparty risk by only dealing with well known counterparties.

At March 31, 2014, the details of the Company’s open foreign currency forward contracts were as follows:

 

                                                                                                                                                
              Unrealized  

Foreign Currency

 

Settlement Date

  Amount and
Transaction
    US$ Value at
Settlement Date
    US$ Value at
March 31, 2014
    Appreciation
(Depreciation)
 

EUR

  Apr. 9, 2014   15,500 Sold         $ 21,060        $ 21,353         $ (293)   

EUR

  Jul. 23, 2014   8,100 Sold         11,005        11,157         (152)   

EUR

  Jan. 8, 2015   17,000 Sold         22,919        23,418         (499)   

EUR

  Jan. 8, 2015   43,500 Sold         59,608        59,924         (316)   

EUR

  Jan. 8, 2015   16,903 Sold         22,845        23,286         (441)   

EUR

  Jan. 8, 2015   1,153 Sold         1,559        1,589         (30)   

EUR

  Jan. 8, 2015   16,000 Sold         22,235        22,041         194    

GBP

  Apr. 9, 2014   £ 23,598 Sold         38,818        39,339         (521)   

NZD

  Jul. 23, 2014   N$ 4,000 Sold         3,235        3,439         (204)   
     

 

 

   

 

 

   

 

 

 

Total

        $ 203,284        $ 205,546        $ (2,262)   
     

 

 

   

 

 

   

 

 

 

 

25


At December 31, 2013, the details of the Company’s open foreign currency forward contracts were as follows:

 

                                                                                                                                                
              Unrealized  

Foreign Currency

 

Settlement Date

  Amount and
Transaction
    US$ Value at
Settlement Date
    US$ Value at
December 31, 2013
    Appreciation
(Depreciation)
 

EUR

  Jan. 3, 2014   2,100 Sold         $ 2,745        $ 2,889         $ (144)   

EUR

  Jan. 10, 2014   8,100 Sold         10,747        11,143         (396)   

EUR

  Jan. 8, 2015   17,000 Sold         22,919        23,402         (483)   

EUR

  Jan. 8, 2015   43,500 Sold         59,608        59,882         (274)   

EUR

  Jan. 8, 2015   2,100 Sold         2,899        2,891           

GBP

  Jan. 10, 2014   £ 15,100 Sold         23,701        25,004         (1,303)   

GBP

  Jan. 10, 2014   £ 8,498 Sold         13,484        14,071         (587)   

NZD

  Jul. 23, 2014   N$ 4,000 Sold         3,235        3,237         (2)   
     

 

 

   

 

 

   

 

 

 

Total

        $ 139,338        $ 142,519         $ (3,181)   
     

 

 

   

 

 

   

 

 

 

Equity Options:

The Company holds equity options in certain portfolio companies to enhance investment returns in connection with its primary lending activities. In purchasing options, the Company bears the risk of an unfavorable change in the value of the underlying equity interest. The equity options are recorded as investments in the condensed consolidated statements of assets and liabilities. The aggregate fair value of options as of March 31, 2014 and December 31, 2013 represents 0.9% and 1.1% of the Company’s net assets, respectively.

Total Return Swaps:

On November 15, 2012, Halifax Funding entered into the TRS with the Bank of Nova Scotia (“BNS” or “counterparty”).

The TRS arrangement with BNS consists of a set of TRS agreements. Pursuant to the terms of the TRS, Halifax Funding may select a portfolio of single-name corporate loans and/or bonds (each a “TRS reference asset” and together the “TRS reference assets”) with a maximum aggregate notional amount of $500,000. Under the terms of the TRS agreements, each TRS reference asset included in the TRS portfolio constitutes a separate total return swap transaction, although all calculations, payments and transfers required to be made under the TRS agreements are calculated and treated on an aggregate basis, based upon all such transactions.

Halifax Funding receives quarterly from BNS (i) all collected interest and fees generated by TRS reference assets and (ii) realized gains from the sale or repayment of TRS reference assets, if any. Halifax Funding pays to BNS (i) interest on the TRS settled notional amount at a rate equal to the three-month LIBOR+0.80% per annum if the initial investment amount (i.e. posted collateral) equals or exceeds 50% of the TRS trade basis notional amount, or three-month LIBOR+1.00% if the initial investment amount is less than 50% of the TRS trade basis notional amount and (ii) realized losses, if any. In addition, upon the termination of the TRS arrangement, Halifax Funding will either receive from BNS any net realized gain, or pay to BNS any net realized loss, on the liquidation of TRS reference assets.

