Attached files

file	filename
EX-32.1 - EXHIBIT 32.1 - Garrison Capital Inc.	v391256_ex32x1.htm
EX-31.2 - EXHIBIT 31.2 - Garrison Capital Inc.	v391256_ex31x2.htm
EX-31.1 - EXHIBIT 31.1 - Garrison Capital Inc.	v391256_ex31x1.htm
EX-32.2 - EXHIBIT 32.2 - Garrison Capital Inc.	v391256_ex32x2.htm
EX-99.1 - EXHIBIT 99.1 - Garrison Capital Inc.	v391256_ex99-1.htm

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 September 30, 2014


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

For the transition period from to

Commission File Number 814-00878

Garrison Capital Inc.

(Exact name of registrant as specified in its charter)


Delaware		90-0900145
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

1290 Avenue of the Americas, Suite 914
New York, New York 10104

(Address of principal executive offices)

(212) 372-9590

(Registrant’s telephone number, including area code)

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

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

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


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

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

As of November 5, 2014 the Registrant had 16,758,779 shares of common stock, $0.001 par value, outstanding.

TABLE OF CONTENTS


	Page
Part I. Financial Information
Item 1. Financial Statements		1
Consolidated Statements of Financial Condition as of September 30, 2014 (unaudited) and December 31, 2013		1
Consolidated Schedule of Investments as of September 30, 2014 (unaudited) and December 31, 2013		2
Consolidated Statements of Operations (unaudited) for the three and nine months ended September 30, 2014 and September 30, 2013		16
Consolidated Statements of Changes in Net Assets (unaudited) for the nine months ended September 30, 2014 and September 30, 2013		17
Consolidated Statements of Cash Flows (unaudited) for the nine months ended September 30, 2014 and September 30, 2013		18
Notes to Consolidated Financial Statements		19
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		48
Item 3. Quantitative and Qualitative Information About Market Risk		63
Item 4. Controls and Procedures		63
Part II. Other Information
Item 1. Legal Proceedings		64
Item 1A. Risk Factors		64
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		64
Item 3. Defaults Upon Senior Securities		64
Item 4. Mine Safety Disclosures		64
Item 5. Other Information		64
Item 6. Exhibits		65

TABLE OF CONTENTS

Garrison Capital Inc. and Subsidiaries

Consolidated Statements of Financial Condition

Part I. Financial Information

Item 1. Financial Statements


	September 30, 2014			December 31, 2013
	(unaudited)
Assets
Cash and cash equivalents	$	25,572,239		$	13,664,583
Cash and cash equivalents, restricted		15,460,036			27,964,507
Due from counterparties		1,706,575			6,660,132
Investments, fair value
Non-control/Non-affiliate investments (amortized cost of $447,762,162 and $409,797,656, respectively)		448,649,030			410,051,950
Affiliate investments (amortized cost of $0 and $17,190,795, respectively)		—			19,029,529
Accrued interest receivable		4,082,475			2,664,416
Deferred debt issuance costs (net of accumulated amortization of $1,925,570 and $1,400,358, respectively)		4,584,334			4,884,271
Deferred offering costs		314,018			—
Other assets		442,716			160,426
Total assets	$	500,811,423		$	485,079,814
Liabilities
Due to counterparties	$	5,096,343		$	7,840,140
Incentive fee payable		4,388,075			1,098,899
Management fee payable		223,341			217,608
Administrator fee payable		309,904			—
GLC Trust 2013-2 revolving note (Note 7)		—			9,741,676
GLC Trust 2013-2 Class A note (Note 7)		34,288,677			—
Senior secured revolving note (Note 7)		34,000,000			50,000,000
Senior secured term note (Note 7)		159,729,390			159,677,767
Interest payable		649,397			1,487,539
Accrued expenses and other payables		826,519			935,587
Total liabilities		239,511,646			230,999,216
Commitments and contingencies (Note 13)	$	—		$	—
Net assets
Common stock, par value $0.001 per share, 100,000,000 shares authorized, 16,758,779 and 16,758,779 shares issued and outstanding at September 30, 2014 and December 31, 2013, respectively		16,759			16,759
Paid-in-capital in excess of par		257,804,160			257,804,160
(Over)/under distributed net investment income		(2,468,451	)		—
Accumulated net realized gain/(loss) from investments		5,060,441			(5,833,349	)
Net unrealized appreciation from investments		886,868			2,093,028
Total net assets		261,299,777			254,080,598
Total liabilities and net assets	$	500,811,423		$	485,079,814
Common shares outstanding		16,758,779			16,758,779
Net asset value per common share	$	15.59		$	15.16

See accompanying notes to consolidated financial statements.

TABLE OF CONTENTS

Garrison Capital Inc. and Subsidiaries

Consolidated Schedule of Investments

September 30, 2014 (unaudited)



Security Description	Par/Shares		Cost		Fair Value		% of Net Assets
Non-Control/Non-Affiliate Investments
Investments – United States
Common Equity
Apparel Products
Everyware Global, Inc., Warrant*		82,843	$	—	$	—		—	%
Total Apparel Products				—		—		—
Health Services
Juniper TGX Investment Partners, LLC, Common		670,623		670,623		1,074,637		0.41
Total Health Services				670,623		1,074,637		0.41
Miscellaneous Manufacturing
Valterra Products Holdings, LLC, Common Class A		185,847		185,847		294,511		0.12
Valterra Products Holdings, LLC, Common Class B		20,650		20,650		32,723		0.01
Total Miscellaneous Manufacturing				206,497		327,234		0.13
Miscellaneous Retail
Provo Craft Holdings, LLC, Common		1,110		—		—		—
Total Miscellaneous Retail				—		—		—
Transportation Services
EZE Trucking, LLC, Common		2,898		267,801		—		—
Total Transportation Services				267,801		—		—
Total Common Equity			$	1,144,921	$	1,401,871		0.54	%
Preferred Equity
Consumer Finance Services
Prosper Marketplace Series B Preferred Stock⁽⁴⁾		261,912	$	789,962	$	3,761,056		1.44	%
Total Consumer Finance Services				789,962		3,761,056		1.44
Total Preferred Equity			$	789,962	$	3,761,056		1.44	%
Debt Investments
Apparel Products
Joe’s Jeans Inc., Term Loan* L + 10.75%, 1.25% L Floor, 9/30/2018		10,486,963	$	10,319,263	$	10,319,148		3.95	%
Total Apparel Products				10,319,263		10,319,148		3.95
Automotive
CTC Casting Technologies, Inc. (Compass), Loan* L+ 6.75%, 0.75% L Floor, 3/28/2019		10,281,250		10,188,966		10,224,655		3.92
Penda Corporation, Term Loan⁽⁵⁾ L+ 12.00% Cash, 2.00% PIK, 1/26/2019		7,323,901		7,210,934		7,323,901		2.80
Total Automotive				17,399,900		17,548,556		6.72
Broadcasting & Entertainment
CF Entertainment Inc. (Entertainment Studios), Term Loan* L+ 7.50%, 1.00% L Floor, 6/26/2019		9,960,531		9,866,217		9,866,152		3.78
Total Broadcasting & Entertainment				9,866,217		9,866,152		3.78

See accompanying notes to consolidated financial statements.

TABLE OF CONTENTS

Garrison Capital Inc. and Subsidiaries

Consolidated Schedule of Investments – (continued)

September 30, 2014 (unaudited)



Security Description	Par		Cost		Fair Value		% of Net Assets
Non-Control/Non-Affiliate Investments (continued)
Investments – United States (continued)
Debt Investments (continued)
Building & Real Estate
Onyx Mamaroneck, LLC, Term Loan⁽⁴⁾⁽⁵⁾ L+ 7.00% Cash, 5.00% PIK, 2/1/2015		10,273,133	$	10,205,177	$	10,273,133		3.93	%
ShelterLogic Corp., Term Loan* L+ 8.50%, 1.00% L Floor, 7/30/2019		10,434,375		10,232,888		10,232,773		3.92
Total Building & Real Estate				20,438,065		20,505,906		7.85
Chemicals
Arclin US Holdings Inc., 2^nd Lien Term Loan*⁽⁴⁾ L+ 6.00%, 1.75% L Floor, 1/15/2015		2,578,349		2,569,084		2,578,349		0.99
Galata Chemicals, LLC, Term Loan* L+ 8.00%, 1.00% L Floor, 2/28/2019		9,250,000		9,083,964		9,083,541		3.47
Total Chemicals				11,653,048		11,661,890		4.46
Communications
Aspect Software, Inc., Tranche B Term Loan* L+ 5.50%, 1.75% L Floor, 5/7/2016		5,461,226		5,445,679		5,445,880		2.08
HC Cable OpCo, LLC, Term Loan* L+ 8.50%, 1.00% L Floor, 7/17/2018		10,900,532		10,755,843		11,087,879		4.25
Sirva Worldwide, Loan* L+ 6.25%, 1.25% L Floor, 3/27/2019		4,925,000		4,851,529		4,998,875		1.91
Total Communications				21,053,051		21,532,634		8.24
Consumer Finance Services
PlanMember Financial Corporation, Term Loan*⁽⁴⁾ L+ 8.50%, 1.50% L Floor, 2/14/2018		1,426,295		1,400,924		1,426,295		0.55
Project Sunshine IV Pty Ltd (Sensis), New Term Loans*⁽⁴⁾ L+ 7.00%, 1.00% L Floor, 9/23/2019		10,385,631		10,282,456		10,359,667		3.96
Total Consumer Finance Services				11,683,380		11,785,962		4.51
Electrical Equipment
AbelConn, LLC (SIE Computing), Term Loan A* L+ 8.50%, 1.00% L Floor, 7/17/2019		10,500,000		10,298,740		10,290,000		3.94
AbelConn, LLC (SIE Computing), Term Loan B L+ 2.50%, 1.00% L Floor, 7/17/2019		2,826,550		2,772,372		2,770,019		1.06
AbelConn, LLC (SIE Computing), Revolver L+ 2.50%, 1.00% L Floor, 7/17/2019		345,205		338,301		338,301		0.13
Total Electrical Equipment				13,409,413		13,398,320		5.13
Food Stores – Retail
Specialty Bakers LLC, Term Loan* L+ 7.25%, 1.00% L Floor, 8/7/2019		9,486,220		9,289,965		9,289,854		3.55
Sqwincher Corporation (The), Term Loan* L+ 10.00%, 1.50% L Floor, 8/3/2016		6,473,900		6,429,234		6,473,900		2.48
Total Food Stores – Retail				15,719,199		15,763,754		6.03

See accompanying notes to consolidated financial statements.

TABLE OF CONTENTS

Garrison Capital Inc. and Subsidiaries

Consolidated Schedule of Investments – (continued)

September 30, 2014 (unaudited)



Security Description	Par		Cost		Fair Value		% of Net Assets
Non-Control/Non-Affiliate Investments (continued)
Investments – United States (continued)
Debt Investments (continued)
Health Services
Forest Park Medical Center at Fort Worth, LLC, Term Loan L+ 12.00%, 7/16/2019		9,590,539	$	9,590,539	$	9,590,539		3.67	%
Forest Park Medical Center at San Antonio, LLC, Term Loan L+ 12.00%, 7/16/2019		11,409,461		11,409,461		11,409,461		4.36
SCG Capital Corporation (Radiation Therapy), Term Note L+ 12.00%, 5/1/2017		6,754,541		6,754,541		6,754,541		2.58
Virtual Radiologic Corporation, Term Loan B* L+ 5.50%, 1.75% L Floor, 12/22/2016		4,837,500		4,818,183		3,567,656		1.37
Walnut Hill Physicians’ Hospital, LLC, Acquistion Loan 12.50%, 9/27/2018		1,528,977		1,528,977		1,528,977		0.59
Walnut Hill Physicians’ Hospital, LLC, Term Loan 12.50%, 4/1/2019		7,784,791		7,784,791		7,784,791		2.98
Total Health Services				41,886,492		40,635,965		15.55
Insurance Agents
Affirmative Insurance Holdings, Inc., Term Loan* L+ 7.25%, 1.25% L Floor, 3/30/2016		6,005,568		5,821,145		5,855,429		2.24
Worley Claims Services, LLC, Term Loan* L+ 11.00%, 1.50% L Floor, 7/6/2017		5,974,011		5,907,989		6,093,491		2.33
Total Insurance Agents				11,729,134		11,948,920		4.57
Oil & Gas
Gasco Production Company, Term Loan* L+ 8.50%, 1.00% L Floor, 8/18/2017		9,985,495		9,745,661		9,745,521		3.73
Total Oil & Gas				9,745,661		9,745,521		3.73
Miscellaneous Manufacturing
Anchor Hocking, LLC (EveryWare Global), Initial Term Loan*⁽⁵⁾ L+ 6.50% Cash, 1.75% PIK, 1.25% L Floor, 5/21/2020		6,933,026		6,857,472		5,295,099		2.03
AP Gaming I, LLC, Term B Loan* L+ 8.25%, 1.00% L Floor, 12/20/2020		4,962,500		4,830,322		4,987,313		1.91
CR Brands, Inc., Term Loan* L+ 7.25%, 1.00% L Floor, 3/31/2019		10,500,000		10,311,161		10,311,749		3.94
Frontier Spinning Mills, Inc., Term Loan* L+ 6.50%, 1.00% L Floor, 12/19/2018		4,873,418		4,851,266		4,849,051		1.86
Kranos Acquisition Corp., Term Loan* L+ 11.00%, 1.00% L Floor, 6/15/2017		10,500,000		10,441,645		10,410,709		3.98
Nursery Supplies, Inc., Term Loan* L+ 7.50%, 1.00% L Floor, 6/13/2018		10,937,812		10,897,350		11,014,527		4.22
Ranpak Corp., Second Lien Term Loan* L+ 7.25%, 1.25% L Floor, 4/23/2020		1,000,000		992,097		1,008,330		0.39
Valterra Products Holdings, LLC, Term Loan* L+ 9.00%, 1.00% L Floor, 5/31/2018		8,517,994		8,393,163		8,660,220		3.31
Total Miscellaneous Manufacturing				57,574,476		56,536,998		21.64

See accompanying notes to consolidated financial statements.

TABLE OF CONTENTS

Garrison Capital Inc. and Subsidiaries

Consolidated Schedule of Investments – (continued)

September 30, 2014 (unaudited)



Security Description	Par		Cost		Fair Value		% of Net Assets
Non-Control/Non-Affiliate Investments (continued)
Investments – United States (continued)
Debt Investments (continued)
Miscellaneous Retail
Confluence Outdoor, LLC, Term Loan* L+ 7.00%, 1.00% L Floor, 4/18/2019		6,656,997	$	6,551,090	$	6,551,026		2.51	%
PD Products, LLC, Term Loan* L+ 10.50%, 1.50% L Floor, 10/4/2018		10,234,516		10,070,233		10,234,516		3.92
PD Products, LLC, Revolver L+ 10.50%, 1.50% L Floor, 10/4/2018		606,998		606,998		606,998		0.23
PSP Group, LLC, Term Loan* L+ 4.75%, 1.50% L Floor, 9/13/2016		4,372,706		4,350,244		4,285,252		1.64
Total Miscellaneous Retail				21,578,565		21,677,792		8.30
Miscellaneous Services
Academi Holdings LLC, Second Lien Term Loan* L+ 10.00%, 1.00% L Floor, 7/25/2020		10,000,000		9,806,293		9,800,000		3.75
Attachmate Corporation, Second Lien Term Loan* L+ 9.50%, 1.50% L Floor, 11/22/2018		10,365,221		10,332,368		10,499,969		4.02
Dorsey School of Business Holdings, Inc., Term Loan* L+ 8.00%, 1.50% L Floor, 6/28/2018		4,625,000		4,625,000		4,625,000		1.77
Global Traffic Technologies, LLC, Term Loan A* L+ 5.25%, 1.25% L Floor, 6/30/2015		2,192,819		2,167,787		2,192,819		0.84
Global Traffic Technologies, LLC, Term Loan B* L+ 5.25%, 1.25% L Floor, 6/30/2015		3,560,206		3,545,780		3,560,206		1.36
Midwest Technical Institute, Inc., Term Loan A* L+ 8.00%, 1.50% L Floor, 10/4/2017		7,509,924		7,509,924		7,509,924		2.87
NAP Asset Holdings Ltd., Canadian Term Loan* L+ 7.00%, 1.00% L Floor, 3/22/2018		2,518,648		2,500,955		2,518,648		0.96
NAP Asset Holdings Ltd., Term Loan* L+ 7.00%, 1.00% L Floor, 3/22/2018		5,636,974		5,597,374		5,636,974		2.16
SC Academy Holdings, Inc., Term Loan⁽³⁾ 0.00%, 7/16/2016		7,760,599		5,587,631		4,066,554		1.56
Speed Commerce, Inc., Term Loan B* L+ 8.15%, 1.00% L Floor, 7/9/2019		10,500,000		10,312,182		10,312,074		3.95
Sprint Industrial Holdings, LLC, Term Loan (First Lien)* L+ 5.75%, 1.25% L Floor, 5/14/2019		7,385,492		7,336,700		7,367,028		2.82
Tecta America Corp., Term Loan* L+ 4.00%, 1.00% L Floor, 7/1/2018		4,060,030		3,880,827		3,857,028		1.48
Tecta America Corp., Revolver L+ 4.00%, 7/1/2018		148,688		147,080		141,253		0.05
Total Miscellaneous Services				73,349,901		72,087,477		27.59
Printing & Publishing
Penn Foster, Inc., Term Loan Base Rate+ 5.00%**, 3/31/2015		978,242		978,242		978,242		0.37
Total Printing & Publishing				978,242		978,242		0.37
Restaurants
Rita’s Water Ice Franchise Company, LLC, Term Loan B* L+ 12.50%, 1.50% L Floor, 11/30/2016		4,687,500		4,687,500		4,687,500		1.79
Ted’s Cafe Escondido Holdings, Inc., Term Loan A* L+ 8.00%, 1.50% L Floor, 12/31/2018		6,912,500		6,912,500		6,912,500		2.65
Total Restaurants				11,600,000		11,600,000		4.44

See accompanying notes to consolidated financial statements.

TABLE OF CONTENTS

Garrison Capital Inc. and Subsidiaries

Consolidated Schedule of Investments – (continued)

September 30, 2014 (unaudited)



Security Description	Par		Cost			Fair Value			% of Net Assets
Non-Control/Non-Affiliate Investments (continued)
Investments – United States (continued)
Debt Investments (continued)
Specialty Services
Vistronix, LLC, Term Loan* L+ 7.50%, 1.00% L Floor, 12/4/2018		10,106,250	$	10,020,959		$	10,020,903			3.83	%
Vistronix, LLC, Revolver L+ 7.50%, 1.00% L Floor, 12/4/2018		201,250		201,250			199,550			0.08
Total Specialty Services				10,222,209			10,220,453			3.91
Transportation Services
EZE Trucking, LLC, Term Loan*⁽⁵⁾ L+ 10.75% Cash, 1.00% PIK, 0.25% L Floor, 7/31/2018		10,472,251		10,182,648			10,472,247			4.01
Fleetgistics Holdings, Inc., Term Loan* L+ 5.88%, 2.00% L Floor, 3/23/2015		1,318,617		1,318,984			1,186,755			0.45
MXD Group, Inc. (fka Exel Direct Inc.), Term Loan* L+ 11.00%, 1.00% L Floor, 5/31/2018		13,387,500		13,188,821			13,387,500			5.12
Ozburn-Hessey Holding Company LLC, Term Loan B* L+ 5.50%, 1.25% L Floor, 5/23/2019		6,418,750		6,369,099			6,390,082			2.45
Raymond Express International, LLC, Term Loan* L+ 7.75%, 1.75% L Floor, 2/28/2018		3,950,406		3,922,815			4,009,662			1.53
Total Transportation Services				34,982,367			35,446,246			13.56
Total Debt Investments			$	405,188,583		$	403,259,936			154.33	%
Financial Assets
Consumer Finance Services
GLC Trust 2013-2 Consumer Loan Portfolio⁽¹⁾⁽⁴⁾⁽⁶⁾		41,228,257	$	41,228,257		$	40,711,244			15.58	%
Total Consumer Finance Services				41,228,257			40,711,244			15.58
Total Financial Assets			$	41,228,257		$	40,711,244			15.58	%
Total Non-Control/Non-Affiliate Investments			$	448,351,723		$	449,134,107			171.89	%
Unfunded Obligations
Communications
HC Cable OpCo, LLC, Revolver 0.50%, 7/17/2018		489,362		$(6,496	)		$8,411			—
Total Communications				(6,496	)		8,411			—
Electrical Equipment
AbelConn, LLC (SIE Computing), Revolver⁽²⁾ 0.50%, 7/17/2019		2,531,507		$(48,235	)		(50,630	)		(0.02	)
Total Electrical Equipment				$(48,235	)		(50,630	)		(0.02	)
Miscellaneous Manufacturing
Valterra Products Holdings, LLC, Revolver 0.50%, 5/31/2018		1,588,437		(23,279	)		26,522			0.01
Total Miscellaneous Manufacturing				(23,279	)		26,522			0.01
Miscellaneous Retail
Confluence Outdoor, LLC, Delayed Draw Term Loan⁽²⁾ 2.00%, 4/18/2019		3,328,498		(52,953	)		(52,985	)		(0.02	)
PD Products, LLC, Revolver 0.50%, 10/4/2018		1,033,627		(26,307	)		—			—
Total Miscellaneous Retail				(79,260	)		(52,985	)		(0.02	)

See accompanying notes to consolidated financial statements.

TABLE OF CONTENTS

Garrison Capital Inc. and Subsidiaries

Consolidated Schedule of Investments – (continued)

September 30, 2014 (unaudited)



Security Description	Par		Cost			Fair Value			% of Net Assets
Non-Control/Non-Affiliate Investments (continued)
Investments – United States (continued)
Unfunded Obligations (continued)
Miscellaneous Services
Dorsey School of Business Holdings, Inc., Revolver 0.50%, 6/28/2018		1,000,000	$	—		$	—			—	%
Global Traffic Technologies, LLC, Revolver 0.50%, 6/30/2015		1,458,439		(5,910	)		—			—
Midwest Technical Institute, Inc., Revolver 0.50%, 10/4/2017		1,664,249		—			—			—
Speed Commerce, Inc., Delayed Draw Term Loan⁽²⁾ 2.00%, 7/9/2019		7,875,000		(112,691	)		(112,756	)		(0.04	)
Tecta America Corp., Revolver⁽²⁾ 0.50%, 7/1/2018		6,120,300		(275,779	)		(306,015	)		(0.12	)
Total Miscellaneous Services				(394,380	)		(418,771	)		(0.16	)
Restaurants
Ted’s Cafe Escondido Holdings, Inc., Revolver 0.50%, 12/31/2018		500,000		—			—			—
Ted’s Cafe Escondido Holdings, Inc., Delayed Draw Term Loan B 0.50%, 12/31/2018		1,000,000		—			—			—
Total Restaurants				—			—			—
Specialty Services
Vistronix, LLC, Revolver⁽²⁾ 0.50%, 12/4/2018		673,750		(7,340	)		(5,690	)		—
Total Specialty Services				(7,340	)		(5,690	)		—
Transportation Services
EZE Trucking, LLC, CapEx A Loan 0.60%, 7/31/2018		1,400,000		(26,815	)		—			—
Raymond Express International, LLC, Revolver 0.50%, 2/28/2018		537,752		(3,756	)		8,066			—
Total Transportation Services				(30,571	)		8,066			—
Total Unfunded Obligations			$	(589,561	)	$	(485,077	)		(0.19	)%
Total Investments – United States			$	447,762,162		$	448,649,030			171.70	%

Denotes that all or a portion of the loan secures the loans under the CLO (see Note 7).

All references to an alternate base rate are based on the Prime Rate.

