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Table of Contents

 

 

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 June 30, 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 August 8, 2014 was 186,067,219.

 

 

 


Table of Contents

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)

     26   

Item 2.

  

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

     52   

Item 3.

  

Quantitative and Qualitative Disclosures about Market Risk

     75   

Item 4.

  

Controls and Procedures

     77   

PART II. OTHER INFORMATION

  

Item 1.

  

Legal Proceedings

     77   

Item 1A.

  

Risk Factors

     77   

Item 2.

  

Unregistered Sales of Equity Securities and Use of Proceeds

     78   

Item 3.

  

Defaults Upon Senior Securities

     78   

Item 4.

  

Mine Safety Disclosures

     78   

Item 5.

  

Other Information

     78   

Item 6.

  

Exhibits

     78   

Signatures

     79   

Exhibit Index

     80   


Table of Contents

Corporate Capital Trust, Inc. and Subsidiaries

Condensed Consolidated Statements of Assets and Liabilities (unaudited)

(in thousands, except share and per share amounts)

 

     June 30, 2014     December 31, 2013  

Assets

    

Investments at fair value:

    

Non-controlled, non-affiliated investments (amortized cost of $1,980,495 and $2,013,530) – including $249,907 and $244,981 of investments pledged to creditors (Note 11)

   $ 2,033,118      $ 2,050,791   

Non-controlled, affiliated investments (amortized cost of $126,285 and $21,474)

     135,077        21,481   

Controlled investments (amortized cost of $2,500 and $2,500)

     2,500        2,500   
  

 

 

   

 

 

 

Total investments, at fair value (amortized cost of $2,109,280 and $2,037,504)

     2,170,695        2,074,772   

Cash

     122,887        85,987   

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

     —          218   

Collateral on deposit with custodian

     59,550        37,501   

Dividends and interest receivable

     28,822        25,613   

Receivable for investments sold

     —          46,469   

Principal receivable

     808        795   

Unrealized appreciation on derivative instruments

     1,273        1,861   

Deferred offering expense

     3,096        3,394   

Prepaid and deferred expenses

     10,534        4,576   
  

 

 

   

 

 

 

Total assets

     2,397,665        2,281,186   
  

 

 

   

 

 

 

Liabilities

    

Term loan, net of discount

     397,038        —     

Revolving credit facilities

     100,450        707,389   

Payable for investments purchased

     83,174        101,014   

Accrued performance-based incentive fees

     15,245        16,412   

Shareholders’ distributions payable

     —          14,923   

Unrealized depreciation on derivative instruments

     5,894        3,181   

Accrued investment advisory fees

     3,822        3,825   

Accrued reimbursement of expense support

     —          1,136   

Accrued directors’ fees

     51        74   

Other accrued expenses and liabilities

     2,546        2,798   
  

 

 

   

 

 

 

Total liabilities

     608,220        850,752   
  

 

 

   

 

 

 

Commitments and contingencies (Note 12)

    

Net Assets

    

Common stock, $0.001 par value per share, 1,000,000,000 shares authorized, 176,261,546 and 143,024,102 shares issued and outstanding at June 30, 2014 and December 31, 2013, respectively

     176        143   

Paid-in capital in excess of par value

     1,739,830        1,401,767   

Distributions in excess of net investment income

     (7,378     (5,896

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

     56,817        34,420   
  

 

 

   

 

 

 

Net assets

   $ 1,789,445      $ 1,430,434   
  

 

 

   

 

 

 

Net asset value per share

   $ 10.15      $ 10.00   
  

 

 

   

 

 

 

See notes to condensed consolidated financial statements.

 

2


Table of Contents

Corporate Capital Trust, Inc. and Subsidiaries

Condensed Consolidated Statements of Operations (unaudited)

(in thousands, except share and per share amounts)

 

     Three Months Ended     Six Months Ended  
     June 30, 2014     June 30, 2013     June 30, 2014     June 30, 2013  

Investment income

        

Interest income:

    

Non-controlled, non-affiliated investments

   $ 43,683      $ 19,502      $ 93,336      $ 34,741   

Non-controlled, affiliated investments

     4,006        —          4,006        —     
  

 

 

   

 

 

   

 

 

   

 

 

 

Total interest income

     47,689        19,502        97,342        34,741   

Fee income

     1,086        934        1,362        946   

Dividend income:

    

Non-controlled, non-affiliated investments

     6        99        10        197   

Non-controlled, affiliated investments

     577        —          577        —     
  

 

 

   

 

 

   

 

 

   

 

 

 

Total dividend income

     583        99        587        197   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total investment income

     49,358        20,535        99,291        35,884   
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating expenses

        

Investment advisory fees

     11,264        6,490        21,945        11,351   

Performance-based incentive fees

     1,817        (4,068     11,603        137   

Interest expense

     5,730        1,538        10,211        2,855   

Offering expense

     1,799        1,553        3,674        2,647   

Administrative services

     708        477        1,392        900   

Professional services

     531        320        1,050        668   

Custodian and accounting fees

     182        127        378        215   

Director fees and expenses

     124        82        291        150   

Other

     670        449        1,503        855   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     22,825        6,968        52,047        19,778   

Reimbursement of expense support

     —          —          —          1,136   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net expenses

     22,825        6,968        52,047        20,914   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net investment income

     26,533        13,567        47,244        14,970   
  

 

 

   

 

 

   

 

 

   

 

 

 

Realized and unrealized gain (loss):

        

Net realized gain on investments

     2,133        3,584        14,331        4,591   

Net realized gain (loss) on derivative instruments

     (587     1,782        (778     2,650   

Net realized loss on foreign currency transactions

     (1,324     (408     (2,346     (397

Net change in unrealized appreciation (depreciation) on:

    

Non-controlled, non-affiliated investments

     6,264        (14,475     15,362        (971

Non-controlled, affiliated investments

     3,301        —          8,785        —     

Derivative instruments

     (3,128     (635     (3,301     6,006   

Foreign currency translation

     3,164        (21     1,551        (12
  

 

 

   

 

 

   

 

 

   

 

 

 

Net change in unrealized appreciation (depreciation)

     9,601        (15,131     22,397        5,023   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net realized and unrealized gain (loss)

     9,823        (10,173     33,604        11,867   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net increase in net assets resulting from operations

   $ 36,356      $ 3,394      $ 80,848      $ 26,837   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net Investment Income Per Share

   $ 0.16      $ 0.15      $ 0.30      $ 0.18   
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted and Basic Earnings Per Share

   $ 0.22      $ 0.04      $ 0.51      $ 0.33   
  

 

 

   

 

 

   

 

 

   

 

 

 

Weighted Average Shares Outstanding

     165,959,193        92,302,446        157,531,139        81,887,209   
  

 

 

   

 

 

   

 

 

   

 

 

 

Dividends Declared Per Share

   $ 0.20      $ 0.19      $ 0.38      $ 0.39   
  

 

 

   

 

 

   

 

 

   

 

 

 

See notes to condensed consolidated financial statements.

 

3


Table of Contents

Corporate Capital Trust, Inc. and Subsidiaries

Condensed Consolidated Statements of Changes in Net Assets (unaudited)

(in thousands, except share amounts)

 

     Six Months Ended June 30,  
     2014     2013  

Operations

    

Net investment income

   $ 47,244      $ 14,970   

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

     11,207        6,844   

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

     22,397        5,023   
  

 

 

   

 

 

 

Net increase in net assets resulting from operations

     80,848        26,837   
  

 

 

   

 

 

 

Distributions to shareholders from

    

Net investment income

     (47,244     (14,970

Realized gains

     (11,207     (6,844

Distributions in excess of net investment income (Note 8)

     (1,482     (9,729
  

 

 

   

 

 

 

Net decrease in net assets resulting from shareholders distributions

     (59,933     (31,543
  

 

 

   

 

 

 

Capital share transactions

    

Issuance of shares of common stock

     306,156        390,879   

Reinvestment of shareholders distributions

     38,289        15,865   

Repurchase of shares of common stock

     (6,349     (1,500
  

 

 

   

 

 

 

Net increase in net assets resulting from capital share transactions

     338,096        405,244   
  

 

 

   

 

 

 

Total increase in net assets

     359,011        400,538   

Net assets at beginning of period

     1,430,434        611,484   
  

 

 

   

 

 

 

Net assets at end of period

   $ 1,789,445      $ 1,012,022   
  

 

 

   

 

 

 

Capital share activity

    

Shares issued from subscriptions

     30,103,786        39,284,016   

Shares issued from reinvestment of distributions

     3,764,891        1,592,660   

Shares repurchased

     (631,233     (152,862
  

 

 

   

 

 

 

Net increase in shares outstanding

     33,237,444        40,723,814   
  

 

 

   

 

 

 

Distributions in excess of net investment income at end of period

   $ (7,378   $ (13,104
  

 

 

   

 

 

 

See notes to condensed consolidated financial statements.

 

4


Table of Contents

Corporate Capital Trust, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows (unaudited)

(in thousands)

 

     For the Six Months Ended  
     June 30, 2014     June 30, 2013  

Operating Activities:

    

Net increase in net assets resulting from operations

   $ 80,848      $ 26,837   

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

  

Purchases of investments

     (811,400     (785,208

Increase (decrease) in payable for investments purchased

     (17,863     148,192   

Paid-in-kind interest

     (15,497     (585

Proceeds from sales of investments

     394,557        288,502   

Proceeds from principal payments

     249,471        59,696   

Net realized gain on investments

     (14,331     (4,591

Net change in unrealized (appreciation) depreciation on investments

     (24,147     971   

Net change in unrealized (appreciation) depreciation on derivative instruments

     3,301        (6,006

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

     (1,551     12   

Amortization of premium/discount – net

     (3,051     (240

Amortization of deferred financing costs

     1,250        364   

Accretion of discount on term loan

     38        —     

Decrease (increase) in short-term investments, net

     128,475        (30,692

Increase in cash collateral for total return swap

     (22,049     (19,974

Increase in dividend and interest receivable

     (3,228     (5,393

Decrease (increase) in receivable for investments sold

     46,453        (51,960

Increase in principal receivable

     (13     (1,052

Increase in receivable from advisors

     —          (935

Decrease (increase) in other assets

     19        (1,465

Increase (decrease) in accrued investment advisory fees

     (3     868   

Increase (decrease) in accrued performance-based incentive fees

     (1,167     137   

Increase (decrease) in other accrued expenses and liabilities

     (1,411     78   
  

 

 

   

 

 

 

Net cash used in operating activities

     (11,299     (382,444
  

 

 

   

 

 

 

Financing Activities:

    

Proceeds from issuance of shares of common stock

     306,156        390,879   

Payment on repurchase of shares of common stock

     (6,349     (1,500

Distributions paid

     (36,567     (15,678

Borrowings under credit facilities and term loan

     539,000        159,820   

Repayments of credit facilities and term loan

     (747,330     (150,000

Deferred financing costs paid

     (6,929     (1,383
  

 

 

   

 

 

 

Net cash provided by financing activities

     47,981        382,138   
  

 

 

   

 

 

 

Net increase (decrease) in cash

     36,682        (306

Cash and cash denominated in foreign currency, beginning of period

     86,205        306   
  

 

 

   

 

 

 

Cash and cash denominated in foreign currency, end of period

   $ 122,887      $ —     
  

 

 

   

 

 

 

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

  

Cash paid for interest

   $ 9,640      $ 2,499   

Distributions reinvested

   $ 38,289      $ 15,865   

See notes to condensed consolidated financial statements.

 

5


Table of Contents

Corporate Capital Trust, Inc. and Subsidiaries

Condensed Consolidated Schedule of Investments (unaudited)

As of June 30, 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—42.6%

  

         

 

 

ABILITY Network, Inc.

   (e)(s)   Health Care Equipment & Services      L + 500         1.00%         5/14/2021       $         12,725      $         12,474      $         12,709   

 

 

Algeco/Scotsman (LU)

   (e)(f)(g)(q)   Consumer Durables & Apparel      15.75% PIK            5/1/2018         28,560        28,680        31,059   

 

 

Aspen Dental Management, Inc.

   (e)(s)   Health Care Equipment & Services      L + 550         1.50%         10/6/2016         6,023        5,982        6,056   

 

 

Bluestem Brands, Inc.

   (e)(s)   Consumer Durables & Apparel      L + 650         1.00%         12/6/2018         37,601        36,194        37,883   

 

 

BRG Sports, Inc.

   (e)(r)   Consumer Durables & Apparel      L + 550         1.00%         4/15/2021         4,670        4,579        4,723   

 

 

California Pizza Kitchen, Inc.

   (e)(h)(s)   Food & Staples Retailing      L + 425         1.00%         3/29/2018         13,606        12,925        13,028   

 

 

Charlotte Russe, Inc.

   (s)   Retailing      L + 550         1.25%         5/22/2019         13,352        13,170        13,285   
   (e)(s)        L + 550         1.25%         5/22/2019         4,739        4,710        4,721   

 

 

Data Device Corp.

   (e)(s)   Capital Goods      L + 650         1.50%         7/11/2018         10,394        10,235        10,420   

 

 

Distribution International, Inc.

   (s)   Retailing      L + 650         1.00%         7/16/2019         48,144        47,723        48,264   

 

 

Flagstone Foods Holding Corp.

   (i)(s)   Food & Staples Retailing      L + 575         1.25%         4/15/2018         20,002        19,827        19,982   

 

 

Football Association of Ireland (IE)        

   (f)(g)(i)(EUR)   Consumer Durables & Apparel      6.20%            12/20/2020       44,615        59,675        60,969   

 

 

Greenway Medical Technologies

   (e)(s)   Health Care Equipment & Services      L + 500         1.00%         11/4/2020       $ 1,772        1,763        1,777   

 

 

Greystone & Co., Inc.

   (i)(s)   Diversified Financials      L + 800         1.00%         3/26/2021         34,089        33,508        34,191   

 

 

Gymboree Corp.

   (e)(s)   Retailing      L + 350         1.50%         2/23/2018         14,197        12,524        12,215   

 

 

Internet Brands, Inc.

   (e)(u)   Media      P + 400         3.25%         3/18/2019         788        794        789   

 

 

See notes to condensed consolidated financial statements.

 

6


Table of Contents

Corporate Capital Trust, Inc. and Subsidiaries

Condensed Consolidated Schedule of Investments (unaudited) (continued)

As of June 30, 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  

iPayment, Inc.

   (e)(h)(s)   Software & Services     L + 525      1.50%     5/8/2017      $ 36,163      $ 35,858      $ 35,835   

 

 

J. Jill

   (i)(s)   Retailing     L + 850      1.50%     4/29/2017        7,125        7,125        7,107   

 

 

Jacuzzi Brands, Inc. (LU)

   (f)(i)(s)   Capital Goods     L + 650      1.25%     7/3/2019        41,421        40,698        40,965   

 

 

KeyPoint Government Solutions, Inc.

   (i)(s)   Capital Goods     L + 600      1.25%     11/13/2017        30,508        30,052        30,508   

 

 

Kurt Geiger Ltd. (UK)

   (f)(g)(i)(q)(GBP)   Consumer Durables & Apparel    
 
10.00%, 1.00%
PIK
  
  
  1.00%     4/8/2019      £ 46,625        76,571        80,194   

 

 

MCS AMS Sub-Holdings, LLC (s)

     Commercial & Professional Services     L + 600      1.00%     10/15/2019      $         47,417        46,177        46,113   

 

 

New Enterprise Stone & Lime Co., Inc.

   (i)(s)   Capital Goods     L + 700      1.00%     2/12/2019        56,298        56,298        56,495   

 

 

OpenLink Financial, Inc.

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

 

 

Pacific Union Financial, LLC

   (g)(i)(o)(r)   Diversified Financials     L + 800      1.00%     5/31/2019        26,998        26,598        26,838   

 

 

RedPrairie Corp.

   (e)(h)(s)   Software & Services     L + 500      1.00%     12/21/2018        4,006        4,005        4,013   

 

 

Sportsman’s Warehouse, Inc.

   (g)(i)(s)   Retailing     L + 1075      1.25%     8/20/2019        16,139        15,822        16,219   
   (g)(i)(s)       L + 600      1.25%     8/20/2019        27,436        27,192        27,532   

 

 

Travelport, LLC

   (e)(s)   Software & Services     L + 500      1.25%     6/26/2019        5,389        5,318        5,521   

 

 

Tweddle Group, Inc.

   (i)(s)   Automobiles & Components     L + 650      1.00%     4/7/2020        37,639        36,726        37,564   

 

 

Willbros United States Holding, Inc.

   (e)(g)(r)   Energy     L + 975      1.25%     8/5/2019        29,768        29,205        30,327   

 

 

Wilton Brands, LLC

   (e)(s)   Materials     L + 625      1.25%     8/30/2018        5,288        5,203        5,118   

 

 

Total Senior Secured Loans—First Lien

               $     747,657      $     762,466   
              

 

 

   

 

 

 

 

See notes to condensed consolidated financial statements

 

7


Table of Contents

Corporate Capital Trust, Inc. and Subsidiaries

Condensed Consolidated Schedule of Investments (unaudited) (continued)

As of June 30, 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—42.0%

  

       

 

 

ABILITY Network, Inc.

   (s)   Health Care Equipment & Services     L + 825        1.00%        5/16/2022      $ 8,230      $ 8,149      $ 8,271   

 

 

American Casino & Entertainment Properties, LLC

   (s)   Consumer Services     L + 1000        1.25%        1/3/2020        1,832        1,893        1,947   

 

 

Angelica Corp.

   (i)(s)   Health Care Equipment & Services     L + 875        1.25%        7/15/2019        50,869        50,869        49,495   

 

 

Applied Systems, Inc.

   (e)(h)(s)   Software & Services     L + 650        1.00%        1/24/2022        10,446        10,691        10,678   

 

 

Arysta Lifescience SPC, LLC

   (e)(g)(s)   Food, Beverage & Tobacco     L + 700        1.25%        11/30/2020        16,305        16,158        16,631   

 

 

AssuredPartners, Inc.

   (h)(s)   Insurance     L + 675        1.00%        4/2/2022        7,115        7,109        7,146   

 

 

Brake Bros Ltd. (UK)

   (f)(g)(q)(v)(GBP)   Food & Staples Retailing    
 
L + 325, 3.00%
PIK
  
  
      3/12/2017      £ 8,756        12,423        14,648   

 

 

BRG Sports, Inc.

   (r)   Consumer Durables & Apparel     L + 925        1.00%        4/15/2022      $         23,855        23,653        24,093   

 

 

Catalina Marketing Corp.

   (r)   Media     L + 675        1.00%        4/11/2022        6,020        5,976        6,035   

 

 

CHG Companies, Inc.

   (e)(r)   Health Care Equipment & Services     L + 775        1.25%        11/19/2020        10,485        10,369        10,699   

 

 

CRC Health Group, Inc.

   (h)(s)   Health Care Equipment & Services     L + 800        1.00%        9/28/2021        30,526        30,153        30,699   

 

 

CTI Foods Holding Co., LLC

   (s)   Food, Beverage & Tobacco     L + 725        1.00%        6/28/2021        23,219        22,901        23,538   

 

 

Data Device Corp.

   (r)   Capital Goods     L + 1000        1.50%        7/11/2019        8,000        7,873        7,880   

 

 

Excelitas Technologies Corp.

   (i)(q)(s)   Technology Hardware & Equipment    
 
L + 975, 1.50%
PIK
  
  
    1.00%        4/29/2021        108,167            108,167            110,222   

 

 

Greenway Medical Technologies

   (s)   Health Care Equipment & Services     L + 825        1.00%        11/4/2021        26,396        26,015        26,627   

 

 

 

See notes to condensed consolidated financial statements

 

8


Table of Contents

Corporate Capital Trust, Inc. and Subsidiaries

Condensed Consolidated Schedule of Investments (unaudited) (continued)

As of June 30, 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  

Gruppo Argenta S.p.A. (LU)

   (f)(g)(i)(q)(EUR)   Retailing     12.00% PIK          1/31/2019              21,459      $         23,119      $         24,624   

 

 

Gypsum Management & Supply, Inc.

   (s)   Capital Goods     L + 675        1.00%        4/1/2022      $ 13,207        13,078        13,389   

 

 

Integra Telecom Holdings, Inc.

   (s)   Telecommunication Services     L + 850        1.25%        2/21/2020        3,000        3,064        3,065   

 

 

Learfield Communications, Inc.

   (h)(s)   Media     L + 775        1.00%        10/8/2021        10,815        10,897        11,038   

 

 

Liberty Cablevision of Puerto Rico, LLC

   (h)(s)   Media     L + 675        1.00%        6/26/2023        3,721        3,703        3,748   

 

 

Lightower Fiber, LLC

   (e)(h)(s)   Telecommunication Services     L + 675        1.25%        4/12/2021        5,282        5,318        5,357   

 

 

Maxim Crane, LP

   (e)(s)   Capital Goods     L + 925        1.00%        11/26/2018        5,168        5,304        5,293   

 

 

Misys Ltd. (UK)

   (e)(f)(g)   Software & Services     12.00%          6/12/2019        3,000        3,332        3,455   

 

 

Monarch (LU)

   (e)(f)(g)(s)   Materials     L + 700        1.25%        4/3/2020        1,558        1,551        1,603   

 

 

NewWave Communications, Inc.

   (s)   Media     L + 800        1.00%        10/30/2020        13,712        13,670        13,867   

 

 

P2 Energy Solutions, Inc.

   (t)   Software & Services     L + 800        1.00%        4/30/2021        9,283        9,195        9,465   

 

 

Packaging Coordinators, Inc.

   (i)(s)   Materials     L + 825        1.25%        10/31/2020        11,827        11,722        11,626   

 

 

Polyconcept Finance BV (NL)

   (f)(g)(i)(s)   Consumer Durables & Apparel     L + 875        1.25%        6/28/2020        46,727        46,727        45,512   

 

 

Progressive Solutions

   (h)(r)   Health Care Equipment & Services     L + 850        1.00%        10/22/2021        21,145        20,983        21,251   

 

 

RedPrairie Corp.

   (e)(s)   Software & Services     L + 1000        1.25%        12/21/2019        18,150        18,167        18,354   

 

 

Sabine Oil & Gas, LLC

   (e)(g)(s)   Energy     L + 750        1.25%        12/31/2018        14,527        14,410        14,817   

 

 

SafeNet, Inc.

   (i)(r)   Software & Services     L + 750        1.00%        3/5/2021        20,829        20,528        20,663   

 

 

 

See notes to condensed consolidated financial statements

 

9


Table of Contents

Corporate Capital Trust, Inc. and Subsidiaries

Condensed Consolidated Schedule of Investments (unaudited) (continued)

As of June 30, 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  

Safety Technology Holdings, Inc.

  (i)(s)   Technology Hardware & Equipment     L + 825        1.00%        6/2/2020      $         30,402      $         29,693      $         30,691   

 

 

Sheridan Holdings, Inc.

  (e)(r)   Health Care Equipment & Services     L + 725        1.00%        12/13/2021        13,899        13,833        14,247   

 

 

SI Organization, Inc.

  (s)   Capital Goods     L + 800        1.00%        5/23/2020        56,000        55,447        56,175   

 

 

StoneRiver Holdings, Inc.

  (r)   Insurance     L + 725        1.25%        5/30/2020        6,746        6,724        6,792   

 

 

Talbots, Inc.

  (h)(s)   Retailing     L + 725        1.00%        3/19/2021        15,074        14,970        14,924   

 

 

The TelX Group, Inc.

  (h)(s)   Telecommunication Services     L + 650        1.00%        4/9/2021        11,696        11,681        11,742   

 

 

Travelport, LLC

  (e)(t)   Software & Services     L + 800        1.50%        1/31/2016        18,868        18,593        19,481   

 

 

Websense, Inc.

  (s)   Technology Hardware & Equipment     L + 725        1.00%        12/24/2020        22,131        22,031        22,325   

 

 

Total Senior Secured Loans—Second Lien

              $         740,139      $         752,113   
             

 

 

   

 

 

 

Senior Secured Bonds—7.3%

               

 

 

Artesyn Technologies, Inc.

  (h)(j)(k)   Technology Hardware & Equipment     9.75%          10/15/2020        6,954        6,905        6,832   

 

 

Essar Steel Algoma, Inc. (CA)

  (f)(g)(j)(k)   Materials     9.38%          3/15/2015        339        340        338   

 

 

Guitar Center, Inc.

  (j)(k)   Retailing     6.50%          4/15/2019        21,542        21,322        21,326   

 

 

Hot Topic, Inc.

  (j)(k)   Consumer Durables & Apparel     9.25%          6/15/2021        2,419        2,399        2,685   

 

 

Louisiana Public Facilities Authority

  (i)   Energy     11.50%          1/1/2020        50,580        49,190        51,086   

 

 

New Enterprise Stone & Lime Co., Inc.

  (k)(q)   Capital Goods    
 
5.00%, 8.00%
PIK
  
  
      3/15/2018        10,474        10,556        11,784   

 

 

OAG Holdings, LLC

  (i)(q)   Energy    
 
8.00%, 2.00%
PIK
  
  
      12/20/2020        20,210        17,493        19,018   

 

 

 

See notes to condensed consolidated financial statements

 

10


Table of Contents

Corporate Capital Trust, Inc. and Subsidiaries

Condensed Consolidated Schedule of Investments (unaudited) (continued)

As of June 30, 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  

Ryerson, Inc.

   (e)   Materials     9.00%          10/15/2017      $ 5,814      $             5,814      $             6,221   

 

 

SquareTwo Financial Corp.

   (k)   Banks     11.63%          4/1/2017        11,802        11,767        11,389   

 

 

Total Senior Secured Bonds

               $         125,786      $         130,679   
              

 

 

   

 

 

 

Total Senior Debt—91.9%

               $     1,613,582      $     1,645,258   
              

 

 

   

 

 

 

Subordinated Debt—22.3%

                

 

 

Cemex Materials, LLC

   (h)(j)(k)   Materials     7.70%          7/21/2025        25,312        25,261        29,235   

 

 

Ceridian Corp.

   (j)(k)   Commercial & Professional Services     8.13%          11/15/2017        6,246        6,230        6,308   
   (k)       11.00%          3/15/2021        16,201        17,505        18,712   

 

 

CHS/Community Health Systems, Inc.

   (g)(j)(k)   Health Care Equipment & Services     6.88%          2/1/2022        114        114        121   

 

 

CommScope, Inc.

   (g)(j)(k)   Technology Hardware & Equipment     5.00%          6/15/2021        11,784        11,784        12,020   
   (g)(j)(k)       5.50%          6/15/2024        10,219        10,219        10,385   

 

 

Datatel, Inc.

   (e)(j)(q)   Software & Services     9.63%          12/1/2018        9,287        9,207        9,659   

 

 

Education Management, LLC

   (g)(k)(q)   Consumer Services    

 

15.00%,

1.00% PIK

  

  

      7/1/2018        1,299        1,306        649   

 

 

Essar Steel Algoma, Inc. (CA)

   (f)(g)(j)(k)   Materials     9.88%          6/15/2015        6,973        5,404        4,463   

 

 

GCI, Inc.