Halifax Funding posts collateral in the form of certificates of deposit held by a custodian. Generally, the required collateral amount is at least 40% of the notional amount of each TRS reference asset at the time that such TRS reference asset is confirmed for acquisition by the counterparty. Halifax Funding may be required to post additional collateral, on a dollar-for-dollar basis, in the event of depreciation in the value of TRS reference assets after such value decreases below a specified amount. Halifax Funding is required to post additional collateral to ensure that the collateral market value, as solely determined by BNS, is at least equal to 25% of the value of the TRS portfolio.

The obligations of Halifax Funding under the TRS agreements are non-recourse to the Company and the Company’s exposure to the TRS is limited to the amount of collateral that is posted pursuant to the terms of the TRS agreements. The Company has no contractual obligation to post any collateral or to make any interest payments to BNS. The Company may, but is not obligated to, increase its equity investment in Halifax Funding for the purpose of funding additional collateral or payment obligations for which Halifax Funding may become obligated during the term of the TRS agreements. If the Company does not make any such additional equity investment in Halifax Funding and Halifax Funding fails to meet its obligations under the TRS agreements, then BNS will have the right to terminate the TRS and use the collateral posted by Halifax Funding with the custodian to offset any amount owed to BNS. The Company may terminate the TRS at any time upon providing at least 30 days notice prior to the proposed settlement date of the TRS reference assets related to such termination. In the absence of an early termination as just described, the TRS will terminate on January 15, 2016. In the event of an early termination of the TRS, Halifax Funding may be required to pay a make-whole fee based on a minimum spread amount to be earned by BNS over the life of the TRS agreements. Halifax Funding would have been required to pay an early termination fee of $5,415 if the TRS had been terminated as of March 31, 2014.

 

26


As of March 31, 2014 and December 31, 2013, Halifax Funding had selected 18 and 20 underlying debt positions, respectively, and had posted $36,000 and $37,501 in collateral, respectively, which is recorded as collateral on deposit with custodian on the condensed consolidated statements of assets and liabilities. The following table reconciles the TRS settled notional amount, upon which the financing charge to BNS is based, to the total, or trade basis, notional amount as of March 31, 2014 and December 31, 2013.

 

                                                             
     March 31, 2014      December 31, 2013  

Settled notional amount

     $ 37,493          $ 54,829    

Unsettled additions

     6,083          23,759    

Unsettled deletions

     (3,639)         (18,677)   
  

 

 

    

 

 

 

Total notional amount

     $ 39,937          $ 59,911    
  

 

 

    

 

 

 
The following table summarizes the fair value components of the TRS portfolio as of March 31, 2014 and December 31, 2013:  
     March 31, 2014      December 31, 2013  

Interest and fee income

   $ 903        $ 1,806    

Financing charge

     (61)         (103)   

Net realized loss

     (92)         (27)   

Net unrealized appreciation of reference assets

     19          185    
  

 

 

    

 

 

 

TRS Total fair value

   $ 769        $ 1,861    
  

 

 

    

 

 

 
The following table summarizes the components of realized gains on the TRS.       
     Three Months Ended March 31,  
     2014      2013  

Interest and fee income

   $ 1,682        $ 782    

Financing charge

     (152)         (208)   

Net realized gain (loss)

     332          (345)   
  

 

 

    

 

 

 

TRS Total realized gains

   $ 1,862        $ 229    
  

 

 

    

 

 

 

The following is a summary of the TRS reference assets as of March 31, 2014:

 

Company (a)                Industry               

    Interest

    Rate

 

    LIBOR    

Floor

 

    Maturity

    Date

  

    Notional    

Amount

       Fair Value        Unrealized      
Appreciation      
(Depreciation)      

Senior Secured Loans - First Lien

                    

Catalina Marketing Corp.

   Media    L + 425   1.00%   10/12/2020          $ 3,517         $ 3,478           $ (39  

Continental Building Products, LLC (b)

   Materials    L + 375   1.00%   8/28/2020      1,980         1,991         11     

Data Device Corp.