London Interbank Offered Rate.

(1)

GLC Trust 2013-2 includes 3,922 small balance consumer loans with an average par of $10,512, a weighted average adjusted rate of 15.6% and a weighted average maturity of 1/26/2018. See Note 4 for additional information.

(2)

The negative fair value is the result of the unfunded commitment being valued below par. These amounts may or may not be funded to the borrowing party now or in the future.

(3)

Investment is currently in default, not income producing and placed on non-accrual status.

(4)

Not a qualifying asset under Section 55(a) of the Investment Company Act. Under the Investment Company Act, the Company may not acquire any non-qualifying asset unless, at the time the acquisition is made, qualifying assets represent at least 70% of the Company’s total assets.

See accompanying notes to consolidated financial statements.

TABLE OF CONTENTS

Garrison Capital Inc. and Subsidiaries

Consolidated Schedule of Investments – (continued)

September 30, 2014 (unaudited)

(5)

Coupon is payable in cash and/or payment-in-kind (PIK).

(6)

See exhibit 99.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2014 for detail on underlying loans.

All debt investments were income-producing as of September 30, 2014 except as noted above. Common equity and preferred equity investments are non-income-producing unless otherwise noted.

See accompanying notes to consolidated financial statements.

TABLE OF CONTENTS

Garrison Capital Inc. and Subsidiaries

Consolidated Schedule of Investments

December 31, 2013



Security Description	Par/Shares		Cost		Fair Value		% of Net Assets
Non-Control/Non-Affiliate Investments
Investments – United States
Common Equity
Health Services
Juniper TGX Investment Partners, LLC, Common		670,624	$	670,623	$	670,623		0.26	%
Total Health Services				670,623		670,623		0.26
Miscellaneous Manufacturing
Valterra Products Holdings, LLC, Common Class A		185,847		185,847		253,796		0.10
Valterra Products Holdings, LLC, Common Class B		20,650		20,650		28,200		0.01
Total Miscellaneous Manufacturing				206,497		281,996		0.11
Miscellaneous Retail
Provo Craft Holdings, LLC, Common		101		—		77		—
Total Miscellaneous Retail				—		77		—
Transportation Services
EZE Trucking, LLC, Common		2,678		267,801		—		—
Total Transportation Services				267,801		—		—
Total Common Equity			$	1,144,921	$	952,696		0.37	%
Preferred Equity
Consumer Finance Services
Prosper Marketplace, Series B Preferred Stock		1,000,000	$	1,000,000	$	1,000,000		0.39	%
Total Consumer Finance Services				1,000,000		1,000,000		0.39
Total Preferred Equity			$	1,000,000	$	1,000,000		0.39	%
Debt Investments
Apparel Products
Joe’s Jeans Inc., Term Loan* L+ 10.75%, 1.25% L Floor, 9/30/2018		10,500,000	$	10,300,696	$	10,300,581		4.05	%
Totes Isotoner Corporation, Delayed Draw Term Loan* L+ 5.75%, 1.50% L Floor, 7/7/2017		400,403		400,403		401,155		0.16
Totes Isotoner Corporation, Initial Term Loan (First Lien)* L+ 5.75%, 1.50% L Floor, 7/7/2017		4,817,673		4,770,707		4,826,731		1.90
Total Apparel Products				15,471,806		15,528,467		6.11
Automotive
BBB Industries LLC, Term Loan* L+ 4.25%, 1.25% L Floor, 3/27/2019		4,908,750		4,865,936		4,908,750		1.93
CTC Casting Technologies, Inc. (Compass), Term Loan* L+ 8.00%, 1.00% L Floor, 11/27/2016		7,631,064		7,574,576		7,574,523		2.98
Penda Corporation, Term Loan L+ 14.00%, 1/26/2019		7,213,936		7,081,475		7,080,998		2.79
Total Automotive				19,521,987		19,564,271		7.70
Broadcasting & Entertainment
KXLA TV 44, Inc., Term Loan* L+ 9.50%, 2.00% L Floor, 3/31/2016		8,308,905		8,370,788		8,308,905		3.27
Sesac Holdco II, LLC, Term Loan (First Lien)* L+ 4.00%, 1.00% L Floor, 2/7/2019		990,000		981,582		993,713		0.39
Sesac Holdco II, LLC, Term Loan (Second Lien)* L+ 8.75%, 1.25% L Floor, 7/12/2019		5,250,000		5,387,088		5,355,000		2.11
Total Broadcasting & Entertainment				14,739,458		14,657,618		5.77

See accompanying notes to consolidated financial statements.

TABLE OF CONTENTS

Garrison Capital Inc. and Subsidiaries

Consolidated Schedule of Investments – (continued)

December 31, 2013



Security Description	Par		Cost		Fair Value		% of Net Assets
Non-Control/Non-Affiliate Investments (continued)
Investments – United States (continued)
Debt Investments (continued)
Chemicals
Arclin US Holdings Inc., Second Lien Term Loan* L+ 6.00%, 1.75% L Floor, 1/15/2015		2,598,597	$	2,565,212	$	2,598,597		1.02	%
Total Chemicals				2,565,212		2,598,597		1.02
Communications
Aspect Software, Inc., Tranche B Term Loan* L+ 5.25%, 1.75% L Floor, 5/7/2016		7,732,307		7,711,983		7,746,844		3.05
ConvergeOne Holdings Corp, Term Loan* L+ 8.00%, 1.25% L Floor, 5/8/2019		11,248,571		11,098,514		11,103,240		4.37
HC Cable OpCo, LLC, Term Loan L+ 8.50%, 1.00% L Floor, 7/17/2018		10,983,112		10,808,591		10,808,486		4.26
Northland Cable Television, Inc., Term Loan* L+ 6.00%, 1.75% L Floor, 12/30/2016		2,821,848		2,735,409		2,821,848		1.11
Sirva Worldwide, Loan* L+ 6.25%, 1.25% L Floor, 3/27/2019		4,962,500		4,876,131		5,061,750		1.99
U.S. Telepacific Corp., Term Loan* L+ 4.50%, 1.25% L Floor, 2/23/2017		2,926,005		2,923,286		2,927,468		1.15
Total Communications				40,153,914		40,469,636		15.93
Consumer Finance Services
PlanMember Financial Corporation, Term Loan* L+ 8.50%, 1.50% L Floor, 2/14/2018		1,477,500		1,445,451		1,477,500		0.58
Total Consumer Finance Services				1,445,451		1,477,500		0.58
Electrical Equipment
Roberts-Gordon LLC, Term Loan* L+ 10.00%, 2.00% L Floor, 4/20/2016		9,440,983		9,419,121		9,469,436		3.73
Syncsort Incorporated, Term Loan* Base Rate+ 4.25%**, 3/31/2015		3,128,670		3,109,864		3,128,670		1.23
Total Electrical Equipment				12,528,985		12,598,106		4.96
Food Stores – Retail
Apple & Eve, LLC, Term Loan* L+ 12.50%, 1.25% L Floor, 12/11/2017		8,775,541		8,706,337		8,858,488		3.49
Sagittarius Restaurants LLC (Del Taco), Initial Term Loan* L+ 5.00%, 1.25% L Floor, 10/1/2018		4,642,857		4,602,863		4,642,857		1.83
Sailormen Inc. (Interfoods of America), Term Loan L+ 4.00%, 2.25% L Floor, 6/30/2017		4,212,681		3,438,365		3,412,271		1.34
Sqwincher Corporation (The), Term Loan* L+ 10.00%, 1.50% L Floor, 8/3/2016		6,773,900		6,708,178		6,813,801		2.68
Total Food Stores – Retail				23,455,743		23,727,417		9.34
Health Services
Ellman International, Inc., Term Loan L+ 7.50%, 1.50% L Floor, 2/28/2014		3,256,914		3,244,920		3,244,714		1.27
Ellman International, Inc., Revolver Base Rate + 6.50%**, 2/28/2014		794,219		810,730		810,608		0.32
eResearchTechnology, Inc., Term Loan* L+ 4.75%, 1.25% L Floor, 5/2/2018		6,435,000		6,407,882		6,443,044		2.54

See accompanying notes to consolidated financial statements.

TABLE OF CONTENTS

Garrison Capital Inc. and Subsidiaries

Consolidated Schedule of Investments – (continued)

December 31, 2013



Security Description	Par		Cost		Fair Value		% of Net Assets
Non-Control/Non-Affiliate Investments (continued)
Investments – United States (continued)
Debt Investments (continued)
Virtual Radiologic Corporation, Term Loan B* L+ 5.50%, 1.75% L Floor, 12/22/2016		4,875,000	$	4,848,997	$	2,754,375		1.08	%
SCG Capital Corporation (Radiation Therapy), Term Loan L+ 12.00%, 3/1/2017		3,227,737		3,227,737		3,227,737		1.27
Theragenics Corporation, Term Loan* L+ 10.25%, 1.25% L Floor, 10/29/2018		9,938,040		9,735,411		9,746,137		3.84
Walnut Hill Physicians’ Hospital, Construction Loan 12.50%, 3/31/2014		9,798,642		9,798,642		9,798,642		3.86
Total Health Services				38,074,319		36,025,257		14.18
Hotels and Motels
Buffalo Thunder Inc., Term Loan* L+ 3.00%, 1/1/2014		280,105		280,105		280,105		0.11
Total Hotels and Motels				280,105		280,105		0.11
Insurance Agents
Affirmative Insurance Holdings, Inc., Term Loan* L+ 7.25%, 1.25% L Floor, 3/30/2016		7,041,537		6,717,183		6,689,460		2.63
Worley Claims Services, LLC, Term Loan* L+ 11.00%, 1.50% L Floor, 7/6/2017		6,506,431		6,415,070		6,669,923		2.63
Total Insurance Agents				13,132,253		13,359,383		5.26
Machinery
Paladin Brands Holding, Inc. (IES), Initial Loan L+ 5.50%, 1.25% L Floor, 8/16/2019		797,000		797,000		790,026		0.31
Total Machinery				797,000		790,026		0.31
Metal Mining
Metal Services LLC (Phoenix), New Term Loans* L+ 5.00%, 1.00% L Floor, 6/30/2017		3,477,728		3,477,728		3,500,333		1.38
Total Metal Mining				3,477,728		3,500,333		1.38
Miscellaneous Manufacturing
Arctic Glacier USA, Inc., Term Loan (First Lien)* L+ 4.75%, 1.25% L Floor, 5/10/2019		4,701,375		4,680,410		4,713,128		1.85
Alpha Packaging Holdings, Inc., Tranche B Term Loan* L+ 4.50%, 1.25% L Floor, 9/17/2016		3,144,375		3,099,606		3,081,488		1.21
Anchor Hocking, LLC (EveryWare Global), Term Loan L+ 6.25%, 1.25% L Floor, 5/21/2020		6,965,000		6,902,191		7,069,475		2.78
AP Gaming Holdings, LLC, Term Loan B* L+ 8.25%, 1.00% L Floor, 12/20/2020		5,000,000		4,850,821		4,875,000		1.92
Axia Acquisition Corporation, Term Loan A L+ 9.00%, 2.00% L Floor, 3/12/2016		903,851		852,578		903,851		0.36
Expera Specialty Solutions, LLC, Term Loan* L+ 6.25%, 1.25% L Floor, 12/26/2018		6,965,000		6,839,118		7,034,650		2.77
Kranos Acquisition Corp., Term Loan* L+ 11.00%, 1.00% L Floor, 6/15/2017		10,000,000		9,930,942		10,145,479		3.99

See accompanying notes to consolidated financial statements.

TABLE OF CONTENTS

Garrison Capital Inc. and Subsidiaries

Consolidated Schedule of Investments – (continued)

December 31, 2013



Security Description	Par		Cost		Fair Value		% of Net Assets
Non-Control/Non-Affiliate Investments (continued)
Investments – United States (continued)
Debt Investments (continued)
Nursery Supplies, Inc., Term Loan* L+ 7.50%, 1.00% L Floor, 6/13/2018		11,356,250	$	11,305,750	$	11,520,838		4.53	%
Ranpak Corp., Second Lien Term Loan* L+ 7.25%, 1.25% L Floor, 4/23/2020		1,000,000		991,035		1,025,000		0.40
Valterra Products Holdings, LLC, Term Loan* L+ 9.00%, 1.00% L Floor, 5/31/2018		8,681,802		8,528,610		8,891,639		3.50
Total Miscellaneous Manufacturing				57,981,061		59,260,548		23.31
Miscellaneous Retail
PD Products, LLC, Term Loan* L+ 10.50%, 1.50% L Floor, 10/4/2018		10,500,000		10,300,235		10,300,120		4.05
PD Products, LLC, Revolver* L+ 10.50%, 1.50% L Floor, 10/4/2018		278,906		274,926		274,909		0.11
PSP Group, LLC, Term Loan* L+ 4.75%, 1.50% L Floor, 9/13/2016		4,410,206		4,378,877		4,388,155		1.73
Total Miscellaneous Retail				14,954,038		14,963,184		5.89
Miscellaneous Services
Attachmate Corporation, Second Lien Term Loan* L+ 9.50%, 1.50% L Floor, 11/22/2018		9,865,221		9,823,489		9,618,590		3.79
Global Traffic Technologies, LLC, Term Loan A* L+ 5.25%, 1.25% L Floor, 6/30/2015		2,962,584		2,933,395		2,962,584		1.17
Global Traffic Technologies, LLC, Term Loan B* L+ 5.25%, 1.25% L Floor, 6/30/2015		3,560,206		3,544,534		3,560,206		1.40
NAP Asset Holdings Ltd., Canadian Term Loan* L+ 7.00%, 1.00% L Floor, 3/22/2018		2,888,094		2,863,437		2,888,094		1.14
NAP Asset Holdings Ltd., Term Loan* L+ 7.00%, 1.00% L Floor, 3/22/2018		6,463,830		6,408,645		6,463,830		2.54
Sprint Industrial Holdings, LLC, Term Loan (First Lien)* L+ 5.75%, 1.25% L Floor, 5/14/2019		5,970,000		5,916,719		6,014,775		2.37
Vision Solutions, Inc., Term Loan (First Lien)* L+ 4.50%, 1.50% L Floor, 7/23/2016		7,181,084		7,138,126		7,181,084		2.82
Total Miscellaneous Services				38,628,345		38,689,163		15.23
National Security
Scitor Corporation, Term Loan* L+ 3.50%, 1.50% L Floor, 2/15/2017		6,639,773		6,631,840		6,531,876		2.57
Sirius Computer Solutions (SCS Holdings I Inc.), Term Loan* L+ 5.75%, 1.25% L Floor, 12/7/2018		3,238,462		3,211,926		3,268,717		1.29
Total National Security				9,843,766		9,800,593		3.86
Oil & Gas
Varel International Energy Funding Corp., Term Loan* L+ 7.75%, 1.50% L Floor, 7/17/2017		7,760,000		7,638,232		7,876,400		3.10
Total Oil & Gas				7,638,232		7,876,400		3.10
Printing & Publishing
Penn Foster, Inc., Term Loan* Base Rate+ 5.00%**, 3/31/2015		1,111,639		1,111,639		978,242		0.39
Playboy Enterprises, Inc., Term Loan* L+ 6.00%, 1.25% L Floor, 3/6/2017		6,050,741		6,029,173		5,929,727		2.33
Total Printing & Publishing				7,140,812		6,907,969		2.72

See accompanying notes to consolidated financial statements.

TABLE OF CONTENTS

Garrison Capital Inc. and Subsidiaries

Consolidated Schedule of Investments – (continued)

December 31, 2013



Security Description	Par		Cost		Fair Value		% of Net Assets
Non-Control/Non-Affiliate Investments (continued)
Investments – United States (continued)
Debt Investments (continued)
Restaurants
BMP/Pennant Holdings, LLC, Term Loan A* L+ 4.00% Cash, L+ 3.00% PIK, 6/27/2014		2,741,812	$	2,666,385	$	2,604,722		1.03	%
BMP/Pennant Holdings, LLC, Term Loan B L+ 6.00% Cash, L+ 5.00% PIK, 6/27/2014		614,445		598,423		460,834		0.18
Total Restaurants				3,264,808		3,065,556		1.21
Specialty Services
Vistronix, LLC, Term Loan* L+ 7.50%, 1.00% L Floor, 12/4/2018		10,446,364		10,342,421		10,342,363		4.07
SI Organization, Inc. (The), New Tranche B Term Loan* L+ 4.25%, 1.25% L Floor, 11/22/2016		4,847,243		4,813,693		4,750,297		1.86
Total Specialty Services				15,156,114		15,092,660		5.93
Textile Products
Universal Fiber Systems, LLC, Term Loan* L+ 5.75%, 1.75% L Floor, 6/26/2015		3,875,000		3,862,146		3,875,000		1.53
Total Textile Products				3,862,146		3,875,000		1.53
Transportation Services
EZE Trucking, LLC, Term Loan* L+ 9.75%, 7/31/2018		10,425,000		10,186,355		10,186,213		4.02
Fleetgistics Holdings, Inc., Term Loan* L+ 5.88%, 2.00% L Floor, 3/23/2015		1,640,359		1,641,545		1,600,990		0.63
MXD Group, Inc. (fka Exel Direct Inc.), Term Loan* L+ 11.00%, 1.00% L Floor, 5/31/2018		13,912,500		13,664,020		13,666,860		5.38
Ozburn-Hessey Holding Company LLC, Term Loan B* L+ 5.50%, 1.25% L Floor, 5/23/2019		6,467,500		6,409,408		6,483,103		2.55
Raymond Express International, LLC, Term Loan* L+ 7.75%, 1.75% L Floor, 2/28/2018		4,463,343		4,425,340		4,530,293		1.78
Stafford Logistics, Inc., Term Loan* L+ 5.50%, 1.25% L Floor, 6/26/2019		3,833,799		3,797,026		3,833,799		1.51
State Class Tankers II LLC, Term Loan L+ 5.50%, 1.25% L Floor, 6/20/2020		5,000,000		5,001,911		5,075,000		2.00
Total Transportation Services				45,125,605		45,376,258		17.87
Wholesale Durable Goods
Howard Berger Co. LLC, Term A Loan* L+ 5.75%, 1.25% L Floor, 8/3/2017		1,875,961		1,855,793		1,782,163		0.70
Total Wholesale Durable Goods				1,855,793		1,782,163		0.70
Total Debt Investments			$	391,094,681	$	391,226,210		154.00	%
Financial Assets
Consumer Finance Services
GLC Trust 2013-2 Consumer Loan Pool⁽¹⁾		16,698,585	$	16,698,585	$	16,888,126		6.65	%
Total Consumer Finance Services				16,698,585		16,888,126		6.65
Total Financial Assets			$	16,698,585	$	16,888,126		6.65	%
Total Non-Control/Non-Affiliate Investments			$	409,938,187	$	410,107,032		161.41	%

See accompanying notes to consolidated financial statements.

TABLE OF CONTENTS

Garrison Capital Inc. and Subsidiaries

Consolidated Schedule of Investments – (continued)

December 31, 2013



Security Description	Par/Shares		Cost			Fair Value			% of Net Assets
Non-Control/Non-Affiliate Investments (continued)
Investments – United States (continued)
Unfunded Obligations
Communications
HC Cable OpCo, LLC, Revolver⁽²⁾ 0.50%, 7/17/2018		489,362	$	(7,776	)	$	(7,781	)		—	%
Total Communications				(7,776	)		(7,781	)		—
Health Services
Ellman International, Inc., Revolver⁽²⁾ 0.50%, 2/28/2014		1,191,328		(23,823	)		(23,827	)		(0.01	)
Total Health Services				(23,823	)		(23,827	)		(0.01	)
Miscellaneous Manufacturing
CTC Casting Technologies, Inc. (Compass), Delayed Draw Term Loan*⁽²⁾ 0.00%, 11/27/2016		265,049		(1,962	)		(1,964	)		—
Valterra Products Holdings, LLC, Revolver⁽²⁾ 0.50%, 5/31/2018		1,588,437		(28,028	)		38,392			0.01
Total Miscellaneous Manufacturing				(29,990	)		36,428			0.01
Miscellaneous Retail
PD Products, LLC, Revolver⁽²⁾ 0.50%, 10/4/2018		1,361,719		(27,233	)		(27,234	)		(0.01	)
Total Miscellaneous Retail				(27,233	)		(27,234	)		(0.01	)
Miscellaneous Services
Global Traffic Technologies, LLC, Revolver⁽²⁾ 0.50%, 6/30/2015		1,458,439		(6,420	)		—			—
Total Miscellaneous Services				(6,420	)		—			—
Specialty Services
Vistronix, LLC, Revolver*⁽²⁾ 0.50%, 12/4/2018		870,530		(8,662	)		(8,667	)		—
Total Specialty Services				(8,662	)		(8,667	)		—
Transportation Services
EZE Trucking, LLC, CapEx A Loan⁽²⁾ 0.60%, 7/31/2018		1,400,000		(32,048	)		(32,067	)		(0.01	)
Raymond Express International, LLC, Revolver⁽²⁾ 0.50%, 2/28/2018		537,752		(4,579	)		8,066			—
Total Transportation Services				(36,627	)		(24,001	)		(0.01	)
Total Unfunded Obligations			$	(140,531	)	$	(55,082	)		(0.02	)%
Common Equity
Oil & Gas
Anchor Drilling Fluids USA, Inc., Common		959	$	2,038,456		$	2,137,779			0.84	%
Total Oil & Gas				2,038,456			2,137,779			0.84
Total Common Equity			$	2,038,456		$	2,137,779			0.84	%
Preferred Equity
Oil & Gas
Anchor Drilling Fluids USA, Inc., Preferred, 10.00% PIK		1,723	$	2,721,574		$	4,453,182			1.75	%
Total Oil & Gas				2,721,574			4,453,182			1.75
Total Preferred Equity			$	2,721,574		$	4,453,182			1.75	%

See accompanying notes to consolidated financial statements.

TABLE OF CONTENTS

Garrison Capital Inc. and Subsidiaries

Consolidated Schedule of Investments – (continued)

December 31, 2013



Security Description	Par/Shares		Cost		Fair Value		% of Net Assets
Non-Control/Non-Affiliate Investments (continued)
Investments – United States (continued)
Debt Investments
Oil & Gas
Anchor Drilling Fluids USA, Inc., Term Loan B L+ 9.25%, 2.00% L Floor, 3/5/2014		12,438,568	$	12,430,765	$	12,438,568		4.90	%
Total Oil & Gas				12,430,765		12,438,568		4.90
Total Debt Investments			$	12,430,765	$	12,438,568		4.90	%
Total Affiliate Investments			$	17,190,795	$	19,029,529		7.49	%
Total Investments – United States			$	426,988,451	$	429,081,479		168.88	%

Denotes that all or a portion of the loan secures the loans under the $350.0 million collateralized loan obligation completed on September 25, 2013 (the “CLO”).

Reference to an alternate base rate is commonly based on the Prime Rate.

(1)

GLC Trust 2013-2 includes 1,609 small balance consumer loans with an average par of $10,408, a weighted average adjusted rate of 16.8% and a weighted average maturity of 9/23/2017. As of December 31, 2013, the Company had an outstanding commitment to purchase an additional $524,000 of loans. See Note 4 for additional information.

(2)

The negative fair value is the result of the unfunded commitment being valued below par. These amounts may or may not be funded to the borrowing party now or in the future.

All debt and preferred equity investments were income-producing as of December 31, 2013. Common equity investments are non-income-producing unless otherwise noted.

See accompanying notes to consolidated financial statements.