   (k)   Telecommunication Services     8.63%          11/15/2019        41,782        44,276        44,132   
   (k)       6.75%          6/1/2021        158        151        160   

 

 

Global Closure Systems (FR)

   (f)(g)(i)(q)(EUR)   Materials     13.00% PIK          11/15/2019              18,987        25,031        25,791   

 

 

 

See notes to condensed consolidated financial statements

 

11


Table of Contents

Corporate Capital Trust, Inc. and Subsidiaries

Condensed Consolidated Schedule of Investments (unaudited) (continued)

As of June 30, 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  
Griffins Foods, Ltd. (NZ)   (f)(g)(i)(q)(NZD)   Food, Beverage & Tobacco     13.75% PIK          1/31/2019      N$ 50,650        39,819        44,746   

 

 
Gruppo Argenta S.p.A. (LU)   (f)(g)(i)(q)(EUR)   Retailing     15.00% PIK          11/11/2018        € 635      $ 876      $ 693   

 

 
Gymboree Corp.   (k)   Retailing     9.13%          12/1/2018        $ 3,335        3,210        2,226   

 

 
Hilding Anders (SE)   (f)(g)(i)(q)(s)(EUR)   Consumer Durables & Apparel     13.00% PIK          6/30/2021        € 86,803        103,350        106,736   
  (f)(g)(i)(q)(s)(EUR)       12.00% PIK          12/31/2023        15,739        1,004        1,050   
  (f)(g)(i)(q)(s)(EUR)       18.00% PIK          12/31/2024        7,046        6,786        7,973   

 

 
Hot Topic, Inc.   (j)(k)(q)   Consumer Durables & Apparel     12.00%          5/15/2019        $ 8,113        7,962        8,640   

 

 
iPayment, Inc.   (k)   Software & Services     10.25%          5/15/2018        12,066        9,799        10,920   

 

 
JC Penney Corp., Inc.   (g)(k)   Retailing     5.65%          6/1/2020        11,803        8,957        10,328   

 

 
Men’s Wearhouse, Inc.   (g)(j)(k)   Retailing     7.00%          7/1/2022        5,285        5,285        5,470   

 

 
Summit Materials, LLC   (k)   Materials     10.50%          1/31/2020        9,711        10,536        10,925   

 

 
The TelX Group, Inc.   (i)(q)   Telecommunication Services     13.50% PIK          7/9/2021        3,239        3,472        3,232   

 

 
Towergate Finance PLC (UK)   (f)(g)(j)(k)(GBP)   Insurance     10.50%          2/15/2019        £ 14,608        23,298        24,130   

 

 
Total Subordinated Debt             $     380,842      $     398,704   
             

 

 

   

 

 

 
Structured Products—2.0%   
KKR BPT Holdings Aggregator, LLC   (g)(i)(l)*   Diversified Financials           N/A        2,500        2,500   

 

 
Trade Finance Funding I, Ltd. 2013-1A Class B (KY)   (f)(g)(i)(j)   Diversified Financials     10.75%          11/13/2018        $     28,221        28,221        28,278   

 

 

 

 

See notes to condensed consolidated financial statements

 

12


Table of Contents

Corporate Capital Trust, Inc. and Subsidiaries

Condensed Consolidated Schedule of Investments (unaudited) (continued)

As of June 30, 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  

VSK Holdings, Ltd. (KY)

  (f)(g)(i)(m)(EUR)   Diversified Financials           620,377      $      $ 5,275   

 

 

Total Structured Products

  

  $       30,721      $       36,053   
             

 

 

   

 

 

 
Equity / Other—3.9%                

Ally Financial, Inc., Preferred Stock

  (g)(j)(k)   Banks     7.00         230        229        232   

 

 

Cengage Learning Holdings II, LP , Common Stock

  (e)*   Media           227,802        7,529        7,973   

 

 

Excelitas Technologies Corp., Class A Membership Interest

  (i)*   Technology Hardware & Equipment           N/A        5,636        5,631   

 

 

Genesys Telecommunications Laboratories, Inc., Common Stock

  (i)*   Software & Services           5,775        449        742   

 

 

Global Closure Systems (FR), Limited Partnership Interest

  (f)(g)(i)*(EUR)   Materials           N/A        823        1,186   

 

 

Gruppo Argenta S.p.A. (LU) ,Warrants

  (f)(g)(i)*(EUR)   Retailing           225,289        5,342        5,285   

 

 

Hilding Anders (SE), Class A Common Stock

  (f)(g)(i)*(SEK)   Consumer Durables & Apparel           1,394,288        132        128   

 

 

Hilding Anders (SE), Class B Common Stock

  (f)(g)(i)*(SEK)   Consumer Durables & Apparel           260,253        25        24   

 

 

Hilding Anders (SE), Equity Options

  (f)(g)(i)*(SEK)   Consumer Durables & Apparel         12/31/2020        236,160,807        14,988        13,891   

 

 

Jasper Parent, LLC, Common Stock

  (i)*   Consumer Durables & Apparel           5,451        1,090        4,334   

 

 

Jones Apparel Group Holdings, Inc., Common Stock

  (i)*   Consumer Durables & Apparel           5,451        1,090        1,304   

 

 

Nine West Holdings, Inc., Common Stock

  (i)*   Consumer Durables & Apparel           5,451        6,542        6,100   

 

 

OAG Holdings, LLC, Overriding Royalty Interest

  (i)   Energy           N/A        2,354        2,182   

 

 

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

  (g)(i)   Diversified Financials           N/A        9,119        7,751   

 

 

 

 

See notes to condensed consolidated financial statements

 

13


Table of Contents

Corporate Capital Trust, Inc. and Subsidiaries

Condensed Consolidated Schedule of Investments (unaudited) (continued)

As of June 30, 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  

Stuart Weitzman, Inc., Common Stock

  (i)*   Consumer Durables & Apparel           5,451      $ 7,359      $ 12,489   

 

 

Total Equity / Other

  

    $ 62,707      $ 69,252   
             

 

 

   

 

 

 

Total Investments, excluding Short Term Investments—120.1%

  

    $     2,087,852      $     2,149,267   
             

 

 

   

 

 

 

Short Term Investments—1.2%

  

 

Goldman Sachs Financial Square Funds—Prime Obligations Fund, FST Preferred Shares (e)(n)

        0.01%            21,363,007        21,363        21,363   

State Street Institutional Liquid Reserves Fund, Institutional Class

  (n)       0.06%            64,930        65        65   

 

 

Total Short Term Investments

  

    $ 21,428      $ 21,428   
             

 

 

   

 

 

 

TOTAL INVESTMENTS—121.3%(p)

      $ 2,109,280      $ 2,170,695   
             

 

 

   

 

 

 

LIABILITIES IN EXCESS OF OTHER ASSETS—(21.3%)

          (381,250)   
               

 

 

 

NET ASSETS—100.0%

        $     1,789,445   
               

 

 

 

Collateral on Deposit with Custodian—3.3%

  

 

 

 

Bank of Nova Scotia—Certificate of Deposit

        0.14%          9/30/2014        59,550      $ 59,550        59,550   

Total Collateral on Deposit with Custodian

      $ 59,550      $ 59,550   
             

 

 

   

 

 

 

Derivative Instruments—(0.3%) (Note 4)

       

Foreign currency forward contracts

  (g)       N/A         
 
7/2014-
4/2017
 
  
    $        (5,112)   

Total return swaps

  (g)(i)       N/A          1/15/2016        $      $ 491   

 

 

Total Derivative Instruments

              $      $     (4,621)   
             

 

 

   

 

 

 

 

See notes to condensed consolidated financial statements.

 

14


Table of Contents

Corporate Capital Trust, Inc. and Subsidiaries

Condensed Consolidated Schedule of Investments (unaudited) (continued)

As of June 30, 2014

(in thousands, except share amounts)

 

* 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) 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.

 

(f) 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.

 

(g) 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, 70.2% of the Company’s total assets represented qualifying assets as of June 30, 2014.

 

(h) Position or portion thereof unsettled as of June 30, 2014.

 

(i) Investments classified as Level 3 whereby fair value was determined by the Company’s Board of Directors (see Note 2).

 

(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.

 

See notes to condensed consolidated financial statements

 

15


Table of Contents

Corporate Capital Trust, Inc. and Subsidiaries

Condensed Consolidated Schedule of Investments (unaudited) (continued)

As of June 30, 2014

(in thousands, except share amounts)

 

(l)   Affiliated 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. The aggregate fair value of non-controlled, affiliated investments at June 30, 2014 represents 7.5% of the Company’s net assets. Fair value as of December 31, 2013 and June 30, 2014 along with transactions during the six months ended June 30, 2014 in these Affiliated investments are as follows (amounts in thousands):

 

                Gross                 Six Months Ended June 30, 2014  

Non-controlled, Affiliated Investments

  Fair Value at
December 31, 2013
    Gross Additions
(Cost)*
    Reductions
(Cost)**
    Net Unrealized
Gain (Loss)
    Fair Value at
June 30, 2014
    Net Realized
Gain (Loss)
    Interest Income     Fee Income     Dividend Income  

Hilding Anders

                 

Subordinated Debt

  $      $ 111,140      $      $ 4,619      $ 115,759      $      $ 4,006      $      $   

Class A Common Stock

           132               (4     128                               

Class B Common Stock

           25               (1     24                               

Equity Options

           14,988               (1,097     13,891                               

VSK Holdings, Ltd.

                           

Structured Product

    21,481               (21,474     5,268        5,275                             577   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Totals

  $ 21,481      $ 126,285      $ (21,474   $ 8,785      $ 135,077      $      $ 4,006      $      $ 577   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

* Gross additions include increases in the cost basis of investments resulting from new portfolio investments, PIK interest, the amortization of unearned income, the exchange of one or more existing securities for one or more new securities and the movement of an existing portfolio company into this category from a different category.

 

** Gross reductions include decreases in the cost basis of investments resulting from principal collections related to investment repayments or sales, the exchange of one or more existing securities for one or more new securities and the movement of an existing portfolio company out of this category into a different category.

 

See notes to condensed consolidated financial statements

 

16


Table of Contents

Corporate Capital Trust, Inc. and Subsidiaries

Condensed Consolidated Schedule of Investments (unaudited) (continued)

As of June 30, 2014

(in thousands, except share amounts)

 

(m)   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. The aggregate fair value of controlled investments at June 30, 2014 represents 0.1% of the Company’s net assets. Fair value as of December 31, 2013 and June 30, 2014 along with transactions during the six months ended June 30, 2014 in these controlled investments are as follows (amounts in thousands):

 

    Fair Value at     Gross     Gross                 Six Months Ended June 30, 2014  

Controlled Investments

  December 31,
2013
    Additions
(Cost)*
    Reductions
(Cost)**
    Net Unrealized
Gain (Loss)
    Fair Value at
June 30, 2014
    Net Realized Gain
(Loss)
    Interest Income     Fee Income     Dividend Income  

KKR BPT Holdings Aggregator, LLC

                 

Structured Product

  $ 2,500      $      $      $      $ 2,500      $      $      $      $   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Totals

  $ 2,500      $      $      $      $ 2,500      $      $      $      $   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

  * Gross additions include increases in the cost basis of investments resulting from new portfolio investments, PIK interest, the amortization of unearned income, the exchange of one or more existing securities for one or more new securities and the movement of an existing portfolio company into this category from a different category.

 

  ** Gross reductions include decreases in the cost basis of investments resulting from principal collections related to investment repayments or sales, the exchange of one or more existing securities for one or more new securities and the movement of an existing portfolio company out of this category into a different category.

(n)   7-day effective yield as of June 30, 2014.

(o)   The value of this investment is net of unfunded delayed draw loan commitments of $33,652.

(p)   As of June 30, 2014, the aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost was $71,420; the aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value was $10,005; the net unrealized appreciation was $61,415; the aggregate cost of securities for Federal income tax purposes was $2,109,780.

(q)   The interest rate on these investments contains a PIK provision, whereby the issuer has either the option or the obligation to make interest payments with the issuance of additional securities. The interest rate in the schedule represents the current interest rate in effect for these investments. The following table provides additional details on these PIK investments, including the maximum PIK interest rate allowed under the existing credit agreements.

 

See notes to condensed consolidated financial statements

 

17


Table of Contents

Corporate Capital Trust, Inc. and Subsidiaries

Condensed Consolidated Schedule of Investments (unaudited) (continued)

As of June 30, 2014

(in thousands, except share amounts)

 

PIK Security Name

  Local
Currency
  12/31/2013
Local Par
    Six Months
Ended 6/30/2014
Local Par
Additions
    Six Months
Ended 6/30/2014
Local Par
Capitalized PIK
    6/30/2014
Local Par
    Total Current
Interest Rate
    Current
PIK Rate
    Maximum
PIK Rate
 

Algeco/Scotsman - 15.75% PIK

  USD     26,464        -        2,096        28,560        15.75     15.75     15.75

Brake Bros Ltd. - L + 325, 3.00% PIK

  GBP     8,650        -        106        8,756        L+625        3.00     3.00

Datatel, Inc. - 9.63%

  USD     9,287        -        -        9,287        9.63     0.00     10.38

Education Management, LLC - 15.00%, 1.00% PIK

  USD     1,299        -        -        1,299        16.00     1.00     1.00

Excelitas Technologies Corp. - L + 975, 1.50% PIK

  USD     107,355        -        812        108,167        L+1125        1.50     1.50

Global Closure Systems - 13.00% PIK

  EUR     17,828        -        1,159        18,987        13.00     13.00     13.00

Griffins Foods, Ltd. - 13.75% PIK

  NZD     47,417        -        3,233        50,650        13.75     13.75     13.75

Gruppo Argenta S.p.A. - 15.00% PIK

  EUR     -        635        -        635        15.00     15.00     15.00

Gruppo Argenta S.p.A. - 12.00% PIK

  EUR     -        21,459        -        21,459        12.00     12.00     12.00

Hilding Anders - 18.00% PIK

  EUR     -        7,046        -        7,046        18.00     18.00     18.00

Hilding Anders - 13.00% PIK

  EUR     81,478        -        5,325        86,803        13.00     13.00     13.00

Hilding Anders - 12.00% PIK

  EUR     -        15,739        -        15,739        12.00     12.00     12.00

Hot Topic, Inc. - 12.00%

  USD     8,113        -        -        8,113        12.00     0.00     12.75

Kurt Geiger Ltd. - 10.00%, 1.00% PIK

  GBP     -        46,625        -        46,625        11.00     1.00     1.00

New Enterprise Stone & Lime Co., Inc. - 5.00%, 8.00% PIK

  USD     10,071        -        403        10,474        13.00     8.00     10.00

OAG Holdings, LLC - 8.00%, 2.00% PIK

  USD     20,008        -        202        20,210        10.00     2.00     2.00

The TelX Group, Inc. - 13.50% PIK

  USD     -        3,142        97        3,239        13.50     13.50     13.50

 

See notes to condensed consolidated financial statements

 

18


Table of Contents

Corporate Capital Trust, Inc. and Subsidiaries

Condensed Consolidated Schedule of Investments (unaudited) (continued)

As of June 30, 2014

(in thousands, except share amounts)

 

(r) The interest rate on these investments is subject to a base rate of 1-Month LIBOR, which at June 30, 2014 was 0.15%. The base rate for each investment may be different from the reference rate on June 30, 2014.

 

(s) The interest rate on these investments is subject to a base rate of 3-Month LIBOR, which at June 30, 2014 was 0.23%. The base rate for each investment may be different from the reference rate on June 30, 2014.

 

(t) The interest rate on these investments is subject to a base rate of 6-Month LIBOR, which at June 30, 2014 was 0.33%. The base rate for each investment may be different from the reference rate on June 30, 2014.

 

(u) The interest rate on these investments is subject to a base rate of U.S. Prime Rate, which at June 30, 2014 was 3.25%. The base rate for each investment may be different from the reference rate on June 30, 2014.

 

(v) The interest rate on these investments is subject to a base rate of GBP LIBOR, which at June 30, 2014 was 0.47%. The base rate for each investment may be different from the reference rate on June 30, 2014.

Abbreviations:

EUR - Euro; local currency investment amount is denominated in Euros. €1 / US $1.365 as of June 30, 2014.

GBP - British Pound Sterling; local currency investment amount is denominated in Pound Sterling. £1 / US $1.703 as of June 30, 2014.

NZD - New Zealand Dollar; local currency investment amount is denominated in New Zealand Dollars. N$1 / US $0.876 as of June 30, 2014.

SEK - Swedish Krona; local currency investment amount is denominated in Swedish Kronas. SEK1 / US $0.148 as of June 30, 2014.

CA - Canada

FR - France

IE - Ireland

KY - Cayman Islands

LU - Luxembourg

NL - The Netherlands

NZ - New Zealand

SE - Sweden

UK - United Kingdom

E = EURIBOR - Euro Interbank Offered Rate

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

P - U.S. Prime Rate

PIK - Payment-in-kind; the issuance of additional securities by the borrower to settle interest payment obligations.

 

See notes to condensed consolidated financial statements

 

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Table of Contents

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.

 

20


Table of Contents

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.

 

21


Table of Contents

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.

 

22


Table of Contents

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)(q)*    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)(p)*    Diversified Financials               620         21,474         21,481   

 

 

Total Structured Products

                      

 

$        55,520

 

  

 

    

 

$        55,575

 

  

 

                    

 

 

    

 

 

 

 

See notes to consolidated financial statements.

 

23


Table of Contents

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.

 

24


Table of Contents

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”), unless otherwise indicated. Non-Controlled/Non-Affiliate Investments are investments that are neither Control 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) 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.
(p) Affiliated 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. The aggregate fair value of non-controlled, affiliated investments at December 31, 2013 represents 1.5% of the Company’s net assets. Fair value as of December 31, 2012 and 2013 along with transactions during the year ended December 31, 2013 in these Affiliated investments are as follows (amounts in thousands):

 

    Fair Value at     Gross     Gross           Fair Value at     Year Ended December 31, 2013  

Non-controlled, Affiliated Investments

  December 31,
2012
    Additions
(Cost)*
    Reductions
(Cost)**
    Net Unrealized
Gain (Loss)
    December 31,
2013
    Net Realized
Gain (Loss)
    Interest Income     Fee Income     Dividend Income  

VSK Holdings, Ltd. Structured Product

  $      $ 21,474      $      $ 7      $ 21,481      $      $      $

  
  $   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Totals

  $      $ 21,474      $      $ 7      $ 21,481      $      $      $      $   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

  * Gross additions include increases in the cost basis of investments resulting from new portfolio investments, PIK interest, the amortization of unearned income, the exchange of one or more existing securities for one or more new securities and the movement of an existing portfolio company into this category from a different category.

 

  ** Gross reductions include decreases in the cost basis of investments resulting from principal collections related to investment repayments or sales, the exchange of one or more existing securities for one or more new securities and the movement of an existing portfolio company out of this category into a different category.
(q) 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. The aggregate fair value of controlled at December 31, 2013 represents 0.2% of the Company’s net assets. Fair value as of December 31, 2012 and 2013 along with transactions during the year ended December 31, 2013 in these Controlled investments are as follows (amounts in thousands):

 

    Fair Value at     Gross     Gross                 Year Ended December 31, 2013  

Controlled Investments

  December 31,
2012
    Additions
(Cost)*
    Reductions
(Cost)**
    Net Unrealized
Gain (Loss)
    Fair Value at
June 30, 2014
    Net Realized
Gain (Loss)
    Interest Income     Fee Income     Dividend Income  

KKR BPT Holdings Aggregator, LLC Structured Product

  $      $ 2,500      $      $      $ 2,500      $      $      $      $   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Totals

  $      $ 2,500      $      $      $ 2,500      $      $      $      $   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

  * Gross additions include increases in the cost basis of investments resulting from new portfolio investments, PIK interest, the amortization of unearned income, the exchange of one or more existing securities for one or more new securities and the movement of an existing portfolio company into this category from a different category.

 

  ** Gross reductions include decreases in the cost basis of investments resulting from principal collections related to investment repayments or sales, the exchange of one or more existing securities for one or more new securities and the movement of an existing portfolio company out of this category into a different category.

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; the issuance of additional securities by the borrowers to settle interest payment obligations.

 

See notes to consolidated financial statements.

 

25


Table of Contents

CORPORATE CAPITAL TRUST, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

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 June 30, 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 purpose of the Taxable Subsidiary is 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.

 

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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, independent 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, illiquid 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 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 KKR 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.

 

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  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 (i) transaction price and are subsequently valued using market data for similar instruments (e.g., recent transactions or indicative broker quotes), (ii) comparisons to benchmark derivative indices or (iii) 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 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 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 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 as a component of net change in unrealized appreciation (depreciation) on investments in the condensed consolidated statements of operations.

 

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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 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 interest payment date. PIK investments offer issuers either the option or the obligation at each interest payment date of making interest payments with the issuance of additional securities. When additional securities are received by the Company, they typically have the same terms, including maturity dates and interest rates as the original securities issued. On the interest 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 and will record an allowance for any accrued PIK interest receivable as a reduction of interest 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 to the Company’s shareholders.

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.

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 debt security is placed on non-accrual status. Interest payments received on non-accrual debt securities may be recognized as income or applied to principal depending upon management’s judgment. Non-accrual 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 on interest payment obligations. The Company may make exceptions to this treatment if the debt security has sufficient collateral value and is in the process of collection. The contractual interest associated with a debt security that has been placed on non-accrual status might increase taxable income, which could create an additional distribution requirement to the Company’s shareholders 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 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 assets and the net interest received or paid on the quarterly TRS settlement date.

Deferred Financing Costs - Financing costs, including upfront fees, commitment fees and legal fees, related to the Company’s credit facilities, term loan and total return swaps are deferred and amortized over the life of the related debt facility or total return swaps using either the effective interest method or straight-line method. Deferred financing costs are included in prepaid and deferred expenses in the condensed consolidated statements of assets and liabilities.

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 prevailing exchange rate 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.

 

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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 forward contracts is included in net change in unrealized appreciation (depreciation) in derivative instruments on the condensed consolidated statements of operations and is included with unrealized appreciation (depreciation) on derivative instruments in 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) in 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 on capital 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 in the condensed consolidated statements of operations and accrued in 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 in 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 – Weekly 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 a 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 of (i) 98% of net ordinary income for the 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% non-deductible federal excise tax on this excess taxable income.

 

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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 condensed 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 assets 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, their major tax jurisdiction is federal.

Permanent book and tax basis 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 period 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 and six months ended June 30, 2014 and 2013. These purchase and sale amounts exclude short-term investments (i.e. money market fund investments) and derivative instruments (amounts in thousands).

 

     Three Months Ended      Six Months Ended  
     June 30, 2014      June 30, 2013      June 30, 2014      June 30, 2013  

Investment purchases, at cost

     $         525,349          $         549,049          $         811,400          $         785,208    

Investment sales, proceeds

     90,048          238,983          394,557          288,502    

Principal payments/paydown proceeds

     126,571          17,678          249,471          59,696    

As of June 30, 2014, there were no debt investments on non-accrual status. As of December 31, 2013, debt investments on non-accrual status represented 0.7% and 0.6% of total investments on a cost and fair value basis, respectively.

As of June 30, 2014 and December 31, 2013, the Company’s investment portfolio consisted of the following (amounts in thousands):

 

     As of June 30, 2014  
Asset Category    Cost      Fair Value      Percentage of
Investment
Portfolio
     Percentage of
Net Assets
 

Senior debt

     $ 1,613,582        $ 1,645,258          76.5%           91.9%     

Subordinated debt

     380,842          398,704          18.6              22.3        

Structured products

     30,721          36,053          1.7            2.0        

Equity/Other

     62,707          69,252          3.2              3.9        
  

 

 

    

 

 

    

 

 

    

 

 

 

Subtotal

     2,087,852          2,149,267          100.0%          120.1        
        

 

 

    

Short term investments

     21,428          21,428             1.2        
  

 

 

    

 

 

       

 

 

 

Total investments

     $ 2,109,280        $ 2,170,695             121.3%    
  

 

 

    

 

 

       

 

 

 

 

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     As of December 31, 2013  
Asset Category    Cost     Fair Value      Percentage of
Investment
Portfolio
     Percentage of
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.

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 June 30, 2014 and December 31, 2013 was as follows:

 

Industry Composition

   June 30, 2014      December 31, 2013  

Consumer Durables & Apparel

     20.9%            19.0%      

Capital Goods

     10.8               5.4         

Retailing

     10.0               10.6         

Technology Hardware & Equipment

     9.2               12.4         

Health Care Equipment & Services

     8.5               9.3         

Software & Services

     6.9               7.7         

Energy

     5.5               6.1         

Diversified Financials

     4.9               2.9         

Materials

     4.5               7.1         

Food, Beverage & Tobacco

     4.0               5.2         

Commercial & Professional Services

     3.3               3.5         

Telecommunication Services

     3.1               1.7         

Food & Staples Retailing

     2.2               1.7         

Media

     2.0               3.5         

Insurance

     1.8               3.5         

Remaining Industries

     2.4               0.4         
  

 

 

    

 

 

 

Total

                                              100.0%                                                    100.0%     
  

 

 

    

 

 

 

Geographic Dispersion (1)

     

United States

     73.2%           76.9%      

Sweden

     6.0               5.9         

United Kingdom

     5.7               2.2         

Luxembourg

     4.8               4.4         

Ireland

     2.8               3.1         

Netherlands

     2.1               2.4         

New Zealand

     2.1               2.0         

Cayman Islands

     1.6               1.3         

France

     1.3               1.3         

Remaining Countries

     0.4               0.5         
  

 

 

    

 

 

 

Total

     100.0%           100.0%     
  

 

 

    

 

 

 

Local Currency

     

U.S. Dollar

     80.6%            84.0%      

Euro

     11.1               11.2         

British Pound Sterling

     5.5               2.0         

New Zealand Dollar

     2.1               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.

 

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4. Derivative Instruments

The following is a summary of the fair value and location of the Company’s derivative instruments in the condensed consolidated statements of assets and liabilities (amounts in thousands):

 

          Fair Value  

Derivative Instrument                     

  

Statement Location                

   June 30, 2014      December 31, 2013  

Foreign currency forward contracts

   Unrealized depreciation on derivative instruments    $ (5,894)       $ (3,181)   
   Unrealized appreciation on derivative instruments      782         -   

TRS

   Unrealized appreciation on derivative instruments      491         1,861   
     

 

 

    

 

 

 

Total

        $     (4,621)         $         (1,320)   
     

 

 

    

 

 

 

Realized and unrealized gains and losses on derivative instruments recorded by the Company for the three and six months ended June 30, 2014 and 2013 are in the following location in the condensed consolidated statements of operations (amounts in thousands):

 

          Realized Gain (Loss)  
          Three Months Ended      Six Months Ended  

Derivative Instrument

  

Statement Location

   June 30, 2014      June 30, 2013      June 30, 2014      June 30, 2013  

Foreign currency forward contracts

  

Net realized gain (loss) on derivative instruments

   $ (1,119)       $ (515)       $ (3,172)       $ 125   

TRS

  

Net realized gain (loss) on derivative instruments

     532         2,297         2,394         2,525   
     

 

 

    

 

 

    

 

 

    

 

 

 

Total

      $ (587)       $ 1,782       $ (778)       $ 2,650   
     

 

 

    

 

 

    

 

 

    

 

 

 
          Unrealized Gain (Loss)  
          Three Months Ended      Six Months Ended  

Derivative Instrument

  

Statement Location

   June 30, 2014      June 30, 2013      June 30, 2014      June 30, 2013  

Foreign currency forward contracts

  

Net change in unrealized appreciation (depreciation) on derivative instruments

   $ (2,850)       $ 1,238       $ (1,931)       $ 1,397   

TRS

  

Net change in unrealized appreciation (depreciation) on derivative instruments

     (278)         (1,873)         (1,370)         4,609   
     

 

 

    

 

 

    

 

 

    

 

 

 

Total

        $         (3,128)         $         (635)         $         (3,301)         $         6,006   
     

 

 

    

 

 

    

 

 

    

 

 

 

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. The foreign currency forward contracts outstanding at the end of the period are indicative of the volume of activity during the period.