   Capital Goods    L + 650   1.50%   7/11/2018      2,564         2,567         3     

Gymboree Corp. (c)

   Retailing    L + 350   1.50%   2/23/2018      2,834         2,817         (17  

Internet Brands, Inc. (c)

   Media    L + 500   1.25%   3/18/2019      2,459         2,433         (26  

iPayment, Inc. (c)

   Software & Services    L + 525   1.50%   5/8/2017      884         879         (5  

IPC Systems, Inc.

   Technology Hardware & Equipment    L + 650   1.25%   7/31/2017      2,971         3,026         55     

NewPage Corp.

   Materials    L + 825   1.25%   2/11/2021      1,960         2,013         53     

OneStopPlus Group (c)

   Consumer Durables & Apparel    L + 450   1.00%   2/5/2020      355         351         (4  

OpenLink Financial, Inc.

   Software & Services    L + 500   1.25%   10/30/2017      830         833         3     

Travelport, LLC

   Software & Services    L + 500   1.25%   6/26/2019      2,298         2,315         17     

Wilton Brands, LLC

   Materials    P + 525   2.25%   8/30/2018      3,272         3,241         (31  
            

 

 

Total Senior Secured Loans - First Lien

                   $     25,924           $     25,944           $ 20     
            

 

 

Senior Secured Loans - Second Lien

                    

Misys Ltd. (b)

   Software & Services    12.00%     6/12/2019      2,898         3,218         320     

NEP Group, Inc.

   Media    L + 825   1.25%   7/22/2020      1,315         1,358         43     

RedPrairie Corp.

   Software & Services    L + 1000   1.25%   12/21/2019      1,830         1,723         (107  
            

 

 

Total Senior Secured Loans - Second Lien

                   $     6,043           $     6,299           $ 256     
            

 

 

 

27


Company (a)                Industry               

    Interest

    Rate

 

    LIBOR    

Floor

 

    Maturity

    Date

  

    Notional    

Amount

       Fair Value        Unrealized      
Appreciation      
(Depreciation)      

Senior Secured Bonds

                    

Artesyn Technologies, Inc. (b)

   Technology Hardware & Equipment    9.75%     10/15/2020          $ 3,640           $ 3,293           $ (347  

Hot Topic, Inc.

   Consumer Durables & Apparel    9.25%     6/15/2021      3,675         3,763         88     
            

 

 

Total Senior Secured Bonds

                   $ 7,315           $ 7,056           $ (259  
            

 

 

Total Senior Debt

                   $ 39,282           $ 39,299           $ 17     
            

 

 

Subordinated Debt

                    

Summit Materials, LLC

   Materials    10.50%     1/31/2020      655         657         2     
            

 

 

Total Subordinated Debt

                   $ 655           $ 657           $ 2     
            

 

 

TOTAL

                   $     39,937           $     39,956           $ 19     
            

 

 

 

(a) Security may be an obligation of one or more entities affiliated with the named company.

(b) The investment is not a qualifying asset as defined in Section 55(a) under the 1940 Act.

(c) Reference asset position or portion thereof unsettled as of March 31, 2014.

 

The following is a summary of the TRS reference assets as of December 31, 2013:

 

Company (a)                Industry                    Interest
    Rate
      LIBOR    
Floor
      Maturity
    Date
  

  Notional    

Amount

       Fair Value       

Unrealized      

Appreciation      

(Depreciation)      

Senior Secured Loans - First Lien

                    

Avaya, Inc.

   Technology Hardware & Equipment    L + 675   1.25%   3/31/2018          $ 2,573             $ 2,627             $ 54     

Caraustar Industries, Inc. (c)

   Materials    L + 625   1.25%   5/1/2019      3,648         3,626         (22  

Catalina Marketing Corp. (c)

   Media    L + 425   1.00%   10/12/2020      3,526         3,532         6     

Continental Building Products, LLC

   Materials    L + 375   1.00%   8/28/2020      1,985         1,994         9     

Data Device Corp. (c)

   Capital Goods    L + 650   1.50%   7/11/2018      2,680         2,669         (11  

Greenway Medical Technologies

   Health Care Equipment & Services    L + 500   1.00%   11/4/2020      2,475         2,462         (13  

Internet Brands, Inc. (c)

   Media    L + 500   1.25%   3/18/2019      2,465         2,440         (25  

IPC Systems, Inc.