TABLE OF CONTENTS

Garrison Capital Inc. and Subsidiaries

Consolidated Statements of Operations (unaudited)

For the three and nine months ended September 30, 2014 and September 30, 2013



	Three months ended September 30, 2014			Three months ended September 30, 2013			Nine months ended September 30, 2014			Nine months ended September 30, 2013
Investment income
Interest income
Non-Control/Non-Affiliate investments	$	12,943,931		$	9,337,744		$	36,225,519		$	22,422,333
Affiliate investments		—			—			462,080			—
Dividend Income		—			—
Non-Control/Non-Affiliate investments		—			—			—			—
Affiliate investments		—			—			385,765			—
Total investment income		12,943,931			9,337,744			37,073,364			22,422,333
Expenses
Interest		1,870,538			1,898,139			5,227,203			4,900,895
Loss on refinancing of GLC Trust 2013-2 revolver⁽¹⁾		242,643			—			242,643			—
Loss on refinancing of senior secured notes⁽¹⁾		—			426,714			—			426,714
Management fee		2,023,518			1,863,177			5,997,377			4,408,507
Incentive fee		1,270,008			—			7,065,897			—
Professional fees		254,742			355,522			915,305			963,893
Directors’ fees		95,554			100,000			282,805			268,680
Administrator expenses		164,654			217,743			568,289			587,766
Other expenses		625,150			425,304			1,509,578			816,079
Total expenses		6,546,807			5,286,599			21,809,097			12,372,534
Base management fee waived		—			(1,863,177	)		—			(3,815,756	)
Directors’ fees waived		—			—			—			(34,426	)
Administrator expenses waived		—			—			—			(101,197	)
Net expenses		6,546,807			3,423,422			21,809,097			8,421,155
Net investment income before excise taxes		6,397,124			5,914,322			15,264,267			14,001,178
Excise tax expense		(136,000	)		—			(136,000	)		—
Net investment income		6,261,124			5,914,322			15,128,267			14,001,178
Realized and unrealized gain/(loss) on investments
Net realized gain/(loss) from investments
Non-Control/Non-Affiliate investments		821,994			(5,689,915	)		2,392,109			(11,041,153	)
Affiliate investments		375,647						8,501,681
Net change in unrealized gain/(loss) from investments
Non-Control/Non-Affiliate investments		(2,377,915	)		6,528,917			632,574			13,866,761
Affiliate investments		—						(1,838,734	)
Net realized and unrealized gain/(loss) on investments		(1,180,274	)		839,002			9,687,630			2,825,608
Net increase in net assets resulting from operations	$	5,080,850		$	6,753,324		$	24,815,897		$	16,826,786
Net investment income per common share	$	0.37		$	0.35		$	0.90		$	0.95
Net increase in net assets resulting from operations per common share	$	0.30		$	0.40		$	1.48		$	1.15
Basic weighted average common shares outstanding		16,758,779			16,758,779			16,758,779			14,672,034
Dividends and distributions declared per common share⁽²⁾	$	0.35		$	0.35		$	1.05		$	1.64

(1)

See Note 7.

(2)

Calculated using basic weighted average common shares outstanding.

See accompanying notes to consolidated financial statements.

TABLE OF CONTENTS

Garrison Capital Inc. and Subsidiaries

Consolidated Statements of Changes in Net Assets (unaudited)

For the nine months ended September 30, 2014 and September 30, 2013


	September 30, 2014			September 30, 2013
Increase in net assets from operations:
Net investment income	$	15,128,267		$	14,001,178
Net realized gain/(loss) from investments		10,893,790			(11,041,153	)
Net change in unrealized appreciation/(depreciation) on investments		(1,206,160	)		13,866,761
Net increase in net assets/members’ capital from operations:		24,815,897			16,826,786
Dividends and distributions to stockholders:
Return of capital – Distributions-in-kind⁽¹⁾		—			(9,991,329	)
Distributions to stockholders⁽²⁾		(17,596,718	)		(14,131,146	)
Total dividends and distributions to stockholders		(17,596,718	)		(24,122,475	)
Common share transactions⁽³⁾
Issuance of common stock, net of underwriting costs		—			87,463,519
Offering costs		—			(564,140	)
Net increase in net assets/members’ capital from common share transactions:		—			86,899,379
Total increase in net assets		7,219,179			79,603,690
Net assets at beginning of period		254,080,598			173,669,492
Undistributed net investment income included in net assets	$	(2,468,451	)	$	(5,972,272	)
Net assets at end of period	$	261,299,777		$	253,273,182
Net asset value per common share	$	15.59		$	15.11
Common shares outstanding at end of period⁽³⁾		16,758,779			16,758,779

(1)

Distributions-in-kind were made to only those investors who held shares of the Company’s common stock prior to the IPO.

(2)

Dividends from net investment income and distributions from net realized capital gains are determined in accordance with U.S. Federal income tax regulations, which may differ from those amounts determined in accordance with U.S. GAAP.

(3)

Adjusted for Reverse Stock Split. See Note 1 for further information on these transactions.

See accompanying notes to consolidated financial statements.

TABLE OF CONTENTS

Garrison Capital Inc. and Subsidiaries

Consolidated Statements of Cash Flows (unaudited)

For the nine months ended September 30, 2014 and September 30, 2013


	September 30, 2014			September 30, 2013
Cash flows from operating activities
Net increase in net assets resulting from operations	$	24,815,897		$	16,826,786
Adjustments to reconcile net increase in net assets resulting from operations to net cash provided by (used in) operating activities:
Net accretion of discounts on investments		(1,420,638	)		(1,120,020	)
Net realized (gain)/loss from investments		(10,893,790	)		11,041,153
Amortization of discount on senior secured notes payable		95,199			—
Loss on refinancing of GLC Trust 2013-2 revolving note		242,643			—
Loss on refinancing of senior secured notes		—			426,714
Amortization of deferred debt issuance costs		525,212			774,996
Net change in unrealized depreciation/(appreciation) on investments		1,206,160			(13,866,761	)
Paid-in-kind interest		(533,151	)		—
Purchases of investments		(325,007,250	)		(344,138,532	)
Paydowns of investments		225,714,640			100,032,951
Sales of investments		91,366,477			47,041,620
Changes in operating assets and liabilities:
Decrease in cash and cash equivalents, restricted		12,504,471			39,122,051
Decrease (Increase) in due from counterparties		4,953,557			(4,761	)
(Increase) in accrued interest receivable		(1,418,059	)		(783,394	)
(Increase) in deferred offering costs		(314,018	)		—
(Increase) in other assets		(282,290	)		(673,305	)
(Decrease) in due to counterparties		(2,743,797	)		(5,452,446	)
Increase in payables to affiliates		3,604,813			226,864
(Decrease) in interest payable on notes payable		(838,142	)		(423,038	)
(Decrease) in accrued expenses and other payables		(109,067	)		(108,288	)
Net cash provided by (used in) operating activities		21,468,867			(151,077,410	)
Cash flows from financing activities
Capital contributions		—			87,463,519
Distributions paid to stockholders		(17,596,718	)		(14,131,146	)
Deferred offering costs		—			(564,140	)
Payments for financing		(467,918	)		(3,008,822	)
Repayment of senior secured revolving note		(16,000,000	)		—
Repayment of GLC Trust 2013-2 revolving note		(9,741,676	)		—
Net proceeeds from GLC Trust 2013-2 notes		34,245,101			—
Proceeds from borrowing on term note		—			12,748,370
Proceeds from borrowing on revolving note		—			50,000,000
Net cash (used in) provided by financing activities		(9,561,211	)		132,507,781
Net increase (decrease) in cash and cash equivalents		11,907,656			(18,569,629	)
Cash and cash equivalents at beginning of period		13,664,583			21,680,791
Cash and cash equivalents at end of period	$	25,572,239		$	3,111,162
Supplemental disclosure of cash flow information
Cash paid for interest expense	$	5,475,121		$	4,549,104

Supplemental disclosure of non-cash information

On February 25, 2013, our board of directors approved a distribution-in-kind, or the Distribution-in-Kind, in the amount of $9,991,329 or $0.95 per share. Assets distributed were Next Generation Vending, LLC, Priority Revolving Loan in the amount of $2,000,000, Next Generation Vending, LLC, Revolver in the amount of $750,000, Next Generation Vending, LLC, Term Loan in the amount of $6,840,000 and $401,329 of accrued interest.

See accompanying notes to consolidated financial statements.

TABLE OF CONTENTS

Garrison Capital Inc. and Subsidiaries

Notes to Consolidated Financial Statements (unaudited)

September 30, 2014

1. Organization

Garrison Capital Inc. (“GARS” and, collectively with its subsidiaries, the “Company”, “we” or “our”) is a Delaware corporation and is an externally managed, closed-end, non-diversified management investment company. GARS has filed an election to be treated as a business development company (“BDC”) under the Investment Company Act of 1940, as amended (the “1940 Act”). In addition, for tax purposes, GARS has elected to be treated as a regulated investment company (“RIC”) under Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”), for the period beginning October 9, 2012 and intends to qualify annually thereafter.

Garrison Capital LLC, a Delaware limited liability company, commenced operations on December 17, 2010. On October 9, 2012, Garrison Capital LLC converted from a Delaware limited liability company to a Delaware corporation (the “Conversion”). In this Conversion, Garrison Capital Inc. succeeded to the business of Garrison Capital LLC and its subsidiaries, and the members of Garrison Capital LLC became stockholders of GARS. An aggregate of 10,707,221 shares of common stock, par value $0.001 per share, were issued to the members of GARS in this Conversion in accordance with their respective pro-rata membership interests in Garrison Capital LLC. As a result of a reverse stock split on February 25, 2013, which resulted in the conversion of one share of common stock into 0.9805106 shares of common stock (the “Reverse Stock Split”), all amounts related to shares/units, share/unit prices, earnings per share/per unit and distributions per share/unit have been retroactively restated for all periods presented. As a result, the 10,707,221 shares of common shares issued in the Conversion have been retroactively restated to 10,498,544.

GARS priced its initial public offering (“IPO”) on March 26, 2013, which closed on April 2, 2013, selling 6,133,334 shares, including 800,000 shares issued pursuant to the underwriters’ over-allotment option, at a public offering price of $15.00 per share. Concurrent with the closing of the IPO, the Company’s directors, officers, employees and an affiliate of Garrison Capital Advisers LLC, a Delaware limited liability company (the “Investment Adviser”), purchased an additional 126,901 shares through a private placement transaction (the “Concurrent Private Placement”) exempt from registration under the Securities Act of 1933, as amended, at a price of $15.00 per share. GARS’ shares trade on the NASDAQ Global Select Market, or NASDAQ, under the symbol “GARS”.

The Company invests or provides direct lending in (1) first lien senior secured loans, (2) second lien senior secured loans, (3) “one-stop” senior secured loans or “unitranche” loans, (4) subordinated or mezzanine loans, (5) unsecured consumer loans and (6) to a lesser extent, selected equity co-investments in middle-market companies. The term “one-stop” or “unitranche” refers to a loan that combines characteristics of traditional first lien senior secured loans and second lien or subordinated loans. The term “mezzanine” refers to a loan that ranks senior only to a borrower’s equity securities and ranks junior in right of payment to all of such borrower’s other indebtedness. The Company’s investment objective is to generate current income and capital appreciation by investing primarily in secured loans to middle-market companies and minority equity investments in middle-market companies. The Company intends to generate risk-adjusted net returns by assembling a broad portfolio of investments.

The Company’s business and affairs are managed and controlled by the Company’s board of directors (the “Board”), of which a majority of the members are independent of the Company, and the Investment Adviser and its affiliates.

On April 19, 2012, GARS formed Garrison Funding 2012-1 Manager LLC, a Delaware limited liability company (“GF 2012-1 Manager”). This entity is a wholly owned consolidated subsidiary of GARS created for the purpose of acquiring and holding an investment in Garrison Funding 2012-1 LLC, a Delaware limited liability company (“GF 2012-1”). On September 23, 2013, in anticipation of refinancing the credit facility of GF 2012-1, GF 2012-1 Manager effectuated a name change to Garrison Funding 2013-2 Manager LLC (“GF 2013-2 Manager”).

TABLE OF CONTENTS

Garrison Capital Inc. and Subsidiaries

Notes to Consolidated Financial Statements (unaudited)

September 30, 2014

1. Organization – (continued)

On April 19, 2012, GARS formed GF 2012-1 LLC for the purpose of acquiring or participating in U.S. dollar-denominated senior secured or second lien corporate loans and to acquire up to $150.0 million in financing.

On May 21, 2012, GF 2012-1 entered into a $150.0 million credit facility (the “Credit Facility”), consisting of $125.0 million of term loans (“Class A-T Loans”) and $25.0 million of revolving loans (“Class A-R Loans”), which was utilized to refinance the GF 2010-1 Notes (as defined in Note 7).

On May 17, 2013, GARS formed GLC Trust 2013-2, a Delaware statutory trust (“GLC Trust 2013-2”). This entity is a wholly owned subsidiary of GARS created for the purpose of investing in a portfolio of small balance consumer loans. GLC Trust 2013-2 is 100% owned by GARS. GLC Trust 2013-2 closed on a $10.0 million revolving facility with Capital One Bank, N.A. on December 6, 2013 (“GLC Trust 2013-2 Revolver”). The GLC Trust 2013-2 Revolver includes an accordion feature, such that GLC Trust 2013-2 was permitted to increase the total commitment up to $15.0 million under the terms of the loan agreement. GARS exercised this option on December 20, 2013.

On July 24, 2013, GARS formed Garrison Funding 2013-2 Ltd. (“GF 2013-2”), a Cayman Islands exempted company, for the purpose of refinancing the Credit Facility. On September 25, 2013 (the “Refinancing Date”), under Part XVI of the Cayman Islands Companies Law (2012 Revision), GF 2013-2 and GF 2012-1 merged with GF 2013-2 remaining as the surviving entity (the “Merger”). On the effective date of the Merger, all of the rights, the property, and the business, undertaking, goodwill, benefits, immunities and privileges of each individual company immediately vested in the surviving company.

On the Refinancing Date, GF 2013-2 completed a $350.0 million collateralized loan obligation (the “CLO”) through a private placement, the proceeds of which were utilized, along with cash on hand, to refinance the existing Credit Facility (see Note 7). Immediately following the completion of the CLO, GF 2013-2 Manager owned 100% of the Subordinated Notes (as defined below). GF 2013-2 Manager serves as collateral manager to GF 2013-2 and has entered into a sub-collateral management agreement with the Investment Adviser.

On July 11, 2014, GARS increased the GLC Trust 2013-2 Revolver total commitment by $15.0 million, for a total commitment of $30.0 million. On July 18, 2014, GARS completed a $39.2 million term debt securitization (“GLC Trust 2013-2 Notes”) collateralized by the GLC Trust 2013-2 consumer loan portfolio, to refinance the GLC Trust 2013-2 Revolver (see Note 7).

On August 15, 2013, Walnut Hill II LLC was formed for the purpose of holding a first lien equipment loan. Walnut Hill II LLC is 100% owned by GARS.

On July 7, 2014, Forest Park II LLC was formed for the purpose of holding first lien equipment loans. Forest Park II LLC is 100% owned by GARS.

GARS will periodically form limited liability companies for the purpose of holding minority equity investments (the “GARS Equity Holdings Entities”). GARS intends to form a new GARS Equity Holding Entity for each minority equity investment in order to provide specific tax treatment for individual investments. The GARS Equity Holdings Entities are 100% owned by GARS.

American Stock Transfer & Trust Company, LLC (“AST”) serves as the transfer and dividend paying agent and registrar.

GARS entered into a custody agreement, which was effective as of October 9, 2012 (the “Custody Agreement”), with Deutsche Bank Trust Company Americas (the “Custodian”) to act as custodian for GARS. Deutsche Bank Trust Company Americas is also the trustee of GF 2013-2.

TABLE OF CONTENTS

Garrison Capital Inc. and Subsidiaries

Notes to Consolidated Financial Statements (unaudited)

September 30, 2014

1. Organization – (continued)

GARS entered into an administration agreement, which was effective as of October 9, 2012 (the “Administration Agreement”), with Garrison Capital Administrator LLC, a Delaware limited liability company (the “GARS Administrator”).

SEI Investments Global Fund Services, Inc. (the “Sub-Administrator”) was the Company’s sub-administrator through September 30, 2013. The Sub-Administrator performed certain accounting and administrative services for the Company and received a monthly fee from the Company equal to a percentage of the total net assets of the Company. The Sub-Administrator was also reimbursed by the Company for all reasonable out-of-pocket expenses.

GARS entered into an investment advisory agreement with the Investment Adviser, which was effective as of October 9, 2012 and subsequently amended and restated on May 6, 2014 (the “Investment Advisory Agreement”). The Investment Adviser is responsible for sourcing potential investments, conducting research and diligence on prospective investments and equity sponsors, analyzing investment opportunities, structuring our investments and monitoring our investments and portfolio companies on an ongoing basis subject to the supervision of the Board. The Investment Adviser was organized in November 2010 and is a registered Investment Adviser under the Investment Advisers Act of 1940, as amended. The Investment Adviser is an affiliate of Garrison Investment Group LP, which is also the investment manager of various stockholders of the Company.

GLC Trust 2013-2 has entered into agreements with Prosper Funding LLC, U.S. Bank National Association, Wilmington Trust, National Association and Manufacturers and Traders Trust Company to act as servicer, securities administrator, indenture trustee and custodian, respectively, for GLC Trust 2013-2.

2. Significant Accounting Policies and Recent Updates

Basis of Presentation

The accompanying interim consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) for financial information. Accordingly, certain disclosures accompanying annual consolidated financial statements prepared in accordance with U.S. GAAP are omitted. The Company believes it has made all necessary adjustments so that the consolidated interim financial statements are presented fairly and that all such adjustments are of a normal recurring nature. The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. Intercompany accounts and transactions have been eliminated in consolidation. The accounts of the subsidiaries are prepared for the same reporting period as the Company using consistent accounting policies. Certain reclassifications have been made for previous periods in order to conform to the current period’s presentation.

Basis for Consolidation

Under the investment company rules and regulations pursuant to the American Institute of Certified Public Accountants Audit and Accounting Guide for Investment Companies, codified in Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 946, Financial Services — Investment Companies, the Company is precluded from consolidating any entity other than another investment company.

The Company generally consolidates any investment company when it owns 100% of its partners’ or members’ capital or equity units. ASC 946 provides for the consolidation of a controlled operating company that provides substantially all of its services to the investment company or its consolidated subsidiaries.

TABLE OF CONTENTS

Garrison Capital Inc. and Subsidiaries

Notes to Consolidated Financial Statements (unaudited)

September 30, 2014

2. Significant Accounting Policies and Recent Updates – (continued)

GF 2013-2 Manager owns a 100% interest in GF 2013-2, which is an investment company for accounting purposes, and also provides collateral management services solely to GF 2013-2. As such, GARS has consolidated the accounts of these entities into these consolidated financial statements. As a result of this consolidation, the amounts outstanding under the CLO are treated as the Company’s indebtedness.

The GARS Equity Holdings Entities, Walnut Hill II LLC, Forest Park II LLC and GLC Trust 2013-2 are 100% owned investment companies for accounting purposes. As such, GARS has consolidated the accounts of these entities into these consolidated financial statements. As a result of this consolidation, the amounts outstanding under the GLC Trust 2013-2 Notes are treated as the Company’s indebtedness.

Investment Classification

As required by the 1940 Act, investments are classified by level of control. “Control Investments” are investments in those companies that the Company is deemed to control as defined in the 1940 Act. “Affiliate Investments” are investments in those companies that are affiliated companies, as defined in the 1940 Act, other than Control Investments. “Non-Control/Non-Affiliate Investments” are those that are neither Control Investments nor Affiliate Investments.

Generally, under the 1940 Act, the Company is deemed to control a company in which it has invested if it owns more than 25% of the voting securities of such company. The Company is deemed to be an affiliate of a company in which it has invested if it owns 5% or more of the voting securities of such company.

As of September 30, 2014, $448,649,030 of the Company’s investments were Non-Control/Non-Affiliate investments and $0 were Affiliate investments, and as of December 31, 2013, $410,051,950 of the Company’s investments were Non-Control/Non-Affiliate investments and $19,029,529 were Affiliate investments.

Use of Estimates

The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts and disclosures in the consolidated financial statements, including the estimated fair values of investments and the amount of income and expenses during the reporting period. Actual results could differ from those estimates.

Cash and Cash Equivalents

The Company defines cash equivalents as highly liquid financial instruments with original maturities of three months or less including those held in overnight sweep bank deposit accounts. At September 30, 2014 and December 31, 2013, cash held in designated bank accounts with its custodian was $20,822,527 and $11,277,605, respectively. At September 30, 2014 and December 31, 2013, cash held in designated bank accounts with other major financial institutions was $4,749,712 and $2,386,978, respectively. At times, these balances may exceed federally insured limits and this potentially subjects the Company to a concentration of credit risk. The Company believes it is not exposed to any significant credit risk associated with its cash custodian. At September 30, 2014 and December 31, 2013, there were no cash equivalents.

Cash and Cash Equivalents, Restricted

Cash and cash equivalents, restricted at September 30, 2014 and December 31, 2013 included cash of $13,632,488 and $27,351,608, respectively, held by GF 2013-2 in designated bank accounts with its Custodian. GF 2013-2 is required to use a portion of these amounts to pay interest expense, reduce borrowings at the end of the investment period and to pay other amounts in accordance with the terms of the indenture of the CLO. Funds held by GF 2013-2 are not available for general use by the Company. Cash and cash equivalents, restricted at September 30, 2014 and December 31, 2013 also included cash of $1,827,548 and $612,899, respectively, held by GLC Trust 2013-2 in designated restricted bank accounts. GLC Trust

TABLE OF CONTENTS

Garrison Capital Inc. and Subsidiaries

Notes to Consolidated Financial Statements (unaudited)

September 30, 2014

2. Significant Accounting Policies and Recent Updates – (continued)

2013-2 is required to use a portion of these amounts to make principal payments and pay interest expense in accordance with the terms of the indenture governing the GLC Trust 2013-2 Notes.

There were no cash equivalents, restricted held as of September 30, 2014 and December 31, 2013.

Investment Transactions and Related Investment Income and Expense

The Company records its investment transactions on a trade date basis, which is the date when management has determined that all material legal terms have been contractually defined for the transactions. These transactions could possibly settle on a subsequent date depending on the transaction type. All related revenue and expenses attributable to these transactions are reflected on the consolidated statements of operations commencing on the trade date unless otherwise specified by the transaction documents. Realized gains and losses on investment transactions are recorded using the specific-identification method.

The Company accrues interest income if it expects that ultimately it will be able to collect such income. Generally, when a payment default occurs on a loan in the portfolio, or if management otherwise believes that the issuer of the loan will not be able to make contractual interest payments or principal payments, the Investment Adviser will place the loan on non-accrual status and will cease recognizing interest income on that loan until all principal and interest is current through payment or until a restructuring occurs, such that the interest income is deemed to be collectible. However, the Company remains contractually entitled to this interest.

The Company may make exceptions to this policy if the loan has sufficient collateral value and is in the process of collection. Accrued interest is written off when it becomes probable that the interest will not be collected and the amount of uncollectible interest can be reasonably estimated. For consumer loans, any loan which is 120 days past due is considered defaulted and 100% of the principal is charged off with no expected recovery or sale of defaulted receivables. For the three and nine months ended September 30, 2014, the Company had recognized $322,313 and $627,772, respectively, in charge offs in realized losses from investments for consumer loans held by GLC Trust 2013-2, and had one investment placed on non-accrual status. As of December 31, 2013, there were no loans placed on non-accrual status.

Any original issue discounts, as well as any other purchase discounts or premiums on debt investments, are accreted or amortized and included in interest income, over the maturity periods of the investments. If a loan is placed on non-accrual status, the Company will cease recognizing amortization of purchase discount until all principal and interest is current through payment or until a restructuring occurs, such that the income is deemed to be collectible.

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.

Interest Expense

Interest expense is recorded on an accrual basis and is adjusted for amortization of deferred debt issuance costs and any original issue discount.