 

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As of June 30, 2014 and December 31, 2013, the details of the Company’s open foreign currency forward contracts were as follows (amounts in thousands):

 

June 30, 2014  

Foreign Currency

 

Settlement Date

 

Counterparty

  Amount and
Transaction
    US$ Value at
Settlement Date
    US$ Value at
June 30, 2014
    Unrealized
Appreciation
(Depreciation)
 

EUR

  Jul. 23, 2014   State Street Bank and Trust   16,000 Bought         $ 21,643        $ 21,910         $ 267    

EUR

  Jul. 23, 2014   State Street Bank and Trust   8,100 Sold         11,005        11,092         (87)   

EUR

  Jul. 23, 2014   State Street Bank and Trust   19,575 Sold         27,011        26,806         205    

EUR

  Jan. 8, 2015   State Street Bank and Trust   17,000 Sold         22,919        23,296         (377)   

EUR

  Jan. 8, 2015   State Street Bank and Trust   43,500 Sold         59,608        59,609         (1)   

EUR

  Jan. 8, 2015   State Street Bank and Trust   16,904 Sold         22,845        23,164         (319)   

EUR

  Jan. 8, 2015   State Street Bank and Trust   1,153 Sold        1,559        1,581         (22)   

EUR

  Jan. 8, 2015   State Street Bank and Trust   16,000 Sold         22,235        21,925         310    

EUR

  Jan. 11,2016   J.P. Morgan Chase Bank   5,400 Sold         7,413        7,438         (25)   

EUR

  Jan. 11,2016   J.P. Morgan Chase Bank   61,000 Sold         83,435        84,011         (576)   

GBP

  Jul. 23, 2014   State Street Bank and Trust   £ 23,598 Sold         39,469        40,379         (910)   

GBP

  Apr. 17, 2017   J.P. Morgan Chase Bank   £ 45,700 Sold         74,738        77, 045         (2,307)   

NZD

  Jul. 03, 2014   State Street Bank and Trust   N$ 43,400 Sold         36,986        37,995         (1,009)   

NZD

  Jul. 23, 2014   State Street Bank and Trust   N$ 4,000 Sold         3,235        3,496         (261)   
       

 

 

   

 

 

   

 

 

 

Total

          $ 434,101        $ 439,747         $ (5,112)   
       

 

 

   

 

 

   

 

 

 

 

December 31, 2013  

Foreign Currency

 

Settlement Date

 

Counterparty

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

EUR

  Jan. 3, 2014   State Street Bank and Trust   2,100 Sold         $ 2,745        $ 2,889         $ (144)   

EUR

  Jan. 10, 2014   State Street Bank and Trust   8,100 Sold         10,747        11,143         (396)   

EUR

  Jan. 8, 2015   State Street Bank and Trust   17,000 Sold         22,919        23,402         (483)   

EUR

  Jan. 8, 2015   State Street Bank and Trust   43,500 Sold         59,608        59,882         (274)   

EUR

  Jan. 8, 2015   State Street Bank and Trust   2,100 Sold         2,899        2,891           

GBP

  Jan. 10, 2014   State Street Bank and Trust   £ 15,100 Sold         23,701        25,004         (1,303)   

GBP

  Jan. 10, 2014   State Street Bank and Trust   £ 8,498 Sold         13,484        14,071         (587)   

NZD

  Jul. 23, 2014   State Street Bank and Trust   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 June 30, 2014 and December 31, 2013 represented 0.8% 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 TRS agreements, Halifax Funding may select a portfolio of single-name corporate loans and/or bonds (each a “TRS asset” and together the “TRS assets”) with a maximum aggregate notional amount of $500 million. Under the terms of the TRS agreements, each TRS 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 assets and (ii) realized gains from the sale or repayment of TRS assets, if any. Halifax Funding pays to BNS (i) a financing charge 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 assets.

 

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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 asset at the time that such TRS asset is confirmed for acquisition by the counterparty. Halifax Funding may be required to post additional collateral in the event of depreciation in the value of TRS 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 pay any financing charges 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. Halifax Funding may terminate the TRS at any time upon providing at least 30 days’ notice prior to the proposed settlement date of the TRS 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 $5.34 million if the TRS had been terminated as of June 30, 2014.

As of June 30, 2014 and December 31, 2013, Halifax Funding had selected 37 and 20 underlying debt positions, respectively, and had posted $59.55 million and $37.50 million in collateral, respectively, which is recorded as collateral on deposit with custodian in 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 June 30, 2014 and December 31, 2013 (amounts in thousands).

 

     June 30, 2014      December 31, 2013  

Settled notional amount

     $ 59,942          $ 54,829   

Unsettled additions

     58,997          23,759   

Unsettled deletions

             (18,677
  

 

 

    

 

 

 

Total notional amount

     $ 118,939          $ 59,911   
  

 

 

    

 

 

 

The following table summarizes the fair value components of the TRS portfolio as of June 30, 2014 and December 31, 2013 (amounts in thousands):

 

     June 30, 2014      December 31, 2013  

Interest and fee income

   $ 988        $ 1,806    

Financing charge

     (66)         (103)   

Net realized gain (loss)

     108          (27)   

Net unrealized appreciation of TRS assets

     (539)         185    
  

 

 

    

 

 

 

TRS Total fair value

     $ 491          $ 1,861    
  

 

 

    

 

 

 

The following table summarizes the components of TRS realized gains (amounts in thousands).

 

     Three Months Ended      Six Months Ended  
     June 30, 2014      June 30 2013      June 30, 2014      June 30 2013  

Interest and fee income

     $ 750          $ 4,936          $ 2,432          $ 5,719    

Financing charge

     (93)         (510)         (245)         (719)   

Net realized gain (loss)

     (125)         2,846          207          2,501    
  

 

 

    

 

 

    

 

 

    

 

 

 

TRS Total realized gains

     $ 532          $ 7,272          $ 2,394          $ 7,501    
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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The following is a summary of the TRS assets as of June 30, 2014 (amounts in thousands):

 

Company (a)                Industry                    Interest
    Rate
       LIBOR    
Floor
  Maturity
Date
         Notional    
Amount
     Fair Value        Unrealized      
Appreciation      
(Depreciation)      
 

Senior Secured Loans - First Lien

                   

Applied Systems, Inc. (c)

   Software & Services    L+325    1.00%     1/25/2021       $        2,825    $ 2,815       $ (10

AssuredPartners, Inc. (c)

   Insurance    L+350    1.00%     4/2/2021       4,000      3,976         (24

BJ’s Wholesale Club, Inc.

   Food & Staples Retailing    L+350    1.00%     9/26/2019       3,995      3,983         (12

California Pizza Kitchen, Inc. (c)

   Food & Staples Retailing    L+425    1.00%     3/29/2018       3,995      3,798         (197

Catalina Marketing Corp.

   Media    L+350    1.00%     4/9/2021       4,022      4,004         (18

Ceridian Corp. (c)

   Commercial & Professional Services    L+425    0.00%     5/9/2017       4,025      4,009         (16

CHG Companies, Inc. (c)

   Health Care Equipment & Services    L+325    1.00%     11/19/2019       3,005      2,993         (12

CityCenter Holdings, LLC (c)

   Real Estate    L+400    1.00%     10/16/2020       3,739      3,719         (20

CTI Foods Holding Co., LLC (c)

   Food, Beverage & Tobacco    L+350    1.00%     6/28/2020       4,018      3,993         (25

Data Device Corp.

   Capital Goods    L+650    1.50%     7/11/2018       2,531      2,529         (2

Emerald Expositions Holding, Inc. (c)

   Media    L+425    1.25%     6/17/2020       3,813      3,793         (20)   

First American Payment Systems, L.P. (c)

   Software & Services    L+450    1.25%     10/12/2018       2,712      2,694         (18

Gymboree Corp.

   Retailing    L+350    1.50%     2/23/2018       2,834      2,685         (149

Gypsum Management & Supply, Inc.

   Capital Goods    L+375    1.00%     4/1/2021       3,990      3,980         (10)   

Harbor Freight Tools USA, Inc.

   Capital Goods    L+375    1.00%     7/26/2019       4,071      4,049         (22)   

Hillman Group, Inc. (c)

   Capital Goods    L+350    1.00%     6/30/2021       4,026      4,015         (11
Hyland Software, Inc. (c)    Software & Services    L+375    1.00%     2/19/2021       1,994      1,977         (17
Internet Brands, Inc.    Media    P+400    3.25%     3/18/2019       2,452      2,421         (31
iPayment, Inc. (c)    Software & Services    L+525    1.50%     5/8/2017       7,885      7,843         (42
Learfield Communications, Inc. (c)    Media    L+350    1.00%     10/9/2020       4,003      3,948         (55
Liberty Cablevision of Puerto Rico, LLC (c)    Media    L+350    1.00%     12/24/2021       2,296      2,309         13   
Neiman Marcus Group, LLC (c)    Retailing    L+325    1.00%     10/25/2020       4,000      3,989         (11
OneStopPlus Group    Consumer Durables & Apparel    L+350    1.00%     3/18/2021       354      347         (7
OpenLink Financial, Inc.    Software & Services    L+500    1.25%     10/30/2017       826      826         0   
RedPrairie Corp. (c)    Software & Services    L+500    1.00%     12/21/2018       4,006      4,002         (4
Sabre, Inc. (c)    Transportation    L+325    1.00%     2/19/2019       4,014      4,003         (11
Sheridan Holdings, Inc.    Health Care Equipment & Services    L+350    1.00%     6/29/2018       1,851      1,845         (6
StoneRiver Holdings, Inc. (c)    Insurance    L+325    1.25%     11/30/2019       435      433         (2
The TelX Group, Inc. (c)    Telecommunication Services    L+350    1.00%     4/9/2020       4,012      3,997         (15
Travelport, LLC    Software & Services    L+500    1.25%     6/26/2019       2,293      2,308         15   
Wilton Brands, LLC    Materials    L+625    1.25%     8/30/2018       3,183      3,190         7   
             

 

  

 

 

    

 

 

 
Total Senior Secured Loans - First Lien               $   101,205    $ 100,473       $ (732
             

 

  

 

 

    

 

 

 
Senior Secured Loans - Second Lien                    
Misys Ltd. (b)    Software & Services    12.00%        6/12/2019       2,898      3,214         316   
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       5,550      5,435         (115
             

 

  

 

 

    

 

 

 
Total Senior Secured Loans - Second Lien               $        9,763    $ 10,009       $ 246   
             

 

  

 

 

    

 

 

 
Senior Secured Bonds                    
Artesyn Technologies, Inc.    Technology Hardware & Equipment    9.75%        10/15/2020       3,640      3,395         (245
Hot Topic, Inc.    Consumer Durables & Apparel    9.25%        6/15/2021       3,675      3,868         193   
             

 

  

 

 

    

 

 

 
Total Senior Secured Bonds               $        7,315    $ 7,263       $ (52
             

 

  

 

 

    

 

 

 
Total Senior Debt               $    118,283    $ 117,745       $ (538
             

 

  

 

 

    

 

 

 
Subordinated Debt                    
Summit Materials, LLC    Materials    10.50%        1/31/2020       656      655         (1
             

 

  

 

 

    

 

 

 
Total Subordinated Debt               $            656    $ 655       $ (1
             

 

  

 

 

    

 

 

 
TOTAL               $    118,939    $ 118,400       $ (539
             

 

  

 

 

    

 

 

 

(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) TRS asset position or portion thereof unsettled as of June 30, 2014.

 

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The following is a summary of the TRS assets as of December 31, 2013 (amounts in thousands):

 

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

7.38

% or 

% 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) TRS asset position or portion thereof unsettled as of December 31, 2013.

 

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Table of Contents
5. Fair Value of Financial Instruments

The Company’s investments were categorized in the fair value hierarchy as follows as of June 30, 2014 and December 31, 2013 (amounts in thousands):

 

     June 30, 2014  

Description

   Level 1      Level 2      Level 3      Total  

Senior debt

     $           $ 843,757          $ 801,501          $ 1,645,258    

Subordinated debt

             208,483          190,221          398,704    

Structured products

                     36,053          36,053    

Equity/Other

             8,205          61,047          69,252    
  

 

 

    

 

 

    

 

 

    

 

 

 

Subtotal

             1,060,445          1,088,822          2,149,267    

Short term investments

     21,428                          21,428    
  

 

 

    

 

 

    

 

 

    

 

 

 

Total investments

     $ 21,428          $ 1,060,445          $ 1,088,822          $ 2,170,695    
  

 

 

    

 

 

    

 

 

    

 

 

 

Derivative Type

   Level 1      Level 2      Level 3      Total  

Assets

           

Foreign currency forward contracts

     $         $ 782          $         $ 782    

Total return swaps

                     491          491    

Liabilities

           

Foreign currency forward contracts

             (5,894)                 (5,894)   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

     $         $ (5,112)         $ 491          $ (4,621)   
  

 

 

    

 

 

    

 

 

    

 

 

 
     December 31, 2013  

Description

   Level 1      Level 2      Level 3      Total  

Senior debt

     $         $ 863,216          $ 611,276          $ 1,474,492    

Subordinated debt

             198,210          171,921          370,131    

Structured products

                     55,575          55,575    

Equity/Other

                     24,671          24,671    
  

 

 

    

 

 

    

 

 

    

 

 

 

Subtotal

             1,061,426         863,443          1,924,869    

Short term investments

     149,903                          149,903    
  

 

 

    

 

 

    

 

 

    

 

 

 

Total investments

     $     149,903          $ 1,061,426         $ 863,443          $ 2,074,772    
  

 

 

    

 

 

    

 

 

    

 

 

 

Derivative Type

   Level 1      Level 2      Level 3      Total  

Assets

           

Total return swaps

     $         $         $ 1,861          $ 1,861    

Liabilities

           

Foreign currency forward contracts

             (3,181)                 (3,181)   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

     $         $ (3,181)         $ 1,861          $ (1,320)   
  

 

 

    

 

 

    

 

 

    

 

 

 

There were no transfers between Level 1 and Level 2 during the six months ended June 30, 2014 and the year ended December 31, 2013.

The carrying value of cash and foreign currency is classified as Level 1 with respect to the fair value hierarchy. The carrying values of the Company’s collateral on deposit with custodian, term loan and revolving credit facilities approximate their fair value and are classified as Level 2 with regards to the fair value hierarchy.

 

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At June 30, 2014, the Company held 44 distinct investment positions that were classified as Level 3, representing an aggregate fair value of $1.09 billion and 50.2% of the total investment portfolio. At December 31, 2013, the Company held 30 distinct investment positions that were classified as Level 3, representing an aggregate fair value of $863.44 million and 41.6% of the total investment portfolio. The ranges of unobservable inputs used in the fair value measurement of the Company’s Level 3 investments as of June 30, 2014 and December 31, 2013 were as follows (amounts in thousands):

 

As of June 30, 2014

Asset Group    Fair Value (1)      Valuation Techniques (2)    Unobservable Inputs    Range (Weighted Average) (3)    Impact to Valuation
from an Increase in
Input (4)

Senior Debt

     $801,501       Discounted Cash Flow    Discount Rate    6.90% - 16.96% (11.01%)    Decrease
         Market Yield    5.62% - 16.83% (8.35%)    Decrease
         Yield Premium    0.00% - 6.50% (2.21%)    Decrease
         Weighted Average Cost of Capital    6.50% - 18.30% (10.95%)    Decrease
         EBITDA Multiple    4.25x - 14.00x (9.04x)    Increase
                   Tangible Book Value Multiple    1.75x (1.75x)    Increase

Subordinated Debt

     181,198       Discounted Cash Flow    Discount Rate    13.79% - 19.87% (14.93%)    Decrease
         Market Yield    9.00% - 17.43% (10.37%)    Decrease
         Yield Premium    3.90% (3.90%)    Decrease
         Weighted Average Cost of Capital    11.90% - 19.50% (14.97%)    Decrease
         EBITDA Multiple    6.50x - 14.00x (8.72x)    Increase
                 Interest Rate Volatility    25.00% (25.00%)    Decrease
     9,023       Option Pricing Model    EBITDA Multiple    9.00x (9.00x)    Increase
                   Implied Volatility    40.00% (40.00%)    Increase

Structured Products

     36,053       Discounted Cash Flow    Discount Rate    11.05% - 14.50% (11.59%)    Decrease

Equity/Other – Common

     31,786       Market Comparables    EBITDA Multiple    6.50x - 10.50x (8.32x)    Increase
Stock/Class A Membership Interest/ Limited Partnership Interest                  Revenue Multiple    0.10x (0.10x)    Increase
     152       Option Pricing Model    EBITDA Multiple    9.00x (9.00x)    Increase
                 Implied Volatility    40.00% (40.00%)    Increase
       7,751       Net Asset Value    Underlying Assets / Liabilities    N/A    Increase

Equity/Other – Equity

     13,891       Discounted Cash Flow    EBITDA Multiple    9.00x (9.00x)    Increase

Options & Warrants

                 Discount Rate    13.47% (13.47%)    Decrease
     5,285       Option Pricing Model    EBITDA Multiple    14.00x (14.00x)    Increase
                   Implied Volatility    30.00% (30.00%)    Increase
Equity/Other – Overriding Royalty Interest      2,182       Discounted Cash Flow    Discount Rate    12.39% (12.39%)    Decrease

Total

     $1,088,822               
  

 

 

             

 

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Table of Contents

As of December 31, 2013

Asset Group    Fair Value (1)      Valuation Techniques (2)    Unobservable Inputs    Range (Weighted Average) (3)    Impact to Valuation
from an Increase in
Input (4)

Senior Debt

     $611,276       Discounted Cash Flow    Discount Rate    7.36% - 14.37% (11.12%)    Decrease
         Market Yield    5.92% - 10.60% (8.58%)    Decrease
         Yield Premium    0.00% - 4.00% (2.31%)    Decrease
         Weighted Average Cost of Capital    6.60% - 14.20% (10.61%)    Decrease
                   EBITDA Multiple    5.00x - 9.50x (8.08x)    Increase

Subordinated Debt

     171,921       Discounted Cash Flow    Discount Rate    11.26% - 15.51% (14.77%)    Decrease
         Market Yield    6.30% - 11.92% (11.12%)    Decrease
         Yield Premium    4.00% (4.00%)    Decrease
         Weighted Average Cost of Capital    7.70% - 15.20% (14.36%)    Decrease
                   EBITDA Multiple    7.50x - 12.00x (9.25x)    Increase

Structured Products

     3,359       Broker Quote    Bid Price    101.50 (101.50)    Increase
       52,216       Discounted Cash Flow    Discount Rate    11.34% (11.34%)    Decrease
Equity/Other – Common Stock      7,061       Market Comparables    EBITDA Multiple    8.90x - 10.00x (9.02x)    Increase
Equity/Other – Equity Options      15,256       Discounted Cash Flow    EBITDA Multiple    9.75x (9.75x)    Increase
                   Discount Rate    12.00% (12.00%)    Decrease
Equity/Other – Overriding Royalty Interest      2,354       Discounted Cash Flow    Discount Rate    13.71% (13.71%)    Decrease

Total

     $863,443               
  

 

 

             

 

(1)  The TRS was valued in accordance with the TRS agreements as discussed in Note 2. See Note 4 for quantitative disclosures of the current period conclusions of the fair value of the TRS.
(2)  For the assets and investment that have more than one valuation technique, the Company may rely on the stated techniques individually or in the aggregate based on a weight ascribed to each valuation technique, ranging from 0 – 100%. Indicative broker quotes obtained for valuation purposes are reviewed by the Company relative to other valuation techniques.
(3)  Weighted average amounts are based on the estimated fair values.
(4)  This column represents the directional change in the fair value of the Level 3 investments that would result from an increase to the corresponding unobservable input. A decrease to the input would have the opposite effect. Significant changes in these inputs in isolation could result in significantly higher or lower fair value measurements.

In the above tables, certain investments may be valued at cost for a period of time after an acquisition as the best indicator of fair value.

The above tables represent the significant unobservable inputs as they relate to the Company’s determination of fair values for the majority of its investments categorized within Level 3 as of June 30, 2014 and December 31, 2013. In addition to the techniques and inputs noted in the table above, according to the Company’s valuation policy, it may also use other valuation techniques and methodologies when determining the Company’s fair value estimates. Any significant increases or decreases in the unobservable inputs would result in significant increases or decreases in the fair value of the Company’s investments.

Investments that do not have a readily available market value are valued utilizing a market comparables approach, an income approach (i.e. discounted cash flow approach), or both approaches, as appropriate. The market comparables approach uses prices, including third-party indicative broker quotes, and other relevant information generated by market transactions involving identical or comparable assets or liabilities (including a business). The income approach uses valuation techniques to convert future amounts (for example, cash flows or earnings) that are discounted based on a required or expected discount rate to derive a single present value amount. The measurement is based on the value indicated by current market expectations about those future amounts. In following these approaches, the types of factors that the Company may take into account to determine the fair value of its investments include, as relevant: available current market data, including an assessment of the credit quality of the security issuer, relevant and applicable market trading and transaction comparables, applicable market yields and multiples, illiquidity discounts, security covenants, call protection provisions, information rights, the nature and realizable value of any collateral, the portfolio company’s ability to make payments, its earnings and cash flows, the markets in which the portfolio company does business, comparisons of financial ratios of peer companies that are public, data derived from mergers and acquisitions activities for comparable companies and enterprise values, among other factors.

 

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The following tables provide a reconciliation for the three and six months ended June 30, 2014 of investments for which Level 3 inputs were used in determining fair value (amounts in thousands):

 

     Three Months Ended June 30, 2014  
     Senior     Subordinated     Structured     Equity/     Total Return        
     Debt     Debt     Products     Other     Swaps     Total  

Fair Value Balance as of April 1, 2014

     $ 701,314        $ 174,172        $ 57,319        $ 44,099        $ 769        $ 977,673   

Additions (1)

     164,248        22,890        -        18,164        -        205,302   

Net realized gain (loss) (2)

     280        (186     (186     -        532        440   

Net change in unrealized appreciation (depreciation) (3)

     5,021        (1,303     208        6,313        (278     9,961   

Sales or repayments (4)

     (69,865     (5,751     (21,287     -        (532     (97,435

Net discount accretion

     503        399        (1     -        -        901   

Transfers out of Level 3

     -        -        -        (7,529     -        (7,529
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Fair Value Balance as of June 30, 2014

     $ 801,501        $ 190,221        $ 36,053        $ 61,047        491        $ 1,089,313   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Change in net unrealized appreciation (depreciation) in investments still held as of June 30, 2014 (3)

     $ 5,010        $ (1,392     $ 208        $ 6,313        (278     $ 9,861   
     Six Months Ended June 30, 2014  
     Senior     Subordinated     Structured     Equity/     Total Return        
     Debt     Debt     Products     Other     Swaps     Total  

Fair Value Balance as of January 1, 2014

     $ 611,276        $ 171,921        $         55,575        $         24,671        $         1,861        $ 865,304   

Additions (1)

     297,941        23,430        -        38,251        -        359,622   

Net realized gain (loss) (2)

     294        466        (199     -        2,394        2,955   

Net change in unrealized appreciation (depreciation) (3)

     11,904        2,544        5,276        5,678        (1,370     24,032   

Sales or repayments (4)

     (120,886     (8,705     (24,597     (24     (2,394     (156,606

Net discount accretion

     972        565        (2     -        -        1,535   

Transfers out of Level 3

     -        -        -        (7,529     -        (7,529
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Fair Value Balance as of June 30, 2014

     $ 801,501        $ 190,221        $ 36,053        $ 61,047        491        $ 1,089,313   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Change in net unrealized appreciation

(depreciation) in investments still held as

of June 30, 2014 (3)

   $ 12,340      $ 2,729      $ 5,310      $ 5,678        (1,370   $ 24,687   

 

(1)  Includes increases in the cost basis of investments resulting from new and add-on portfolio investments and the capitalization of PIK interest.
(2)  Included in net realized gain (loss) in the condensed consolidated statements of operations.
(3)  Included in net change in unrealized appreciation/depreciation in the condensed consolidated statements of operations.
(4)  Includes principal repayments on debt investments, collection of PIK interest, TRS settlement payments and sales of debt investments.

 

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The following tables provide a reconciliation for the three and six months ended June 30, 2013 of investments for which Level 3 inputs were used in determining fair value (amounts in thousands):

 

     Three Months Ended June 30, 2013  
     Senior     Subordinated     Equity/      Total Return        
     Debt     Debt     Other      Swaps     Total  

Fair Value Balance as of April 1, 2013

     $         76,405        $         6,131          $         511         $         7,831        $         90,878   

Additions (1)

     92,617        5,938        -         -        98,555   

Net realized gain (2)

     13        -        -         2,297        2,310   

Net change in unrealized appreciation (depreciation) (3)

     (330     (254     112         (1,873     (2,345

Sales or repayments (4)

     (3,102     -        -         (2,297     (5,399

Net discount accretion

     61        (1     -         -        60   
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Fair Value Balance as of June 30, 2013

     $ 165,664        $ 11,814        $ 623         $ 5,958        $ 184,059   
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Change in net unrealized appreciation
(depreciation) in investments still held as
of June 30, 2013 (3)

     $ (305     $ (254     $ 112         $ (1,873     $ (2,320

 

     Six Months Ended June 30, 2013  
     Senior     Subordinated     Equity/      Total Return        
     Debt     Debt     Other      Swaps     Total  

Fair Value Balance as of January 1, 2013

     $         86,591        $         6,209        $         453         $         1,349        $         94,602   

Additions (1)

     102,819        5,938        -         -        108,757   

Net realized gain (2)

     60        -        -         2,525        2,585   

Net change in unrealized appreciation (depreciation) (3)

     (620     (331     170         4,609        3,828   

Sales or repayments (4)

     (6,400     -        -         (2,525     (8,925

Net discount accretion

     649        (2     -         -        647   

Transfers out of Level 3

     (17,435     -        -         -        (17,435
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Fair Value Balance as of June 30, 2013

     $         165,664        $ 11,814        $ 623         $ 5,958        $ 184,059   
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Change in net unrealized appreciation

(depreciation) in investments still held as

of June 30, 2013 (3)

     $ (51     $ (331     $ 170         $ 4,609        $ 4,397   

 

(1)  Includes increases in the cost basis of investments resulting from new and add-on portfolio investments and the capitalization of PIK interest.
(2)  Included in net realized gain (loss) in the condensed consolidated statements of operations.
(3)  Included in net change in unrealized appreciation/depreciation in the condensed consolidated statements of operations.
(4)  Includes principal repayments on debt investments, collection of PIK interest, TRS settlement payments and sales of debt investments.

No securities were transferred into the Level 3 hierarchy and one was transferred out of the Level 3 hierarchy during the six months ended June 30, 2014. Six securities were transferred out of the Level 3 hierarchy during the six months ended June 30, 2013. These investments were transferred at fair value as of the beginning of the quarter in which they were transferred. The classification transfers between Level 3 and Level 2 were based on the observed changes in liquidity based on information supplied by a third party pricing source, whereby such liquidity information is routinely reviewed no less frequently than monthly. All realized and unrealized gains and losses are included in earnings (changes in net assets) and are reported as separate line items within the Company’s condensed consolidated statements of operations.

 

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6.       Agreements and Related Party Transactions

CNL, certain CNL affiliates, and KKR receive compensation for advisory services and/or reimbursement of expenses in connection with (i) the performance and supervision of administrative services and (ii) investment advisory activities and (iii) the offering of the Company’s common stock. Related party fees, expenses and reimbursement of expenses incurred in the three and six months ended June 30, 2014 and 2013 are summarized below (amounts in thousands):

 

          Three Months Ended June 30,      Six Months Ended June 30,  

Related Party

  

Source Agreement & Description

   2014      2013      2014      2013  

CNL Securities Corp.