   Technology Hardware & Equipment    L + 650   1.25%   7/31/2017      2,971         3,015         44     

OneStopPlus Group (c)

   Consumer Durables & Apparel    L + 450   1.00%   2/5/2020      7,294         7,285         (9  

Travelport, LLC (c)

   Software & Services    L + 500   1.25%   6/26/2019      2,304         2,326         22     

Wilton Brands, LLC (c)

   Materials    L + 625   1.25%   8/30/2018      3,316         3,263         (53  
            

 

 

Total Senior Secured Loans - First Lien

                   $ 35,237             $ 35,239             $ 2     
            

 

 

Senior Secured Loans - Second Lien

                    

Misys Ltd. (b)

   Software & Services    12.00%     6/12/2019      2,898         3,232         334     

NEP Group, Inc.

   Media    L + 825   1.25%   7/22/2020      1,315         1,360         45     

RedPrairie Corp.

   Software & Services    L + 1000   1.25%   12/21/2019      1,830         1,743         (87  
            

 

 

Total Senior Secured Loans - Second Lien

                   $ 6,043             $ 6,335             $ 292     
            

 

 

Senior Secured Bonds

                    

Artesyn Technologies, Inc. (b)

   Technology Hardware & Equipment    9.75%     10/15/2020      3,640         3,640         -     

Hot Topic, Inc.

   Consumer Durables & Apparel    9.25%     6/15/2021      3,675         3,658         (17  

Pinnacle Agriculture Holdings, LLC

   Materials    9.00%     11/15/2020      3,745         3,710         (35  
            

 

 

Total Senior Secured Bonds

                   $ 11,060             $ 11,008             $ (52  
            

 

 

Total Senior Debt

                   $ 52,340             $ 52,582             $ 242     
            

 

 

Subordinated Debt

                    

Cequel Communications Holdings, LLC

   Media    5.13%     12/15/2021      3,007         2,812         (195  

Commscope, Inc.

   Technology Hardware & Equipment    6.63% or
7.38% PIK
    6/1/2020      3,908         4,064         156     

Summit Materials, LLC

   Materials    10.50%     1/31/2020      656         638         (18  
            

 

 

Total Subordinated Debt

                   $ 7,571             $ 7,514             $ (57  
            

 

 

TOTAL

                   $     59,911             $     60,096             $     185     
            

 

 

(a) Security may be an obligation of one or more entities affiliated with the named company.

(b) The investment is not a qualifying asset as defined in Section 55(a) under the 1940 Act.

(c) Reference asset position or portion thereof unsettled as of December 31, 2013.

 

28


5. Fair Value of Financial Instruments

The Company’s investments were categorized in the fair value hierarchy as follows as of March 31, 2014 and December 31, 2013:

 

                                                                                                                           
     March 31, 2014  

Description

   Level 1      Level 2      Level 3      Total  

Senior debt

     $         $ 695,072          $ 701,314          $ 1,396,386    

Subordinated debt

             140,610          174,172          314,782    

Structured products

                     57,319          57,319    

Equity/Other

                     44,099          44,099    
  

 

 

    

 

 

    

 

 

    

 

 

 

Subtotal

             835,682          976,904          1,812,586    

Short term investments

     132,608                          132,608    
  

 

 

    

 

 

    

 

 

    

 

 

 

Total investments

     $ 132,608          $ 835,682          $ 976,904          $ 1,945,194    
  

 

 

    

 

 

    

 

 

    

 

 

 

Derivative Type

   Level 1      Level 2      Level 3      Total  

Assets

           

Foreign currency forward contracts

     $         $ 194          $         $ 194    

Total return swaps

                     769          769    

Liabilities

           

Foreign currency forward contracts

             (2,456)                 (2,456)   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

     $         $ (2,262)         $ 769          $ (1,493)   
  

 

 

    

 

 

    

 

 

    

 

 

 
     December 31, 2013  

Description

   Level 1      Level 2      Level 3      Total  

Senior