Expenses

Expenses related to, but not limited to, ratings fees, due diligence, valuation expenses and independent collateral appraisals may arise when the Company makes certain investments. These expenses are recognized as incurred in the consolidated statements of operations within ratings fees and other expenses.

TABLE OF CONTENTS

Garrison Capital Inc. and Subsidiaries

Notes to Consolidated Financial Statements (unaudited)

September 30, 2014

2. Significant Accounting Policies and Recent Updates – (continued)

Loan Origination, Facility, Commitment and Amendment Fees

The Company may receive loan origination, prepayment, facility, commitment, and amendment fees in addition to interest income during the life of the investment. The Company may receive origination fees upon the origination of an investment.

Origination fees received by the Company are initially deferred and reduced from the cost basis of the investment and subsequently accreted into interest income over the remaining stated term of the loan. Upon the prepayment of a loan or debt security, any unamortized loan origination fees are recorded as interest income. We record prepayment premiums on loans and debt securities as interest income when we receive such amounts. Facility fees, sometimes referred to as asset management fees, are accrued as a percentage periodic fee on the base amount (either the funded facility amount or the committed principal amount). Commitment fees are based upon the undrawn portion committed by the Company and are accrued over the life of the loan.

Amendment fees are paid in connection with loan amendments and waivers and are recognized upon completion of the amendments or waivers, generally when such fees are receivable. Any such fees are included in interest income on the consolidated statements of operations. For the three months ended September 30, 2014 and September 30, 2013, other income in the amount of $935,040 and $45,414, respectively, was included in interest income. For the nine months ended September 30, 2014 and September 30, 2013, other income in the amount of $2,236,190 and $446,744, respectively, was included in interest income.

Valuation of Investments

The Company values its investments in accordance with FASB ASC Topic 820, Fair Value Measurements and Disclosures. ASC 820 defines fair value, establishes a framework for measuring fair value and expands disclosures about assets and liabilities measured at fair value.

ASC 820’s definition of fair value focuses on exit price in the principal, or most advantageous, market and prioritizes the use of market-based inputs over entity-specific inputs within a measurement of fair value.

The Company’s portfolio consists of primarily debt investments and unsecured consumer loans. The fair value of the Company’s investments is initially determined by investment professionals of the Investment Adviser and ultimately determined by the Board on a quarterly basis.

In valuing the Company’s debt investments, the Investment Adviser generally uses various approaches, including, but not limited to, proprietary models that consider the analyses of independent valuation agents as well as credit risk, liquidity, market credit spreads, other applicable factors for similar transactions, bid quotations obtained from other financial institutions that trade in similar investments or based on bid prices provided by independent third party pricing services.

The types of factors that the Board may take into account when reviewing the fair value initially derived by the Investment Adviser and determining the fair value of the Company’s debt investments generally include, as appropriate, comparison to publicly traded securities, including such factors as yield, maturity and measures of credit quality, the enterprise value of a portfolio company, the nature and realizable value of any collateral, the portfolio company’s ability to make payments and its earnings and discounted cash flow, the markets in which the portfolio company does business and other relevant factors.

In valuing the Company’s unsecured consumer loans, the Investment Adviser generally uses a discounted cash flow methodology based upon a set of assumptions. The primary assumptions used to value the unsecured consumer loans include prepayment and default rates derived from historical performance, actual performance as compared to historical projections and discount rate.

TABLE OF CONTENTS

Garrison Capital Inc. and Subsidiaries

Notes to Consolidated Financial Statements (unaudited)

September 30, 2014

2. Significant Accounting Policies and Recent Updates – (continued)

The types of factors that the Board may take into account when reviewing the fair value initially derived by the Investment Adviser and determining the fair value of the Company’s consumer loan investments generally include, as appropriate, prepayment and default rates derived from historical performance, actual performance as compared to historical projections and discount rates.

The Board has retained several independent valuation firms to review the valuation of each portfolio investment that does not have a readily available market quotation at least once during each 12-month period. To the extent a security is reviewed in a particular quarter, it is reviewed and valued by only one service provider.

However, the Board does not intend to have de minimis investments of less than 0.5% of the Company’s total assets (up to an aggregate of 10.0% of the Company’s total assets) independently reviewed.

The Board is ultimately and solely responsible for determining the fair value of the Company’s assets using a documented valuation policy and consistently applied valuation process.

Due to the nature of the Company’s strategy, the Company’s portfolio is primarily comprised of relatively illiquid investments that are privately held. Inputs into the determination of fair value of the Company’s portfolio investments require significant management judgment or estimation. This means that the Company’s portfolio valuations are based on unobservable inputs and the Investment Adviser’s own assumptions about how market participants would price the asset or liability in question. Valuations of privately held investments are inherently uncertain and they may fluctuate over short periods of time and may be based on estimates. The determination of fair value by the Board may differ materially from the values that would have been used if a ready market for these investments existed.

The valuation process is conducted at the end of each fiscal quarter, with a portion of the Company’s valuations of portfolio companies without market quotations subject to review by the independent valuation firms each quarter. When an external event with respect to one of the Company’s portfolio companies, such as a purchase transaction, public offering or subsequent equity sale occurs, we expect to use the pricing indicated by the external event to corroborate our valuation.

With respect to investments for which market quotations are not readily available, our Board will undertake a multi-step valuation process each quarter, as described below:

•

The Company’s quarterly valuation process begins with each portfolio company or investment being initially valued by investment professionals of the Investment Adviser responsible for credit monitoring.

•

Preliminary valuation conclusions are then documented and discussed with our senior management and the Investment Adviser.

•

The valuation committee of the Board reviews these preliminary valuations.

•

At least once annually, the valuation for each portfolio investment that does not have a readily available quotation is reviewed by an independent valuation firm, subject to the de minimis exception described above.

•

The Board discusses valuations and determines the fair value of each investment in the Company’s portfolio in good faith.

Net assets could be materially affected if the determinations regarding the fair value of the investments were materially higher or lower than the values that are ultimately realized upon the disposal of such investments.

TABLE OF CONTENTS

Garrison Capital Inc. and Subsidiaries

Notes to Consolidated Financial Statements (unaudited)

September 30, 2014

2. Significant Accounting Policies and Recent Updates – (continued)

Offering Costs

Deferred offering costs consist of fees paid in relation to legal, accounting, regulatory and printing work completed in preparation of equity or debt offerings and are charged against proceeds from the offerings when received. As of September 30, 2014, $314,018 of expenses associated with the shelf registration statement initially filed on April 3, 2014 (“Registration Statement”) were deferred and included in deferred offering costs. These amounts will be charged against proceeds from offerings of securities when received.

Dividends and Distributions

Dividends and distributions to common stockholders are recorded on the ex-dividend date. The amount to be paid out as a dividend or distribution is determined by the Board each quarter and is generally based upon the earnings estimated by management. Net realized capital gains, if any, are distributed at least annually, although the Company may decide to retain such capital gains for investment.

The Company adopted a dividend reinvestment plan that provides for reinvestment of our dividends and other distributions on behalf of our stockholders, unless a stockholder elects to receive cash as provided below. As a result, if the Board authorizes, and we declare, a cash dividend or other distribution, then our stockholders who have not ‘opted out’ of our dividend reinvestment plan will have their cash distribution automatically reinvested in additional shares of our common stock acquired by AST through open-market purchases, rather than receiving the cash distribution. As of September 30, 2014, no new shares have been issued to fulfill the dividend reinvestment plan.

No action is required on the part of a registered stockholder to have its cash dividend or other distribution reinvested in shares of our common stock. A registered stockholder may elect to receive an entire distribution in cash by notifying AST in writing so that such notice is received by AST no later than the record date for distributions to stockholders. AST will set up an account for shares acquired through the plan for each stockholder who has not elected to receive dividends or other distributions in cash and hold such shares in non-certificated form. Upon request by a stockholder participating in the plan, received in writing not less than 10 days prior to the record date, AST will, instead of crediting shares to the participant’s account, issue a certificate registered in the participant’s name for the number of whole shares of our common stock and a check for any fractional share.

Those stockholders whose shares are held by a broker or other financial intermediary may receive dividends and other distributions in cash by notifying their broker or other financial intermediary of their election.

Income Taxes

Prior to the Conversion, Garrison Capital LLC was treated as a partnership for U.S. federal, state and local income tax purposes and, therefore, no provision has been made in the accompanying consolidated financial statements for federal, state or local income taxes. In accordance with the partnership tax law requirements, each partner would include their respective components of Garrison Capital LLC’s taxable profits or losses, as shown on their Schedule K-1s in their respective tax or information returns. GF 2013-2, GF 2013-2 Manager, the GARS Equity Holdings Entities, Walnut Hill II LLC and Forest Park II LLC are disregarded entities for tax purposes with the exception of Garrison Capital Equity Holdings LLC which was dissolved on December 30, 2013. GLC Trust 2013-2 is a grantor trust for U.S. taxable income purposes, whereby the income reverts to GARS.

As discussed in Note 1, for tax purposes, GARS elected to be treated as a RIC under Subchapter M of the Code, for the period from the date of the Conversion, beginning October 9, 2012, and intends to qualify each taxable year for such treatment. Such election was made upon the filing of the Company’s first U.S. federal

TABLE OF CONTENTS

Garrison Capital Inc. and Subsidiaries

Notes to Consolidated Financial Statements (unaudited)

September 30, 2014

2. Significant Accounting Policies and Recent Updates – (continued)

corporate income tax return. Accordingly, no provision for federal income tax was made in the consolidated financial statements for the nine months ended September 30, 2014 or the year ended December 31, 2013.

GARS complies with all RIC qualification provisions contained in the Code including certain source-of-income and asset diversification requirements as well as distribution requirements to our stockholders equal to at least 90.0% of “investment company taxable income”. “Investment company taxable income” is generally defined as net ordinary income plus the excess of realized net short-term capital gains over realized net long-term capital losses. As a RIC, GARS generally does not have to pay corporate-level U.S. federal income taxes on any net ordinary income or net capital gains that it distributes to its stockholders in a timely manner. However, GARS is subject to U.S. federal income taxes at regular corporate tax rates on any net ordinary income or net capital gain not distributed to its stockholders assuming at least 90.0% of its investment company taxable income is distributed at least annually.

Depending on the level of taxable income earned in a tax year, the Company may choose to retain taxable income in excess of current year dividend distributions, and would distribute such taxable income in the next tax year. The Company would then pay a 4% excise tax on such income, as required. To the extent that the Company determines that its estimated current year annual taxable income, determined on a calendar basis, could exceed estimated current calendar year dividend distributions, the Company accrues excise tax, if any, on estimated excess taxable income as taxable income is earned. For the three and nine months ended September 30, 2014 and September 30, 2013, $136,000 and $0 was recorded for U.S. federal excise tax.

In addition, GARS has certain wholly owned taxable subsidiaries (the “Taxable Subsidiaries”), each of which holds a portion of one or more of our portfolio investments that are listed on the Consolidated Schedule of Investments. The Taxable Subsidiaries are consolidated for financial reporting purposes in accordance with U.S. GAAP, so that our consolidated financial statements reflect our investments in the portfolio companies owned by the Taxable Subsidiaries. The purpose of the Taxable Subsidiaries is to permit GARS to hold certain interests in portfolio companies that are organized as limited liability companies (“LLCs”), or other forms of pass-through entities, and still satisfy the RIC tax requirement that at least 90.0% of a RIC’s gross income for federal income tax purposes must consist of qualifying investment income. Absent the Taxable Subsidiaries, a proportionate amount of any gross income of an LLC (or other pass-through entity) portfolio investment would flow through directly to GARS. To the extent that such income did not consist of investment income, it could jeopardize GARS’ ability to qualify as a RIC and therefore cause GARS to incur significant amounts of corporate-level U.S. federal income taxes. Where interests in LLCs (or other pass-through entities) are owned by the Taxable Subsidiaries, however, the income from such interests is taxed to the Taxable Subsidiaries and does not flow through to GARS, thereby helping GARS preserve its RIC status. The Taxable Subsidiaries are not consolidated for U.S. federal income tax purposes and may generate income tax expense as a result of their ownership of the portfolio companies.

Dividends from net investment income and distributions from net realized capital gains are determined in accordance with U.S. federal tax regulations, which may differ from amounts determined in accordance with U.S. GAAP and those differences could be material. These book-to-tax differences are either temporary or permanent in nature. Reclassifications due to permanent differences have no impact on net assets. The below were reclassifications made due to permanent differences for the tax year ended December 31, 2013:


Accumulated Net Investment Income/(Loss)	$	1,301,434
Paid-in Capital	$	(1,301,434	)

The permanent book-to-tax differences arose primarily due to return of capital distributions.

TABLE OF CONTENTS

Garrison Capital Inc. and Subsidiaries

Notes to Consolidated Financial Statements (unaudited)

September 30, 2014

2. Significant Accounting Policies and Recent Updates – (continued)

Taxable income differs from the net increase (decrease) in net assets resulting from operations primarily due to the exclusion of unrealized appreciation (depreciation) on investments from taxable income until they are realized and book-to-tax timing differences related to net capital gain/loss carryforwards.

The following table reconciles net increase in net assets resulting from operations to taxable income from April 1, 2013 to tax year ended December 31, 2013:


Net increase in net assets resulting from operations	$	20,214,870
Net change in unrealized appreciation on investments		(9,752,937	)
Permanent book-to-tax differences		—
Temporary book-to-tax differences		5,833,349
Taxable income before deductions for distribution	$	16,295,282

As of December 31, 2013, the accumulated earnings/(deficit) on a tax basis is:


Undistributed ordinary income	$	—
Accumulated capital and other losses		(5,833,349	)
Unrealized appreciation/(depreciation)		2,093,028
Total accumulated earnings/(deficit)	$	(3,740,321	)

The tax character of distributions paid during the tax period from April 1, 2013 to December 31, 2013 was as follows:


Ordinary	$	16,295,282
Long-term Capital Gain		—
Return of Capital		1,301,434
Total	$	17,596,716

As of December 31, 2013, the federal income tax basis of investments was $426,988,451, resulting in net unrealized gains of $2,093,028.

The Company is required to determine whether a tax position of the Company is more likely-than-not to be sustained upon examination by the applicable taxing authority, including resolution of any related appeals or litigation processes, based on the technical merits of the position. The tax benefit to be recognized is measured as the largest amount of benefit that is greater than fifty percent likely of being realized upon ultimate settlement. De-recognition of a tax benefit previously recognized could result in the Company recording a tax liability that could negatively impact the Company’s net assets.

U.S. GAAP provides guidance on thresholds, measurement, de-recognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition that is intended to provide better financial statement comparability among different entities.

The Company has concluded that it was not necessary to record a liability for any such tax positions as of September 30, 2014 and December 31, 2013. However, the Company’s conclusions regarding this policy may be subject to review and adjustment at a later date based on factors including, but not limited to, ongoing analyses of, and changes to, tax laws, regulations and interpretations thereof.

The Company’s activities from commencement of operations remain subject to examination by U.S. federal, state, and local tax authorities. No interest expense or penalties have been assessed as of September 30, 2014

TABLE OF CONTENTS

Garrison Capital Inc. and Subsidiaries

Notes to Consolidated Financial Statements (unaudited)

September 30, 2014

2. Significant Accounting Policies and Recent Updates – (continued)

and December 31, 2013. If the Company were required to recognize interest and penalties, if any, related to unrecognized tax benefits this would be recognized as income tax expense in the consolidated statement of operations.

New capital losses may now be carried forward indefinitely, and retain the character of the original loss. Under pre-enactment law, capital losses could be carried forward for eight years, and carried forward as short-term capital, irrespective of the character of the original loss. Additionally, any losses incurred for tax years beginning after the enactment of the Regulated Investment Company Modernization Act of 2010 on December 22, 2010 are required to be utilized prior to the losses incurred in pre-enactment tax years. However, this ordering rule will not impact GARS.

As of December 31, 2013, the Company had post-enactment long-term capital loss carryforwards of $5,833,349, which do not expire. The Company had no pre-enactment capital loss carryforwards.

Recent Accounting Pronouncements

In June 2013, the FASB issued Accounting Standards Update (“ASU”) 2013-08, Financial Services — Investment Companies (Topic 946): Amendments to the Scope, Measurement and Disclosure Requirements (“ASU 2013-08”), containing new guidance on assessing whether an entity is an investment company, requiring non-controlling ownership interest in investment companies to be measured at fair value and requiring certain additional disclosures. This guidance is effective for annual and interim periods beginning on or after December 15, 2013. ASU 2013-08 did not have a material impact on the Company’s consolidated financial position or disclosures.

3. Investments

The Company’s investments include debt investments (both funded and unfunded, “Debt Investments”), preferred and minority equity investments (“Equity”) of diversified companies and a portfolio of unsecured small balance consumer loans (“Financial Assets”).

These financial instruments also may be purchased indirectly through an interest in a limited partnership or a limited liability company. Certain of the risks of investing in the financial instruments of a distressed borrower or a company are discussed herein.

The Company may invest in assets for which the underlying borrower or companies are experiencing various forms of financial, operational, legal, and/or other distress or impairment, including companies involved in bankruptcy or other reorganization or liquidation proceedings, and those which might become involved in such proceedings. Through investing in these assets, the Company is exposed to credit risk relating to whether the borrower will meet its obligation to pay when it comes due until the investments are sold or mature. Any investment in a distressed company may involve special risks.

The Company’s transactions in Debt Investments are normally secured financings that are collateralized by physical assets and/or the enterprise value of the borrower. This collateral, and the Company’s rights to this collateral, are different depending on the specific transaction and are defined by the legal documents agreed to in the transaction.

The terms of the Debt Investments may require the Company to extend to a borrower additional credit or provide funding for any unfunded portion of such Debt Investments at the request of the borrower. This exposes the Company to potential liabilities that are not reflected on the consolidated statements of financial condition. As of September 30, 2014 and December 31, 2013, the Company had $31,200,921 and $9,162,616 of unfunded obligations with a fair value of $(485,077) and $(55,082), respectively. The negative fair value is the result of the unfunded commitment being valued below par. These amounts may or may not be funded to the borrowing party now or in the future. The unfunded commitments relate to loans with various maturity

TABLE OF CONTENTS

Garrison Capital Inc. and Subsidiaries

Notes to Consolidated Financial Statements (unaudited)

September 30, 2014

3. Investments – (continued)

dates, but the entire amount was eligible for funding to the borrowers as of September 30, 2014 and December 31, 2013, respectively, subject to the terms of each loan’s respective credit agreement.

There is no central clearinghouse for the Company’s Debt Investments, Equity or Financial Assets, nor is there a central depository for custody of any such interests. The processes by which these interests are cleared, settled and held in custody are individually negotiated between the parties to the transaction. This subjects the Company to operational risk to the extent that there are delays and failures in these processes. The Custodian maintains records of the investments owned by the Company.

4. Fair Value of Financial Instruments

The fair value of the Company’s assets and liabilities which qualify as financial instruments approximate the carrying amounts presented in the consolidated statements of financial condition.

U.S. GAAP requires enhanced disclosures about investments that are measured and reported on a fair value basis. Under U.S. GAAP, 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.

Further, the guidance distinguishes between inputs that reflect the assumptions market participants would use in pricing an asset or liability developed based on market data obtained from sources independent of the reporting entity (observable inputs) and inputs that reflect the reporting entity’s own assumptions about the assumptions market participants would use in pricing an asset or liability developed based on the best information available in the circumstances (unobservable inputs). Various inputs are used in determining the values of the Company’s investments and these inputs are categorized as of each valuation date.

The inputs are summarized in three broad hierarchies listed below:

•

Level 1 —

quoted unadjusted prices in active markets for identical investments as of the reporting date.

•

Level 2 —

other significant observable inputs (including quoted prices for similar investments, interest rates, prepayments, credit risk, etc.).

•

Level 3 —

significant unobservable inputs (including the reporting entity’s own assumptions about the assumptions market participants would use in determining the fair values of investments or indicative bid prices from unaffiliated market makers or independent third-party pricing services).

Fair value of publicly traded instruments is generally based on quoted market prices. Fair value of non-publicly traded instruments, and of publicly traded instruments for which quoted market prices are not readily available, may be determined based on other relevant factors, including without limitation, bid quotations from unaffiliated market makers or independent third-party pricing services, the price activity of comparable instruments and valuation pricing models.

For those investments valued using quotations, the bid price is generally used, unless the Company determines that it is not representative of an exit price. To the extent observable market data is available, such information may be the result of consensus pricing information or broker quotes. Due to the fact that the significant inputs used by the contributors of the consensus pricing source or the broker are unobservable and evidence with respect to trading levels is not available, any investments valued using indicative bid prices from unaffiliated market makers and independent third party pricing services have been classified within Level 3.

Investments classified as Level 3 may be fair valued using the income and market approaches, using a market yield valuation methodology or enterprise value methodology.

TABLE OF CONTENTS

Garrison Capital Inc. and Subsidiaries

Notes to Consolidated Financial Statements (unaudited)

September 30, 2014

4. Fair Value of Financial Instruments – (continued)

Factors that could affect fair value measurements of debt investments using the above referenced approaches include assumed growth rates, capitalization rates, discount rates, loan-to-value ratios, liquidation value, relative capital structure priority, market comparables, compliance with applicable loan, covenant and interest coverage performance, book value, market derived multiples, reserve valuation, assessment of credit ratings of an underlying borrower, review of ongoing performance, review of financial projections as compared to actual performance, review of interest rate and yield risk.

Factors that could affect fair value measurements of consumer loans using the above referenced approaches include prepayment rates, default rates, review of financial projections as compared to actual performance and discount rates.

Such factors may be given different weighting depending on management’s assessment of the underlying investment, and management may analyze apparently comparable investments in different ways. The Company has used, and intends to continue to use, independent valuation firms to provide additional corroboration for estimating the fair value of investments. Valuations performed by the independent valuation firms may utilize proprietary models and inputs. The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.

All of the Company’s investments (other than cash and cash equivalents) are classified as Level 3 under ASC 820.

The following table summarizes the valuation of the Company’s investments measured at fair value based on the fair value hierarchy detailed above as of September 30, 2014 and December 31, 2013:


	As of September 30, 2014
	Level 1		Level 2		Level 3		Total
Senior Secured⁽¹⁾	$	—	$	—	$	353,367,596	$	353,367,596
Second Lien		—		—		27,743,675		27,743,675
Mezzanine		—		—		7,323,901		7,323,901
Real Estate Loans		—		—		10,273,133		10,273,133
Subordinated		—		—		4,066,554		4,066,554
Preferred Equity Investments		—		—		3,761,056		3,761,056
Common Equity Investments		—		—		1,401,871		1,401,871
Financial Assets		—		—		40,711,244		40,711,244
	$	—	$	—	$	448,649,030	$	448,649,030


	As of December 31, 2013
	Level 1		Level 2		Level 3		Total
Senior Secured⁽²⁾	$	—	$	—	$	382,888,163	$	382,888,163
Second Lien		—		—		13,680,535		13,680,535
Mezzanine		—		—		7,080,998		7,080,998
Preferred Equity Investments		—		—		5,453,182		5,453,182
Common Equity Investments		—		—		3,090,475		3,090,475
Financial Assets		—		—		16,888,126		16,888,126
	$	—	$	—	$	429,081,479	$	429,081,479

(1)

Includes unfunded obligations of $(485,077).

(2)

Includes unfunded obligations of $(55,082).

TABLE OF CONTENTS

Garrison Capital Inc. and Subsidiaries

Notes to Consolidated Financial Statements (unaudited)

September 30, 2014

4. Fair Value of Financial Instruments – (continued)

The net change in unrealized appreciation/(depreciation) for the nine months ended September 30, 2014 and September 30, 2013 reported within the net change in unrealized appreciation/(depreciation) on investments in the Company’s consolidated statements of operations attributable to the Company’s Level 3 assets was $(1,206,160) and $13,866,763, respectively.