  

Managing Dealer Agreement:

Selling commissions and marketing support fees

     $             20,121         $             21,279         $             31,700         $             39,778   

CNL and KKR

  

Investment Advisory Agreement:

Base management fees (investment advisory fees)

     11,264         6,491         21,945         11,351   

CNL and KKR

  

Investment Advisory Agreement:

Subordinated incentive fee on income(1)

     -         -         5,163         -   

CNL and KKR

  

Investment Advisory Agreement:

Incentive fee on capital gains(2)

     -         -         -         -   

CNL and KKR

  

Investment Advisory Agreement:

Organization and offering expenses reimbursement(3)

     2,151         2,326         3,376         3,992   

KKR

  

Investment Advisory Agreement:

Investment expenses reimbursement

     151         -         457         -   

CNL

  

Administrative Services Agreement:

Administrative and compliance services(4)

     525         355         1,063         690   

 

(1)  During the six months ended June 30, 2014, $10.44 million of subordinated incentive fees on income were paid to the Advisors, of which $5.28 million was recorded as a payable to the Advisors as of December 31, 2013. As of June 30, 2014, there was no subordinated incentive fee on income payable to the Advisors. The Company did not pay any subordinated incentive fees on income during the six months ended June 30, 2013.

 

(2)  The following table provides additional details for the incentive fee on capital gains for the six months ended June 30, 2014 and 2013 (amounts in thousands):

 

Incentive Fee on Capital Gains

   2014      2013  

Accrued incentive fee on capital gains as of January 1,

     $         11,128          $         2,087    

Incentive fee on capital gains expense during the six months ended June 30,

     6,440          137    

Less: Incentive fee on capital gains paid to the Advisors during the six months ended June 30,

     (2,323)            
  

 

 

    

 

 

 

Accrued incentive fee on gains as of June 30,

     15,245          2,224    

Less: Incentive fee on capital gains unearned by the Advisors as of June 30,

     (15,245)          (2,224)   
  

 

 

    

 

 

 

Incentive fee on capital gains earned by and payable to the Advisors as of June 30,

     $         $   
  

 

 

    

 

 

 

 

(3)  The following table provides additional details for the organization and offering expenses reimbursement (amounts in thousands):

 

Organization and Offering Expenses Reimbursement for the Six Months Ended June 30,

   2014      2013  

Offering expenses reimbursement payable as of January 1,

     $         240          $         437   

Additional offering expenses deferred during the six months ended June 30,

     3,376          3,992   

Offering expenses reimbursements payable as of June 30,

     (704)          (792 )   
  

 

 

    

 

 

 

Offering expenses reimbursements paid to the Advisors during the six months ended June 30,

     $ 2,912          $ 3,637   
  

 

 

    

 

 

 

Outstanding unreimbursed offering expenses as of June 30,

     $ 560          $ 1,628   
  

 

 

    

 

 

 

 

(4)  Includes $0.33 million and $0.22 million for reimbursement payments to CNL for services provided to the Company for its Chief Compliance Officer and Chief Financial Officer for the six months ended June 30, 2014 and 2013, respectively.

CNL Securities Corp., an affiliate of CNL, serves as the managing dealer of the Offering and Follow-On Offering and in connection therewith receives selling commissions of up to 7% of gross offering proceeds and a marketing support fee of up to 3% of gross offering proceeds. All or any portion of these fees may be reallowed to participating brokers as determined by CNL Securities Corp. The Company will pay a maximum sales load of 10% of gross offering proceeds for all combined selling commissions and marketing support fees.

 

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The Company is a party to an investment advisory agreement with CNL (together with one amendment, the “Investment Advisory Agreement”) for the overall management of the Company’s investment activities. The Company and CNL have entered into a sub-advisory agreement with KKR (the “Sub-Advisory Agreement”), under which KKR is responsible for the day-to-day management of the Company’s investment portfolio. CNL compensates KKR for advisory services that it provides to the Company with 50% of the base management fees and performance-based incentive fees that CNL receives under the Investment Advisory Agreement. CNL earns a base management fee equal to an annual rate of 2% of the Company’s average gross assets at the end of the two most recently completed months and it is computed and paid monthly. Gross assets include assets purchased with borrowed funds, TRS unrealized depreciation or appreciation and collateral posted with custodian in connection with TRS, but exclude deferred offering expense. CNL also earns a performance-based incentive fee that is comprised of the following two parts:

(i) a subordinated incentive fee on pre-incentive fee net investment income, that is paid quarterly if earned, and it is computed as the sum of (A) 100% of quarterly pre-incentive fee net investment income in excess of 1.75% of average adjusted capital up to a limit of 0.4375% of average adjusted capital, and (B) 20% of pre-incentive fee net investment income in excess of 2.1875% of average adjusted capital and

(ii) an incentive fee on capital gains that is paid annually if earned, and it is equal to 20% of (A) all realized gains on a cumulative basis from inception, net of (i) all realized losses on a cumulative basis, (ii) unrealized depreciation at year end and (iii) disregarding any net realized gains associated with the TRS interest spread (which represents the difference between (a) the interest and fees received on total return swaps, and (b) the financing fees paid to the TRS counterparty), and subtracting (B) the aggregate amount of any previously paid incentive fee on capital gains.

The terms of the Investment Advisory Agreement entitle CNL (and indirectly KKR) to receive up to 5% of gross proceeds in connection with the Offerings as reimbursement for organization and offering expenses incurred by the Advisors on behalf of the Company. Through the completion of the Initial Offering, the Advisors were reimbursed in the amounts of $0.90 million for organization expenses and $10.84 million for offering expenses. There are no remaining unreimbursed organization and offering expenses from the Initial Offering. The final reimbursement rate was 0.8% of gross offering proceeds from the Initial Offering. During the six months ended June 30, 2014, the offering expense reimbursement rate for the Follow-On Offering was 1% of gross offering proceeds.

Under the terms of the Investment Advisory Agreement, the Advisors are entitled to reimbursement of certain expenses incurred on behalf of the Company in connection with its investment operations and investment transactions.

The Company is a party to an administrative services agreement with CNL (the “Administrative Services Agreement”) whereby CNL performs, and oversees the performance of, various administrative services on behalf of the Company. Administrative services may include transfer agency oversight and supervisory services, shareholder communication services, general ledger accounting services, calculating the Company’s net asset value, maintaining required corporate and financial records, financial reporting for the Company and its subsidiaries, internal audit services, reporting to the Company’s board of directors and lenders, preparing and filing income tax returns, preparing and filing SEC reports, preparing, printing and disseminating shareholder reports, overseeing the payment of the Company’s expenses and shareholder distributions, administering the quarterly share repurchase programs, compliance services, and management and oversight of service providers in their performance of administrative and professional services rendered for the Company. CNL may also enter into agreements with its affiliates for the performance of select administrative services. The Company reimburses CNL for the professional services and expenses it incurs in performing its administrative obligations on behalf of the Company. CNL also receives reimbursement payments from the Company for professional services provided by certain officers of the Company.

On June 7, 2011, the Company entered into an Expense Support and Conditional Reimbursement Agreement as amended, (the “Expense Support Agreement”) with CNL and KKR pursuant to which CNL and KKR jointly and severally agreed to pay to the Company certain operating expenses (an “Expense Support Payment”) during the Expense Support Payment Period between June 17, 2011 to June 30, 2012. During the term of the Expense Support Agreement, the Company received Expense Support payments from its Advisors in the cumulative amount of $2.97 million. The Company made reimbursement payments of $1.14 million and $1.83 million to its Advisors during the six months ended June 30, 2014 and 2013, respectively. As of June 30, 2014, all Expense Support Payments received from the Advisors have been repaid.

Indemnification - The Investment Advisory Agreement and the Sub-Advisory Agreement provide certain indemnification to the Advisors, their directors, officers, persons associated with the Advisors and their affiliates. The managing dealer agreement provides certain indemnification to the managing dealer and each participating broker and their respective officers, directors, partners, employees, associated persons, agents and control persons. As of June 30, 2014, management believes that the risk of incurring any losses for such indemnification is remote.

 

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7.       Earnings Per Share

The following information sets forth the computation of basic and diluted net increase in net assets from operations per share (earnings per share) (amounts in thousands, except share and per share amounts).

 

Basic and Diluted Net Increase (Decrease) in Net Assets Per Share

 
     Three Months Ended      Six Months Ended  
     June 30, 2014      June 30, 2013      June 30, 2014      June 30, 2013  

Net increase in net assets resulting from operations

     $ 36,356         $ 3,394         $ 80,848         $ 26,837   

Weighted average shares outstanding

         165,959,193             92,302,446             157,531,139             81,887,209   

Basic/diluted net increase in net assets from operations per share(1)

     $ 0.22         $ 0.04         $ 0.51         $ 0.33   

 

(1)  Diluted and basic net increase in net assets from operations per share were equivalent in each period because there were no common stock equivalents outstanding in each period.

8.       Distributions

The Company’s board of directors declared distributions for 25 record dates in the six months ended June 30, 2014 and 26 record dates in the six months ended June 30, 2013. Declared distributions are paid monthly. The total of declared distributions and the sources of declared distribution for the six months ended June 30, 2014 and 2013 are presented in the tables below (amounts in thousands, except per share amounts).

 

Six Months Ended June 30, 2014

  Per Share     Amount     Allocation  

For the three months ended March 31, 2014 (12 record dates)

    $ 0.180         $ 26,763      

For the three months ended June 30, 2014 (13 record dates)

    0.201         33,170      
 

 

 

   

 

 

   

Total Declared Distributions for the six months ended June 30, 2014

    $       0.381         $       59,933         100.0

From Net Investment Income

    $ 0.301         $ 47,244         78.8   

From Realized Gains

    0.071         11,207         18.7   

Distributions in Excess of Net Investment Income

    0.009         1,482         2.5   

Six Months Ended June 30, 2013

  Per Share     Amount     Allocation  

For the three months ended March 31, 2013 (13 record dates)

    $ 0.195         $ 13,736     

For the three months ended June 30, 2013 (13 record dates)

    0.195         17,807     
 

 

 

   

 

 

   

Total Declared Distributions for the six months ended June 30, 2013

    $ 0.390         $ 31,543        100.0

From Net Investment Income

    $ 0.185         $ 14,970        47.5   

From Realized Gains

    0.085         6,844        21.7   

Distributions in Excess of Net Investment Income

    0.120         9,729        30.8   

Sources of distributions, other than net investment income and realized gains, include (i) the ordinary income component of prior year tax basis undistributed earnings and (ii) required adjustments to GAAP net investment income in the current period to determine taxable income available for distributions. The following table summarizes the primary sources of differences between GAAP net investment income and taxable income available for distributions that contribute to tax-related distributions in excess of net investment income for the six months ended June 30, 2014 (amounts in thousands).

 

Six Months Ended June 30,

              2014                  2013        

Ordinary income component of tax basis undistributed earnings

        $ 3,531            $ 819    

Estimated unearned performance-based incentive fee

        5,779            137    

Offering expenses

        3,674            2,647    

Net change in unrealized depreciation on total return swaps

        (1,370)           4,608    

Net change in unrealized depreciation on foreign currency forward contracts

        (1,931)           1,397    
     

 

 

    

 

 

 

Total

        $ 9,683            $ 9,608    
     

 

 

    

 

 

 

 

(1)  The above table does not present all adjustments to calculate taxable income available for distributions.

For the six months ended June 30, 2014, the tax-related sources of distributions of $9.68 million were substantially greater than the distributions in excess of net investment income of $1.48 million. As a result, the Company estimates that none of the distributions declared during the six months ended June 30, 2014 would be classified as a tax basis return of capital. Although the tax-related sources of distributions of $9.61 million for the six months ended June 30, 2013 were less than the distributions in excess of net investment income of $9.73 million for the same period, none of the distributions for the full 2013 calendar year were classified as a tax basis return of capital.

On June 20, 2014, the Company’s board of directors declared distributions of $0.015483 per share for 14 record dates beginning on July 1, 2014 through and including September 30, 2014.

 

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9. Share Transactions

The following table summarizes the total shares issued and proceeds received in connection with the Company’s Offerings for the six months ended June 30, 2014 and June 30, 2013 (amounts in thousands, except share amounts).

 

     Six Months Ended  
     June 30, 2014     June 30, 2013  
     Shares      Amount     Shares      Amount  

Gross Proceeds from Offering

         30,103,786           $    337,856            39,284,016           $    430,657   

Commissions and Marketing Support Fees

     -         (31,700     -         (39,778
  

 

 

    

 

 

   

 

 

    

 

 

 

Net Proceeds to Company

         30,103,786             306,156            39,284,016         390,879   

Reinvestment of Distributions

     3,764,891         38,289        1,592,660         15,865   
  

 

 

    

 

 

   

 

 

    

 

 

 

Net Proceeds from Offering

         33,868,677           $    344,445            40,876,676           $    406,744   
  

 

 

    

 

 

   

 

 

    

 

 

 

Average Net Proceeds Per Share

     $10.17        $9.95   

As of June 30, 2014, the Company has sold 177,572,302 shares of common stock through the Offerings, including reinvestment of distributions, for total gross proceeds of $1.93 billion.

The Company conducts quarterly tender offers pursuant to its share repurchase program. The Company currently limits the number of shares to be repurchased during any calendar year to the number of shares it can repurchase with the proceeds it receives from the issuance of shares of its common stock under its distribution reinvestment plan. At the discretion of the Company’s board of directors, the Company may also use cash on hand, cash available from borrowings and cash from the sale of investments as of the end of the applicable period to repurchase shares. The Company limits repurchases in each quarter to 2.5% of the weighted average number of shares of common stock outstanding in the prior four calendar quarters. The Company’s board of directors may amend, suspend or terminate the share repurchase program upon 30 days’ notice.

The following table is a summary of the share repurchases completed during the six months ended June 30, 2014 (amounts in thousands except, share and per share amounts):

 

Repurchase Date

   Total Number of
Shares Offered
  to Repurchase  
     Total Number of
  Shares Purchased  
     Total
  Consideration  
     No. of Shares
  Purchased / Total Offer  
     Price Paid
        per Share        
 

March 3, 2014

     2,612,555         323,324         $ 3,233         12%           $ 10.00   

June 2, 2014

     3,091,175         307,909         3,116         10%         10.12   
  

 

 

    

 

 

    

 

 

       

Total

     5,703,730         631,233         $ 6,349         11%      
  

 

 

    

 

 

    

 

 

       

 

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10. Financial Highlights

The following per share data and financial ratios have been derived from information provided in the financial statements. The following is a schedule of financial highlights for one share of common stock during the six months ended June 30, 2014 and 2013.

 

     Six Months Ended June 30,  
     2014      2013  

OPERATING PERFORMANCE PER SHARE

     

Net Asset Value, Beginning of Period

   $ 10.00          $ 9.75      

Net Investment Income, Before Expense Support/Reimbursement(1)

     0.30            0.19      

Expense Support/ Reimbursement(1)

     —            (0.01)     
  

 

 

    

 

 

 

Net Investment Income(1)

     0.30            0.18      

Net Realized and Unrealized Gain (Loss)(1)(2)

     0.21            0.21      
  

 

 

    

 

 

 

Net Increase Resulting from Investment Operations

     0.51            0.39      

Distributions from Net Investment Income(3)

     (0.30)           (0.19)     

Distributions from Realized Gains(3)

     (0.07)           (0.08)     

Distributions in Excess of Net Investment Income(3)(4)

     (0.01)           (0.12)     
  

 

 

    

 

 

 

Net Decrease Resulting from Distributions to Common Shareholders

     (0.38)           (0.39)     

Issuance of common stock above net asset value(5)

     0.02            0.03      

Repurchases of common stock(6)

     —            —      
  

 

 

    

 

 

 

Net Increase Resulting from Capital Share Transactions

     0.02            0.03      
  

 

 

    

 

 

 

Net Asset Value, End of Period

   $ 10.15          $ 9.78      
  

 

 

    

 

 

 

INVESTMENT RETURNS

     

Total Investment Return-Net Price(7)

     3.6%         3.2%   

Total Investment Return-Net Asset Value(8)

     5.3%         4.3%   

RATIOS/SUPPLEMENTAL DATA (all amounts in thousands except ratios)

     

Net Assets, End of Period

   $ 1,789,445          $ 1,012,022      

Average Net Assets(9)

   $ 1,589,132          $ 808,277      

Average Borrowings(9)

   $ 538,986          $ 217,535      

Shares Outstanding, End of Period

     176,261            103,452      

Weighted Average Shares Outstanding

     157,531            81,887      

Ratios to Average Net Assets:(9)

     

Total Operating Expenses Before Expense Support/Reimbursement

     3.28%         2.45%   

Total Operating Expenses After Expense Support/Reimbursement

     3.28%         2.59%   

Net Investment Income

     2.97%         1.85%   

Total Investment Income

     6.25%         4.32%   

Portfolio Turnover Rate

     20%         32%   

Asset Coverage Ratio(10)

     4.21            6.00      

 

(1)  The per share data was derived by using the weighted average shares outstanding during the period.
(2)  The amount shown at this caption is the balancing figure derived from the other figures in the schedule. The amount shown at this caption for a share outstanding throughout the year may not agree with the change in the aggregate gains and losses in portfolio securities for the year because of the timing of sales of the Company’s shares in relation to fluctuating market values for the portfolio.
(3)  The per share data for distributions is the actual amount of distributions paid or payable per share of common stock outstanding during the entire period; distributions per share are rounded to the nearest $0.01.
(4)  See Note 8 of the consolidated financial statements for further insight into the sources of distributions that contribute to the occurrence of distributions in excess of net investment income.
(5)  The continuous issuance of common stock may cause an incremental increase in net asset value per share due to the sale of shares at the then prevailing public offering price and the receipt of net proceeds per share by the Company in excess of net asset value per share on each subscription closing date. The per share data was derived by computing (i) the sum of (A) the number of shares issued in connection with subscriptions and/or distribution reinvestment on each share transaction date times (B) the differences between the net proceeds per share and the net asset value per share on each share transaction date, divided by (ii) the total shares outstanding at the end of the period.
(6)  The per share impact of the Company’s repurchase of common stock is a reduction to net asset value of less than $0.01 per share during the applicable period.

 

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(7)  Total investment return-net price is a measure of total return for shareholders who purchased the Company’s common stock at the beginning of the period, including dividends declared during the period. Total investment return-net price is based on (i) the purchase of one share at the public offering price, net of sales load, on the first day of the period, (ii) the sale at the net asset value per share on the last day of the period, of (A) one share plus (B) any fractional shares issued in connection with the reinvestment of monthly distributions, and (iii) the cash payment for distributions payable, if any, on the last day of the period. The total investment return-net price calculation assumes that (i) monthly cash distributions are reinvested in accordance with the Company’s distribution reinvestment plan and (ii) the fractional shares issued pursuant to the distribution reinvestment plan are issued at the then public offering price, net of sales load, on each monthly distribution payment date. Since there is no public market for the Company’s shares, then the terminal sales price per share is assumed to be equal to net asset value per share on the last day of the period. The Company’s performance changes over time and currently may be different than that shown above. Past performance is no guarantee of future results. Investment performance is presented without regard to sales load that may be incurred by shareholders in the purchase of the Company’s shares of common stock.
(8)  Total investment return-net asset value is a measure of the change in total value for shareholders who held the Company’s common stock at the beginning and end of the period, including distributions declared during the period. Total investment return-net asset value is based on (i) the beginning period net asset value per share on the first day of the period, (ii) the net asset value per share on the last day of the period, of (A) one share plus (B) any fractional shares issued in connection with the reinvestment of monthly distributions, and (iii) the value of distributions payable, if any, on the last day of the period. The total investment return-net asset value calculation assumes that (i) monthly cash distributions are reinvested in accordance with the Company’s distribution reinvestment plan and (ii) the fractional shares issued pursuant to the distribution reinvestment plan are issued at the then public offering price, net of sales load, on each monthly distribution payment date. Since there is no public market for the Company’s shares, then terminal market value per share is assumed to be equal to net asset value per share on the last day of the period. The Company’s performance changes over time and currently may be different than that shown above. Past performance is no guarantee of future results. Investment performance is presented without regard to sales load that may be incurred by shareholders in the purchase of the Company’s shares of common stock.
(9)  The computation of average net assets and average borrowings during the period is based on the daily value of net assets and borrowing balances, respectively. Ratios are not annualized.
(10)  Asset coverage ratio is equal to (i) the sum of (A) net assets at the end of the period and (B) debt outstanding at the end of the period, divided by (ii) total debt outstanding at the end of the period. For purposes of the asset coverage ratio test applicable to the Company as a business development company, the Company regards the TRS total notional amount at the end of the period, less the total amount of cash collateral posted by Halifax Funding under the TRS, as a senior security for the life of the TRS. These data are presented in Note 4 of the condensed consolidated financial statements.

 

11.       Borrowings

The Company’s outstanding borrowings as of June 30, 2014 and December 31, 2013 were as follows (dollar amounts in thousands):

 

    As of June 30, 2014   As of December 31, 2013
    Total Aggregate
Principal
Amount Committed
    Outstanding
Borrowings
    Remaining
Maturity
(in years)
  Total Aggregate
Principal
Amount Committed
    Outstanding
Borrowings
    Remaining
Maturity
(in years)

Deutsche Bank Credit Facility(1)

    $ 340,000             $ -          0.6     $ 265,000           $ 264,440         0.9

BNP Credit Facility(1)

    200,000             100,450          1.0     200,000           123,000         1.0

Senior Secured Revolving Credit Facility(1)

    490,000             -         3.2     320,000(2)          319,949(3)        3.7
 

 

 

   

 

 

     

 

 

   

 

 

   

Total credit facilities

    1,030,000             100,450              785,000           707,389        

2014 Senior Secured Term Loan

    399,000             397,038(4)      4.9     -            -         
 

 

 

   

 

 

     

 

 

   

 

 

   

Total borrowings

    $                     1,429,000             $             497,488              $                     785,000           $               707,389        
 

 

 

   

 

 

     

 

 

   

 

 

   

 

(1)  Subject to borrowing base and leverage restrictions.
(2)  Provides for a feature that allows the Company, under certain circumstances, to increase the size of the Senior Secured Revolving Credit Facility to a maximum of $900 million and $600 million as of June 30, 2014 and December 31, 2013, respectively.
(3)  Includes $108.68 million denominated in Euros and $33.72 million denominated in New Zealand Dollars.
(4)  Net of unaccreted original issue discount of $1.96 million.

The weighted average stated interest rate and weighted average maturity of the Company’s outstanding borrowings as of June 30, 2014 were 3.6% and 4.1 years, respectively, and as of December 31, 2013 were 2.5% and 2.2 years, respectively.

 

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Deutsche Bank Credit Facility

On January 28, 2014, CCT Funding, Deutsche Bank AG, New York Branch, (“Deutsche Bank”), and the other lenders party thereto entered into an amendment (the “Fourth Amendment”) to the multi-lender, revolving credit facility (“the Deutsche Bank Credit Facility”) that CCT Funding originally entered into with Deutsche Bank on August 22, 2011. Deutsche Bank is a lender and serves as administrative agent under the Deutsche Bank Credit Facility.

The Fourth Amendment provided for, among other things, an increase in the maximum borrowings under the Tranche B1 Loans from $65 million to $140 million. The Fourth Amendment also extended the maturity date of the Tranche B1 Loans to January 28, 2015. As amended, the Tranche B1 Loans bear interest at three-month LIBOR plus 1.80%.

Interest on the Deutsche Bank Credit Facility is charged at LIBOR plus 1.80% to 2.33%. CCT Funding also pays an annual commitment fee on any unused commitment amounts of 0.50% to 0.75%. The components of interest expense, average interest rates (i.e., base interest rate in effect plus the spread) and average outstanding balances for the Deutsche Bank Credit Facility for the three and six months ended June 30, 2014 and 2013 were as follows (amounts in thousands):

 

     Three Months Ended June 30,      Six Months Ended June 30,  
     2014      2013      2014      2013  

Direct interest expense

   $                     799            $                     1,086            $                     2,211            $                     2,270        

Unused commitment fees

     291              155              389              156        

Amortization of deferred financing costs

     212              202              363              329        
  

 

 

    

 

 

    

 

 

    

 

 

 

Total interest expense

   $ 1,302            $ 1,443            $ 2,963            $ 2,755        
  

 

 

    

 

 

    

 

 

    

 

 

 

Weighted average interest rate

     2.3%           2.2%           2.3%           2.2%     

Average borrowings

   $ 140,140            $ 204,605            $ 191,919            $ 210,353        

BNP Credit Facility

In 2013, the Company entered into a committed facility arrangement (the “BNP Credit Facility), with BNP Paribas Prime Brokerage, Inc. (“BNP”) under which the Company may borrow up to $200 million. The Company subsequently assigned the agreements under the BNP Credit Facility to Paris Funding. Paris Funding has the right to prepay loans under the BNP Credit Facility in whole or in part at any time. BNP can recall the loans under the BNP Credit Facility with 364 days’ notice.

Paris Funding pledges certain of its assets as collateral to secure borrowings under the BNP Credit Facility. As of June 30, 2014, Paris Funding had investments with a fair value of $249.91 million pledged as collateral under the BNP Credit Facility. Interest is charged at the rate of one month LIBOR plus 1.10% and is payable monthly. Paris Funding also pays an annual commitment fee on any unused commitment amounts of 0.55% or 0.75%, depending on utilization levels. The components of interest expense, average interest rates (i.e., base interest rate in effect plus the spread) and average outstanding balances for the BNP Credit Facility for the three and six months ended June 30, 2014 and 2013 were as follows (amounts in thousands):

 

     Three Months Ended June 30,      Six Months Ended June 30,  
     2014      2013      2014      2013  

Direct interest expense

   $                     244             $                     47            $                     540            $                     47        

Unused commitment fees

     232               18              431              18        

Amortization of deferred financing costs

     92               21              208              21        
  

 

 

    

 

 

    

 

 

    

 

 

 

Total interest expense

   $ 568             $ 86            $ 1,179            $ 86        
  

 

 

    

 

 

    

 

 

    

 

 

 

Weighted average interest rate

     1.3%           1.3%           1.3%           1.3%     

Average borrowings

   $ 76,719             $ 68,421            $ 85,431  (1)       $ 68,421  (1)   

 

(1)  Average borrowings are calculated since the inception of the facility, or June 12, 2013.

Under the terms of the BNP Credit Facility, BNP has the ability to borrow a portion of the pledged collateral (“Rehypothecated Securities”), subject to certain limits. Paris Funding may receive a fee from BNP in connection with Rehypothecated Securities meeting certain criteria. The Company may designate any security within the pledged collateral as ineligible to be a Rehypothecated Security, provided there are eligible securities within the segregated custody account in an amount equal to the outstanding borrowings owed by the Company to BNP. The Company may recall any Rehypothecated Security at any time and BNP must, to the extent commercially reasonable, return such security or equivalent security within a commercially reasonable period. In the event BNP does not return the security, the Company will have the right to, among other things, apply and set off an amount equal to 100% of the then-current fair market value of such Rehypothecated Securities against any outstanding borrowings owed to BNP under the Financing Agreements. Rehypothecated Securities are marked-to-market daily and if the value of all Rehypothecated Securities exceeds 100% of the outstanding borrowings owed by the Company under the BNP Financing Agreements, BNP may either reduce the amount of Rehypothecated Securities to eliminate such excess or deposit into the segregated custody account an amount of cash equal to such excess. The Company will continue to receive interest and the scheduled repayment of principal balances on Rehypothecated Securities.

 

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Senior Secured Revolving Credit Facility

In September 2013, the Company entered into a revolving credit facility (the “Senior Secured Revolving Credit Facility”) with certain lenders and JPMorgan Chase Bank, N.A., acting as administrative agent. The Senior Secured Revolving Credit Facility consists of loans to be made in U.S. dollars and other foreign currencies in an aggregate amount of $490 million as of June 30, 2014, with an “accordion” feature that allows the Company, under certain circumstances, to increase the size of the facility to a maximum of $900 million. Availability under the Senior Secured Revolving Credit Facility will terminate on September 4, 2016 and the outstanding loans under the Senior Secured Revolving Credit Facility will mature on September 4, 2017. The Senior Secured Revolving Credit Facility is secured by substantially all of the Company’s portfolio investments and its cash and securities accounts excluding those held by CCT Funding, Paris Funding and Halifax Funding, and provides for a guaranty by certain subsidiaries of the Company.

The stated borrowing rate under the Senior Secured Revolving Credit Facility is generally based on LIBOR plus an applicable spread of 2.50% or, with respect to borrowings in non-LIBOR currencies, on a rate applicable to such currency plus an applicable spread of 2.50%. The Company also pays an annual commitment fee on any unused commitment amounts between 0.375% and 1.00%, depending on utilization levels. The components of interest expense, average interest rates (i.e., base interest rate in effect plus the spread) and average outstanding balances for the Senior Secured Revolving Credit Facility for the three and six months ended June 30, 2014 were as follows (amounts in thousands):

 

     Three Months Ended      Six Months Ended  
     June 30, 2014      June 30, 2014  

Direct interest expense

   $                     782            $                     2,670        

Unused commitment fees

     746              815        

Amortization of deferred financing costs

     316              560        
  

 

 

    

 

 

 

Total interest expense

   $ 1,844            $ 4,045        
  

 

 

    

 

 

 

Weighted average interest rate

     3.4%           3.2%     

Average borrowings

   $ 93,066            $ 169,284        

2014 Senior Secured Term Loan

On May 20, 2014, the Company entered into a new senior secured term loan credit facility (the “2014 Senior Secured Term Loan”) with certain lenders and JPMorgan Chase Bank, N.A., as Administrative Agent. The 2014 Senior Secured Term Loan provides the Company with a $400 million senior secured term loan. The 2014 Senior Secured Term Loan matures in May 2019, and generally bears interest, at LIBOR plus 3.25% (with a LIBOR floor of 0.75%). The 2014 Senior Secured Term Loan includes an accordion feature permitting the Company to expand the facility if certain conditions are satisfied; provided, however, that the aggregate amount of the 2014 Senior Secured Term Loan is limited to the amount as determined from time to time which would not cause the covered debt amount (i.e., the Company’s aggregate debt under both the 2014 Senior Secured Term Loan and the Senior Secured Revolving Credit Facility, other permitted debt and certain other unsecured debt) to exceed the borrowing/collateral base.

Maturities of the 2014 Senior Secured Term Loan for the remainder of 2014 and each of the next four years and thereafter as of June 30, 2014 were as follows (amounts in thousands):

 

2014

   $ 2,000   

2015

     4,000   

2016

     4,000   

2017

     4,000   

2018

     4,000   

Thereafter

     381,000   
  

 

 

 
   $ 399,000   
  

 

 

 

 

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The components of interest expense, average interest rates (i.e., base interest rate in effect plus the spread) and average outstanding balances for the 2014 Term Loan Facility for the three and six months ended June 30, 2014 were as follows (amounts in thousands):

 

     Three and Six
Months Ended
 
     June 30, 2014  

Direct interest expense

   $                     1,867       

Accretion of original issue discount

     38       

Amortization of deferred financing costs

     105       
  

 

 

 

Total interest expense

   $ 2,010       
  

 

 

 

Weighted average interest rate

     4.2%   

Average borrowings

   $ 399,976(1)   

 

(1)  Average borrowings for the 2014 Term Loan for the three and six months ended June 30, 2014 are calculated since the inception date of the facility, or May 20, 2014.

In connection with each of the credit facilities and 2014 Term Loan, the Company has made customary representations and warranties and is required to comply with various covenants, reporting requirements and other customary requirements for similar facilities. As of both June 30, 2014 and December 31, 2013, the Company believes it was in compliance with the covenant requirements for its credit facilities and term loan.

 

12. Guarantees and Commitments

In the normal course of business, the Company may enter into guarantees on behalf of portfolio companies. Under these arrangements, the Company would be required to make payments to third parties if the portfolio companies were to default on their related payment obligations. The Company has no such guarantees outstanding at June 30, 2014 and December 31, 2013. Unfunded commitments to provide funds to portfolio companies are not reflected on the Company’s condensed consolidated statements of assets and liabilities. The Company’s unfunded commitments may be significant from time to time. Since these commitments may expire without being drawn upon, the total commitment amount does not necessarily represent future cash requirements. The Company intends to use cash flow from scheduled and early principal repayments and proceeds from borrowings and common stock offerings to fund these commitments. As of June 30, 2014, the Company’s unfunded commitments consisted of the following (amounts in thousands):

 

Commitment

   No. Investments      Amount  

Delayed draw loans

     1       $         33,652       

Unfunded equity commitments

     2         98,357       
     

 

 

 

Total unfunded commitments

      $ 132,009       
     

 

 

 

 

13. Income Taxes

During the six months ended June 30, 2014, the Company recorded federal and state deferred income tax benefits related to its Taxable Subsidiary resulting in a net deferred tax asset of approximately $0.65 million, which was primarily comprised of net operating losses and unrealized depreciation. The Company recorded a valuation allowance against the full amount of the related deferred tax asset because as of June 30, 2014 it believed that it was more likely than not that the deferred tax asset would not be realized in future periods. For the six months ended June 30, 2014, the Taxable Subsidiary had an effective tax rate of zero, which included a current income tax rate of 39.24%.

 

14. Subsequent Events

On July 14, 2014, the Company filed a tender offer statement with the SEC on Schedule TO. The Company is offering to repurchase up to 3,550,268 shares of common stock at a cash price of $10.15 per share, with an expiration of 5:00 p.m., Central Time, August 27, 2014.

 

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

The following discussion is based on the unaudited condensed consolidated financial statements as of June 30, 2014 and December 31, 2013, and for the three and six months ended June 30, 2014 and 2013. Amounts as of December 31, 2013 included in the unaudited condensed consolidated financial statements have been derived from the audited consolidated financial statements as of that date. This information should be read in conjunction with the accompanying unaudited condensed consolidated financial statements and the notes thereto, as well as, the audited consolidated financial statements, notes and management’s discussion and analysis of financial condition and results of operations included in our Annual Report on Form 10-K for the year ended December 31, 2013. Capitalized terms used in this Item 2 have the same meaning as in the accompanying condensed consolidated financial statements in Item 1 unless otherwise defined herein.

STATEMENT REGARDING FORWARD-LOOKING INFORMATION

The following information contains statements that constitute forward-looking statements, within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Exchange Act. These statements generally are characterized by the use of terms such as “may,” “should,” “plan,” “anticipate,” “estimate,” “intend,” “predict,” “believe” and “expect” or the negative of these terms or other comparable terminology. Although we believe that the expectations reflected in such forward-looking statements are based upon reasonable assumptions, our actual results could differ materially from those set forth in the forward-looking statements. Some factors that might cause such a difference include the following: the current global economic downturn, increased direct competition, changes in government regulations or accounting rules, changes in local, national and global capital market conditions, our ability to obtain credit lines or credit facilities on satisfactory terms, changes in interest rates, availability of proceeds from our offering of shares, our ability to identify suitable investments, our ability to close on identified investments, inaccuracies of our accounting estimates, our ability to locate suitable borrowers for our loans and the ability of such borrowers to make payments under their respective loans. Given these uncertainties, we caution you not to place undue reliance on such statements, which apply only as of the date hereof. We undertake no obligation to publicly release the results of any revisions to these forward-looking statements that may be made to reflect future events or circumstances or to reflect the occurrence of unanticipated events. The forward-looking statements should be read in light of the risk factors identified in the “Risk Factors” section of our annual report on Form 10-K filing for the year ended December 31, 2013.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Our discussion and analysis of our financial condition and results of operations are based upon our condensed consolidated financial statements which have been prepared in accordance with GAAP. The preparation of these condensed consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. Changes in the economic environment, financial markets and any other parameters used in determining such estimates could cause actual results to differ.

In addition to the discussion below, our critical accounting policies are further described in Note 2 to the condensed consolidated financial statements. We consider these accounting policies to be deemed critical because they involve management judgments and assumptions, require estimates about matters that are inherently uncertain and because they are important for understanding and evaluating our reported financial results. These judgments will affect the reported amounts of assets and liabilities and our disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenue and expenses during the reporting periods. With different estimates or assumptions, materially different amounts could be reported in our financial statements.

Valuation of Investments – We measure the value of our 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. We do 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, independent 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.

 

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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, illiquid 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. Our 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 our portfolio investments for which market quotations are not readily available, our 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 our Advisors, audit committee and independent third-party valuation firms under a valuation policy and a consistently applied valuation process.

Our 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 we were required to liquidate a portfolio investment that does not have a readily available market value in a forced or liquidation sale, we could realize significantly less than the value recorded us.

We and the 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 an independent third party valuation firm retained by us (external valuation), which provides a valuation range.

 

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

 

    If our management is satisfied, it will forward the valuation recommendations and supporting documentation for review by our audit committee.

 

    Our board of directors then discusses the investment valuation recommendations with our Advisors and, based on those discussions and the related conclusions of our audit committee, determines the fair value of these investments in good faith.

Depending on the relative liquidity in the markets for certain assets, we may transfer assets to Level 3 if we determine 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 (i) transaction price and are subsequently valued using market data for similar instruments (e.g., recent transactions or indicative broker quotes), (ii) comparisons to benchmark derivative indices or (iii) 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 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.

 

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    Total Return Swaps, at Estimated Fair Value: We value our TRS in accordance with the TRS agreements between us (or our wholly owned subsidiary) and the TRS counterparty, 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 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 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, our management reviews, tests and compares (i) the indicative bid prices assigned to each TRS asset by the TRS counterparty, based on the inputs provided by third-party pricing services with (ii) pricing inputs that are independently sourced by our management and/or the Advisors from third-party pricing services. Additionally, our 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.

We utilize several unobservable pricing inputs and assumptions in determining the fair value of our Level 3 investments. These unobservable pricing inputs and assumptions may differ by asset and in the application of our valuation methodologies. The reported fair value estimates could vary materially if we 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. We measure 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.

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 our 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 us any earned capital structuring fees based on the pro-rata portion of our investment. These fees are generally non-recurring and are recognized as earned revenue by us upon closing of the associated investment. Loan origination, closing, commitment and 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.

We have investments in debt securities that 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 interest payment date. PIK investments offer issuers either the option or the obligation at each interest payment date of making interest payments with the issuance of additional securities. When we receive additional securities, they typically have the same terms, including maturity dates and interest rates as the original securities issued. On the interest payment dates we capitalize 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, we will not accrue PIK interest or income and will record an allowance for any accrued PIK interest receivable as a reduction of interest income in the period we determine it is not collectible. To maintain our status as a RIC, PIK interest income, which is considered taxable income, must be paid out to shareholders in the form of distributions.

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.

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 debt security is placed on non-accrual status. Interest payments received on non-accrual debt securities may be recognized as income or applied to principal depending upon management’s judgment. Non-accrual 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 on interest payment obligations. We may make exceptions to this treatment if the debt security has sufficient collateral value and is in the process of collection.

 

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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 prevailing exchange rate 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 we do 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 us and the U.S. dollar equivalent of the amounts actually received or paid by us.

Management Fees - We accrue 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. We record the liability for the incentive fee on capital gains based on a hypothetical liquidation of our Investment Portfolio at the end of each reporting period. Therefore, the accrual for the 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 on capital gains is earned and payable to the Advisors can only be made at the end of the calendar year.

Federal Income Taxes – We have elected to be treated for federal income tax purposes, and intend to maintain our qualification as a 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. We intend to distribute sufficient dividends to maintain our RIC status each year and do not anticipate paying a material level of federal income taxes in the future.

We are also generally subject to nondeductible federal excise taxes if we do not distribute an amount at least equal to the sum of (i) 98% of net ordinary income for the calendar year, (ii) 98.2% of our 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 we paid no federal income tax. We may, at our discretion, carry forward taxable income in excess of calendar year distributions and pay a 4% non-deductible federal excise tax on this excess taxable income. We might choose to do so, for example, in order to retain the excess taxable income for investment purposes and/or to defer the payment of distributions associated with the excess taxable income to future calendar years.

We have formed a wholly owned taxable subsidiary (the “Taxable Subsidiary”), which holds certain of our portfolio investments. The Taxable Subsidiary is consolidated for GAAP reporting purposes, and the portfolio investments held by it are included in our condensed consolidated financial statements. The Taxable Subsidiary is not consolidated with our 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 our 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 assets will not be realized.

We recognize in our 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. We 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 we have any unrecognized tax benefits as of the periods presented herein. Although we file federal and state tax returns, our major tax jurisdiction is federal.

Permanent book and tax basis differences are reclassified among our capital accounts, as appropriate. Additionally, the tax character of distributions is determined in accordance with the Code, which differs from GAAP.

 

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OVERVIEW

We are a non-diversified closed-end management investment company that has elected to be treated as a business development company under the 1940 Act. Formed as a Maryland corporation on June 9, 2010, we are externally managed by CNL Fund Advisors Company (“CNL”) and KKR Asset Management LLC (“KKR”), collectively, the “Advisors”, which are responsible for sourcing potential investments, conducting due diligence on prospective investments, analyzing investment opportunities, structuring investments and monitoring our portfolio on an ongoing basis. Both Advisors are registered as investment advisers with the SEC. CNL also provides the administrative services necessary for us to operate.

Investment Objective, Investment Program and Primary Investment Types

Our investment objective is to provide our shareholders with current income and, to a lesser extent, long-term capital appreciation. We pursue our investment objective by investing primarily in the debt of privately owned U.S. companies (also referred to as “portfolio companies”) with a focus on originated transactions sourced through the networks of our Advisors. We define originated transactions as any negotiated investment where we, through our Advisors’ direct efforts, provide funds directly to a portfolio company. We also have the ability, as granted through an SEC Exemptive Order, to co-invest in privately negotiated transactions with other investment funds affiliated with KKR (the “Co-Investment Transactions”). A substantial portion of our portfolio consists of direct lending investments, which we believe offer potential opportunities for superior risk-adjusted returns and income generation. Our debt investments may take the form of corporate loans or bonds, may be secured or unsecured and may, in some cases, be accompanied by warrants, options or other forms of equity participation. We may separately purchase common or preferred equity interests in transactions. We may also invest in structured products such as collateralized loan obligations.

As of June 30, 2014, our investment program consisted of two main components. First, since the inception of our investment activities we have been engaged in the direct purchase of debt securities primarily issued by portfolio companies, and these debt securities were acquired through both secondary market and direct lending transactions. We refer to this investment component as our “Investment Portfolio” in this report. Second, beginning in November 2012, we supplemented our economic exposure to portfolio companies by entering into total return swap arrangements (“the TRS”) with a commercial bank counterparty and directing the creation of a portfolio of underlying corporate bonds and loans that serve as reference assets under the TRS. We refer to this investment component as our portfolio of TRS assets or our “TRS Portfolio” in this report. In the case of our portfolio of TRS assets, we receive all: (i) realized income and fees and (ii) realized capital gains generated by TRS assets. In return, we must pay quarterly to the TRS counterparty a payment consisting of: (i) realized capital losses and (ii) financing costs that are based on (a) a floating financing rate and (b) the settled notional amount of TRS assets. The settled notional amount of the TRS assets is the net aggregate cost of the TRS assets underlying the TRS portfolio that are settled and owned by the counterparty, and this aggregate cost serves as the basis for our payments of financing charges to the counterparty under the TRS agreements. The total notional amount of the TRS assets includes the settled notional amount plus the effect of the purchase and sale of the TRS assets where a TRS asset trade settlement, if any, is pending. At the end of the TRS contract life, we will receive additional economic benefit if the net value of the TRS Portfolio appreciates relative to its notional amount. Conversely, we will be required to pay the counterparty the amount, if any, by which the net value of the portfolio of TRS assets declines relative to its notional amount. We do not own, or have physical custody of, the TRS assets. The TRS assets are not direct investments by us.

Our investment program is focused on creating and growing an Investment Portfolio that generates superior risk-adjusted returns by carefully selecting investments through rigorous due diligence and actively managing and monitoring our Investment Portfolio. When evaluating an investment in, or investment security issued by, a portfolio company, we use the resources of our Advisors to develop an investment thesis and a proprietary view of a potential portfolio company’s intrinsic value. We believe our flexible approach to investing allows us to take advantage of opportunities that offer the most favorable risk/reward characteristics.

This flexible investment program enables us to primarily focus on four investment types:

 

    Senior Debt. We invest in senior debt, in which we generally take a security interest in the available assets of the portfolio company, including equity interests in any of its subsidiaries. These investments generally take the form of senior secured first lien loans, senior secured second lien loans or senior secured bonds. In some circumstances, our lien could be subordinated to claims of other creditors.

 

    Subordinated Debt. Our subordinated debt investments are generally subordinated to senior debt and are generally unsecured. These investments are generally structured with interest-only payments throughout the life of the security, with the principal due at maturity.

 

    Structured Products. We also invest in structured products, which may include collateralized debt obligations (“CDOs”), collateralized bond obligations (“CBOs”), collateralized loan obligations (“CLOs”), structured notes and credit-linked notes. The issuers of such investment products may be structured as trusts or other types of pooled investment vehicles. Such products may also involve the deposit with or purchase by an entity of the underlying investments and the issuance by that entity of one or more classes of securities backed by, or representing interests in, the underlying investments or referencing an indicator related to such investments.

 

    Equity Investments. We also make selected equity investments. In addition, when we invest in senior and subordinated debt, we may acquire warrants or options to purchase equity securities or benefit from other types of equity participation. Our goal is ultimately to dispose of these equity interests and realize gains upon our disposition of such interests.

 

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The level of our investment activity can and does vary substantially from period to period depending on many factors, including: the demand for debt from creditworthy privately owned U.S. companies, the level of merger, acquisition and refinancing activity involving private companies, the availability of credit to finance transactions, the general economic environment, the competitive investment environment for the types of investments we currently seek and intend to seek in the future, the amount of equity capital we raise from offering common stock in our company and the amount of capital we may borrow under our revolving credit facilities.

As a business development company, we are required to comply with certain regulatory requirements. For instance, we may not acquire any assets other than “qualifying assets” as specified in the 1940 Act unless, at the time the acquisition is made, at least 70% of our total assets are qualifying assets as determined at the end of the prior quarter (with certain limited exceptions). Qualifying assets include investments in “eligible portfolio companies.” Under the relevant SEC rules, the term “eligible portfolio company” includes all private companies, companies whose securities are not listed on a national securities exchange and certain public companies that have listed their securities on a national securities exchange and have a market capitalization of less than $250 million. These rules also permit us to include as qualifying assets certain follow-on investments in companies that were eligible portfolio companies at the time of initial investment but no longer meet the definition of eligible portfolio company at the time of the follow-on investment.

Revenues

We generate revenue primarily in the form of interest on the debt securities of portfolio companies that we acquire and hold for investment purposes. Our investments in debt securities generally have an expected maturity of three to ten years, although we have no lower or upper constraint on maturity, and typically earn interest at fixed or floating rates. Interest on our debt securities is generally payable to us quarterly or semi-annually. In some cases, our debt investments may partially defer cash interest payments with payment-in-kind provisions. The outstanding principal amount of our debt securities and any accrued but unpaid interest will generally become due at the maturity date. In addition, we may generate revenue in the form of prepayment fees, commitment fees, origination fees and fees for providing significant managerial assistance. While the TRS assets also generate interest income and fees, such amounts, net of the financing amounts we pay quarterly to the TRS counterparty, are recognized as realized gains pursuant to GAAP when payable to us.

Operating Expenses

Our primary operating expenses include a base management fee and, depending on our operating results, performance-based incentive fees, reimbursable expenses under the investment advisory agreement, interest expense and financing fees, amortization of deferred offering expenses, fund administrative expenses, custody/accounting fees and third-party expenses incurred under the administrative services agreement. The base management fee and performance-based incentive fees compensate the Advisors for their efforts and resources in identifying, evaluating, negotiating, closing and monitoring our investments. We bear all other costs and expenses of our operations and transactions.

 

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FINANCIAL AND OPERATING HIGHLIGHTS

 

     ($ in millions except per share data)  

At June 30,

   2014     2013  

Total consolidated assets

   $ 2,397.67      $ 1,409.92   

Adjusted total assets (Total consolidated assets net of payable for investments purchased)

   $ 2,314.49      $ 1,189.31   

Investment in portfolio companies

   $ 2,149.27      $ 1,139.12   

Borrowings - credit facilities and term loan

   $ 497.49      $ 169.44   

Borrowings - TRS deemed senior securities

   $ 59.39      $ 33.03   

Average credit facility and term loan borrowings

   $ 538.99      $ 217.53   

Net assets

   $ 1,789.45      $ 1,012.02   

Average net assets

   $ 1,589.13      $ 808.28   

Net asset value per share

   $ 10.15      $ 9.78   

Leverage ratio (Borrowings/Adjusted total assets)

     24     17

Portfolio Activity for the Six Months Ended June 30,

   2014     2013  

Cost of investments purchased

   $ 811.40      $ 785.21   

Sales, principal payments and other exits

   $ 644.03      $ 348.20   

Net investment income

   $ 47.24      $ 14.97   

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

   $ 11.21      $ 6.84   

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

   $ 22.40      $ 5.02   

Net increase in net assets from operations

   $ 80.85      $ 26.84   

Total distributions declared

   $ 59.93      $ 31.54   

Net investment income before unearned incentive fees per share

   $ 0.34      $ 0.18   

Net investment income per share

   $ 0.30      $ 0.18   

Earnings per share

   $ 0.51      $ 0.33   

Distributions declared per share outstanding for the entire period

   $ 0.38      $ 0.39   

Summary of Common Stock Offerings for the Six Months Ended June 30,

   2014     2013  

Gross proceeds

   $ 337.86      $ 430.66   

Net proceeds to Company, excluding reinvestment of distributions

   $ 306.16      $ 390.88   

Average net proceeds per share

   $ 10.17      $ 9.95   

Shares issued in connection with offerings (in millions)

     30.10        39.28   

BUSINESS ENVIRONMENT

Over the last 12-months we observed high trading volumes in high-yield bonds resulting in yields decreasing to near historical lows. Capital inflows into bank loan mutual funds were also robust over an extended period of 95 straight weeks; a streak that ended in April 2014. More recently, both high yield bond funds and bank loan mutual funds have experienced outflows resulting in some volatility for corporate debt securities in traded secondary markets. Our basic investment premise emphasizing directly originated and other private credit investments remains unchanged. We believe that private credit will outperform low-yielding government bonds and high grade credit over the long-term. Our contrarian posture and investment focus in privately originated transactions to middle market companies offers our shareholders an illiquidity premium, and therefore a better risk-adjusted return as we move through this part of the current economic cycle. Meanwhile, we continue to scan for attractive opportunities in secondary credit markets resulting from specific situations and volatility in market technicals.

Moreover, we believe that we are in the middle stages of the cyclical part of the economic recovery. We do not see the credit cycle turning in the next 12 months. The health of middle market American companies remains good and we believe there is further room for companies in this space to increase cash flow. In addition, we believe regulations that burden bank-lending practices will continue to broaden the investment opportunities for non-bank investors and investment entities. We maintain a degree of caution as we progress through 2014 recognizing that credit defaults remain abnormally low and likely not sustainable. We believe continued focus on the fundamentals, including rigorous due diligence, robust credit underwriting and direct structuring of investments best positions the portfolio to protect principal and generate attractive risk-adjusted returns.

 

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PORTFOLIO AND INVESTMENT ACTIVITY

Portfolio Investment Activity for the Six Months ended June 30, 2014 and 2013

The following table summarizes our investment activity for the six months ended June 30, 2014 and 2013, excluding our short term investments.

 

     Investment Activity Summary as of and for the Six Months Ended June 30, ($  in millions)  
     2014     2013  
     Investment Portfolio     TRS Portfolio     Investment Portfolio     TRS Portfolio  

Total Fair Value

   $ 2,149.27      $ 118.40      $ 1,139.12      $ 138.82   

Incremental Purchases

   $ 811.40      $ 112.88      $ 785.21      $ 326.89   

Investment Sales

   $ (394.56   $ (39.65   $ (288.50   $ (288.63

Principal Payments

   $ (249.47   $ (9.44   $ (59.70   $ (41.74

No. Portfolio Companies

     94        36        98        30   

Portfolio Company Additions

     21        24        46        43   

Portfolio Company Exits

     (21     (8     (74     (60

No. Debt Investments

     106        37        120        32   

Debt Investment Additions

     42        27        87        65   

Debt Investment Exits

     (39     (10     (129     (87

No. Structured Product Investments

     3        —          1        —     

No. Equity/Other Investments

     15        —          1        —     

While the Investment Portfolio and the TRS Portfolio are accounted for and presented as two distinct portfolios, the two portfolios had 14 and 15 debt investment positions and 25 and 19 companies in common as of June 30, 2014 and 2013, respectively. The fair value of our Investment Portfolio, excluding our short term investments, increased by 12% and 63% during the six months ended June 30, 2014 and 2013, respectively. The fair value of our TRS Portfolio increased by 97% during the six months ended June 30, 2014 and decreased by 16% during the six months ended June 30, 2013. The changes in the fair value of our Investment Portfolio and our TRS Portfolio are directly related to the changes in their respective cost and notional amounts. The total Investment Portfolio cost increased by 11% and 64% during the six months ended June 30, 2014 and 2013, respectively. The total TRS Portfolio notional amount increased by 99% during the six months ended June 30, 2014 and decreased by 14% during the six months ended June 30, 2013.

As discussed above under “— Overview,” since receiving our SEC Exemptive Order, we have increased our focus on originated investments, including Co-Investment Transactions, as a main element of the investment strategy. We began originating investments in June 2013, with one investment during the six months ended June 30, 2013. During the six months ended June 30, 2014 and 2013, the following highlights are associated with our investment focus on originated debt investments:

 

Originated Investment Activity for the Six Months Ended June 30, ($ in millions)

   2014     2013  

Number of originated investments, by issuer

     11        1   

Total amount of originated investments, at cost

   $ 307.85      $ 46.73   

Originated investments as a percentage of total investment activity

     37.9     6.0

Fee income recognized in connection with originated investments

   $ 0.98      $ 0.93   

Originated Investments Summary as of ($ in millions)

   June 30,
2014
    December 31,
2013
 

Total originated investments, at fair value

   $ 972.97      $ 713.02   

Total originated investments as a percentage of total Investment Portfolio, at fair value

     45.3     37.0

Estimated forward-looking annual yield of originated debt investments (1)

     11.6     11.6

Estimated forward-looking annual yield for remainder of debt investment portfolio (1)

     9.8     9.1

 

(1)  The estimated forward-looking annual yield on debt investments is based on amortized cost as of the end of the applicable period. The estimated forward-looking annual yield for our debt investments is represented by a fraction, (i) the numerator of which is the sum of (a) the annual interest rate of each debt investment multiplied by its par amount as of the end of the applicable reporting period, plus (b) the annual amortization of the purchase or original issue discount or premium of each debt investment, if any; and (ii) the denominator of which is the total amortized cost of all debt investments included in the calculated group as of the end of the applicable reporting period.