The following table is a reconciliation of investments in which significant unobservable inputs (Level 3) were used in determining fair value for the nine months ended September 30, 2014:



Nine Months ended September 30, 2014
	Senior Secured Investments			Second Lien Investments			Mezzanine Investments		Real Estate Loan Investments		Subordinated Investments			Unsecured Investments			Preferred Equity Investments			Common Equity Investments			Financial Assets			Total
Fair value, beginning of period	$	382,888,163		$	13,680,535		$	7,080,998	$	—	$	—		$	—		$	5,453,182		$	3,090,475		$	16,888,126		$	429,081,479
Transfers into Level 3⁽¹⁾		—			4,916,653			—		—		—			—			—			—			—			4,916,653
Transfers out of Level 3⁽¹⁾		(4,916,653	)		—			—		—		—			—			—			—			—			(4,916,653	)
Total net realized and unrealized gain/(loss) on investments		1,286,099			260,759			113,444		67,956		(1,521,077	)		—			4,190,491			6,624,283			(1,334,325	)		9,687,630
Total net accretion of discounts on investments		1,237,734			31,365			19,494		132,044		—			—			—			—			—			1,420,637
Purchases/Issuances		253,663,799			14,810,986			109,965		10,073,133		5,587,631			6,592,692			—			—			34,702,195			325,540,401
Sales		(77,170,973	)		—			—		—		—			—			(5,882,617	)		(8,312,887	)		—			(91,366,477	)
Paydowns		(203,620,573	)		(5,956,623	)		—		—		—			(6,592,692	)		—			—			(9,544,752	)		(225,714,640	)
Fair value, end of period	$	353,367,596		$	27,743,675		$	7,323,901	$	10,273,133	$	4,066,554		$	—		$	3,761,056		$	1,401,871		$	40,711,244		$	448,649,030
Net change in unrealized appreciation/(depreciation) included in earnings related to investments still held at reporting date	$	433,911		$	300,556		$	113,444	$	67,956	$	(1,521,077	)	$	—		$	2,971,094		$	449,251		$	(706,554	)	$	1,240,759

(1)

Transfers into or out of Level 1, 2 or 3 are recognized at the reporting date. There were no transfers of investments between levels by the Company for the nine months ended September 30, 2014.

The following table is a reconciliation of investments in which significant unobservable inputs (Level 3) were used in determining fair value for the nine months ended September 30, 2013:



	Nine Months Ended September 30, 2013
	Senior Secured Investments			Second Lien Investments			Mezzanine Investments			Preferred Equity Investments		Common Equity Investments			Financial Assets		Total
Fair value, beginning of period	$	217,225,589		$	2,625,596		$	—		$	—	$	254,600		$	—	$	220,105,785
Transfers into Level 3⁽¹⁾		—			—			—			—		—			—		—
Transfers out of Level 3⁽¹⁾		—			—			—			—		—			—		—
Total net realized and unrealized gain/(loss) on investments		1,372,228			(158,583	)		(579	)		1,731,608		(101,992	)		—		2,842,682
Total net accretion of discounts on investments		1,074,793			28,154			—			—		—			—		1,102,947
Purchases/Issuances		310,048,792			11,416,249			7,033,437			2,721,574		3,748,653			9,169,826		344,138,531
Sales⁽²⁾		(56,141,221	)		—			—			—		(490,399	)		—		(56,631,620	)
Paydowns		(99,877,923	)		(155,028	)		—			—		—			—		(100,032,951	)
Fair value, end of period	$	373,702,258		$	13,756,388		$	7,032,858		$	4,453,182	$	3,410,862		$	9,169,826	$	411,525,374
Net change in unrealized appreciation/(depreciation) included in earnings related to investments still held at reporting date	$	805,792		$	(157,318	)	$	(580	)	$	—	$	1,629,639		$	—	$	2,277,533

TABLE OF CONTENTS

Garrison Capital Inc. and Subsidiaries

Notes to Consolidated Financial Statements (unaudited)

September 30, 2014

4. Fair Value of Financial Instruments – (continued)

(1)

Transfers into or out of Level 1, 2 or 3 are recognized at the reporting date. There were no transfers of investments between levels by the Company for the nine months ended September 30, 2013.

(2)

Includes $9,991,329 Distribution-in-Kind.

The following table is a quantitative disclosure about significant unobservable inputs (Level 3) that were used in determining fair value at September 30, 2014:

Quantitative Information about Level 3 Fair Value Measurements

Fair Value at
September 30,
2014

Valuation
Technique

Unobservable
Input

Range

Weighted
Average

Low

High

Senior Secured Investments⁽¹⁾

353,367,596

Comparable yield
approach

Market rate⁽²⁾

5.5%

22.6%

10.1%

Market comparable
companies

EBITDA multiple

⁽⁵⁾

1.9x

15.0x

6.7x

Second Lien Investments

27,743,675

Comparable yield
approach

Market rate⁽²⁾

6.5%

11.5%

10.0%

Market comparable
companies

EBITDA multiple

⁽⁵⁾

5.0x

9.3x

7.3x

Mezzanine Investments

7,323,901

Comparable yield
approach

Market rate⁽²⁾

14.0%

Market comparable
companies

EBITDA multiple

⁽⁵⁾

6.0x

Subordinated Investments

4,066,554

Market comparable
companies

EBITDA multiple

⁽⁵⁾

3.0x

Real Estate Loan Investments

10,273,133

Comparable yield
approach

Market rate⁽²⁾

10.0%

Equity Investments⁽³⁾

1,401,871

Market comparable
companies

EBITDA multiple

⁽⁵⁾

5.0x

7.0x

5.6x

Financial Assets⁽⁴⁾

40,711,244

Discounted cash
flows

Interest rate

10.3%

31.3%

15.7%

Conditional
prepayment rate
(“CPR”)

18.5%

83.6%

43.5%

Constant default rate
(“CDR”)

6.5%

33.0%

14.7%

Discount rate

9.3%

Total

444,887,974

(1)

Includes total unfunded obligations of $(485,077).

(2)

Market rate is calculated based on the fair value of the investments and interest expected to be received using the current rate of interest at the balance sheet date to maturity, excluding the effects of future scheduled principal amortizations.

(3)

Fair value for purposes of this table excludes $3,761,056 of a preferred equity investment which is valued at a recent transaction price.

TABLE OF CONTENTS

Garrison Capital Inc. and Subsidiaries

Notes to Consolidated Financial Statements (unaudited)

September 30, 2014

4. Fair Value of Financial Instruments – (continued)

(4)

Financial Assets are aggregated by the level of risk associated with the underlying loan, measured by the estimated loss rate. The estimated loss rate is based on the historical performance of loans with similar characteristics, the borrower’s credit score obtained from an official credit reporting agency at origination, debt-to-income ratios at origination, information from the borrower’s credit report at origination, as well as the borrower’s self-reported income range, occupation and employment status at origination. Financial Asset risk ratings are assigned on a scale from A through F, with A having the lowest level of risk and F having the highest level of risk. As of September 30, 2014, 26.4%, 30.0%, 31.5%, 7.8%, 3.9% and 0.4% of the total fair value of Financial Assets was comprised of A, B, C, D, E and F risk rated loans, respectively. See exhibit 99.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2014 for detail on underlying loans.

(5)

Excludes non-operating portfolio companies, which we define as those with loans collateralized by real estate or other hard assets.

The following table is a quantitative disclosure about significant unobservable inputs (Level 3) that were used in determining fair value at December 31, 2013:

Quantitative Information about Level 3 Fair Value Measurements

Fair Value at
December 31,
2013

Valuation
Technique

Unobservable
Input

Range

Weighted
Average

Low

High

Senior Secured Investments⁽¹⁾

382,888,163

Comparable yield
approach

Market rate⁽²⁾

3.2%

29.8%

9.7%

Market comparable
companies

EBITDA multiple

4.2x

11.0x

6.8x

Second Lien Investments

13,680,535

Comparable yield
approach

Market rate⁽²⁾

7.8%

11.7%

10.3%

Market comparable
companies

EBITDA multiple

6.5x

10.6x

7.8x

Mezzanine Investments

7,080,998

Comparable yield
approach

Market rate⁽²⁾

14.5%

Market comparable
companies

EBITDA multiple

6.0x

Equity Investments⁽³⁾

8,543,657

Market comparable
companies

EBITDA multiple

5.0x

7.0x

5.8x

Market comparable
companies

Origination fees
multiple

2.6x

11.0x

5.4x

Financial Assets⁽⁴⁾

16,888,126

Discounted cash
flows

Interest rate

10.9%

31.3%

16.9%

Conditional
prepayment rate
(“CPR”)

18.5%

83.6%

41.9%

Constant default rate
(“CDR”)

6.5%

33.0%

14.8%

Discount rate

10.0%

Total

429,081,479

(1)

Includes total unfunded obligations of $(55,082).

(2)

(3)

Includes preferred and common equity.

TABLE OF CONTENTS

Garrison Capital Inc. and Subsidiaries

Notes to Consolidated Financial Statements (unaudited)

September 30, 2014

4. Fair Value of Financial Instruments – (continued)

(4)

Financial Assets are aggregated by the level of risk associated with the underlying loan, measured by the estimated loss rate. The estimated loss rate is based on the historical performance of loans with similar characteristics, the borrower’s credit score obtained from an official credit reporting agency at origination, debt-to-income ratios at origination, information from the borrower’s credit report at origination, as well as the borrower’s self-reported income range, occupation and employment status at origination. Financial Asset risk ratings are assigned on a scale from A through F, with A having the lowest level of risk and F having the highest level of risk. As of December 31, 2013, 25.0%, 30.6%, 30.4%, 8.6%, 4.7% and 0.7% of the total fair value of Financial Assets was comprised of A, B, C, D, E and F risk rated loans, respectively.

Significant unobservable inputs used in the fair value measurement of the reporting entity’s Debt Investments include indicative bid quotations obtained from independent third party pricing services (“consensus pricing”), multiples of market comparable companies, and relative comparable yields.

Significant decreases (increases) in consensus pricing or market comparables could result in significantly lower (higher) fair value measurements. Significant increases (decreases) in comparable yields could result in significantly lower (higher) fair value measurements. Generally, a change in the assumption used for relative comparable yields is accompanied by a directionally opposite change in the assumptions used for pricing.

Significant unobservable inputs used in the fair value measurement of the reporting entity’s Financial Assets include interest rate, prepayment rate, unit loss rate and discount rate.

Significant decreases (increases) in interest rates or prepayment rates could result in significantly lower (higher) fair value measurements. Significant increases (decreases) in unit loss rates or discount rates could result in significantly lower (higher) fair value measurements.

The composition of the Company’s portfolio by industry at cost and fair value as of September 30, 2014 was as follows:


Industry	Cost of Investments				Fair Value of Investment
Miscellaneous Services	$	72,955,521	16.2	%	$	71,668,706	15.9	%
Miscellaneous Manufacturing		57,757,694	12.9			56,890,754	12.7
Consumer Finance Services		53,701,599	12.0			56,258,262	12.5
Health Services		42,557,115	9.5			41,710,602	9.3
Transportation Services		35,219,597	7.9			35,454,312	7.9
Miscellaneous Retail		21,499,305	4.8			21,624,807	4.8
Communications		21,046,555	4.7			21,541,045	4.8
Building & Real Estate		20,438,065	4.6			20,505,906	4.6
Automotive		17,399,900	3.9			17,548,556	3.9
Food Stores - Retail		15,719,199	3.5			15,763,754	3.5
Electrical Equipment		13,361,178	3.0			13,347,690	3.0
Insurance Agents		11,729,134	2.6			11,948,920	2.7
Chemicals		11,653,048	2.6			11,661,890	2.6
Restaurants		11,600,000	2.6			11,600,000	2.6
Apparel Products		10,319,263	2.3			10,319,148	2.3
Specialty Services		10,214,869	2.3			10,214,763	2.3
Broadcasting & Entertainment		9,866,217	2.2			9,866,152	2.2
Oil & Gas		9,745,661	2.2			9,745,521	2.2
Printing & Publishing		978,242	0.2			978,242	0.2
Total	$	447,762,162	100.0%		$	448,649,030	100.0%

TABLE OF CONTENTS

Garrison Capital Inc. and Subsidiaries

Notes to Consolidated Financial Statements (unaudited)

September 30, 2014

4. Fair Value of Financial Instruments – (continued)

Refer to the consolidated schedule of investments for detailed disaggregation of the Company’s investments.

The composition of the Company’s portfolio by industry at cost and fair value as of December 31, 2013 was as follows:


Industry	Cost of Investments				Fair Value of Investments
Miscellaneous Manufacturing	$	58,157,568	13.6	%	$	59,578,972	13.9	%
Transportation Services		45,356,779	10.6			45,352,257	10.6
Communications		40,146,138	9.4			40,461,855	9.4
Miscellaneous Services		38,621,925	9.0			38,689,163	9.0
Health Services		38,721,119	9.1			36,672,053	8.5
Oil & Gas		24,829,027	5.8			26,905,929	6.3
Food Stores – Retail		23,455,743	5.5			23,727,417	5.5
Automotive		19,521,987	4.6			19,564,271	4.6
Consumer Finance		19,144,036	4.5			19,365,626	4.5
Apparel Products		15,471,806	3.6			15,528,467	3.6
Specialty Services		15,147,452	3.5			15,083,993	3.5
Miscellaneous Retail		14,926,805	3.5			14,936,027	3.5
Broadcasting & Entertainment		14,739,458	3.5			14,657,618	3.4
Insurance Agents		13,132,253	3.1			13,359,383	3.1
Electrical Equipment		12,528,985	2.9			12,598,106	2.9
National Security		9,843,766	2.3			9,800,593	2.3
Printing & Publishing		7,140,812	1.7			6,907,969	1.6
Textile Products		3,862,146	0.9			3,875,000	0.9
Metal Mining		3,477,728	0.8			3,500,333	0.8
Restaurants		3,264,808	0.8			3,065,556	0.7
Chemicals		2,565,212	0.6			2,598,597	0.6
Wholesale Durable Goods		1,855,793	0.4			1,782,163	0.4
Machinery		797,000	0.2			790,026	0.2
Hotels and Motels		280,105	0.1			280,105	0.1
Total	$	426,988,451	100.0%		$	429,081,479	100.0%

Refer to the consolidated schedule of investments for detailed disaggregation of the Company’s investments.

5. Indemnifications

In the normal course of business, the Company enters into certain contracts that provide a variety of indemnifications. The Company’s maximum exposure under these indemnifications is unknown. However, no liabilities have arisen under these indemnifications in the past and, while there can be no assurances in this regard, there is no expectation that any will occur in the future. Therefore, the Company does not consider it necessary to record a liability for any indemnifications under U.S. GAAP.

6. Due To and Due From Counterparties

The Company executes investment transactions with agents, brokers, investment companies, agent banks and other financial institutions. Due to and due from counterparties include amounts related to unsettled purchase and sale transactions of investments and principal paydowns receivable from the borrowers.

Amounts due to counterparties were $5,096,343 and $7,840,140 as of September 30, 2014 and December 31, 2013, respectively. Amounts due from counterparties as of September 30, 2014 and December 31, 2013 were $1,706,575 and $6,660,132, respectively.

TABLE OF CONTENTS

Garrison Capital Inc. and Subsidiaries

Notes to Consolidated Financial Statements (unaudited)

September 30, 2014

7. Financing

In accordance with the 1940 Act, with certain limited exceptions, the Company is only allowed to borrow amounts such that its asset coverage, as defined in the 1940 Act, is at least 200% after such borrowing. As of September 30, 2014 and December 31, 2013, the Company’s asset coverage for borrowed amounts was 213.6% and 215.1%, respectively.

On November 5, 2010, GF 2010-1 completed a $300,000,000 collateralized loan securitization. GF 2010-1 was the borrower under a collateralized loan obligation facility (the “CLO Facility”) which was refinanced, as further described below. The CLO Facility consisted of senior secured notes (collectively, the “GF 2010-1 Notes”).

On May 21, 2012, GF 2012-1, the Company’s wholly-owned indirect subsidiary, entered into the Credit Facility in an aggregate principal amount of $150,000,000, consisting of $125,000,000 of term loans Class A-T Loans and $25,000,000 of revolving loans Class A-R Loans (collectively, the “GF 2012-1 Loans”) which was utilized, along with cash on hand of GF 2010-1 and Garrison Capital LLC, to redeem the existing GF 2010-1 Notes. On June 5, 2013, GF 2012-1 entered into an agreement to increase the size of the Credit Facility from $150,000,000 to $175,000,000, consisting of $125,000,000 of Class A-T loans and $50,000,000 of Class A-R loans. All other terms of the Credit Facility remained unchanged.

In connection with the execution of the Credit Facility and the redemption of the GF 2010-1 Notes in accordance with the indenture governing such notes, a majority of the loans and other assets owned or financed under such indenture were sold or contributed to GF 2012-1 as collateral for the Credit Facility.

GARS had the ability to refinance the Credit Facility through a collateralized loan obligation as provided by certain provisions of the Credit Facility agreement.

On the Refinancing Date, GF 2013-2 completed the CLO through a private placement of (1) $50.0 million of AAA(sf) rated Class A-1R revolving notes (“Class A-1R Notes”), which bear interest at either the CP Rate (as defined in the indenture governing the CLO) or the London Interbank Offered Rate (“LIBOR”) plus 1.90%; (2) $111.2 million of AAA(sf) rated Class A-1T notes (“Class A-1T Notes”), which bear interest at three-month LIBOR plus 1.80%; (3) $24.2 million of AA(sf) rated Class A-2 notes (“Class A-2 Notes” and collectively with the Class A-1R Notes and the Class A-1T Notes, the “Class A Notes”), which bear interest at three-month LIBOR plus 3.40%; (4) $25.0 million of A(sf) rated Class B notes (“Class B Notes”), which bear interest at three-month LIBOR plus 4.65%; (5) $13.7 million of Class C notes (not rated) (“Class C Notes” and collectively with the Class A Notes and Class B Notes, the “Secured Notes”), which bear interest at three-month LIBOR plus 5.50%; and (6) $126.0 million of subordinated notes (“Subordinated Notes” and collectively with the Class A Notes, Class B Notes and Class C Notes, the “GF 2013-2 Notes”), which do not have a stated interest rate, the proceeds of which were utilized, along with cash on hand, to refinance the existing Credit Facility. All of the GF 2013-2 Notes are scheduled to mature on September 25, 2023. As of September 30, 2014, GARS had retained 100% of the Class C Notes, which are eliminated in consolidation. The Subordinated Notes represent the residual interest in GF 2013-2. Immediately following the completion of the CLO, GF 2013-2 Manager owned 100% of the Subordinated Notes, which are eliminated in consolidation.

GLC Trust 2013-2 entered into a $10,000,000 revolving facility with Capital One Bank, NA, on December 6, 2013. The revolving facility included an accordion feature, such that GLC Trust 2013-2 was permitted to increase the total commitment up to $15,000,000 under the terms of the loan agreement. GLC Trust 2013-2 exercised this option on December 20, 2013.

On July 11, 2014, GARS increased the GLC Trust 2013-2 Revolver commitment by $15.0 million, for a total commitment of $30.0 million. On July 18, 2014, GARS completed a $39.2 million term debt securitization collateralized by the GLC Trust 2013-2 consumer loan portfolio (“GLC Trust 2013-2 Securitization”). The notes offered in the GLC Trust 2013-2 Securitization were issued by GLC Trust 2013-2 and consisted of

TABLE OF CONTENTS

Garrison Capital Inc. and Subsidiaries

Notes to Consolidated Financial Statements (unaudited)

September 30, 2014

7. Financing – (continued)

$36.9 million of Class A Notes (“GLC Trust 2013-2 Class A Notes”) and $2.3 million of Class B Notes (“GLC Trust 2013-2 Class B Notes”, and collectively with the GLC Trust 2013-2 Class A Notes, the “GLC Trust 2013-2 Notes”). As of September 30, 2014, GARS has retained all of the Class B Notes, which are eliminated in consolidation. The GLC Trust 2013-2 Class A Notes bear interest at 3.00% per annum and are scheduled to mature on July 15, 2021. The proceeds of the GLC Trust 2013-2 Notes were used to refinance the GLC Trust 2013-2 Revolver, which was fully paid down and terminated concurrent with the issuance of the GLC Trust 2013-2 Notes.

The refinance of the GLC Trust 2013-2 Revolver resulted in a $242,643 loss for the three and nine months ended September 30, 2014 due to the write-off of the remaining deferred debt issuance costs paid as part of the execution of the GLC Trust 2013-2 Revolver and third party expenses incurred to effect the refinancing, which is included in loss on refinancing of GLC Trust 2013-2 Revolver on the consolidated statements of operations.

Fees paid as part of the execution of the Credit Facility, the refinance of the Credit Facility and the execution of the CLO in the amount of $6,154,758 consisted of facility fees of $4,280,250 and other costs of $1,874,508, which included rating agency fees and legal fees. Fees paid as part of the execution of the GLC Trust 2013-2 Securitization in the amount of $318,497 consisted of legal and other fees. These costs are included in deferred debt issuance costs on the consolidated statements of financial condition and will be amortized over the stated maturity of the respective loans, with $4,584,334 and $4,884,271 of deferred debt issuance costs remaining as of September 30, 2014 and December 31, 2013, respectively.

The table below shows the notes outstanding under the CLO and the GLC Trust 2013-2 Notes as of September 30, 2014:


September 30, 2014	Amortized Carrying Value		Oustanding Principal at Par		Interest Rate		Stated Maturity
Class A-1R Notes:
Class A-1R Notes	$	34,000,000	$	34,000,000		CP Rate or LIBOR + 1.90%		9/25/2023
Class A-1T Notes:
Class A-1T Notes		110,775,354		111,175,000		LIBOR + 1.80%		9/25/2023
Class A-2 Notes:
Class A-2 Notes		24,041,483		24,150,000		LIBOR + 3.40%		9/25/2023
Class B Notes:
Class B Notes		24,912,553		25,025,000		LIBOR + 4.65%		9/25/2023
GLC Trust 2013-2 Class A Notes:
Class A Notes		34,288,677		34,752,493		3.00%		7/15/2021
	$	228,018,067	$	229,102,493

TABLE OF CONTENTS

Garrison Capital Inc. and Subsidiaries

Notes to Consolidated Financial Statements (unaudited)

September 30, 2014

7. Financing – (continued)

The table below shows the notes outstanding under the CLO and the GLC Trust 2013-2 Revolver as of December 31, 2013:

December 31, 2013

Amortized Carrying Value

Outstanding Principal at Par

Interest Rate

Stated Maturity

Senior Secured Notes:

Class A-1R Notes

50,000,000

CP Rate or
LIBOR + 1.90%

9/25/2023

Class A-1T Notes:

Class A-1T Notes

110,742,112

111,175,000

LIBOR + 1.80%

9/25/2023

Class A-2 Notes:

Class A-2 Notes

24,032,457

24,150,000

LIBOR + 3.40%

9/25/2023

Class B Notes:

Class B Notes

24,903,198

25,025,000

LIBOR + 4.65%

9/25/2023

GLC Trust 2013-2 Revolving Notes:

Revolving Note:

9,741,676

LIBOR + 3.50%

12/6/2015

219,419,443

220,091,676

At September 30, 2014 and December 31, 2013, $16,000,000 and $0, respectively, of the Class A-1R Notes remained undrawn. The Class A-1R Notes bear a 1.00% annual fee on undrawn amounts.

The fair value of the GF 2013-2 Notes and GLC Trust 2013-2 Notes approximated the carrying value on the consolidated statements of financial condition at September 30, 2014 and December 31, 2013, respectively.