 

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The following information consists of additional segmentation analysis of our Investment Portfolio and TRS Portfolio. However, our investment program is not managed with any specific asset category target goals.

The following tables summarize the investment type segmentation of our Investment Portfolio and our TRS Portfolio based on fair value as of June 30, 2014 and December 31, 2013, excluding our short term investments.

 

     Fair Value Summary as of June 30, 2014 ($ in thousands)  

Asset Category

   Investment Portfolio
at Fair Value
     Percentage of
Investment Portfolio
    TRS Portfolio at
Fair Value
     Percentage of
TRS Portfolio
 

Senior debt

          

Senior secured loans - first lien

   $ 762,466         35.5   $ 100,473         84.9

Senior secured loans - second lien

     752,113         35.0        10,009         8.5   

Senior secured bonds

     130,679         6.1        7,263         6.1   
  

 

 

    

 

 

   

 

 

    

 

 

 

Total senior debt

     1,645,258         76.6        117,745         99.5   

Subordinated debt

     398,704         18.5        655         0.5   

Structured products

     36,053         1.7        —           —     

Equity/Other

     69,252         3.2        —           —     
  

 

 

    

 

 

   

 

 

    

 

 

 

Total

   $ 2,149,267         100.0   $ 118,400         100.0
  

 

 

    

 

 

   

 

 

    

 

 

 

 

     Fair Value Summary as of December 31, 2013 ($ in thousands)  

Asset Category

   Investment Portfolio
at Fair Value
     Percentage of
Investment Portfolio
    TRS Portfolio at
Fair Value
     Percentage of
TRS Portfolio
 

Senior debt

          

Senior secured loans - first lien

   $ 638,403         33.2   $ 35,239         58.6

Senior secured loans - second lien

     670,961         34.8        6,335         10.6   

Senior secured bonds

     165,128         8.6        11,008         18.3   
  

 

 

    

 

 

   

 

 

    

 

 

 

Total senior debt

     1,474,492         76.6        52,582         87.5   

Subordinated debt

     370,131         19.2        7,514         12.5   

Structured products

     55,575         2.9        —          —     

Equity/Other

     24,671         1.3        —          —     
  

 

 

    

 

 

   

 

 

    

 

 

 

Total

   $ 1,924,869         100.0   $ 60,096         100.0
  

 

 

    

 

 

   

 

 

    

 

 

 

The following tables summarize the investment type segmentation of our Investment Portfolio based on amortized cost and the TRS Portfolio based on notional amounts as of June 30, 2014 and December 31, 2013. The primary investment type concentrations include (i) senior debt and (ii) subordinated debt securities.

 

     Investment Portfolio Cost and TRS Notional Amount Summary as of June 30, 2014
($ in thousands)
 

Asset Category

   Investment Portfolio
at Amortized Cost
     Percentage of
Investment Portfolio
    TRS Portfolio at
Notional Amount
     Percentage of
TRS Portfolio
 

Senior debt

          

Senior secured loans - first lien

   $ 747,657         35.8   $ 101,205         85.1

Senior secured loans - second lien

     740,139         35.5        9,763         8.2   

Senior secured bonds

     125,786         6.0        7,315         6.2   
  

 

 

    

 

 

   

 

 

    

 

 

 

Total senior debt

     1,613,582         77.3        118,283         99.5   

Subordinated debt

     380,842         18.3        656         0.5   

Structured products

     30,721         1.5        —           —     

Equity/Other

     62,707         2.9        —           —     
  

 

 

    

 

 

   

 

 

    

 

 

 

Total

   $ 2,087,852         100.0   $ 118,939         100.0
  

 

 

    

 

 

   

 

 

    

 

 

 

 

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     Investment Portfolio Cost and TRS Notional Amount Summary as of December 31,  2013
($ in thousands)
 

Asset Category

   Investment Portfolio
at Amortized Cost
     Percentage of
Investment Portfolio
    TRS Portfolio at
Notional Amount
     Percentage of
TRS Portfolio
 

Senior debt

          

Senior secured loans - first lien

   $ 626,457         33.2   $ 35,237         58.8

Senior secured loans - second lien

     663,135         35.1        6,043         10.1   

Senior secured bonds

     163,000         8.7        11,060         18.5   
  

 

 

    

 

 

   

 

 

    

 

 

 

Total senior debt

     1,452,592         77.0        52,340         87.4   

Subordinated debt

     355,239         18.8        7,571         12.6   

Structured products

     55,520         2.9        —          —     

Equity/Other

     24,250         1.3        —          —     
  

 

 

    

 

 

   

 

 

    

 

 

 

Total

   $ 1,887,601         100.0   $ 59,911         100.0
  

 

 

    

 

 

   

 

 

    

 

 

 

The next table presents a summary of interest rate and maturity statistics for the debt investments, based on par value, in our Investment Portfolio and the TRS Portfolio as of June 30, 2014 and December 31, 2013.

 

     Investment Portfolio as of     TRS Portfolio as of  

Floating interest rate debt investments:

   June 30,
2014
    December 31,
2013
    June 30,
2014
    December 31,
2013
 

Percent of debt portfolio

     62.5     63.4     91.2     64.8

Percent of floating rate debt investments with interest rate floors

     98.9     96.4     96.3     100.0

Weighted average interest rate floor

     1.1     1.1     1.2     1.2

Weighted average coupon spread

     746bps        747bps        439bps        568bps   

Weighted average years to maturity

     5.6        5.8        5.2        5.5   

Fixed interest rate debt investments:

                        

Percent of debt portfolio

     37.5     36.6     8.8     35.2

Weighted average coupon rate

     10.8     10.6     10.2     8.6

Weighted average years to maturity

     5.8        6.1        6.1        6.8   

All of our floating interest rate debt investments have index reset frequencies of less than twelve months with the majority resetting at least quarterly. The three-month LIBOR, the most prevalent index employed among our floating interest rate debt investments, ranged between 0.223% and 0.243% during the six months ended June 30, 2014 and the terminal value was 0.231% on June 30, 2014. Interest rate resets for floating interest rate investments will only result in interest income increases when the reset interest rate exceeds the associated interest rate floor.

As of June 30, 2014, our estimated forward-looking debt portfolio yield was 10.6% based on amortized cost.

 

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The following table shows the credit ratings of the investments in our Investment Portfolio and TRS Portfolio, based upon the rating scale of Standard & Poor’s Ratings Services, as of June 30, 2014 and December 31, 2013.

 

     Investment Portfolio as of ($ in millions)     TRS Portfolio as of ($ in millions)  
     June 30, 2014     December 31, 2013     June 30, 2014     December 31, 2013  

Standard & Poor’s rating

   Fair Value      Percentage
of

Portfolio
    Fair Value      Percentage
of

Portfolio
    Fair Value      Percentage
of

Portfolio
    Fair Value      Percentage
of

Portfolio
 

BB-

   $ 27.53         1.3   $ —           —     $ 3.79         3.2   $ —           —  

B+

     138.35         6.5        117.53         6.1        29.40         24.8        12.06         20.1   

B

     172.53         8.0        329.46         17.1        41.65         35.2        28.26         47.0   

B-

     241.57         11.2        195.51         10.2        24.39         20.6        9.73         16.2   

CCC+

     569.63         26.5        561.63         29.2        19.17         16.2        10.05         16.7   

CCC

     91.23         4.2        48.10         2.5        —           —          —           —     

CCC-

     12.55         0.6        8.80         0.5        —           —          —           —     

CC

     10.92         0.5        —           —          —           —          —           —     

C

     5.11         0.2        —           —          —           —          —           —     

Not rated

     879.85         41.0        663.84         34.4        —           —          —           —     
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Total

   $ 2,149.27         100.0   $ 1,924.87         100.0   $ 118.40         100.0   $ 60.10         100.0
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

The table below presents a summary of our debt investment positions held in our Investment Portfolio that feature payment-in-kind (PIK) for some or all of the borrowers’ interest payment obligations.

 

     ($ in millions)  

PIK Summary as of

   June 30,
2014
    December 31,
2013
 

Number of originated investments with PIK feature and active PIK election

     8        5   

Total number of all investments with PIK feature

     17        15   

Total number of all investments that have active PIK election

     15        10   

Par value of originated investments with PIK feature and active PIK election

   $ 426.71      $ 303.04   

Total par value of all investments with PIK feature

   $ 533.70      $ 431.14   

Total par value of all investments that have active PIK election

   $ 516.30      $ 368.65   

Percent of debt investment portfolio with active PIK election, at par value

     24.6     16.1

PIK Income Activity for the Six Months Ended June 30,

   2014     2013  

Capitalized PIK income

   $ 15.50      $ 0.59   

Capitalized PIK as a percentage of interest income

     15.9     1.7

Capitalized PIK as a percentage of total investment income

     15.6     1.6

 

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As of June 30, 2014, our Investment Portfolio of 94 portfolio companies was diversified across 18 industry classifications, as compared to our Investment Portfolio as of December 31, 2013 that consisted of 94 portfolio companies diversified across 17 distinct industry classifications. As of June 30, 2014, the TRS Portfolio consisted of 36 portfolio companies diversified across 15 distinct industry classifications, as compared to our TRS Portfolio as of December 31, 2013 that consisted of 20 portfolio companies diversified across seven distinct industry classifications. The next table presents a diversification summary of our Investment Portfolio and TRS Portfolio arranged by industry classifications as of June 30, 2014 and December 31, 2013.

 

     Investment Portfolio as of ($ in millions)      TRS Portfolio as of ($ in millions)  
     June 30, 2014      December 31, 2013      June 30, 2014      December 31, 2013  

Industry Classification

   Percentage
of Portfolio
    Fair
Value
     Percentage
of Portfolio
    Fair
Value
     Percentage
of Portfolio
    Fair
Value
     Percentage
of Portfolio
    Fair
Value
 

Consumer Durables & Apparel

     20.9   $ 449.79         19.0   $ 365.97         3.6   $ 4.22         18.2   $ 10.94   

Capital Goods

     10.8        232.90         5.4        103.20         12.3        14.57         4.4        2.67   

Retailing

     10.0        214.22         10.6        204.88         5.6        6.67         —          —     

Technology Hardware & Equipment

     9.2        198.11         12.4        238.57         2.8        3.40         22.2        13.35   

Health Care Equipment & Services

     8.5        181.95         9.3        178.20         4.1        4.84         4.1        2.46   

Software & Services

     6.9        148.83         7.7        147.36         26.3        31.11         12.2        7.30   

Energy

     5.5        117.43         6.1        117.40         —          —           —          —     

Diversified Financials

     4.9        104.83         2.9        55.58         —          —           —          —     

Materials

     4.5        96.51         7.1        136.36         3.3        3.85         22.0        13.23   

Food, Beverage & Tobacco

     4.0        84.92         5.2        99.25         3.3        3.99         —          —     

Commercial & Professional Services

     3.3        71.13         3.5        67.55         3.4        4.00         —          —     

Telecommunications Services

     3.1        67.69         1.7        32.15         3.4        4.00         —          —     

Food & Staples Retailing

     2.2        47.66         1.7        33.68         6.6        7.78         —          —     

Media

     2.0        43.45         3.5        67.20         15.1        17.84         16.9        10.15   

Insurance

     1.8        38.07         3.5        67.68         3.7        4.41         —          —     

Remaining Industries

     2.4        51.78         0.4        9.84         6.5        7.72         —          —     
  

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Total

     100.0   $ 2,149.27         100.0   $ 1,924.87         100.0   $ 118.40         100.0   $ 60.10   
  

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

LIQUIDITY AND CAPITAL RESOURCES

Our liquidity and investment capital resources are derived primarily from (i) proceeds of our Offerings, (ii) borrowings from our credit facilities and term loan, and (iii) cash flows from operations, including investment sales and repayments. Our primary uses of funds include (i) investments in portfolio companies, (ii) distributions to our shareholders, (iii) advisory fees, (iv) interest on credit facilities and term loan, and (v) operating expenses we incur. We have used, and expect to continue to use, the turnover of our Investment Portfolio and additional borrowings under our credit facilities to finance the expansion of our investment strategy primarily focused on directly originated investments in portfolio companies.

During the six months ended June 30, 2014, we generated operating cash flows primarily from sale of investments ($394.56 million), loan repayments ($249.47 million), interest income on debt portfolio net of increase in dividend and interest receivable and capitalized PIK ($78.62 million), decrease in receivables for investments sold ($46.45 million) and reduction in the outstanding balances of short term investments ($128.48 million). Primary uses of operating cash flows were the purchase of investments ($811.40 million) and increase in collateral for total return swaps ($22.05 million). Overall, net cash used in operating activities during the six months ended June 30, 2014 was $11.30 million.

Net cash used in financing activities during the six months ended June 30, 2014 was $47.98 million. Our primary source of cash for financing activities was the proceeds from the issuance of common stock ($306.16 million). Our primary use of cash for financing activities was the net repayments of outstanding borrowings under credit facilities ($208.33 million) and payment of cash distributions to our shareholders ($36.57 million). In May 2014 we raised $400 million from the issuance of a five-year senior term loan and the proceeds were primarily used to completely pay down outstanding balances of both the Deutsche Bank Credit Facility (maturity January/February 2015) and the Senior Secured Revolving Credit Facility (maturity September 2017).

As of June 30, 2014, we had the following sources of immediate liquidity available to us which aggregate to $784.48 million:

 

    Cash: $122.89 million

 

    Short Term Investments: $21.43 million

 

    Credit Facilities Effective Borrowing Capacity: $640.15 million

Our outstanding borrowings as of June 30, 2014 and December 31, 2013 were as follows:

 

     As of June 30, 2014 ($ in thousands)      As of December 31, 2013 ($ in thousands)  
     Total
Aggregate
Principal
Amount
Committed
    Outstanding
Borrowings
     Remaining
Maturity
(in years)
     Total
Aggregate
Principal
Amount
Committed
    Outstanding
Borrowings
    Remaining
Maturity
(in years)
 

Deutsche Bank Credit Facility (1)

   $ 340,000      $ —           0.6       $ 265,000      $ 264,440        0.9   

BNP Credit Facility (1)

     200,000        100,450         1.0         200,000        123,000        1.0   

Senior Secured Revolving Credit Facility (1)

     490,000 (2)      —           3.2         320,000 (2)      319,949 (3)      3.7   
  

 

 

   

 

 

       

 

 

   

 

 

   

Total credit facilities

     1,030,000        100,450            785,000        707,389     

2014 Senior Secured Term Loan

     399,000        399,000         4.9         —          —          —     
  

 

 

   

 

 

       

 

 

   

 

 

   

Total

   $ 1,429,000      $ 499,450          $ 785,000      $ 707,389     
  

 

 

   

 

 

       

 

 

   

 

 

   

 

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(1)  Subject to borrowing base and leverage restrictions.
(2)  Provides for a feature that allows us, under certain circumstances, to increase the size of the Senior Secured Revolving Credit Facility to a maximum of $900 million and $600 million as of June 30, 2014 and December 31, 2013, respectively.
(3)  Includes $108.68 million denominated in Euros and $33.72 million denominated in New Zealand Dollars.

The weighted average interest rate and weighted average maturity of our outstanding borrowings as of June 30, 2014 were 3.6% and 4.1 years, respectively, and as of December 31, 2013 were 2.5% and 2.2 years, respectively.

Deutsche Bank Credit Facility

Our wholly-owned, special purpose financing subsidiary CCT Funding LLC (“CCT Funding”) is a party to a revolving credit facility agreement (as amended, the “Deutsche Bank Credit Facility”), under which CCT Funding may borrow up to $340 million. Interest on the Deutsche Bank Credit Facility is charged at LIBOR plus 1.80% to 2.33%. CCT Funding also pays an annual commitment fee on any unused commitment amounts of 0.50% to 0.75%. For the six months ended June 30, 2014, our all-in cost of financing for the Deutsche Bank Credit Facility, including fees and expenses, was 3.14%. CCT Funding’s obligations to the lenders under the Deutsche Bank Credit Facility are secured by a first priority security interest in substantially all of the assets of CCT Funding. The obligations of CCT Funding under the revolving credit facility are non-recourse to us. Approximately 14% of our total Investment Portfolio, including money market investments, was held as collateral at CCT Funding under the Deutsche Bank Credit Facility as of June 30, 2014.

BNP Credit Facility

Our wholly-owned, special purpose financing subsidiary Paris Funding LLC (“Paris Funding”) is a party to a revolving credit facility arrangement (the “BNP Credit Facility”), under which Paris Funding may borrow up to $200 million. Interest is charged at the annual rate of one month LIBOR plus 1.10% and is payable monthly. Paris Funding also pays an annual commitment fee on any unused commitment amounts of 0.55% to 0.75%, depending on utilization levels. For the six months ended June 30, 2014, our all-in cost of financing for the BNP Credit Facility, including fees and expenses, was 2.80%. The BNP Credit Facility is secured by certain assets in our portfolio that have been pledged as collateral. The amount of assets that we are required to pledge is determined in accordance with the margin requirements of the BNP Credit Facility. Approximately 12% of our total Investment Portfolio, including money market investments, was pledged as collateral under the BNP Credit Facility as of June 30, 2014.

Senior Secured Revolving Credit Facility

We are a party to a senior secured revolving credit facility (the “Senior Secured Revolving Credit Facility”) consisting of loans to be made in dollars and other foreign currencies in an aggregate amount of $490 million. The Senior Secured Revolving Credit Facility includes an “accordion” feature that allows us, under certain circumstances, to increase the size of the facility to a maximum of $900 million. The interest rate charged on the Senior Secured Revolving Credit Facility is based on LIBOR plus an applicable spread of 2.50%, or on an “alternate base rate” (which is the highest of a prime rate, the federal funds rate plus 0.50%, or one-month LIBOR plus 1.00%) plus an applicable spread of 1.50%, or, with respect to borrowings in non-LIBOR currencies, on a rate applicable to such currency plus an applicable spread of 2.50%. We also pay an annual commitment fee on any unused commitment amounts of between 0.375% and 1.00%, which varies depending on total utilization. For the six months ended June 30, 2014, our all-in cost of financing for the Senior Secured Revolving Credit Facility, including fees and expenses, was 4.88%. The Senior Secured Revolving Credit Facility is secured by substantially all of our portfolio investments and our cash and securities accounts, excluding those held by our wholly-owned financing subsidiaries, and provides for a guaranty by certain of our subsidiaries.

2014 Senior Secured Term Loan

On May 20, 2014, we entered into a new senior secured term loan credit facility (the “2014 Senior Secured Term Loan”). The 2014 Senior Secured Term Loan provides us with a $400 million senior secured term loan. The 2014 Senior Secured Term Loan includes an accordion feature permitting us to expand the facility if certain conditions are satisfied; provided, however, that the aggregate amount of the 2014 Senior Secured Term Loan is limited to the amount as determined from time to time which would not cause the covered debt amount (i.e., our aggregate debt under both the 2014 Senior Secured Term Loan and our Senior Secured Revolving Credit Facility, other permitted debt and certain other unsecured debt) to exceed the borrowing/collateral base. The 2014 Senior Secured Term Loan matures in May 2019, and generally bears interest at LIBOR plus 3.25% (with a LIBOR floor of 0.75%). For the six months ended June 30, 2014, our all-in cost of financing for the 2014 Senior Secured Term Loan, including fees and expenses, was 4.45%.

Total Borrowings

For the six months ended June 30, 2014, our total all-in cost of financing, including fees and expenses, was 3.85%. As of June 30, 2014, the ratio of total borrowings-to-adjusted total assets was 21%. (Adjusted total assets is equal to (i) total consolidated assets excluding (ii) payable for investments purchased.) We will continue to draw on the revolving credit facilities and combine borrowed funds with equity capital to finance our acquisition of investment positions in portfolio companies. Additionally, we may further increase the aggregate borrowing commitment in the future beyond the current combined commitment amount of $1.43 billion that is available to us from our revolving credit facilities and term loan, and/or we may add additional credit arrangements. See “Note 11 Borrowings” in our condensed consolidated financial statements for additional disclosures regarding our borrowings.

 

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Total Return Swaps

In 2012, Halifax Funding LLC, (“Halifax Funding”) our wholly-owned, special purpose financing subsidiary, entered into a TRS arrangement with The Bank of Nova Scotia (“BNS”). Our TRS arrangement with BNS consists of a set of agreements between Halifax Funding and BNS and State Street Bank and Trust Company (the “Custodian”) that are collectively referred to herein as the “TRS Agreements”. Under the terms of the TRS Agreements, each reference asset 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.

Pursuant to the terms of the TRS Agreements, Halifax Funding may select single-name corporate loans and bonds and create a TRS Portfolio with a maximum aggregate notional amount of $500 million. Halifax Funding receives quarterly from BNS all collected interest and fees from the portfolio of TRS assets. Halifax Funding pays BNS interest 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 settled notional amount, or three-month LIBOR+1.00% if the initial investment amount is less than 50% of the TRS settled notional amount. In addition, upon the sale or repayment of any TRS asset, Halifax Funding will either receive from BNS the realized gain in the value of such asset relative to its notional amount, or pay to BNS any realized loss in the value of the asset relative to its notional amount.

The obligations of Halifax Funding under the TRS Agreements are non-recourse to us and our exposure under the TRS Agreements is limited to the amount of collateral that is posted pursuant to the terms of the TRS Agreements. As of June 30, 2014, the posted collateral of $59.55 million equals 50% of the total notional amount, as compared to 63% as of December 31, 2013. The required collateral amount as of June 30, 2014 at 40% and 50% of the total notional amount was $47.56 million and $59.47 million, respectively.

Halifax Funding may terminate the TRS Agreements at any time upon providing at least 30 days’ notice prior to the proposed settlement date of the TRS assets related to such termination. In the absence of an early termination, the TRS Agreements will terminate on January 15, 2016. In the event of an early termination of the TRS Agreements, Halifax Funding may be required to pay an early termination fee.

See “Note 4 Derivative Instruments” in our condensed consolidated financial statements included in this report for additional disclosures on the TRS.

Commitments and Contingencies

Unfunded commitments to provide funds to portfolio companies are not reflected on our condensed consolidated statements of assets and liabilities. Our unfunded commitments may be significant from time to time. Because these commitments may expire without being drawn upon, the total commitment amount does not necessarily represent future cash requirements. We intend to use cash flow from normal and early principal repayments and proceeds from borrowings and common stock offerings to fund these commitments. As of June 30, 2014, our unfunded investment commitments consisted of the following:

 

Commitment

   No. Investments      As of June 30, 2014
($ in thousands)
 

Delayed draw loans

     1       $ 33,652   

Unfunded equity commitments

     2         98,357   
  

 

 

    

 

 

 

Total unfunded commitments

     3       $ 132,009   
  

 

 

    

 

 

 

Distributions Paid and Declared

We pay our monthly distributions in the form of cash. Shareholders may elect to reinvest their ordinary monthly distributions and/or long-term capital gains distributions as additional shares of our common stock under our distribution reinvestment plan. Any distributions reinvested under our distribution reinvestment plan are taxable to the U.S. shareholder.

The following table reflects the cash distributions per share and the total amount of distributions that we have declared on our common stock during the three and six months ended June 30, 2014 and 2013:

 

     For the Three Months Ended      For the Six Months Ended  
     Per Share      Amount
($ in millions)
     No. Weekly
Distributions
     Per Share      Amount
($ in millions)
     No. Weekly
Distributions
 

June 30, 2014

   $ 0.201279       $ 33.17         13       $ 0.381327       $ 59.93         25   

June 30, 2013

   $ 0.195052       $ 17.81         13       $ 0.390104       $ 31.54         26   

 

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Approximately 51% and 50% of the distributions we declared in the six months ended June 30, 2014 and 2013, respectively, were reinvested in shares of our common stock at the prevailing net price per share at the time of distribution payments and represent an additional source of capital to invest in portfolio companies. See Note 8 to the condensed consolidated financial statements for a discussion of the sources of distributions on a GAAP basis.

For the six months ended June 30, 2014, we estimate that 100% of our declared distributions were covered by taxable income available for distributions. None of the distributions for the full 2013 calendar year were classified as a tax basis return of capital. We do not expect to use equity capital or borrowed funds to pay distributions to shareholders nor do we expect our shareholders to incur a return of capital on a tax basis in connection with paid distributions. We routinely disclose the sources of paid distributions to our shareholders on periodic reports that accompany (i) quarterly account statements and (ii) monthly distribution checks that are prepared and sent directly by our transfer agent to our shareholders.

Results of Operations

COMPARISONS FOR THE THREE MONTHS ENDED JUNE 30, 2014 AND 2013

Set forth below are our results of operations for the three months ended June 30, 2014 and 2013. The growth of our Investment Portfolio since June 30, 2013 was primarily due to the increase in equity capital from our Offerings, and this increase in invested capital contributed to significant increases in investment income, operating expenses, net investment income and net assets between the comparative periods, as discussed below.

Investment income

Investment income for the three months ended June 30, 2014 and 2013 was $49.36 million and $20.53 million, respectively. The largest component of investment income was interest income of $47.69 million and $19.50 million for the three months ended June 30, 2014 and 2013, respectively. The increase in investment income is due primarily to the growth of our Investment Portfolio, which has increased by 84% since June 30, 2013. We also generated fee income of $1.09 million and $0.93 million during the three months ended June 30, 2014 and 2013, respectively. We expect that our Investment Portfolio will continue to grow during 2014 and, accordingly, we expect further moderate increases in investment income in future periods due to (i) a growing base of portfolio company investments that we expect to result from the expected increases in equity capital from our Follow-On Offering and borrowed capital and (ii) additional structuring service fees earned on Co-Investment Transactions. The interest income earned by TRS assets is not included in investment income in the condensed consolidated statements of operations, but rather it is included in the TRS fair value and eventually recorded as part of realized gain or loss on derivative instruments in connection with quarterly TRS settlement payments.

Operating expenses

Our total operating expenses were $22.83 million and $6.97 million for the three months ended June 30, 2014 and 2013, respectively. Our operating expenses included $11.26 million and $6.49 million in base management fees attributed to the investment advisory services of our Advisors for the three months ended June 30, 2014 and 2013, respectively. Our Advisors are also eligible to receive incentive fees based on performance. We recorded performance-based incentive fee expense of $1.82 million for the three months ended June 30, 2014 and a reduction in performance-based incentive fee expense of $4.07 million for the three months ended June 30, 2013. The performance-based incentive fee expense for the three months ended June 30, 2014 and 2013 is comprised entirely of incentive fees on capital gains. The incentive fees on capital gains were directly attributable to our net realized and unrealized gains of $9.82 million and net realized and unrealized losses of $10.17 million in the three months ended June 30, 2014 and 2013, respectively, since our accrual for incentive fees on capital gains tracks the overall changes in our realized and unrealized gains (losses). As discussed in “Note 6. Agreements and Related Party Transactions” in our condensed consolidated financial statements, the calculation of performance-based incentive fees disregards any net realized and unrealized gains associated with the TRS interest spread. A portion of performance-based incentive fees on capital gains is accrued with respect to net unrealized appreciation in our Investment Portfolio and derivative instruments. However, the performance-based incentive fee on capital gains with respect to such net unrealized appreciation is not payable by us unless and until the net unrealized appreciation is actually realized in a cumulative amount that exceeds any unrealized depreciation that is recorded in our Investment Portfolio, TRS Portfolio and other derivatives. See “Results of Operations – Comparison for the Six Months Ended June 30, 2014 and 2013” for a discussion of whether the cumulative performance-based incentive fees on capital gains were earned and payable to our Advisors.

 

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We recorded interest expense of $5.73 million and $1.54 million for the three months ended June 30, 2014 and 2013, respectively, primarily in connection with borrowings under our revolving credit facilities and term loan. The increase in interest expense is primarily attributable to (i) the increase in our weighted average debt outstanding to $493.56 million during the three months ended June 30, 2014 as compared to $218.89 million the three months ended June 30, 2013 and (ii) an increase in deferred financing costs and unused commitment fees due to an increase in borrowing capacity. The components of interest expense for the three months ended June 30, 2014 and 2013 were as follows:

 

     For the Three Months Ended June 30,
($ in thousands)
 
     2014      2013  

Direct interest expense

   $ 3,692       $ 1,133   

Unused commitment fees

     1,269         173   

Amortization of deferred financing costs

     731         232   

Accretion of discount on term loan

     38         —     
  

 

 

    

 

 

 

Total Interest Expense

   $ 5,730       $ 1,538   
  

 

 

    

 

 

 

Our other operating expenses for the three months ended June 30, 2014 and 2013 include $1.80 million and $1.55 million in offering expense, $0.71 million and $0.48 million in administrative services expenses, $0.53 million and $0.32 million in professional services expense, $0.18 million and $0.13 million in custodian and accounting fees, $0.12 million and $0.08 million in director fees and expenses and $0.67 million and $0.45 million in other expenses, respectively.

Net investment income

Our net investment income totaled $26.53 million ($0.16 per share) and $13.57 million ($0.15 per share) for the three months ended June 30, 2014 and 2013, respectively. Variations in net investment income per share can be caused by the impact of unearned performance-based incentive fees. The table below shows net investment income and net investment income per share for the three months ended June 30, 2014 and 2013, before the effects of unearned performance-based incentive fees, which we refer to as adjusted net investment income (non-GAAP).

 

     For the Three Months Ended June 30,
($ in millions, except per share  amounts)
 
     2014      2013  

Net Investment Income (GAAP)

   $ 26.53       $ 13.57   

Estimated unearned performance-based incentive fees

     2.86         (4.07
  

 

 

    

 

 

 

Adjusted Net Investment Income (non-GAAP)

   $ 29.39       $ 9.50   
  

 

 

    

 

 

 

Net Investment Income Per Share

   $ 0.16       $ 0.15   

Adjusted Net Investment Income Per Share

   $ 0.18       $ 0.10   

The increase in adjusted net investment income per share can be partly attributed to the decrease of the TRS Portfolio, which is not a contributor to GAAP net investment income. The TRS Portfolio accrued interest income and financing charges are included in the TRS fair value and are eventually recorded as realized gain or loss on derivative instruments in connection with quarterly TRS settlement payments. If the TRS assets had instead been included in our Investment Portfolio, the interest income and financing charges would have been included in net investment income. The following table shows the TRS interest income and financing charges for the three months ended June 30, 2014 and 2013.

 

     For the Three Months Ended June 30,
($ in millions, except per share  amounts)
 
     2014     2013  

Interest and fee income included in TRS fair value

   $ 0.99      $ 5.78   

Financing charges included in TRS fair value

     (0.07     (0.51
  

 

 

   

 

 

 

Subtotal

     0.92        5.27   

Interest and fee income recorded as TRS realized gains

     0.75        4.933   

Financing charges recorded as TRS realized gains

     (0.09     (0.51

Less: amounts included in prior period fair value

     (0.84     (3.45
  

 

 

   

 

 

 

TRS Net Interest Spread

   $ 0.74      $ 6.24   
  

 

 

   

 

 

 

TRS Net Interest Spread Per Share

   $ 0.00      $ 0.07   

Net realized gain

We sold investments and received principal payments of $90.05 million and $126.57 million, respectively, during the three months ended June 30, 2014, from which we realized net gains of $2.13 million. Our net realized loss on derivative instruments was $0.59 million for the three months ended June 30, 2014. This realized loss was comprised of a $0.53 million realized gain on the TRS and a $1.12 million realized loss on foreign currency forward contracts. The net realized loss on foreign currency transactions was $1.32 million for the three months ended June 30, 2014, which was primarily driven by losses realized upon repayments of foreign currency borrowings.

 

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We sold investments and received principal payments of $238.98 million and $17.68 million, respectively, during the three months ended June 30, 2013, from which we realized net gains of $3.58 million. Our net realized gain on derivative instruments of $1.78 million for the three months ended June 30, 2013 was comprised of a $2.29 million realized gain on the TRS and a $0.51 million realized loss on foreign currency forward contracts. We also realized a net loss on foreign currency transactions of $0.41 million during the three months ended June 30, 2013.

Net unrealized appreciation or depreciation

For the three months ended June 30, 2014, net unrealized appreciation on investments increased by $9.57 million, net unrealized appreciation/depreciation on derivative instruments decreased by $3.13 million and net unrealized appreciation/ depreciation on foreign currency translation increased by $3.16 million. The increase in net unrealized appreciation on investments consisted of net unrealized appreciation on originated investments of $9.74 million and net unrealized appreciation on the remainder of the Investment Portfolio of $6.59 million, offset by a reduction of $6.76 million for investments owned as of March 31, 2014 that were sold or paid down during the three months ended June 30, 2014. The net change in unrealized appreciation/depreciation on derivative instruments consisted of net unrealized depreciation on the TRS Portfolio of $0.28 million and net unrealized depreciation on foreign currency forward contracts of $2.85 million. The net change in TRS unrealized depreciation consisted of (i) an increase in spread interest income of $0.08 million, (ii) realized gain on the TRS assets of $0.20 million and (iii) unrealized depreciation on the TRS assets of $0.56 million. The net change in unrealized depreciation on foreign currency translation consisted of the reversal of $3.20 million of net unrealized depreciation upon repayment of the portion of the Senior Secured Revolving Credit Facility that is denominated in foreign currencies and $0.04 million of net unrealized depreciation on the foreign currency translation of other trade receivables and payables.

For the three months ended June 30, 2013, the net change in unrealized appreciation on investments was $14.47 million, the net change in unrealized appreciation on derivative instruments was $0.63 million and the net change in unrealized depreciation on foreign currency translation was $0.02 million. The change in unrealized appreciation on investments was primarily driven by the appreciation in fair values on debt investments, including tighter credit spreads, as recorded in several investment positions held in our Investment Portfolio. The net change in unrealized appreciation on derivative instruments consisted of net unrealized appreciation on the TRS Portfolio of $1.87 million and net unrealized depreciation on foreign currency forward contracts of $1.24 million. The net change in TRS unrealized depreciation consisted of (i) spread interest income of $1.82 million, (ii) an increase in realized gains on the TRS reference assets of $2.87 million and (iii) unrealized depreciation on the TRS assets of $6.56 million.

Net increase in net assets resulting from operations

For the three months ended June 30, 2014 and 2013, the net increase in net assets resulting from operations was $36.36 million ($0.22 per share) and $3.39 million ($0.04 per share), respectively.

COMPARISON FOR THE SIX MONTHS ENDED JUNE 30, 2014 AND 2013

Set forth below are our results of operations for the six months ended June 30, 2014 and 2013. The growth of our Investment Portfolio since June 30, 2013 is primarily due to the increase in equity capital from our Offerings, and this increase in invested capital contributed to significant increases in investment income, operating expenses, net investment income and net assets between the comparative periods, as discussed below.

Investment income

Investment income for the six months ended June 30, 2014 and 2013 was $99.29 million and $35.88 million, respectively. The largest component of investment income was interest income of $97.34 million and $34.74 million for the six months ended June 30, 2014 and 2013, respectively. The increase in investment income is due primarily to the growth of our Investment Portfolio, which has increased by 84% since June 30, 2013. We also generated fee income of $1.36 million during the six months ended June 30, 2014, as compared to $0.95 million during the six months ended June 30, 2013. We expect that our Investment Portfolio will continue to grow during 2014 and, accordingly, we expect further moderate increases in investment income in future periods due to (i) a growing base of portfolio company investments that we expect to result from the expected increases in equity capital from our Follow-On Offering and borrowed capital and (ii) additional structuring service fees earned on Co-Investment Transactions. The interest income earned by TRS assets is not included in investment income in the condensed consolidated statements of operations, but rather it is included in the TRS fair value, and eventually recorded as part of realized gain or loss on derivative instruments in connection with quarterly TRS settlement payments.

Operating expenses

Our total operating expenses were $52.05 million and $19.78 million for the six months ended June 30, 2014 and 2013, respectively. Our operating expenses included $21.95 million and $11.35 million in base management fees attributed to the investment advisory services of our Advisors for the six months ended June 30, 2014 and 2013, respectively. Our Advisors are also eligible to receive incentive fees based on performance. We recorded performance-based incentive fee expense of $11.60 million and $0.14 million for the six months ended June 30, 2014 and 2013, respectively. The performance-based incentive fee expense for the six

 

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months ended June 30, 2014 is comprised of subordinated incentive fees on income of $5.16 million and incentive fees on capital gains of $6.44 million. The subordinated incentive fees on income were incurred only during the first three months ended March 31, 2014. The performance-based incentive fee expense for the six months ended June 30, 2013 is comprised entirely of incentive fees on capital gains. The incentive fees on capital gains were directly attributable to our net realized and unrealized gains of $33.60 million and $11.87 million in the six months ended June 30, 2014 and 2013, respectively, since our accrual for incentive fees on capital gains tracks the overall changes in our realized and unrealized gains (losses). As discussed in “Note 6. Agreements and Related Party Transactions” in our condensed consolidated financial statements, the calculation of performance-based incentive fees disregards any net realized and unrealized gains associated with the TRS interest spread. A portion of performance-based incentive fees on capital gains is accrued with respect to net unrealized appreciation in our Investment Portfolio and derivative instruments. However, the performance-based incentive fee on capital gains with respect to such net unrealized appreciation is not payable by us unless and until the net unrealized appreciation is actually realized in a cumulative amount that exceeds any unrealized depreciation that is recorded in our Investment Portfolio, TRS Portfolio and other derivatives.

The following table illustrates the calculation of the incentive fees on income for the three months ended March 31, 2014. The Advisors did not earn any incentive fees on income for the three months ended June 30, 2014 nor the six months ended June 30, 2013.

 

     For the Three Months Ended March 31, 2014
($ in millions)
 
     Amount     Percent of Average
Adjusted Capital
 

Average Adjusted Capital

   $ 1,467.66     

Net Investment Income

   $ 20.71     

Add Back: Performance-Based Incentive Fees

     9.78     
  

 

 

   

Pre-Incentive Fees Net Investment Income

     30.49        2.08

Subordinated Incentive Fees on Income

     (5.16     (0.35
  

 

 

   

 

 

 

Preference Return to Shareholders (1)

   $ 25.33        1.73
  

 

 

   

 

 

 

 

(1)  Preference return rate is 1.7260% = 7%*(90 days/365 days)

The actual amount of incentive fees on capital gains that are due and payable to the Advisors is determined at the end of the calendar year. The following table illustrates the amount of the recorded incentive fee on capital gains that would potentially be payable to the Advisors if (i) the cumulative net realized gains were to remain unchanged and (ii) the unrealized depreciation in the investment portfolio was to remain unchanged through the end of the current year. However, the relativity between cumulative net realized gains and unrealized depreciation has the potential to change materially based on (i) subsequent investment disposition activity and (ii) changes in market values of investments contributing to unrealized depreciation in the portfolio.

 

As of June 30, 2014

   Amount
($ in millions)
 

Cumulative net realized gains since inception (a)

   $ 31.94   

Less: Unrealized depreciation in Investment Portfolio, TRS Portfolio and other derivatives (b)

     (17.03
  

 

 

 

Excess cumulative net realized gains eligible for earned incentive fees

   $ 14.91   
  

 

 

 

Earned performance-based incentive fee on net realized gains at 20% (1)

   $ 2.98   

Prior period paid incentive fees

     (2.32
  

 

 

 

Potential earned performance-based incentive fee on net realized gains

   $ 0.66   
  

 

 

 

 

(1)  The actual incentive fee on capital gains earned and payable to the Advisors, as determined at the end of the year, is 20% of the excess of (a) over (b), less any prior period payments of incentive fees on capital gain, if any.

See “—Contractual Obligations, —Investment Advisory Agreements,” below for further details about the performance-based incentive fees.

 

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We recorded interest expense of $10.21 million and $2.85 million for the six months ended June 30, 2014 and 2013, respectively, primarily in connection with borrowings under our revolving credit facilities and term loan. The increase in interest expense is attributable to (i) the increase in our weighted average debt outstanding to $538.99 million during the six months ended June 30, 2014 as compared to $217.53 million the six months ended June 30, 2013 and (ii) an increase in deferred financing costs and unused commitment fees due to an increase in borrowing capacity. The components of interest expense for the six months ended June 30, 2014 and 2013 were as follows:

 

     For the Six Months Ended June 30,
($ in thousands)
 
     2014      2013  

Direct interest expense

   $ 7,288       $ 2,317   

Unused commitment fees

     1,635         174   

Amortization of deferred financing costs

     1,250         364   

Accretion of discount on term loan

     38         —     
  

 

 

    

 

 

 

Total Interest Expense

   $ 10,211       $ 2,855   
  

 

 

    

 

 

 

Our other operating expenses for the six months ended June 30, 2014 and 2013 include $3.67 million and $2.65 million in offering expense, $1.39 million and $0.90 million in administrative services expenses, $1.05 million and $0.67 million in professional services expense, $0.38 million and $0.21 million in custodian and accounting fees, $0.29 million and $0.15 million in director fees and expenses and $1.50 million and $0.86 million in other expenses, respectively.

As our asset base and number of shareholders have grown, our general and administrative expenses have increased, but at a slower rate compared to the growth rate in the asset base. We expect certain variable operating expenses to continue to increase because of the anticipated growth in the size of our asset base and the number of open shareholder accounts. During the six months ended June 30, 2014, the ratio of annualized core operating expenses (excluding investment advisory fees, interest expense and reimbursement of organization and offering expenses, and including net expense support) to average net assets was 0.59%, as compared to 0.98% for the six months ended June 30, 2013. We generally expect core operating expenses to decline as a percentage of our net assets during periods of asset growth over the next several calendar quarters. Incentive fees and interest expense, among other things, may also increase or decrease our overall operating expenses and expense ratios relative to comparative periods depending on portfolio performance, an increase or reduction in borrowed funds and borrowing commitments and changes in benchmark interest rates such as LIBOR, among other factors.

Expense Support Reimbursement Payments - During the six months ended June 30, 2013, we accrued $1.14 million as probable Reimbursement Payment obligation to the Advisors. Accordingly, our payments and accrual of reimbursement of Expense Support Payments equaled 100% of cumulative Expense Support Payments as of June 30, 2013. The final reimbursement payment to the Advisors was made during the three months ended March 31, 2014. (See “—Contractual Obligations, —Expense Support Agreement,” below for further details about the Expense Support Agreement. Also see “Note 6. Agreements and Related Party Transactions” included within our condensed consolidated financial statements for additional disclosures regarding the Expense Support Payments and Reimbursement Payments.)

Net investment income

Our net investment income totaled $47.24 million ($0.30 per share) and $14.97 million ($0.18 per share) for the six months ended June 30, 2014 and 2013, respectively. Variations in net investment income per share can be caused by (i) the impact of unearned performance-based incentive fees and (ii) accrued reimbursement of expense support payable to the Advisors in the six months ended June 30, 2013. The table below shows net investment income and net investment income per share for the six months ended June 30, 2014 and 2013 before the effects of unearned performance-based incentive fees and expense support, which we refer to as adjusted net investment income (non-GAAP).

 

     For the Six Months Ended June 30,
($ in millions)
 
     2014      2013  

Net Investment Income (GAAP)

   $ 47.24       $ 14.97   

Estimated unearned performance-based incentive fees

     5.78         0.13   

Reimbursement of expense support

     —           1.14   
  

 

 

    

 

 

 

Adjusted Net Investment Income (non-GAAP)

   $ 53.02       $ 16.24   
  

 

 

    

 

 

 

Net Investment Income Per Share

   $ 0.30       $ 0.18   

Adjusted Net Investment Income Per Share

   $ 0.34       $ 0.20   

 

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The increase in net investment income per share can also be partly attributed to the decrease of the TRS Portfolio, which is not a contributor to GAAP net investment income. The TRS Portfolio accrued interest income and financing charges are included in the TRS fair value and are eventually recorded as realized gain or loss on derivative instruments in connection with quarterly TRS settlement payments. If the TRS assets had instead been included in our Investment Portfolio, the interest income and financing charges would have been included in net investment income. The following table shows the TRS interest income and financing charges for the six months ended June 30, 2014 and 2013.

 

     For the Six Months Ended June 30,
($ in millions)
 
     2014     2013  

Interest and fee income included in TRS fair value

   $ 0.99      $ 5.78   

Financing charges included in TRS fair value

     (0.07     (0.51
  

 

 

   

 

 

 

Subtotal

     0.92        5.27   

Interest and fee income recorded as TRS realized gains

     2.43        5.722   

Financing charges recorded as TRS realized gains

     (0.24     (0.72

Less: amounts included in prior period fair value

     (1.70     (0.94
  

 

 

   

 

 

 

TRS Net Interest Spread

   $ 1.41      $ 9.33   
  

 

 

   

 

 

 

TRS Net Interest Spread Per Share

   $ 0.01      $ 0.11   

Net realized gain

We sold investments and received principal payments of $394.56 million and $249.47 million, respectively, during the six months ended June 30, 2014, from which we realized net gains of $14.33 million. Our net realized loss on derivative instruments was $0.78 million for the six months ended June 30, 2014. This realized loss was comprised of a $2.39 million realized gain on the TRS and a $3.17 million realized loss on foreign currency forward contracts. The net realized loss on foreign currency transactions was $2.35 million for the six months ended June 30, 2014, which was primarily driven by losses realized upon repayments of foreign currency borrowings.

We sold investments and received principal payments of $288.50 million and $59.70 million, respectively, during the six months ended June 30, 2013, from which we realized net gains of $4.59 million. Our net realized gain on derivative instruments of $2.65 million for the six months ended June 30, 2013 was comprised of a $2.53 million realized gain on the TRS and a $0.12 million realized gain on foreign currency forward contracts. We also realized a net loss on foreign currency transactions of $0.40 million during the six months ended June 30, 2013.

Net unrealized appreciation or depreciation

For the six months ended June 30, 2014, net unrealized appreciation on investments increased by $24.15 million, net unrealized appreciation/depreciation on derivative instruments decreased by $3.30 million and net unrealized appreciation/ depreciation on foreign currency translation increased by $1.55 million. The increase in net unrealized appreciation on investments consisted of net unrealized appreciation on originated investments of $20.56 million and net unrealized appreciation on the remainder of the Investment Portfolio of $11.46 million, offset by a reduction of $7.87 million for investments owned as of December 31, 2013 that were sold or paid down during the six months ended June 30, 2014. The net change in unrealized appreciation/depreciation on derivative instruments consisted of net unrealized depreciation on the TRS Portfolio of $1.37 million and net unrealized depreciation on foreign currency forward contracts of $1.93 million. The net change in TRS unrealized depreciation consisted of (i) a decrease in spread interest income of $0.78 million, (ii) realized gain on the TRS assets of $0.14 million and (iii) unrealized depreciation on the TRS assets of $0.72 million. The net change in unrealized depreciation on foreign currency translation consisted of the reversal of $1.61 million of net unrealized depreciation upon repayment of the portion of the Senior Secured Revolving Credit Facility that is denominated in foreign currencies and $0.06 million of net unrealized appreciation on the foreign currency translation of other trade receivables and payables.

For the six months ended June 30, 2013, the net change in unrealized appreciation on investments was $0.97 million, the net change in unrealized appreciation on derivative instruments was $6.00 million and the net change in unrealized depreciation on foreign currency translation was $0.01 million. The change in unrealized appreciation on investments was primarily driven by the appreciation in fair values on debt investments, including tighter credit spreads, as recorded in several investment positions held in our Investment Portfolio. The net change in unrealized appreciation on derivative instruments consisted of net unrealized appreciation on the TRS Portfolio of $4.61 million and net unrealized depreciation on foreign currency forward contracts of $1.39 million. The net change in TRS unrealized appreciation consisted of (i) spread interest income of $4.33 million, (ii) realized gains on the TRS assets of $3.19 million and (iii) unrealized appreciation on the TRS assets of $2.91 million.

Net Increase in Net Assets Resulting from Operations

For the six months ended June 30, 2014 and 2013, the net increase in net assets resulting from operations was $80.85 million ($0.51 per share) and $26.84 million ($0.33 per share), respectively.

 

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NET ASSETS, NET ASSET VALUE PER SHARE, ANNUAL INVESTMENT RETURN AND TOTAL RETURN SINCE INCEPTION

Net assets increased $359.01 million during the six months ended June 30, 2014. The most significant increase in net assets during the six months ended June 30, 2014 was attributable to capital transactions including (i) new issuance of shares of common stock and (ii) reinvestment of distributions in the combined amount of $344.44 million. Net investment income contributed $47.24 million to the growth in net assets during the six months ended June 30, 2014. Other increases in net assets were attributable to (i) unrealized appreciation on investments, derivative instruments and foreign currency translation of $22.40 million and (ii) net realized gains of $11.21 million. Distributions to shareholders in the amount of $59.93 million and the repurchase of shares of common stock in the amount of $6.35 million contributed to a reduction in net assets during the six months ended June 30, 2014.

Net assets increased $400.54 million during the six months ended June 30, 2013. The most significant increase in net assets during the million during the six months ended June 30, 2013 was attributable to capital transactions including (i) new issuance of shares of common stock and (ii) reinvestment of distributions in the combined amount of $406.74 million. Net investment income contributed $14.97 million to the growth in net assets during the six months ended June 30, 2013. Other increases in net assets were attributable to (i) unrealized appreciation on investments, derivative instruments and foreign currency translation of $5.03 million and (ii) net realized gains of $6.84 million. Distributions to shareholders in the amount of $31.54 million and the repurchase of shares of common stock in the amount of $1.50 million contributed to a reduction in net assets during the six months ended June 30, 2013.

Our net asset value per share was $10.15 and $9.78 on June 30, 2014 and 2013, respectively. After considering (i) the overall changes in net asset value per share, (ii) paid distributions of approximately $0.38 and $0.39 per share during the six months ended June 30, 2014 and 2013, respectively, and (iii) the assumed reinvestment of those distributions at 90% of the prevailing offering price per share, then the total investment return was 5.35% and 4.30% for shareholders who held our shares over the entire six-month period ending June 30, 2014 and 2013, respectively.

Initial shareholders who subscribed to the Initial Offering in June 2011 with an initial investment of $10,000 and an initial purchase price equal to $9.00 per share (public offering price net of sales load) have seen the value of their investment grow by 42.9% (see first chart below), or an annualized return of 12.5% (see second chart below). Initial shareholders who subscribed to the Initial Offering in June 2011 with an initial investment of $10,000 and an initial purchase price equal to $10.00 per share (the initial public offering price) have registered a total investment return of 28.6% (see first chart below), or an annualized return of 8.6% (see second chart below). The S&P/LSTA Leveraged Loan Index, a primary measure of senior debt covering the U.S. leveraged loan market, which currently consists of approximately 1,100 credit facilities throughout numerous industries, and the Merrill Lynch US High Yield Master II Index, a primary measure of subordinated debt consisting of approximately 2,000 high yield corporate bonds, registered cumulative total returns of approximately 17.3% and 31.0%, respectively, in the period from June 17, 2011 to June 30, 2014.

 

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LOGO

The calculations for the Growth of $10,000 Initial Investment are based upon (i) an initial investment of $10,000 in our common stock at the beginning of the period at a share price of $10.00 per share (including sales load) and $9.00 per share (excluding sales load), (ii) assumed reinvestment of monthly distributions in accordance with our distribution reinvestment plan (iii) the sale of the entire investment position at the net asset value per share on the last day of the period; and (iv) the cash payment for distributions payable to shareholders, if any, on the last day of the period.

 

 

LOGO

 

Public Offering Price/Share

   $10.00      $ 10.85         $ 11.10   

Net Offering Price/Share

   $  9.00      $ 9.765         $ 9.990   

Terminal Value/Share (NAV)

   $10.15      $ 10.15         $ 10.15   

 

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In the chart above, we also present the average annual returns for the trailing 24 months and trailing 12 months, in each case assuming the purchase of shares of common stock at the public offering price and net offering price (90% of public offering price) at the beginning of the period, reinvestment of distributions in the common stock and a terminal value at June 30, 2014 equal to net asset value of $10.15 per share.

Our shares are illiquid investments for which there is not a secondary market, and we do not expect a secondary market in our shares to develop in the future. You should not expect to be able to resell your shares regardless of how we perform. If you are able to sell your shares, you will likely receive less than your purchase price. Our net asset value and annualized returns — which are based in part upon determinations of fair value of Level 3 investments by our board of directors, not active market quotations — are inherently uncertain. Past performance is not a guarantee of future results.

Off-Balance Sheet Arrangements

We had no off-balance sheet arrangements as of June 30, 2014.

Contractual Obligations

Investment Advisory Agreements – We have entered into the Investment Advisory Agreement with CNL for the overall management of our investment activities. We and CNL have also entered into the Sub-Advisory Agreement with KKR, under which KKR is responsible for the day-to-day management of our Investment Portfolio. CNL compensates KKR for advisory services that it provides to us with 50% of the base management fees and performance-based incentive fees that CNL receives under the Investment Advisory Agreement. Pursuant to the Investment Advisory Agreement, CNL earns a management fee equal to an annual rate of 2% of our average gross assets (including assets purchased with borrowed funds and unsettled trades, unrealized appreciation or depreciation on total return swaps and collateral posted with custodian in connection with TRS, but excluding deferred offering expense), and an incentive fee based on our performance. The incentive fee is comprised of the following two parts:

 

  (i) a subordinated incentive fee on pre-incentive fee net investment income, paid quarterly, if earned, computed as the sum of (a) 100% of quarterly pre-incentive fee net investment income in excess of 1.75% of average adjusted capital up to a limit of 0.4375% of average adjusted capital, and (b) 20% of pre-incentive fee net investment income in excess of 2.1875% of average adjusted capital, and

 

  (ii) an incentive fee on capital gains paid annually, if earned, equal to 20% of (A) all realized gains on a cumulative basis from inception, net of (1) all realized losses on a cumulative basis, (2) unrealized depreciation at year-end and (3) disregarding any net realized gains associated with the TRS interest spread, (which represents the difference between (a) the interest and fees received on total return swaps, and (b) the financing fees paid to the total return swaps counterparty), and subtracting (B) the aggregate amount of any previously paid incentive fee on capital gains.

The terms of the Investment Advisory Agreement entitle CNL (and indirectly KKR) to receive up to 5% of gross proceeds in connection with the Offerings as reimbursement for organization and offering expenses incurred by the Advisors on our behalf. During the six months ended June 30, 2014, the reimbursement rate was 1% of gross offering proceeds. Through the completion of the Initial Offering, the Advisors were reimbursed $0.90 million for organization expenses and $10.84 million for offering expenses. There are no remaining unreimbursed organization and offering expenses from the Initial Offering. The final reimbursement rate was 0.8% of gross offering proceeds from the Initial Offering. As of June 30, 2014, the Advisors have been reimbursed in the amounts of $3.63 million for offering expenses from the Follow-On Offering, including any payable balances for reimbursement of offering expenses. As of June 30, 2014, the Advisors carried a balance of approximately $0.56 million for expenses incurred on our behalf in connection with the Follow-On Offering, net of (i) incremental offering expenses incurred by the Advisors on our behalf and (ii) our reimbursement payments to the Advisors and any payable balances for reimbursement of offering expenses.