The ability of GF 2013-2 to draw under the Class A-1R Notes terminates on September 25, 2016, which is also the end of the extended reinvestment period, and the notes issued by the CLO mature on September 25, 2023. The Secured Notes are secured by all of the assets held by GF 2013-2.

The indenture governing the notes issued as part of the CLO provides that, to the extent cash is available from cash collections, the holders of the GF 2013-2 Notes are to receive quarterly interest payments on the 20^th day or, if not a business day, the next succeeding business day of February, May, August and November of each year, commencing in February 2014, until the stated maturity.

Under the documents governing the CLO, there are two coverage tests applicable to the Secured Notes. The first test compares the amount of interest received on the collateral loans held by GF 2013-2 to the amount of interest payable on the Secured Notes under the CLO in respect of the amounts drawn and certain expenses. To meet this first test, at any time, the aggregate amount of interest received on the collateral loans must equal, after the payment of certain fees and expenses, at least 135.0% of the aggregate amount of interest payable on the Class A Notes, 125.0% of the interest payable on the Class A Notes and Class B Notes, taken together, and 115% of the interest payable on the Class A Notes, Class B Notes and Class C Notes, taken together.

The second test compares the aggregate principal amount of the collateral loans, as calculated in accordance with the indenture, to the aggregate outstanding principal amount of the Secured Notes in respect of the amounts drawn. To meet this second test at any time, the aggregate principal amount of the collateral loans must equal at least 173.4% of the aggregate outstanding principal amount of the Class A Notes, 156.1% of the aggregate principal amount of the Class A Notes and Class B Notes, taken together, and 148.1% of the aggregate outstanding principal amount of the Class A Notes, Class B Notes and Class C Notes, taken together.

TABLE OF CONTENTS

Garrison Capital Inc. and Subsidiaries

Notes to Consolidated Financial Statements (unaudited)

September 30, 2014

7. Financing – (continued)

If the coverage tests are not satisfied with respect to a quarterly payment date, GF 2013-2 will be required to apply available amounts to the repayment of interest on and principal of the GF 2013-2 Notes to the extent necessary to satisfy the applicable coverage tests and, as a result, there may be reduced funds available for GF 2013-2 to make additional investments or to make distributions on the Company’s equity interests in GF 2013-2. Additionally, compliance is measured on each day collateral loans are purchased, originated or sold and in connection with monthly reporting to the note holder. Furthermore, if under the second coverage test the aggregate principal amount of the collateral loans equals 125.0% or less of the aggregate outstanding principal amount on the Class A-1 Notes and remains so for ten business days, an event of default will be deemed to have occurred. As of September 30, 2014 and December 31, 2013, the trustee for the CLO has asserted that all of the coverage tests were met.

The indenture governing the GLC Trust 2013-2 Notes provides that, to the extent cash is available from cash collections, the holders of the GLC Trust 2013-2 Notes are to receive monthly interest and principal payments on the 15^th day or, if not a business day, the next succeeding business day, commencing in August 2014, until the stated maturity.

Under the indenture governing the GLC Trust 2013-2 Notes, there are two applicable monthly tests. The first test compares the principal balance of the underlying loans to the principal balance of the GLC Trust 2013-2 Notes. To meet this first test, the aggregate principal balance of the underlying loans less the aggregate principal balance of the GLC Trust 2013-2 Notes must equal, at least, the greater of (1) 13% of the aggregate principal balance of the underlying loans as of the end of the prior month and (2) 5.25% of the loan pool balance as of July 11, 2014. The second test compares the ratio of the dollar amount of cumulative defaults to the original principal balance of the underlying loans as of July 11, 2014 (“Cumulative Default Ratio”) to the Cumulative Default Ratio trigger level, as stated in the indenture. To meet this second test, the Cumulative Default Ratio must not exceed the Cumulative Default Ratio trigger level.

If these tests are not satisfied with respect to a monthly payment date and are not cured within 45 days, an event of default will be deemed to have occurred and the GLC Trust 2013-2 Notes will become immediately due and payable, in accordance with the terms of the indenture. As of September 30, 2014, all of the coverage tests were met.

The table below shows the weighted average interest rates and weighted average effective interest rates of the notes outstanding under the CLO and the GLC Trust 2013-2 Notes as of September 30, 2014 and December 31, 2013:


	September 30, 2014			December 31, 2013
Secured Notes:
Weighted average interest rate		2.03	%		2.81	%
Weighted average effective interest rate⁽¹⁾		2.44			3.22
Class A-1R Notes:
Weighted average interest rate		2.13			2.23
Weighted average effective interest rate⁽¹⁾		2.28			2.36
GLC Trust 2013-2 Revolving Note:
Weighted average interest rate		N/A			4.00
Weighted average effective interest rate⁽¹⁾		N/A			4.79
GLC Trust 2013-2 Class A Notes:
Weighted average interest rate		3.00			N/A
Weighted average effective interest rate⁽¹⁾		3.60			N/A

TABLE OF CONTENTS

Garrison Capital Inc. and Subsidiaries

Notes to Consolidated Financial Statements (unaudited)

September 30, 2014

7. Financing – (continued)

(1)

Includes the effects of deferred debt issuance costs.

As of September 30, 2014, the weighted average effective interest rate for total outstanding debt was 3.05%.

8. Related Party Transactions

Investment Advisory Agreement

GARS entered into the Investment Advisory Agreement with the Investment Adviser, which was effective as of October 9, 2012 and subsequently amended and restated on May 6, 2014. The Investment Adviser agreed irrevocably to waive its base management fee and incentive fee commencing from the IPO Pricing Date through September 30, 2013. The waived fees are not subject to recoupment by the Investment Adviser.

Prior to the Conversion, GARS paid a management fee to the Investment Adviser in arrears for the preceding fiscal quarter equal to 0.375% (1.50% per annum) of the value of the Company’s consolidated members’ capital (excluding the average amount of cash held during the period).

Under the Amended and Restated Investment Advisory Agreement, the Investment Adviser is entitled to a base management fee for its services calculated at an annual rate of 1.75% of gross assets, excluding cash and cash equivalents, and cash and cash equivalents, restricted, but including assets purchased with borrowed funds. For purposes of the Investment Advisory Agreement, cash equivalents means U.S. government securities and commercial paper maturing within 270 days of purchase.

From the date of Conversion through the IPO Pricing Date, the Investment Adviser waived that portion of the management fee due under the Investment Advisory Agreement in excess of a base management fee equal to an annual rate of 1.50% of the average of the value of the Company’s net assets (including cash and cash equivalents) calculated at the end of the two most recently completed calendar quarters, payable in arrears. Under no circumstances would the Investment Adviser have received a base management fee greater than 1.75% of gross assets, excluding cash and cash equivalents but including assets purchased with borrowed funds calculated based on the average carrying value of the gross assets of the Company at the end of the two most recently completed calendar quarters.

For the three and nine months ended September 30, 2014, the Investment Adviser earned management fees under the Investment Advisory Agreement in the amount of $2,023,518 and $5,997,377 respectively, of which $0 was waived. For the three and nine months ended September 30, 2013, the Investment Adviser earned management fees in the amount of $1,863,177 and $4,408,507, respectively, of which $1,863,177 and $3,815,756, respectively, was waived. The waived fees are not subject to recoupment by the Investment Adviser.

Management fees in the amount of $223,341 and $217,608 were payable as of September 30, 2014 and December 31, 2013, respectively, and are included in management fee payable on the consolidated statements of financial condition.

Under the Investment Advisory Agreement, the Investment Adviser is entitled to an incentive fee consisting of two components that are independent of each other, with the result that one component may be payable even if the other is not.

TABLE OF CONTENTS

Garrison Capital Inc. and Subsidiaries

Notes to Consolidated Financial Statements (unaudited)

September 30, 2014

8. Related Party Transactions – (continued)

The first component, which is income-based and payable quarterly in arrears, equals 20% of the amount, if any, that the Company’s pre-incentive fee net investment income exceeds a 2.00% quarterly (8.00% annualized) hurdle rate (the “Hurdle Rate”), subject to a “catch-up” provision measured at the end of each calendar quarter. The operation of the first component of the incentive fee for each quarter is as follows:

•

no incentive fee is payable to the Investment Adviser in any calendar quarter in which the Company’s pre-incentive fee net investment income does not exceed the Hurdle Rate;

•

100% of the Company’s pre-incentive fee net investment income with respect to that portion of the Company’s pre-incentive fee net investment income, if any, that exceeds the Hurdle Rate but is less than 2.50% in any calendar quarter (10.00% annualized). We refer to this portion of the Company’s pre-incentive fee net investment income (which exceeds the Hurdle Rate but is less than 2.50%) as the “catch-up”. The effect of the “catch-up” provision is that, if the Company’s pre-incentive fee net investment income exceeds 2.50% in any calendar quarter, the Investment Adviser will receive 20% of such pre-incentive fee net investment income as if the Hurdle Rate did not apply; and

•

20% of the amount of the Company’s pre-incentive fee net investment income, if any, that exceeds 2.50% in any calendar quarter (10.00% annualized) (once the Hurdle Rate is reached and the catch-up is achieved).

The portion of such incentive fee that is attributable to deferred interest (such as payment-in-kind interest or original issue discount) will be paid to the Investment Adviser, together with any other interest accrued on the loan from the date of deferral to the date of payment, only if and to the extent the Company actually receives such interest in cash, and any accrual thereof will be reversed if and to the extent such interest is reversed in connection with any write-off or similar treatment of the investment giving rise to any deferred interest accrual. Any reversal of such amounts would reduce net income for the quarter by the net amount of the reversal (after taking into account the reversal of incentive fees payable) and would result in a reduction and possible elimination of the incentive fees for such quarter. For the avoidance of doubt, no incentive fee will be paid to the Investment Adviser on amounts accrued and not paid in respect of deferred interest. For the three and nine months ended September 30, 2014, the Investment Adviser earned an income-based incentive fee on pre-incentive fee net investment income, as calculated under the Investment Advisory Agreement, of $1,506,226 and $4,438,833, respectively.

The second component, which is capital gains-based, is determined and payable in arrears as of the end of each calendar year (or upon termination of the Investment Advisory Agreement, as of the termination date) and equals 20% of the Company’s cumulative aggregate realized capital gains through the end of such year, computed net of the Company’s aggregate cumulative realized capital losses and aggregate cumulative unrealized capital depreciation through the end of such year, less the aggregate amount of any previously paid capital gains incentive fees and subject to the Incentive Fee Cap and Deferral Mechanism described below. The capital-gains component of the incentive fee excludes any portion of realized gains (losses) that are associated with the reversal of any portion of unrealized appreciation/depreciation attributable to periods prior to April 1, 2013. The capital gains component of the incentive fee is not subject to any minimum return to stockholders. For the three and nine months ended September 30, 2014, the Investment Adviser accrued a capital gains-based incentive fee, as calculated under the Investment Advisory Agreement, of $75,916 and $1,258,439, respectively.

Under U.S. GAAP, we are required to accrue a capital gains incentive fee based upon the aggregate cumulative realized capital gains and losses and aggregate cumulative unrealized capital appreciation and depreciation on investments held at the end of each period. If such amount is positive at the end of a period, then the Company will record a capital gains incentive fee equal to 20% of such amount, less the aggregate amount of actual capital gains related incentive fees paid in all prior years. If such amount is negative, then

TABLE OF CONTENTS

Garrison Capital Inc. and Subsidiaries

Notes to Consolidated Financial Statements (unaudited)

September 30, 2014

8. Related Party Transactions – (continued)

there is no accrual for such period. The Investment Advisory Agreement does not permit unrealized capital appreciation for purposes of calculating the amount payable to the Investment Adviser. Amounts due related to unrealized capital appreciation, if any, will not be paid to the Investment Adviser until realized under the terms of the Investment Advisory Agreement (as described above). For the three and nine months ended September 30, 2014, the Investment Adviser accrued an incentive fee on capital gains as calculated under U.S. GAAP of $(312,134) and $1,368,625, respectively.

No incentive fees were earned for the three and nine months ended September 30, 2013.

Incentive Fee Cap and Deferral Mechanism

We have structured the calculation of these incentive fees to include a fee limitation such that no incentive fee will be paid to our Investment Adviser for any fiscal quarter if, after such payment, the cumulative incentive fees paid to our Investment Adviser for the period that includes such fiscal quarter and the 11 full preceding fiscal quarters (the “Incentive Fee Look-back Period”), would exceed 20.0% of our cumulative pre-incentive fee net return during the applicable Incentive Fee Look-back Period. The Incentive Fee Look-back Period commenced on April 1, 2013. Prior to April 1, 2016, the Incentive Fee Look-back Period will consist of fewer than 12 full fiscal quarters.

Administration Agreement

As discussed in Note 1, GARS entered into the Administration Agreement with the GARS Administrator. Under the Administration Agreement, the GARS Administrator provides the Company with office facilities, equipment, clerical, bookkeeping and record keeping services at such facilities and such other services as the GARS Administrator, subject to review by the Board, from time to time determines to be necessary or useful to perform its obligations under the Administration Agreement. The GARS Administrator is responsible for the financial and other records that the Company is required to maintain and prepare reports to stockholders, and reports and other materials filed with the Securities and Exchange Commission (the “SEC”). The GARS Administrator provides on the Company’s behalf significant managerial assistance to those portfolio companies to which the Company is required to provide such assistance, including portfolio companies held indirectly through the CLO. No managerial assistance was provided to any portfolio companies for the nine months ended September 30, 2014 and September 30, 2013.

In addition, the GARS Administrator assists the Company in determining and publishing the Company’s net asset value, overseeing the preparation and filing of the Company’s tax returns, and the printing and dissemination of reports to stockholders of the Company, and generally oversees the payment of the Company’s expenses and the performance of administrative and professional services rendered to the Company by others. The Company reimburses the GARS Administrator for the costs and expenses incurred by the GARS Administrator in performing its obligations and providing personnel and facilities as described. Administration fees payable to the GARS Administrator are based on the allocable portion of overhead to the GARS Administrator under the Administration Agreement.

The GARS Administrator agreed to irrevocably waive any amounts due to it under the Administration Agreement from the date of the Conversion through the quarter in which the Company executed the IPO. These amounts are not subject to recoupment by the GARS Administrator. Gross Administrator charges for the three and nine months ended September 30, 2014 were $164,654 and $568,289, respectively. The amount of these charges waived by the GARS Administrator for the three and nine months ended September 30, 2014 was $0. Gross Administrator charges for the three and nine months ended September 30, 2013, including amounts payable to the Sub-Administrator as discussed in Note 1, were $217,743 and $587,766, respectively. The amount of these charges waived by the GARS Administrator for the three and nine months ended September 30, 2013 was $0 and $101,197, respectively. Administration fees payable to the GARS

TABLE OF CONTENTS

Garrison Capital Inc. and Subsidiaries

Notes to Consolidated Financial Statements (unaudited)

September 30, 2014

8. Related Party Transactions – (continued)

Administrator in the amount of $309,904 and $0 were payable as of September 30, 2014 and December 31, 2013, respectively, and are included in administrator fee payable on the consolidated statements of financial position.

Directors’ Fees

The Company’s independent directors each receive an annual fee of $70,000. They also receive $2,500 plus reimbursement of reasonable out-of-pocket expenses incurred in connection with attending each in-person Board meeting and receive $1,000 plus reimbursement of reasonable out-of-pocket expenses incurred in connection with attending each committee meeting.

In addition, the chairman of the audit committee receives an annual fee of $10,000, the chairman of the valuation committee receives an annual fee of $10,000 and each chairman of any other committee receives an annual fee of $5,000 for their additional services in these capacities (all such fees and reimbursements collectively, “Directors’ Fees”). No compensation is paid to directors who are not independent of the Company and the Investment Adviser.

Our independent directors agreed to irrevocably waive a portion of their fees from the date of the Conversion through the quarter in which the Company executed the IPO. These fees are not subject to recoupment by the directors.

For the three and nine months ended September 30, 2014, independent directors earned Directors’ Fees of $95,554 and $282,805. For the three and nine months ended September 30, 2013, independent directors earned Directors’ Fees of $100,000 and $234,254 (net of fee waivers of $0 and $34,426, respectively). No Directors’ Fees were payable as of September 30, 2014 and December 31, 2013.

Affiliated Stockholders

GSOF LLC, GSOF-SP LLC, GSOF-SP II LLC, GSOF-SP DB LLC (subsidiaries of Garrison Special Opportunities Fund LP), GSOIF Corporate Loan Pools Ltd. (a subsidiary of Garrison Special Opportunities Institutional Fund LP), Garrison Capital Offshore Ltd. (a subsidiary of Garrison Credit Opportunities Holdings L.P.), Garrison Capital Fairchild I Ltd. (a subsidiary of Fairchild Offshore Fund L.P.), Garrison Capital Fairchild II Ltd. (a subsidiary of Fairchild Offshore Fund II L.P.) and Garrison Capital Adviser Holdings MM LLC (collectively, the “Garrison Funds”) are all entities that are owned by funds that are managed by the Investment Manager.

In connection with the secondary offering of shares of GARS common stock on July 17, 2014 under the Registration Statement on behalf of GSOF LLC, GSOF-SP LLC, GSOF-SP II LLC, GSOF-SP DB LLC, GSOIF Corporate Loan Pools Ltd., and Garrison Capital Offshore Ltd. (collectively, the “Garrison Offering Funds”), the Garrison Offering Funds have agreed to reimburse the Company for certain fees and expenses in the amount of $46,413 incurred in connection with the filing of the Company’s Registration Statement and the SEC’s review of the Registration Statement, based on the proportion of gross proceeds of the $250 million offering and certain fees and expenses in the amount of $21,838.

As of September 30, 2014, the Garrison Funds owned an aggregate of 2,057,170, or 12.3%, of the total outstanding common shares of GARS, and the officers and directors of the Company directly owned an aggregate of 66,049, or 0.4%, of the total outstanding common shares of GARS. As of December 31, 2013, the Garrison Funds owned an aggregate of 5,444,562, or 32.5%, of the total outstanding common shares of GARS, and the officers and directors of the Company directly owned an aggregate of 47,646, or 0.3%, of the total outstanding common shares of GARS.

TABLE OF CONTENTS

Garrison Capital Inc. and Subsidiaries

Notes to Consolidated Financial Statements (unaudited)

September 30, 2014

8. Related Party Transactions – (continued)

Other

Garrison Loan Agency Services LLC acts as the administrative and collateral agent for certain loans held by the Company. No fees were paid by the Company to Garrison Loan Agency Services LLC during the nine months ended September 30, 2014 and 2013.

The Company may invest alongside other clients of the Investment Manager and their affiliates in certain circumstances where doing so is consistent with applicable law and SEC staff interpretations.

9. Financial Highlights

The following table represents financial highlights for the Company for the nine months ended September 30, 2014 and September 30, 2013:


	September 30, 2014			September 30, 2013
Per share data
Net asset value per common share at beginning of period	$	15.16		$	16.54
Increase in net assets from operations:
Net investment income		0.90			0.95
Net realized gain/(loss) on investments		0.65			(0.75	)
Net unrealized appreciation/(depreciation) on investments		(0.07	)		0.95
Net increase in net assets from operations		1.48			1.15
Stockholder transactions
Return of capital		—			—
Distributions-in-kind⁽¹⁾		—			(0.95	)
Cash distributions		(1.05	)		(0.94	)
From net investment income		—			—
From realized gains		—			—
Dilutive impact of share issuance⁽²⁾		—			(0.69	)
Total additions from and dividends and distributions to stockholders		(1.05	)		(2.58	)
Net asset value per common share at end of period	$	15.59		$	15.11
Per share market value at end of period		14.47			14.78
Total book return⁽³⁾		9.76	%		6.95	%
Total market return⁽⁴⁾		11.87	%		-1.47	%
Common shares outstanding at beginning of period		16,758,779			10,498,544
Common shares outstanding at end of period		16,758,779			16,758,779
Weighted average common shares outstanding		16,758,779			14,672,034
Net assets at beginning of period	$	254,080,598		$	173,669,492
Net assets at end of period	$	261,299,777		$	253,273,182
Average net assets⁽⁵⁾	$	261,545,190		$	221,560,995
Ratio of net investment income to average net assets⁽⁵⁾⁽⁹⁾		8.10	%		8.49	%
Ratio of net expenses to average net assets⁽⁵⁾⁽⁹⁾		10.80	%		5.00	%
Ratio of portfolio turnover to average investments at fair value⁽⁶⁾		72.39	%		43.43	%
Asset coverage ratio⁽⁷⁾		213.58	%		234.47	%
Average outstanding debt⁽⁸⁾	$	224,262,286		$	151,774,837
Average debt per common share	$	13.38		$	9.06

TABLE OF CONTENTS

Garrison Capital Inc. and Subsidiaries

Notes to Consolidated Financial Statements (unaudited)

September 30, 2014

9. Financial Highlights – (continued)

(1)

Distributions in-kind were made to only those investors which held shares of the Company’s common stock prior to the IPO.

(2)

Dilution due to the issuance of shares in the IPO at $15.00 per share, which was below net asset value.

(3)

Total return equals the net increase of ending net asset value from operations over the net asset value per common share/members’ capital per unit at beginning of the period.

(4)

Based upon the change in market price per share during the period and takes into account distributions, if any, reinvested in accordance with our dividend reinvestment plan. Additionally, total market return for the nine months ended September 30, 2013 is based on the change in price per share from the initial public offering price per share as of March 27, 2013 to the closing price per share on September 30, 2013.

(5)

Calculated utlizing monthly net assets/members’ capital. Calculated based on annualized net investment income and expenses excluding any incentive fee attributable to realized and unrealized gains and any non-recurring expenses (loss on refinancing and accrued excise tax) less the total year-to-date (not annualized) incentive fee attributable to realized and unrealized gains and the total year-to-date (not annualized) non-recurring expenses.

(6)

Calculated based on monthly average investments at fair value.

(7)

(8)

Calculated based on monthly debt outstanding.

(9)

During the nine months ended September 30, 2013, the Investment Adviser waived $3,815,756 of management fees, the independent directors waived $34,426 of Directors’ fees and the GARS Administrator waived $101,197 of Administrator expenses. Had these expenses not been waived, the ratio of net investment income to average net assets and the ratio of total expenses to average net assets would have been 6.11% and 7.38%, respectively. There were no fee waivers for the nine months ended September 30, 2014.

10. Allocation of Profits and Losses

Prior to the Conversion, the Company’s members were issued Units of the Company that represented their limited liability company interests in Garrison Capital LLC. Profits and losses were allocated on a pro-rata basis to all members based on the number of Units held by each member in proportion to the aggregate number of all outstanding Units of the Company.

11. Earnings per Share

The following table sets forth the computation of the net increase in net assets per share/members’ capital units resulting from operations, pursuant to FASB ASC 260, Earnings per Share (“ASU 260”), for the nine months ended September 30, 2014 and September 30, 2013:


	Nine months ended September 30, 2014		Nine months ended September 30, 2013
Net increase in net assets resulting from operations	$	24,815,897	$	16,826,786
Basic weighted average shares outstanding		16,758,779		14,672,034
Basic earnings per share	$	1.48	$	1.15

12. Dividends and Distributions

The Company’s dividends and distributions are recorded on the ex-dividend date.

TABLE OF CONTENTS

Garrison Capital Inc. and Subsidiaries

Notes to Consolidated Financial Statements (unaudited)

September 30, 2014

12. Dividends and Distributions – (continued)

On March 11, 2014, the Board approved a distribution in the amount of $5.9 million, or $0.35 a share, which was paid on March 28, 2014 to stockholders of record as of March 21, 2014.

On May 6, 2014, the Board approved a distribution in the amount of $5.9 million, or $0.35 a share, which was paid on June 27, 2014 to stockholders of record as of June 13, 2014.