The Advisors are expected to continue to incur offering expenses on our behalf throughout the remainder of the Follow-On Offering period and the reimbursement of the Advisor for offering expenses they incur on our behalf is expected to continue through the termination date of the Follow-On Offering. We expect the reimbursement rate to remain at or below 1.0% of gross offering proceeds for the remainder of the Follow-On Offering. See “Note 6. Agreements and Related Party Transactions” in our condensed consolidated financial statements for expanded discussion of the Investment Advisory Agreements.

Borrowings –As discussed above under “Financial Condition, Liquidity and Capital Resources – Credit Facilities,” we, either directly or through our wholly-owned subsidiaries, have entered into several revolving credit facilities and the term loan. As of June 30, 2014, the credit facilities and term loan provided for borrowings in an aggregate amount up to $1.43 billion on a committed basis and $499.45 million was borrowed and outstanding under the credit facilities and term loan. (See “— Liquidity and Capital Resources — Credit Facilities” above and “Note 11. Borrowings” in our condensed consolidated financial statements for expanded discussion of the revolving credit facilities and the term loan.)

 

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A summary of our significant contractual payment obligations for the repayment of outstanding borrowings and interest expense and other fees related to the credit facilities and term loan at June 30, 2014 is as follows (in millions):

 

     Total      < 1 year      1-3 years      3-5 years      After 5 years  

BNP Credit Facility

   $ 100.45       $ 100.45       $ —         $ —         $ —     

2014 Senior Secured Term Loan

     399.00         4.00         12.00         383.00         —     

Interest and Credit Facility Fees Payable

     0.19         0.19         —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

TOTAL

   $ 499.64       $ 104.64       $ 12.00       $ 383.00       $ —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Interest Rate Risk

We are subject to financial market risks, in particular changes in interest rates. Future changes in interest rates will likely have effects on the interest income we earn on our portfolio investments, the fair value of our fixed income investments, the interest rates and interest expense associated with the money we borrow and the fair value of loan balances.

Subject to the requirements of the 1940 Act, we may hedge against interest rate fluctuations by using standard hedging instruments such as futures, options and forward contracts. Although hedging activities may insulate us against adverse changes in interest rates, they may also limit our ability to participate in the benefits of lower interest rates. During the six months ended June 30, 2014 and 2013, we did not engage in interest rate hedging activities.

As of June 30, 2014, approximately 62.5% of our portfolio of debt investments, or approximately $1.31 billion measured at par value, featured floating or variable interest rates. The variable interest rate debt investments are usually based on three-month LIBOR (the base rate) and typically have durations of three months after which the base rates are reset to then prevailing three-month LIBOR. At June 30, 2014, approximately 98.9% of our portfolio of variable interest rate debt investments, or approximately $1.30 billion measured at par value, featured minimum base rates, or base rate floors, and the weighted average base rate floor for such investments was 1.1%. Variable interest rate investments that feature a base rate floor generally reset to the then prevailing three-month LIBOR only if the reset base rate exceeds the base rate floor on the applicable interest rate reset date, in which cases we may benefit through an increase in interest income from such interest rate adjustments. At June 30, 2014, we held an aggregate investment position of $14.91 million at par value in variable interest rate debt investments that featured variable interest rates without any minimum base rates, or approximately 1.1% of our portfolio of variable interest rate debt investments. In the case of these “no base rate floor” variable interest debt investments held in our portfolio, we may benefit from increases in the base rates that may subsequently result in an increase in interest income from such interest rate adjustments.

Because we borrow money to make investments, our net investment income is partially dependent upon the difference between the interest rate at which we invest borrowed funds and the interest rate at which we borrow funds. In periods of rising interest rates and when we have borrowed capital with floating interest rates, then our interest expense would increase, which could increase our financing costs and reduce our net investment income, especially to the extent we continue to acquire and hold fixed-rate debt investments. As a result, there can be no assurance that a significant change in market interest rates will not have a material adverse effect on our net investment income. Pursuant to the terms of our Deutsche Bank Credit Facility as discussed above (see “— Financial Condition, Liquidity and Capital Resources — Credit Facilities”), CCT Funding borrows at a floating base rate of (i) three-month LIBOR plus 1.80% to 2.325% ($340 million unused commitment as of June 30, 2014). Pursuant to the terms of our BNP Credit Facility, Paris Funding borrows at a floating base rate of one-month LIBOR plus 1.10% for the credit facility borrowings ($100.45 million loan balance outstanding and $99.55 million unused commitment as of June 30, 2014). Pursuant to the terms of our Senior Secured Revolving Credit Facility, we borrow at a rate based on LIBOR plus an applicable spread of 2.50% or on an “alternate base rate” (which is the highest of a prime rate, the federal funds rate plus 0.50%, or one-month LIBOR plus 1.00%) plus an applicable spread of 1.50%, or, with respect to borrowings in non-LIBOR currencies, on a rate applicable to such currency plus an applicable spread of 2.50% ($490 million unused commitment as of June 30, 2014). Pursuant to the terms of our 2014 Senior Secured Term Loan, we borrow at a rate of LIBOR plus 3.25%, with a LIBOR floor of 0.75% ($399 million balance outstanding as of June 30, 2014). Therefore, if we were to completely draw down the unused commitment amounts in our Deutsche Bank facility, the maximum commitment amount in our BNP facility and the maximum commitment in our Senior Secured Revolving Credit Facility under an interest election of LIBOR plus 2.50%, we expect that our weighted average direct interest rate will decrease by approximately 7 bps, as compared to our current weighted average direct interest cost for borrowed funds. We expect that any further expansion of the current revolving credit facilities, or any future credit facilities that we or any subsidiary may enter into, will also be based on a floating base rate. As a result, we are subject to continuous risks relating to changes in market interest rates.

Under the terms of the TRS Agreements between Halifax Funding and BNS, Halifax Funding pays interest to BNS at a floating rate based on three-month LIBOR in exchange for the right to receive the economic benefits of a portfolio of TRS assets having a maximum aggregate notional amount of $500 million.

Assuming the consolidated schedule of investments as of June 30, 2014 was to remain constant with regards to the Investment Portfolio and no actions were taken to alter the existing interest rate sensitivity or Investment Portfolio allocations, the upper section of the table below presents an estimated and hypothetical increase in interest income for a 12-month period due to an immediate and persistent increase in the base rates associated with our debt investments featuring variable interest rates.

 

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The middle section of the table below also presents sensitivity analysis for a 12-month period due to a persistent increase in the base interest rates that apply to our floating rate credit facilities and term loan and the associated increase in interest expense, as well as the net effect of change in interest rates on the TRS unrealized appreciation (depreciation). For persistent LIBOR increases of less than 150 basis points, the increase in interest expense eclipses the hypothetical increase in interest income associated with our floating rate debt investments; for a persistent LIBOR increase greater than 150 basis points, the hypothetical increase in interest income associated with our floating rate debt investments begins to provide a positive contribution to net interest income, in both cases assuming that the consolidated schedule of investments as of June 30, 2014 was to remain constant with regards to the Investment Portfolio and no actions were taken to alter the existing interest rate sensitivity or Investment Portfolio allocations.

 

           ($ amounts in millions except per share data)  
     Par
Amount
     Weighted
Avg. Floor
    Increases in LIBOR  
        +50 bps     +100 bps     +150 bps     +200 bps  

No base rate floor

   $ 14.91         $ 0.060      $ 0.119      $ 0.179      $ 0.239   

Base rate floor

   $ 1,298.98         1.1     —          1.656        7.064        12.784   
       

 

 

   

 

 

   

 

 

   

 

 

 

Increase in Floating Rate Interest Income

        $ 0.060      $ 1.775      $ 7.243      $ 13.023   
       

 

 

   

 

 

   

 

 

   

 

 

 
            Base Rate Spread                          

BNP Credit Facility

   $ 100.45         110 bps      $ (0.502   $ (1.005   $ (1.507   $ (2.009

2014 Senior Secured Term Loan

   $ 399.00         325 bps        —          (1.918     (3.913     (5.908
       

 

 

   

 

 

   

 

 

   

 

 

 

Increase to Floating Rate Interest Expense

          (0.502     (2.923     (5.420     (7.917
       

 

 

   

 

 

   

 

 

   

 

 

 

Change in Floating Rate Net Interest Income, before TRS

          (0.442     (1.148     1.823        5.106   

Net change in TRS unrealized appreciation (depreciation) (1)

          (0.577     (1.016     (1.187     (1.322
       

 

 

   

 

 

   

 

 

   

 

 

 

Overall Change in Floating Rate Net Interest Income, including TRS

        $ (1.019   $ (2.164   $ 0.636      $ 3.784   
       

 

 

   

 

 

   

 

 

   

 

 

 

Change in Floating Rate Net Interest Income Per Share Outstanding as of June 30, 2014

        $ (0.01   $ (0.01   $ 0.00      $ 0.02   

 

(1)  Pursuant to the TRS Agreements, Halifax Funding receives from BNS all collected interest and fees derived from the TRS assets and pays to BNS interest at a rate equal to three-month LIBOR+80 bps per annum on the settled notional amount of TRS assets. As of June 30, 2014, 91.2% of the TRS assets, or approximately $108.09 million measured at par value, featured floating or variable interest rates. At June 30, 2014, 96.3% of the TRS assets with variable interest rates featured minimum base rate floors, or approximately $104.08 million measured at par value, and the weighted average base rate floor for such TRS assets was 1.2%. As of June 30, 2014, the total notional amount of the portfolio of TRS assets was $118.94 million, and the settled notional amount was $59.94 million. For the purpose of presenting this net interest sensitivity analysis, we have assumed that all TRS assets are settled as of June 30, 2014 and that the TRS notional amount would equal $118.94 million upon which the financing payments to BNS are based.

The interest rate sensitivity analysis presented above does not consider the potential impact of the changes in value of our debt investments and the net asset value of our common stock in the event of sudden increases in interest rates associated with high yield corporate bonds. Approximately 37.5% of our debt Investment Portfolio was invested in fixed interest rate, high yield corporate debt investments as of June 30, 2014. Rising market interest rates will most likely lead to value declines for high yield corporate bonds and a decline in the net asset value of our common stock, while declining market interest rates will most likely lead to an increase in bond values.

As of June 30, 2014, approximately 40.1% of our fixed interest rate debt investments, or approximately $303.57 million measured at fair value have prices that are generally available from third party pricing services. We consider these debt investments to be one of the more liquid subsets of our Investment Portfolio since these types of assets are generally broadly syndicated and owned by a wide group of institutional investors and investment funds. Additionally, this group of assets is susceptible to revaluation, or changes in bid-ask values, in response to sudden changes in expected rates of return associated with these investments. We have other fixed interest rate investments in the less liquid subset of our Investment Portfolio that are not included in this analysis.

We have computed a duration of approximately 4.5 for this liquid/fixed subset of our total portfolio. This implies that a sudden increase in the market’s expected rate of return of 100 basis points for this subset of our Investment Portfolio may result in a reduction in value of approximately 4.5%, all other financial and market factors assuming to remain unchanged. A 4.5% decrease in the valuation of this Investment Portfolio subset would equate to a decrease of $13.59, or a 0.8% decline in net asset value relative to $10.15 net asset value per share as of June 30, 2014.

Foreign Currency Risk

From time to time, we may make investments that are denominated in a foreign currency through which we may be subject to foreign currency exchange risk. As of June 30, 2014, 20.5% of our portfolio of debt investments, or approximately $430.12 million measured at par value was denominated in foreign currencies, of which 62.0% was denominated in Euros. The remaining

 

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foreign currency investments are denominated in British Pound Sterling and New Zealand dollars. We may use derivative instruments from time to time, including foreign currency forward contracts, to manage the impact of fluctuations in foreign currency exchange rates. As of June 30, 2014, the net contractual notional balance of our foreign currency forward contracts totaled $434.10 million, all of which related to certain of our foreign currency denominated debt investments. In order to further reduce our exposure to fluctuations in exchange rates, we also have the ability to borrow in foreign currencies under our Senior Secured Revolving Credit Facility. Fluctuations in exchange rates therefore impact our financial condition and results of operations, as reported in U.S. dollars. We did not have any outstanding foreign currency borrowings as of June 30, 2014. During the six months ended June 30, 2014, our foreign currency transactions and foreign currency translation adjustment recorded in our condensed consolidated statements of operations resulted in a net realized and unrealized loss of $0.80 million. Our foreign currency forward contracts generated a net realized and unrealized loss of $5.10 million during the six months ended June 30, 2014. We do 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.

 

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Pursuant to Rule 13a-15(b) under the Exchange Act, under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of our disclosure controls and procedures (as defined under Rule 13a-15(e) under the Exchange Act) as of the end of the period covered by this report. Based upon that evaluation, our management, including our principal executive officer and principal financial officer, concluded that our disclosure controls and procedures are effective as of the end of the period covered by this report.

Changes in Internal Control over Financial Reporting

During the most recent fiscal quarter, there was no change in our internal controls over financial reporting (as defined under Rule 13a-15(f) under the Exchange Act) that has materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting.

PART II. OTHER INFORMATION

 

Item 1. Legal Proceedings - None

 

Item 1A. Risk Factors – There have been no material changes to the risk factors previously disclosed in response to Item 1A. to Part I. of our Annual Report on Form 10-K for the fiscal year ended December 31, 2013, except for the following:

Risk Factors— Risks Related to our Investments— We are exposed to risks associated with changes in interest rates

We are subject to financial market risks, including changes in interest rates. Because we borrow money to finance a portion of our Investment Portfolio, our net investment income depends, in part, upon the difference between the rate at which we borrow funds and the rate at which we invest those funds. As a result, we can offer no assurance that a significant change in market interest rates will not have a material adverse effect on our net investment income. In periods of rising interest rates when we have debt outstanding, our cost of funds will increase, which could reduce our net investment income.

Moderate increases in interest rates may reduce our net investment income, depending on the types of credit facilities we employ to borrow funds for investment purposes. Several of our credit facilities that enable us to borrow capital from lenders feature floating interest rate provisions and no base interest rate floors. Meanwhile, a substantial portion of our debt investment portfolio features variable interest rates coupled with base interest rate floors (e.g. a base interest rate of 3-month LIBOR plus a margin of 450 basis points with a base interest rate floor of 75 basis points results in an overall daily coupon rate of 5.25%/360 as long as 3-month LIBOR is below 0.75%). As a result, the first leg of interest rate increases from prevailing interest rate levels will likely result in nearly immediate increases in the cost of our borrowings while a substantial portion of our variable interest rate debt investment portfolio will not experience any increase in interest income unless and until the LIBOR reference rates that predominantly apply to our debt investment portfolio increase materially above 1.0%.

In addition, interest rates have recently been at or near historic lows. In the event of a significant rising interest rate environment, our portfolio companies with adjustable-rate loans could see their interest payments increase and there may be a significant increase in the number of our portfolio companies who are unable or unwilling to pay interest and repay their loans. Our investment portfolio of adjustable-rate loans may also decline in value in response to rising interest rates if the adjustable interest rates do not rise as much, or as quickly, as market interest rates in general. Similarly, during periods of rising interest rates, our investments with fixed interest rates will likely decline in value.

 

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The Board of Governors of the Federal Reserve System has indicated that it intends to taper its “quantitative easing” program, which potentially could lead to a general rise in interest rates and/or market volatility. In periods of market volatility, the market values of (i) fixed income securities; and (ii) portfolio companies with adjustable-rate loans, may be more sensitive to changes in interest rates.

We may use interest rate risk management techniques in an effort to limit our exposure to interest rate fluctuations. These techniques may include various interest rate hedging activities to the extent such activities are not prohibited by the 1940 Act. These activities may limit our ability to participate in the benefits of lower interest rates with respect to the hedged portfolio. Adverse developments resulting from changes in interest rates or hedging transactions could have a material adverse effect on our business, financial condition and results of operations.

 

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

 

    (a) None

 

    (b) None

 

    (c) The information required by this Item 2(c) is set forth in Note 9—“Share Transactions” to the unaudited condensed consolidated financial statements included in Item 1 of this Quarterly Report on Form 10-Q and is incorporated by reference herein.

 

Item 3. Defaults Upon Senior Securities - None

 

Item 4. Mine Safety DisclosuresNot applicable

 

Item 5. Other Information - None

 

Item 6. Exhibits

The exhibits required by this item are set forth in the Exhibit Index attached hereto and are filed or incorporated as part of this report.

 

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on the 13th day of August 2014.

 

CORPORATE CAPITAL TRUST, INC.
By:  

/s/    Andrew A. Hyltin        

  ANDREW A. HYLTIN
  Chief Executive Officer
  (Principal Executive Officer)
By:  

/s/    Paul S. Saint-Pierre        

  PAUL S. SAINT-PIERRE
  Chief Financial Officer
  (Principal Financial Officer)

 

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EXHIBIT INDEX

The following exhibits are filed or incorporated as part of this report.

 

  3.1    Second Amended and Restated Articles of Incorporation of the Registrant. (Incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on May 8, 2012.)
  3.2    Amended and Restated Bylaws of the Registrant. (Incorporated by reference to Exhibit 2(b) filed with Pre-Effective Amendment No. 3 to the Company’s registration statement on Form N-2 (File No. 333-167730) filed on March 29, 2011.)
10.1    Form of Managing Dealer Agreement by and between the Registrant and CNL Securities Corp. (Incorporated by reference to Exhibit 2(h)(1) filed with Pre-Effective Amendment No. 1 to the Company’s registration statement on Form N-2 (File No. 333-189544) filed on October 16, 2013.)
10.2    Form of Participating Broker Agreement. (Incorporated by reference to Exhibit 2(h)(2) filed with Pre-Effective Amendment No. 1 to the Company’s registration statement on Form N-2 (File No. 333-189544) filed on October 16, 2013.)
10.3    Form of Distribution Reinvestment Plan. (Incorporated by reference to Exhibit 2(e) filed with Pre-Effective Amendment No. 2 to the Company’s registration statement on Form N-2 (File No. 333-167730) filed on February 18, 2011.)
10.4    Form of Intellectual Property License Agreement by and between the Registrant and CNL Intellectual Properties, Inc. (Incorporated by reference to Exhibit 2(k)(3) filed with Pre-Effective Amendment No. 2 to the Company’s registration statement on Form N-2 (File No. 333-167730) filed on February 18, 2011.)
10.5    Administrative Services Agreement by and between the Registrant and CNL Fund Advisors Company. (Incorporated by reference to Exhibit 2(k)(2) filed with Pre-Effective Amendment No. 3 to the Company’s registration statement on Form N-2 (File No. 333-167730) filed on March 29, 2011.)
10.6    Custodian Agreement. (Incorporated by reference to Exhibit 2(j) filed with Pre-Effective Amendment No. 3 to the Company’s registration statement on Form N-2 (File No. 333-167730) filed on March 29, 2011.)
10.7    Investment Advisory Agreement by and between the Registrant and CNL Fund Advisors Company. (Incorporated by reference to Exhibit 2(g)(1) filed with Pre-Effective Amendment No. 3 to the Company’s registration statement on Form N-2 (File No. 333-167730) filed on March 29, 2011.)
10.8    Sub-Advisory Agreement by and among the Registrant, CNL Fund Advisors Company and KKR Asset Management LLC. (Incorporated by reference to Exhibit 2(g)(2) filed with Pre-Effective Amendment No. 3 to the Company’s registration statement on Form N-2 (File No. 333-167730) filed on March 29, 2011.)
10.9    Amended and Restated Escrow Agreement by and among the Registrant, UMB Bank N.A., and CNL Securities Corp. (Incorporated by reference to Exhibit 10.10 to the Company’s Quarterly Report on Form 10-Q filed on August 12, 2011.)
10.10    Limited Liability Company Agreement of CCT Funding LLC. (Incorporated by reference to Exhibit 10.13 to the Company’s Quarterly Report on Form 10-Q filed on November 10, 2011.)
10.11    Credit Agreement between CCT Funding LLC and Deutsche Bank AG, New York Branch. (Incorporated by reference to Exhibit 10.14 to the Company’s Quarterly Report on Form 10-Q filed on November 10, 2011.) (Confidential portions of this exhibit have been omitted pursuant to a request for confidential treatment and filed separately with the SEC.)
10.12    Custodial Agreement among the Registrant, CCT Funding LLC, Deutsche Bank AG, New York Branch and Deutsche Bank Trust Company Americas. (Incorporated by reference to Exhibit 10.15 to the Company’s Quarterly Report on Form 10-Q filed on November 10, 2011.) (Confidential portions of this exhibit have been omitted pursuant to a request for confidential treatment and filed separately with the SEC.)
10.13    Asset Contribution Agreement between the Registrant and CCT Funding LLC. (Incorporated by reference to Exhibit 10.16 to the Company’s Quarterly Report on Form 10-Q filed on November 10, 2011.)
10.14    Security Agreement between CCT Funding LLC and Deutsche Bank AG, New York Branch. (Incorporated by reference to Exhibit 10.17 to the Company’s Quarterly Report on Form 10-Q filed on November 10, 2011.)

 

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10.15    Investment Management Agreement between the Registrant and CCT Funding LLC. (Incorporated by reference to Exhibit 10.18 to the Company’s Quarterly Report on Form 10-Q filed on November 10, 2011.)
10.16    First Amendment to Credit Agreement between CCT Funding LLC and Deutsche Bank AG, New York Branch. (Incorporated by reference to Exhibit 10.17 to the Company’s Annual Report on Form 10-K filed on March 16, 2012.) (Confidential portions of this exhibit have been omitted pursuant to a request for confidential treatment and filed separately with the SEC.)
10.17    Amended and Restated Expense Support and Conditional Reimbursement Agreement by and among the Registrant, CNL Fund Advisors Company and KKR Asset Management LLC. (Incorporated by reference to Exhibit 10.18 to the Company’s Annual Report on Form 10-K filed on March 16, 2012.)
10.18    Amendment No. 1 to Investment Advisory Agreement by and between the Registrant and CNL Fund Advisors Company. (Incorporated by reference to Exhibit 10.19 to the Company’s Annual Report on Form 10-K filed on March 16, 2012.)
10.19    Second Amendment to Credit Agreement between CCT Funding LLC and Deutsche Bank AG, New York Branch. (Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on August 24, 2012.) (Confidential portions of this exhibit have been omitted pursuant to a request for confidential treatment and filed separately with the SEC.)
10.20    ISDA 2002 Master Agreement, together with the Schedule thereto and Credit Support Annex to such Schedule, each dated as of November 15, 2012, by and between Halifax Funding LLC and The Bank of Nova Scotia. (Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on November 21, 2012.)
10.21    Confirmation Letter Agreement, dated as of November 15, 2012, by and between Halifax Funding LLC and The Bank of Nova Scotia. (Incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on November 21, 2012.)
10.22    Amendment to Amended and Restated Expense Support and Conditional Reimbursement Agreement by and among the Registrant, CNL Fund Advisors Company and KKR Asset Management LLC. (Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on January 7, 2013.)
10.23    Third Amendment to Credit Agreement between CCT Funding LLC, the lenders referred to therein and Deutsche Bank AG, New York Branch. (Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on February 14, 2013.) (Confidential portions of this exhibit have been omitted pursuant to a request for confidential treatment and filed separately with the SEC.)
10.24    U.S. PB Agreement, dated as of June 4, 2013, by and between the Registrant and BNP Paribas Prime Brokerage, Inc. (Incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on June 18, 2013.)
10.25    Special Custody and Pledge Agreement, dated as of June 4, 2013, by and between the Registrant, BNP Paribas Prime Brokerage, Inc. and State Street Bank and Trust Company. (Incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed on June 18, 2013.)
10.26    Control Agreement, dated as of July 22, 2013, by and among Halifax Funding LLC, The Bank of Nova Scotia, and State Street Bank and Trust Company (Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on July 26, 2013.)
10.27    Amending Agreement, dated as of July 22, 2013, by and among the Registrant, Halifax Funding LLC, The Bank of Nova Scotia, and The Bank of Nova Scotia Trust Company of New York (Incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on July 26, 2013.)
10.28    Amended and Restated Committed Facility Agreement, dated as of August 29, 2013, by and between Paris Funding LLC and BNP Paribas Prime Brokerage, Inc. (Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on September 5, 2013.)

 

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10.29    Senior Secured Revolving Credit Agreement, dated as of September 4, 2013, among the Registrant, as borrower, the lenders from time to time party thereto, JPMorgan Chase Bank, N.A., as administrative agent, and ING Capital LLC as syndication agent (Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on September 10, 2013.)
10.30    Guarantee and Security Agreement, dated as of September 4, 2013, and entered into among the Registrant, as borrower, and JPMorgan Chase Bank, N.A., as administrative agent and as collateral agent, and the other parties thereto (Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on September 10, 2013.)
10.31    Control Agreement, dated as of September 4, 2013, among the Registrant, as borrower, JPMorgan Chase Bank, N.A., as collateral agent, and State Street Bank and Trust Company, as custodian (Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on September 10, 2013.)
10.32    Amending Agreement, dated as of November 12, 2013, by and between Halifax Funding LLC and The Bank of Nova Scotia. (Incorporated by reference to Exhibit 10.32 to the Company’s Quarterly Report on Form 10-Q filed on November 14, 2013.)
10.33    Fourth Amendment to Credit Agreement between CCT Funding LLC, the lenders referred to therein and Deutsche Bank AG, New York Branch. (Incorporated by reference to Exhibit 10.26 to the Company’s Current Report on Form 8-K filed on January 31, 2014.) (Confidential portions of this exhibit have been omitted pursuant to a request for confidential treatment and filed separately with the SEC.)
10.34    Selected Dealer Agreement among the Registrant, CNL Securities Corp., CNL Fund Advisors Company, CNL Financial Group, LLC, KKR Asset Management LLC and Ameriprise Financial Services, Inc. (Incorporated by reference to Exhibit 10.34 to the Company’s Annual Report on Form 10-K filed on March 20, 2014.) (Confidential portions of this exhibit have been omitted pursuant to a request for confidential treatment and filed separately with the SEC.)
10.35    Commitment Increase Agreement between the Registrant and JPMorgan Chase Bank, N.A., as administrative agent for the lenders party to the Credit Agreement. (Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on April 10, 2014.)
10.36    Omnibus Amendment to the Senior Secured Term Loan Agreement, dated as of May 19, 2014, among the Registrant, as borrower, the subsidiary guarantor party thereto the lenders party thereto and JPMorgan Chase Bank, N.A., as administrative agent and collateral agent. (Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on May 22, 2014.)
10.37    Senior Secured Term Loan Agreement, dated as of May 20, 2014, among the Registrant, as borrower, the lenders from time to time party thereto, JPMorgan Chase Bank, N.A., as administrative agent and collateral agent, J.P. Morgan Securities LLC, Mizuho Bank, Ltd., HSBC Securities (USA) Inc., Merrill Lynch, Pierce, Fenner & Smith Incorporated and Barclays Bank PLC as co-syndication agents, joint bookrunners and joint lead arrangers and Greensledge Capital Markets LLC as co-syndication agent. (Incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on May 22, 2014.)
31.1    Certification of Chief Executive Officer of Corporate Capital Trust, Inc., Pursuant to Rule 13a-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. (Filed herewith.)
31.2    Certification of Chief Financial Officer of Corporate Capital Trust, Inc., Pursuant to Rule 13a-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. (Filed herewith.)
32.1    Certification of Chief Executive Officer and Chief Financial Officer of Corporate Capital Trust, Inc., Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (Filed herewith.)

 

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