On August 4, 2014, the Board approved a distribution in the amount of $5.9 million, or $0.35 a share, which was paid on September 26, 2014 to stockholders of record as of September 12, 2014.

Dividends from net investment income and distributions from net realized capital gains are determined in accordance with U.S. federal income tax regulations, which may differ from those amounts determined in accordance with U.S. GAAP.

13. Commitments and Contingencies

The Company had outstanding commitments to fund investments totaling $31,200,921 and $9,162,617 under various undrawn revolvers and other credit facilities as of September 30, 2014 and December 31, 2013, respectively.

In the ordinary course of business, the Company may be named as a defendant or a plaintiff in various lawsuits and other legal proceedings. Such proceedings include actions brought against the Company and others with respect to transactions to which the Company may have been a party. The outcomes of such lawsuits are uncertain and, based on these lawsuits, the values of the investments to which they relate could decrease. Management does not believe that as a result of litigation there would be any material impact on the consolidated financial condition of the Company. The Company has had no outstanding litigation proceedings brought against it since the commencement of operations on December 17, 2010.

14. Subsequent Events

On October 31, 2014, the Board approved a distribution in the amount of $5.9 million, or $0.35 a share, which will be paid on December 29, 2014 to stockholders of record as of December 12, 2014.

These consolidated financial statements were approved by the Board and were available for issuance on November 5, 2014. Subsequent events have been evaluated through this date. No material subsequent events other than as disclosed above have occurred through this date.

TABLE OF CONTENTS

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

The information contained in this section should be read in conjunction with our consolidated financial statements and related notes thereto appearing elsewhere in this quarterly report on Form 10-Q.

On October 9, 2012, Garrison Capital LLC, a Delaware limited liability company, converted into a corporation. In this conversion, Garrison Capital Inc. succeeded to the business of Garrison Capital LLC and its consolidated subsidiaries, and the members of Garrison Capital LLC became stockholders of Garrison Capital Inc. In this quarterly report on Form 10-Q, we refer to these transactions as the “BDC Conversion.” References to “we,” “us,” “our” and “Garrison Capital” refer to Garrison Capital LLC and its consolidated subsidiaries for the periods prior to the consummation of the BDC Conversion and refer to Garrison Capital Inc. and its consolidated subsidiaries for the periods after the consummation of the BDC Conversion.

Forward-Looking Statements

Some of the statements in this quarterly report on Form 10-Q constitutes forward-looking statements, which relate to future events or our future performance or financial condition. The forward-looking statements contained in this quarterly report on Form 10-Q involve risks and uncertainties, including statements as to:

•

our future operating results;

•

changes in political, economic or industry conditions, the interest rate environment or conditions affecting the financial and capital markets, which could result in changes to the value of our assets;

•

our business prospects and the prospects of our prospective portfolio companies;

•

the impact of investments that we expect to make;

•

the impact of increased competition;

•

our contractual arrangements and relationships with third parties;

•

the dependence of our future success on the general economy and its impact on the industries in which we invest;

•

the ability of our prospective portfolio companies to achieve their objectives;

•

the relative and absolute performance of our investment adviser;

•

our expected financings and investments;

•

the adequacy of our cash resources and working capital;

•

our ability to make distributions to our stockholders;

•

the timing of cash flows, if any, from the operations of our prospective portfolio companies; and

•

the impact of future acquisitions and divestitures.

We use words such as “anticipates,” “believes,” “expects,” “intends” and similar expressions to identify forward-looking statements. Our actual results could differ materially from those projected in the forward-looking statements for any reason, including the factors set forth as “Risk Factors” and elsewhere in this quarterly report on Form 10-Q.

We have based the forward-looking statements included in this quarterly report on Form 10-Q on information available to us on the date of this report, and we assume no obligation to update any such forward-looking statements. Although we undertake no obligation to revise or update any forward-looking statements, whether as a result of new information, future events or otherwise, you are advised to consult any additional disclosures that we may make directly to you or through reports that we in the future may file with the U.S. Securities and Exchange Commission, or the SEC, including annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K.

TABLE OF CONTENTS

You should understand that, under Section 27A(b)(2)(B) of the Securities Act of 1933, as amended, and Section 21E(b)(2)(B) of the Securities Exchange Act of 1934, as amended, or the Exchange Act, the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995 do not apply to statements made in connection with this quarterly report on Form 10-Q or any periodic reports we file under the Exchange Act.

Overview

We are a recently organized, externally managed, non-diversified, closed-end management investment company that has elected to be treated as a business development company under the Investment Company Act of 1940, as amended, or the 1940 Act. In addition, for tax purposes, we have elected to be treated as a regulated investment company, or RIC, under Subchapter M of the Internal Revenue Code of 1986, as amended, or the Code, beginning October 9, 2012 and intend to qualify annually for such treatment. Our shares are currently listed on the NASDAQ Global Select Market under the symbol “GARS”.

Our investment objective is to generate current income and capital appreciation by making investments generally in the range of $5 million to $25 million primarily in debt securities and loans of U.S. based middle-market companies, which we define as those having annual earnings before interest, taxes and depreciation, or EBITDA, of between $5 million and $30 million. Our goal is to generate attractive risk-adjusted returns by assembling a broad portfolio of investments.

We invest primarily in (1) first lien senior secured loans, (2) second lien senior secured loans, (3) “one-stop” senior secured or “unitranche” loans, (4) subordinated or mezzanine loans, (5) unsecured consumer loans and (6) to a lesser extent, selected equity co-investments in middle-market companies. We use the term “one-stop” or “unitranche” to refer to a loan that combines characteristics of traditional first lien senior secured loans and second lien or subordinated loans. We use the term “mezzanine” to refer to a loan that ranks senior only to a borrower’s equity securities and ranks junior in right of payment to all of such borrower’s other indebtedness.

We believe that the middle market offers attractive risk-adjusted returns for debt investors. Historically, we believe there has been a persistent scarcity of available capital relative to demand, which, from a lender’s perspective, has generally resulted in more favorable transaction structures, including enhanced covenant protection and increased pricing relative to larger companies. We further believe that the turmoil in the markets has exacerbated this scarcity of capital, as many traditional lenders to middle-market companies have exited the business or focused their attention on larger borrowers. In addition, we believe middle-market companies traditionally have exhibited lower default rates and improved recoveries compared to larger borrowers and typically offer greater access to key senior managers, which we believe further enhances the attractiveness of lending to this market segment and facilitates due diligence investigations and regular monitoring.

Our investment activities are managed by our Investment Adviser. Our five member investment committee is comprised of Joseph Tansey, Rafael Astruc, Brian Chase, Mitch Drucker and Susan George. Our Investment Adviser is responsible for sourcing potential investments, conducting research and diligence on prospective investments and equity sponsors, analyzing investment opportunities, structuring our investments and monitoring our investments and portfolio companies on an ongoing basis. Under an investment advisory agreement, or the Investment Advisory Agreement, with the Investment Adviser, we pay the Investment Adviser a base management fee and an incentive fee for its services. Garrison Capital Administrator LLC, or the Administrator, provides certain administrative services and facilities necessary for us to operate, including office facilities and equipment and clerical, bookkeeping and record-keeping services, pursuant to an administration agreement, or the Administration Agreement. The Administrator oversees our financial reporting and prepares our reports to stockholders and reports required to be filed with the SEC. The Administrator also manages the determination and publication of our net asset value and the preparation and filing of our tax returns and generally monitors the payment of our expenses and the performance of administrative and professional services rendered to us by others. The Administrator may retain third parties to assist in providing administrative services to us. To the extent that the Administrator outsources any of its functions, we pay the fees associated with such functions on a direct basis without any profit to the Administrator.

As of September 30, 2014, we held investments in 56 portfolio companies with a fair value of $448.6 million, including investments in 47 portfolio companies held through GF 2013-2. The investments held by GF 2013-2

TABLE OF CONTENTS

as of September 30, 2014 consisted of senior secured and second lien loans fair valued at $328.3 million. As of that date, the loans held by GF 2013-2 (held at fair value), together with cash and other assets held by GF 2013-2, equaled approximately $348.5 million. As of September 30, 2014, our portfolio had an average investment size of approximately $6.6 million, a weighted average yield of 10.0% and a weighted average contractual maturity of 45 months. Weighted average yield is calculated based on the fair value of the investments and interest expected to be received using the current rate of interest at the balance sheet date to maturity, excluding the effects of future schedule principal amortizations.

As of December 31, 2013, we held investments in 70 portfolio companies with a fair value of $429.1 million, including investments in 56 portfolio companies held through Garrison Funding 2013-2 LLC, or GF 2013-2. The investments held by GF 2013-2 as of December 31, 2013 consisted of senior secured loans fair valued at $331.7 million and related indebtedness of $209.7 million. As of that date, the loans held by GF 2012-2 (held at fair value), together with cash and other assets held by GF 2013-2, equaled approximately $369.2 million. As of December 31, 2013, our portfolio had an average investment size of approximately $5.0 million, a weighted average yield of 9.8% and a weighted average contractual maturity of 46 months.

Revenues

We generate revenue in the form of interest earned on the debt investments that we hold and capital gains and distributions, if any, on the warrants or other equity interests that we may acquire in portfolio companies. Our debt investments, whether in the form of senior secured, unitranche or mezzanine loans, typically have a term of one to seven years and bear interest at a fixed or floating rate. Interest is generally payable quarterly or semiannually, with the amortization of principal generally being deferred for several years from the date of the initial investment. In some cases, loans may have a payment-in-kind feature. The principal amount of the 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 commitment, origination, structuring or diligence fees, fees for providing managerial assistance and possibly consulting fees. Loan origination fees, original issue discount and market discount are recorded as a reduction of the cost basis, and we then accrete such amounts into interest income. Upon the prepayment of a loan or debt security, any unamortized loan origination fees are recorded as interest income. We record prepayment premiums on loans and debt securities as interest income when we receive such amounts.

Expenses

Our primary operating expenses include the payment of (1) the base management fee and incentive fee to the Investment Adviser under the Investment Advisory Agreement; (2) the allocable portion of overhead to the Administrator under the Administration Agreement; (3) the interest expense on our outstanding debt, if any; and (4) our other operating costs, as detailed below. We bear all other costs and expenses of our operations and transactions, including:

•

our organization;

•

calculating our net asset value and net asset value per share (including the cost and expenses of any independent valuation firm);

•

fees and expenses, including travel expenses, incurred by the Investment Adviser or payable to third parties in performing due diligence on prospective portfolio companies, monitoring our investments and, if necessary, enforcing our rights;

•

offerings of our common stock and other securities;

•

distributions on our shares;

•

transfer agent and custody fees and expenses;

•

amounts payable to third parties relating to, or associated with, evaluating, making and disposing of investments;

•

brokerage fees and commissions;

•

registration fees;

TABLE OF CONTENTS

•

listing fees;

•

taxes;

•

independent director fees and expenses;

•

costs associated with our reporting and compliance obligations under the 1940 Act and applicable U.S. federal and state securities laws;

•

the costs of any reports, proxy statements or other notices to our stockholders, including printing costs;

•

costs of holding stockholder meetings;

•

our fidelity bond;

•

directors and officers/errors and omissions liability insurance and any other insurance premiums;

•

litigation, indemnification and other non-recurring or extraordinary expenses;

•

direct costs and expenses of administration and operation, including audit and legal costs;

•

fees and expenses associated with marketing efforts;

•

dues, fees and charges of any trade association of which we are a member; and

•

all other expenses reasonably incurred by us or the Administrator in connection with administering our business, including the allocable portion of overhead under the Administration Agreement, rent and our allocable portion of the costs and expenses of our chief compliance officer, chief financial officer and their respective staffs.

During periods of asset growth, we expect our general and administrative expenses to be relatively stable or decline as a percentage of total assets and increase during periods of asset declines. Incentive fees, interest expenses and costs relating to future offerings of securities would be additive to the expenses described above.

Recent Developments

On October 31, 2014, the Board approved a distribution in the amount of $5.9 million, or $0.35 a share, which will be paid on December 29, 2014 to stockholders of record as of December 12, 2014.

Market Trends

Leveraged loan volume eased during the third quarter of 2014 compared to the second quarter of 2014. Volume was primarily driven by merger and acquisition activity in the broader middle-market. Retail demand for leveraged loans slowed and although somewhat offset by demand from the CLO market overall prices were lower compared to the second quarter.

Second-lien loan activity slowed in line with the overall market during the third quarter of 2014 compared to the second quarter of 2014. We believe there continues to be a scarcity of capital in the lower middle-market as many traditional lenders to these companies have exited the business due to regulatory restrictions, and many competitors have moved up-market to focus their attention on larger borrowers. Sponsor and club business continues to represent the majority of direct lending opportunities in the lower middle-market, although we have seen banks, other non-bank finance companies and funds begin to participate in select one-off financings as a result of the increase in available capital. We believe that our expertise in providing non-traditional financing solutions to the lower middle-market allows us to tailor loan structures that meet borrower objectives while commanding premium pricing and maximizing the preservation of capital although increased competition could result in spread compression.

Consolidated Results of Operations

The results of operations described below may not be indicative of the results we report in future periods. Net income can vary substantially from period to period for various reasons, including the recognition of realized gains and losses and unrealized appreciation and depreciation. As a result, quarterly comparisons of net income may not be meaningful.

TABLE OF CONTENTS

Consolidated operating results for the three and nine months ended September 30, 2014 and September 30, 2013 are as follows:


(in thousands)	Three Months Ended September 30, 2014			Three Months Ended September 30, 2013			Three Months Variance			Nine Months Ended September 30, 2014			Nine Months Ended September 30, 2013			Nine Months Variance
	(Unaudited)			(Unaudited)						(Unaudited)			(Unaudited)
Net investment income	$	6,261		$	5,914		$	347		$	15,128		$	14,001		$	1,127
Total investment income		12,944			9,338			3,606			37,073			22,422			14,651
Net expenses		6,683			3,423			3,260			21,945			8,421			13,524
Net realized gain/(loss) on investments		1,198			(5,690	)		6,888			10,894			(11,041	)		21,935
Net change in unrealized (depreciation)/appreciation on investments		(2,378	)		6,529			(8,907	)		(1,206	)		13,867			(15,073	)

Net Investment Income

Net investment income for the three and nine months ended September 30, 2014 was $6.3 million and $15.1 million, respectively. Net investment income for the three and nine months ended September 30, 2013 was $5.9 million and $14.0 million, respectively.

Net investment income increased by $0.3 million for the three months ended September 30, 2014 from the three months ended September 30, 2013 and increased by $1.1 million for the nine months ended September 30, 2014 from the nine months ended September 30, 2013 as described below under “Investment Income” and “Expenses.”

Investment Income

Investment income for the three and nine months ended September 30, 2014 was $12.9 million and $37.1 million, respectively. Investment income for the three and nine months ended September 30, 2013 was $9.3 million and $22.4 million, respectively.

Investment income increased by $3.6 million for the three months ended September 30, 2014 from the three months ended September 30, 2013 due to an increase in interest income in the amount of $2.7 million and an increase in other income of $0.9 million. The increase in interest income was largely driven by the increase in the average portfolio investment balance during the three months ended September 30, 2014 as compared to September 30, 2013 due to the deployment of capital from the Company’s IPO. The increase in other income was driven by prepayment premiums received during the three months ended September 30, 2014.

Investment income increased by $14.7 million for the nine months ended September 30, 2014 from the nine months ended September 30, 2013 due to an increase in interest income in the amount of $12.5 million, an increase in other income of $1.8 million and an increase in dividend income in the amount of $0.4 million. The increase in interest income was largely driven by the increase in the average portfolio investment balance during the nine months ended September 30, 2014 as compared to September 30, 2013 due to the deployment of capital from the Company’s IPO. The increase in other income was driven by prepayment premiums received during the nine months ended September 30, 2014.

Expenses

Total expenses for the three and nine months ended September 30, 2014 were $6.7 million and $21.9 million, respectively. Total expenses for the three and nine months ended September 30, 2013 were $3.4 million and $8.4 million, respectively.

There were no fee or expense waivers for the three and nine months ended September 30, 2014. Total expenses for the three and nine months ended September 30, 2013 included total fee and expense waivers of $1.8 million and $4.0 million, respectively. Fee waivers for the three months ended September 30, 2013 were comprised of $1.9 million of management fees waived by the investment adviser. Fee waivers for the nine months ended September 30, 2013 were comprised of $3.8 million of management fees waived by the

TABLE OF CONTENTS

investment adviser and an aggregate of $0.1 million of directors’ fees waived by the independent directors and administration expenses waived by the Administrator.

The following tables summarize our expenses, net of fee waivers, and excluding accrued excise tax, the loss on refinancing of GLC Trust 2013-2 Revolver and the loss on refinancing of senior secured notes for the three and nine months ended September 30, 2014 and September 30, 2013, respectively:


*(in thousands)*	Three Months Ended September 30, 2014		Three Months Ended September 30, 2013		Three Months Variance			Nine Months Ended September 30, 2014		Nine Months Ended September 30, 2013		Nine Months Variance
		(Unaudited)		(Unaudited)					(Unaudited)		(Unaudited)
Interest	$	1,871	$	1,898	$	(27	)	$	5,226	$	4,901	$	325
Management fees		2,024		—		2,024			5,997		593		5,404
Incentive fees		1,270		—		1,270			7,066		—		7,066
Professional fees		255		356		(101	)		915		964		(49	)
Directors fees		96		100		(4	)		283		234		49
Administrator expenses		164		218		(54	)		568		487		81
Other expenses		624		425		199			1,510		815		695
Total expenses	$	6,304	$	2,997	$	3,307		$	21,565	$	7,994	$	13,571

Interest expense increased $0.3 million for the nine months ended September 30, 2014 as compared to the nine months ended September 30, 2013 primarily due to an increase in average debt outstanding. As of September 30, 2014 and September 30, 2013, we had $228.0 and $187.7 million of debt outstanding, respectively.

Management fees increased $2.0 million and $5.4 million for the three and nine months ended September 30, 2014, respectively, from the three and nine months ended September 30, 2013 primarily due to the increase in total assets, as well as the change in the calculation of the management fees at the time of our initial public offering. Prior to the BDC Conversion, management fees were calculated as 1.50% of gross assets, excluding cash and cash equivalents but including assets purchased with borrowed funds (as defined in the financial statements). Post-BDC Conversion, management fees are calculated as 1.75% of gross assets, excluding cash and cash equivalents but including assets purchased with borrowed funds (as defined in the financial statements). For the three months ended March 31, 2013, the Investment Adviser irrevocably waived base management fees due under the Investment Advisory Agreement in excess of an annual rate of 1.50% of the average of the value of our net assets, including cash and cash equivalents (as defined in the financial statements), calculated at the end of the two most recently completed calendar quarters. For the three months ended June 30, 2013 and September 30, 2013, the Investment Adviser waived all management fees. The waived fees are not subject to recoupment by the Investment Adviser.

Incentive fees increased $1.3 million and $7.1 million for the three and nine months ended September 30, 2014, respectively, from the three and nine months ended September 30, 2013 primarily due to the increase in net investment income and realized gains, as well as the expiration of the full incentive fee waivers previously granted by the Investment Adviser. The waived fees are not subject to recoupment by the Investment Adviser.

Professional fees for the three months ended September 30, 2014 decreased by $0.1 million, from the three months ended September 30, 2013. Professional fees decreased by $0.1 million for the three months ended September 30, 2014 from the three months ended September 30, 2013 primarily a result of a decrease in audit and tax fees.

Other expenses for the three months ended September 30, 2014 increased by $0.2 million from the three months ended September 30, 2013 primarily as a result of servicing and other fees incurred by GLC Trust 2013-2. Other expenses for the nine months ended September 30, 2014 increased by $0.7 million from the nine months ended September 30, 2013 primarily as a result of premiums related to insurance policies entered into as a result of the completion of our IPO, as well as servicing and other fees incurred by GLC Trust 2013-2.

Accrued excise tax for the three and nine months ended September 30, 2014 totaled $0.1 million.

TABLE OF CONTENTS

Net Realized Gain (Loss) and Unrealized Gain (Loss) on Investments

For the three and nine months ended September 30, 2014, we realized net gain on investments of $1.2 million and $10.9 million, respectively.

Net realized gains for the three months ended September 30, 2014 were the result of the sale of five portfolio companies, the early full repayment of eight portfolio companies and other partial repayments.

Net realized gains for the nine months ended September 30, 2014 were driven primarily by $8.1 million of realized gains incurred from the sale of the parent company of one portfolio company, Anchor Drilling Fluids USA, Inc. (“Anchor”), resulting in the early full repayment of the debt and sale of the equity, with the remaining net realized gain of $2.8 million resulting from the sale of thirteen portfolio companies, early full repayment of twenty-seven portfolio companies and other partial repayments.

For the three and nine months ended September 30, 2013, we realized net loss on investments of $(5.7) million and $(11.0) million, respectively.

Net realized losses for the three months ended September 30, 2013 were driven primarily by $(6.0) million of realized losses incurred as a result of the early full repayment of two portfolio companies. This was offset by net realized gains of $0.3 million resulting from the sale of thirteen portfolio companies, the early full repayment of four portfolio companies, one refinancing and other partial repayments.

Net realized losses for the nine months ended September 30, 2013 were driven primarily by $(5.7) million of realized losses incurred as a result of the distribution-in-kind of the assets of Next Generation Vending, LLC and $(6.0) million of realized losses incurred as a result of the early full repayment of two portfolio companies. This was offset by net realized gains of $0.7 million resulting from the early full repayment of twenty one portfolio companies, the sale of seventeen portfolio companies, one refinancing and other partial repayments.

For the three and nine months ended September 30, 2014, the net change in unrealized depreciation on investments was $(2.4) million and $(1.2) million, respectively.

The net change in unrealized depreciation for the three months ended September 30, 2014 was driven primarily by the negative credit related adjustment of one portfolio company in the amount of $(1.5) million. The remaining net change in unrealized depreciation on investments was due to the reversal of prior period unrealized appreciation of $(1.1) million, offset by the increase in the market value of the remaining portfolio of $0.2 million.

The net change in unrealized depreciation for the nine months ended September 30, 2014 was driven primarily by the reversal of prior period unrealized appreciation in the amount of $(1.8) million as a result of the sale of the parent company of Anchor and the negative credit related adjustment of two portfolio companies in the amount of $(3.3) million, offset by the increase in value of two portfolio companies in the amount of $3.8 million. The remaining net change in unrealized depreciation on investments was due to the reversal of prior period unrealized appreciation of $(0.6) million, offset by the increase in the market value of the remaining portfolio in the amount of $0.7 million.

For the three and nine months ended September 30, 2013, the net change in unrealized appreciation on investments was $6.5 million and $13.9 million, respectively.

The net change in unrealized appreciation for the three months ended September 30, 2013 was driven primarily by the reversal of prior period unrealized depreciation in the amount of $6.0 million as a result of the full repayment of two portfolio companies. The remaining net change in unrealized appreciation on investments was due to the increase in the market value of the remaining portfolio in the amount of $0.6 million, offset by the reversal of prior period unrealized appreciation of $(0.1) million.

The net change in unrealized appreciation for the nine months ended September 30, 2013 was driven primarily by the $5.7 million reversal of unrealized depreciation as a result of the distribution-in-kind of the investment in Next Generation Vending, LLC, the increase in the value of one portfolio company in the amount of $1.7 million and the reversal of prior period unrealized depreciation in the amount of $5.6 million as a result of the full repayment of two portfolio companies. The remaining net change in unrealized

TABLE OF CONTENTS

depreciation on investments was due to the increase in the market value of the remaining portfolio in the amount of $2.0 million and the reversal of prior period unrealized depreciation of $0.3 million, offset by negative credit related adjustment of two portfolio companies in the amount of $(1.4) million.

Net Increase in Net Assets from Operations

We had a net asset value per common share outstanding on September 30, 2014 of $15.59. We had a net asset value per common share outstanding on December 31, 2013 of $15.16.

Based on 16,758,779 basic weighted average shares outstanding, the net increase in net assets from operations per share for the nine months ended September 30, 2014 was $1.48.

Based on 14,672,034 basic weighted average shares outstanding, the net increase in net assets from operations per share for the nine months ended September 30, 2013 was $1.15.

Liquidity and Capital Resources

As a business development company, we distribute substantially all of our net income to our stockholders and will have an ongoing need to raise additional capital for investment purposes. We generate cash primarily from offerings of our securities, the CLO, as described below, the GLC Trust 2013-2 Notes, other borrowings we may incur and cash flows from operations.

In addition to proceeds from public and private offerings of securities, our CLO and our GLC Trust 2013-2 Notes, as of September 30, 2014 we have identified eleven portfolio companies with a total par value of $45.4 million and a fair value of $44.7 million which are transitory, which we define as those investments that generally yield less than 9.0%. We view these investments as an additional source of liquidity to meet our investment objectives.

Our primary use of funds from operations includes investments in portfolio companies, cash distributions to holders of our common stock, payments of interest on our debt, and payments of fees and other operating expenses we incur. We believe that our existing cash and cash equivalents and our transitory portfolio as of September 30, 2014 will be sufficient to fund our anticipated funding requirements through at least September 30, 2015.

On March 11, 2014 the Board approved a distribution in the amount of $5.9 million, or $0.35 a share, which was paid on March 28, 2014 to stockholders of record as of March 21, 2014. On May 6, 2014, the Board approved a distribution in the amount of $5.9 million, or $0.35 a share, which was paid on June 27, 2014 to stockholders of record as of June 13, 2014. On August 4, 2014, the Board approved a distribution in the amount of $5.9 million, or $0.35 a share, which was paid on September 26, 2014 to stockholders of record as of September 12, 2014.

As of September 30, 2014 and December 31, 2013, we had cash and cash equivalents of $25.6 million and $13.7 million, respectively. Also, as of September 30, 2014 and December 31, 2013, we had restricted cash and cash equivalents of $15.5 million and $28.0 million, respectively. For purposes of U.S. generally accepted accounting principles, or U.S. GAAP, we consider cash equivalents to be highly liquid financial instruments with original maturities of three months or less and cash held in overnight sweep deposit accounts.

During the nine months ended September 30, 2014, cash and cash equivalents increased by $11.9 million as a result of net cash provided by operating activities of $21.5 million offset by cash used in financing activities in the amount of $9.6 million.

During the nine months ended September 30, 2014, cash provided by operating activities resulted mainly from net investment income in the amount of $15.1 million, $10.9 million of realized gains, repayments and sales of investments in the amount of $225.7 million and $91.4 million, respectively, as well as an increase in payables to affiliates in the amount of $3.6 million and a decrease in due from counterparties in the amount of $5.0 million, offset by purchases of investments in the amount of $325.0 million and a decrease in due to counterparties in the amount of $2.7 million. Net cash used in financing activities resulted from cash distributions in the amount of $17.6 million, repayments on the Class A-1R note in the amount of $16.0 million, repayment of the GLC Trust 2013-2 Revolver in the amount of $9.7 million and debt issuance costs of $0.5 million, offset by proceeds from the GLC Trust 2013-2 Notes in the amount of $34.2 million.

TABLE OF CONTENTS

During the nine months ended September 30, 2013, cash and cash equivalents decreased by $18.6 million as a result of net cash used in operating activities of $151.1 million offset by cash provided by financing activities in the amount of $132.5 million.

During the nine months ended September 30, 2013, cash used in operating activities resulted from purchases of investments in the amount of $344.1 million offset by repayments and sales of investments in the amount of $100.0 million and $47.0 million, respectively, a decrease in cash and cash equivalents restricted accounts in the amount of $39.1 million, an increase in due to counterparties of $5.5 million and net investment income in the amount of $14.0 million. Net cash provided by financing activities resulted from proceeds received from net capital contributions from the sale of common shares of $86.9 million and borrowings in the amount of $50.0 million on the revolving loans and $12.7 million on the Class A-1T notes under the Credit Facility, offset by cash distributions in the amount of $14.1 million and debt issuance costs of $3.0 million.

As of September 30, 2014 and December 31, 2013, we had $31.2 million and $9.2 million, respectively, of unfunded obligations with a fair value of $(0.5) million and $(0.1) million, respectively. These amounts may or may not be funded to the borrowing party now or in the future. The unfunded commitments relate to loans with various maturity dates, but the entire amount was eligible for funding to the borrowers as of September 30, 2014 and December 31, 2013, respectively, subject to the terms of each loan’s respective credit agreement.

Portfolio Composition and Select Portfolio Information

As of September 30, 2014, we held investments in 56 portfolio companies with a fair value of $448.6 million. As of September 30, 2014, our portfolio had an average investment size of approximately $6.6 million, a weighted average yield of 10.0% and a weighted average contractual maturity of 45 months.

TABLE OF CONTENTS

The following table shows select information of our portfolio for the periods from September 30, 2013 to September 30, 2014.


Summary of Portfolio characteristics ($ in millions)	September 30, 2014			June 30, 2014			March 31, 2013			December 31, 2013			September 30, 2013
Total Market Value	$	448.6		$	433.6		$	455.2		$	429.1		$	411.5
Number of portfolio companies		56			62			71			70			71
Average investment size⁽¹⁾	$	6.6		$	5.8		$	5.3		$	5.0		$	5.1
Weighted average yield⁽²⁾		10.0	%		10.4	%		10.0	%		9.8	%		9.5	%
Weighted average price⁽¹⁾		98.0			98.3			99.1			99.2			98.6
First lien		78.8	%		77.1	%		85.3	%		88.1	%		90.8	%
Second lien		6.2	%		4.%			5.2	%		4.3	%		3.3	%
Mezzanine		1.6	%		1.7	%		1.6	%		1.7	%		1.7	%
Subordinated		0.9	%		1.3	%		—	%		—	%		—	%
Unsecured		—	%		1.5	%		—	%		—	%		—	%
Consumer loans		9.0	%		10.5	%		5.3	%		3.9	%		2.2	%
Real estate loans		2.3	%		2.3	%		2.2	%		—	%		—	%
Equity		1.2	%		1.5	%		0.4	%		2.0	%		1.9	%
Core⁽⁵⁾		90.0	%		83.7	%		70.6	%		68.0	%		57.2	%
Transitory⁽⁵⁾		10.0	%		16.3	%		29.4	%		32.0	%		42.8	%
Originated⁽³⁾		46.9	%		39.6	%		36.1	%		32.3	%		26.3	%
Club⁽⁴⁾		24.2	%		24.7	%		19.9	%		15.8	%		15.0	%
Purchased		28.9	%		35.7	%		44.0	%		51.9	%		58.7	%
Fixed⁽¹⁾		13.8	%		12.3	%		8.1	%		5.0	%		4.1	%
Floating⁽¹⁾		86.2	%		87.7	%		91.9	%		95.0	%		95.9	%
Performing⁽¹⁾		99.1	%		98.8	%		100.0	%		100.0	%		98.9	%
Non-performing⁽¹⁾		0.9	%		1.2	%		—	%		—	%		1.1	%
Weighted average debt/EBITDA⁽¹⁾⁽²⁾⁽⁶⁾		3.4x			3.5x			3.5x			3.6x			3.7x
Weighted average risk rating⁽¹⁾		2.40			2.40			2.28			2.21			2.21

(1)

Excludes consumer loans and equity investments.

(2)

Excludes investments with a risk rating of 4, unfunded revolvers and equity investments.

(3)

Originated positions include investments where we have sourced and led the execution of the deal.

(4)

Club positions include investments where we provided direct lending to a borrower with one or two other lenders but did not lead the deal.

(5)

June 30, 2014 includes the transfer of three portfolio companies with a par value of $13.2 million and a weighted average yield of 19.3%, from Transitory to Core. Excluding these investments from the current quarter core the average yield of core deals closed during the quarter was 11.8%.

(6)

Excludes non-operating portfolio companies, which we define as those loans collateralized by real estate, proved developed producing value or other hard assets.

Ongoing Monitoring

We view active portfolio monitoring as a vital part of the investment process. Our Investment Adviser monitors the financial trends of each portfolio company to determine if they are meeting their respective business plans and to assess the appropriate course of action for each company.

Our Investment Adviser uses several methods of evaluating and monitoring the performance and fair value of our investments, which may include the following:

•

assessment of success in adhering to portfolio company’s business plan and compliance with covenants;

TABLE OF CONTENTS

•

periodic and regular contact with portfolio company management and, if appropriate, the portfolio company’s financial or strategic sponsor, to discuss financial position, requirements and accomplishments;

•

comparisons to other portfolio companies in the industry, if any;

•

attendance at and participation in board meetings; and

•

review of monthly and quarterly financial statements and financial projections for portfolio companies.

Our Investment Adviser assigns an internal rating for each of our portfolio companies. The rating scale is a numeric scale of 1 to 4 based on the credit attributes and prospects of the portfolio company’s business. In general, we use the ratings as follows:

•

a rating of 1 denotes a high quality investment with no loss of principal expected;

•

a rating of 2 denotes a moderate to high quality investment with no loss of principal expected;

•

a rating of 3 denotes a moderate quality investment with market rates of expected loss of principal and potential non-compliance with financial covenants; and

•

a rating of 4 denotes a low quality investment with an expected loss of principal. In case of risk grade 4 loans, our Investment Adviser will assign a recovery value to the loan.

The following table shows the distribution of our investments on the 1 to 4 investment performance rating scale at fair value as of September 30, 2014 and December 31, 2013.


	As of September 30, 2014					As of December 31, 2013
($ in millions)	Investments at Fair Value⁽¹⁾		Percentage of Total Investments			Investments at Fair Value⁽¹⁾		Percentage of Total Investments
Risk Rating 1	$	12.8		3.3	%	$	2.9		0.7	%
Risk Rating 2		229.4		58.4			330.8		82.0
Risk Rating 3		139.8		35.6			69.5		17.2
Risk Rating 4		10.5		2.7			0.5		0.1
	$	392.5		100.0	%	$	403.7		100.0	%

(1)

Excludes $56.1 million and $25.4 million of consumer loans, real estate loans and equity investments as of September 30, 2014 and December 31, 2013, respectively. Certain reclassifications have been made for previous periods in order to conform to the current period’s presentation.

Inflation

Inflation has not had a significant effect on our results of operations in any of the reporting periods presented in our financial statements. However, from time to time, inflation may impact the operating results of our portfolio companies.

Off-Balance Sheet Arrangements

We may become a party to financial instruments with off-balance sheet risk in the normal course of our business to meet the financial needs of our portfolio companies. These instruments may include commitments to extend credit and involve, to varying degrees, elements of liquidity and credit risk in excess of the amount recognized in the balance sheet. As of September 30, 2014 and December 31, 2013, we had $31.2 million and $9.7 million of outstanding commitments to fund such investments, respectively.

TABLE OF CONTENTS

Contractual Obligations

A summary of our significant contractual payment obligations as of September 30, 2014 is as follows:


	Payments Due by Period (in millions)
	Less Than 1 Year		1 – 3 Years		3 – 5 Years		More Than 5 Years		Total
CLO	$	—	$	—	$	—	$	194.4	$	194.4
GLC Trust 2013-2 Class A Notes		—		—		—		34.8		34.8
Unfunded commitments⁽¹⁾		31.2		—		—		—		31.2
Commitments to purchase loans		—		—		—		—		—
Total contractual obligations	$	31.2	$	—	$	—	$	229.2	$	260.4

(1)

Unfunded commitments represent all amounts unfunded as of September 30, 2014. These amounts may or may not be funded to the borrowing party in the future. The unfunded commitments are related to senior secured revolving loans. We reflect this amount in the less than one-year category because the entire amount was eligible for funding as of September 30, 2014.

We have certain contracts under which we have material future commitments. Under the Investment Advisory Agreement, the Investment Adviser provides us with investment advisory and management services. We have agreed to pay for these services (1) a base management fee equal to a percentage of the average adjusted value of our gross assets and (2) an incentive fee based on our performance.

We entered into the Administration Agreement on October 9, 2012 with the Administrator. Under the Administration Agreement, the Administrator furnishes us with office facilities and equipment, provides us clerical, bookkeeping and record keeping services and provides us with other administrative services necessary to conduct our day-to-day operations.

If any of the contractual obligations discussed above are terminated, our costs under any new agreements that we enter into may increase. In addition, we would likely incur significant time and expense in locating alternative parties to provide the services we expect to receive under our Investment Advisory Agreement and our Administration Agreement. Any new investment advisory agreement would also be subject to approval by our stockholders.

Both the Investment Advisory Agreement and the Administration Agreement may be terminated by either party without penalty upon no fewer than 60 days’ written notice to the other.

Critical Accounting Policies

The preparation of our financial statements in accordance with U.S. GAAP 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. We have identified the following as critical accounting policies.

Basis for Consolidation

Under the investment company rules and regulations pursuant to the American Institute of Certified Public Accountants Audit and Accounting Guide for Investment Companies, codified in Topic 946, Financial Services-Investment Companies, or ASC Topic 946, we are precluded from consolidating any entity other than another investment company. We generally consolidate any investment company when we own 100% of its partners’ or members’ capital or equity units. ASC Topic 946 also provides an exception to the aforementioned if the investment company has an investment in a controlled operating company that provides substantially all of its services to the investment company. GF 2013-2 Manager owns a 100% equity interest in GF 2013-2, which is an investment company for accounting purposes, and also provides collateral management services solely to GF 2013-2. As such, we have consolidated the accounts of these entities into our financial statements. Our blocker subsidiaries, Walnut Hill II LLC, Forest Park II LLC and GLC Trust 2013-2, are 100% owned investment companies for accounting purposes. As such, we have consolidated the accounts of these entities into our financial statements. As a result of this consolidation, the amounts outstanding under the CLO and the GLC Trust 2013-2 Notes are treated as our indebtedness. We dissolved Garrison Capital CLO Ltd. as of April 8, 2013 and GF 2010-1 was dissolved on June 5, 2013.

TABLE OF CONTENTS

Valuation of Portfolio Investments

We value our investments in accordance with ASC, Topic 820, Fair Value Measurements and Disclosures, or ASC 820. ASC 820 defines fair value, establishes a framework for measuring fair value and expands disclosures about assets and liabilities measured at fair value. ASC 820’s definition of fair value focuses on exit price in the principal, or most advantageous, market and prioritizes the use of market-based inputs over entity-specific inputs within a measurement of fair value. ASC 820 classifies the inputs used to measure these fair values into the following hierarchy:

Level 1 —

quoted unadjusted prices in active markets for identical investments as of the reporting date.

Level 2 —

other significant observable inputs (including quoted prices for similar investments, interest rates, prepayments, credit risk, etc.).

Level 3 —

significant unobservable inputs (including the Investment Adviser’s own assumptions about the assumptions market participants would use in determining the fair values of investments).

Our portfolio consists of primarily debt investments and unsecured consumer loans. The fair value of our investments is initially determined by investment professionals of the Investment Adviser and ultimately determined by the Board on a quarterly basis.

In valuing our debt investments, the Investment Adviser generally uses various approaches, including, but not limited to, proprietary models that consider the analyses of independent valuation agents as well as credit risk, liquidity, market credit spreads, other applicable factors for similar transactions, bid quotations obtained from other financial institutions that trade in similar investments or based on bid prices provided by independent third party pricing services.

The types of factors that the Board may take into account when reviewing the fair value initially derived by the Investment Adviser and determining the fair value of the our debt investments generally include, as appropriate, comparison to publicly traded securities, including such factors as yield, maturity and measures of credit quality, the enterprise value of a portfolio company, the nature and realizable value of any collateral, the portfolio company’s ability to make payments and its earnings and discounted cash flow, the markets in which the portfolio company does business and other relevant factors.

In valuing our unsecured consumer loans, the Investment Adviser generally uses a discounted cash flow methodology based upon a set of assumptions. The primary assumptions used to value the unsecured consumer loans include prepayment and default rates derived from historical performance, actual performance as compared to historical projections and discount rate.

The types of factors that the Board may take into account when reviewing the fair value initially derived by the Investment Adviser and determining the fair value of the our consumer loan investments generally include, as appropriate, prepayment and default rates derived from historical performance, actual performance as compared to historical projections and discount rates.

Our Board of Directors has retained several independent valuation firms to review the valuation of each portfolio investment that does not have a readily available market quotation at least once during each 12-month period. To the extent a security is reviewed in a particular quarter, it is reviewed and valued by only one service provider. However, our Board of Directors does not intend to have de minimis investments of less than 0.5% of our total assets (up to an aggregate of 10% of our total assets) independently reviewed. Our Board of Directors is ultimately and solely responsible for determining the fair value of our assets using a documented valuation policy and consistently applied valuation process.

Due to the nature of our strategy, our portfolio includes relatively illiquid investments that are privately held. Inputs into the determination of fair value of our portfolio investments require significant management judgment or estimation. This means that our portfolio valuations are based on unobservable inputs and our own assumptions about how market participants would price the asset or liability in question. Valuations of privately held investments are inherently uncertain and they may fluctuate over short periods of time and may

TABLE OF CONTENTS

be based on estimates. The determination of fair value by our board of directors may differ materially from the values that would have been used if a ready market for these investments existed. Our net asset value could be materially affected if the determinations regarding the fair value of our investments were materially higher or lower than the values that we ultimately realized upon the disposal of such investments.

The valuation process is conducted at the end of each fiscal quarter, with a portion of our valuations of portfolio companies without market quotations subject to review by the independent valuation firms each quarter. When an external event with respect to one of our portfolio companies, such as a purchase transaction, public offering or subsequent equity sale occurs, we expect to use the pricing indicated by the external event to corroborate our valuation.

With respect to investments for which market quotations are not readily available, our board of directors will undertake a multi-step valuation process each quarter, as described below:

•

Our quarterly valuation process begins with each portfolio company or investment being initially valued by investment professionals of our Investment Adviser responsible for credit monitoring.

•

Preliminary valuation conclusions are then documented and discussed with our senior management and our Investment Adviser.

•

The valuation committee of the Board of Directors reviews these preliminary valuations.

•

The Board of Directors discusses valuations and determines the fair value of each investment in our portfolio in good faith.

Investment Transactions and Related Investment Income and Expense

We record our investment transactions on a trade date basis, which is the date when we have determined that all material terms have been defined for the transactions. These transactions could possibly settle on a subsequent date depending on the transaction type. All related revenue and expenses attributable to these transactions are reflected on the consolidated statement of operations commencing on the trade date unless otherwise specified by the transaction documents. Realized gains and losses on investment transactions are recorded on the specific identification method.

We accrue interest income if we expect that ultimately we will be able to collect it. Generally, when an interest default occurs on a loan in our portfolio, or if our management otherwise believes that the issuer of the loan will not be able to service the loan and other obligations, we will place the loan on non-accrual status and will cease recognizing interest income on that loan until all principal and interest is current through payment or until a restructuring occurs, such that the interest income is deemed to be collectible. However, we remain contractually entitled to this interest. We may make exceptions to this policy if the loan has sufficient collateral value and is in the process of collection. Accrued interest is written off when it becomes probable that the interest will not be collected and the amount of uncollectible interest can be reasonably estimated. For the three and nine months ended September 30, 2014, the Company recognized $322,313 and $627,772, respectively, in charge offs in realized losses from investments for consumer loans held by GLC Trust 2013-2, and had one investment placed on non-accrual status.

Any original issue discounts, as well as any other purchase discounts or premiums on debt investments, are accreted or amortized and included in interest income over the maturity periods of the investments.

Interest Expense

Interest expense is recorded on an accrual basis and is adjusted for amortization of deferred debt issuance costs.

TABLE OF CONTENTS

Other Expenses

Certain expenses related to, but not limited to, rating fees, due diligence, valuation expenses and independent collateral appraisals may arise when we make certain investments. These expenses are recognized in the consolidated statement of operations within ratings fees and other expenses as they are incurred.

Loan Origination, Facility, Commitment and Amendment Fees

We may receive loan origination, facility, commitment and amendment fees in addition to interest income from the loans during the life of the investment. We may receive origination fees upon the origination of an investment. Origination fees are initially deferred and reduced from the cost basis of the investment and subsequently accreted into interest income over the remaining stated term of the loan. Facility fees, sometimes referred to as asset management fees, are accrued as a percentage periodic fee on the base amount (either the funded facility amount or the committed principal amount). Commitment fees are based upon the undrawn portion committed by us and are recorded on an accrual basis. Amendment fees are paid in connection with loan amendments and waivers and are recognized upon completion of the amendments or waivers, generally when such fees are receivable. Upon the prepayment of a loan or debt security, any unamortized loan origination fees are recorded as interest income. We record prepayment premiums on loans and debt securities as interest income when we receive such amounts. Any such fees are included in interest income on the consolidated statement of operations. For the three months ended September 30, 2014 and September 30, 2013, other income in the amount of $935,040 and $45,414, respectively, was included in interest income. For the nine months ended September 30, 2014 and September 30, 2013, other income in the amount of $2,236,190 and $446,744, respectively, was included in interest income.

Distributions

Dividends and distributions to common stockholders are recorded on the ex-dividend date. The amount to be paid out as a distribution is determined by our board of directors each quarter and is generally based upon the earnings estimated by management. Net realized capital gains, if any, are distributed at least annually, although we may decide to retain such capital gains for investment.

We have adopted a dividend reinvestment plan that provides for reinvestment of our dividends and other distributions on behalf of our stockholders, unless a stockholder elects to receive cash as provided below. As a result, if our board of directors authorizes, and we declare, a cash dividend or other distribution, then our stockholders who have not ‘opted out’ of our dividend reinvestment plan will have their cash distribution automatically reinvested in additional shares of our common stock, rather than receiving the cash distribution.

No action is required on the part of a registered stockholder to have their cash dividend or other distribution reinvested in shares of our common stock. A registered stockholder may elect to receive an entire distribution in cash by notifying American Stock Transfer & Trust Company, LLC, the plan administrator and our transfer agent and registrar, in writing so that such notice is received by the plan administrator no later than the record date for distributions to stockholders. The plan administrator will set up an account for shares acquired through the plan for each stockholder who has not elected to receive dividends or other distributions in cash and hold such shares in non-certificated form. Upon request by a stockholder participating in the plan, received in writing not less than 10 days prior to the record date, the plan administrator will, instead of crediting shares to the participant’s account, issue a certificate registered in the participant’s name for the number of whole shares of our common stock and a check for any fractional share. The plan administrator is authorized to deduct a $15.00 transaction fee plus a $0.10 per share brokerage commission from the proceeds of the sale of any fractional share of common stock.

Income Tax

As a business development company, we elected to be treated as a RIC under Subchapter M of the Code and we intend to qualify annually for such treatment.

We comply with all RIC qualification provisions contained in the Code including certain source-of-income and asset diversification requirements as well as the annual distribution requirements, which require us to

TABLE OF CONTENTS

distribute to our stockholders an amount equal at least 90% of “investment company taxable income.” “Investment company taxable income” is generally defined as net ordinary income plus the excess of realized net short-term capital gains over realized net long-term capital losses. As a RIC, we do not have to pay corporate-level U.S. federal income taxes on any net ordinary income or net capital gains that we distribute to our stockholders in a timely manner. However, we are subject to U.S. federal income taxes at regular corporate tax rates on any net ordinary income or net capital gain not distributed to our stockholders assuming at least 90% of our investment company taxable income is distributed each taxable year.

Item 3: Quantitative and Qualitative Disclosures About Market Risk

We are subject to financial market risks, including changes in interest rates. During the period covered by our financial statements, the majority of the loans in our portfolio had floating interest rates, and we expect that our loans in the future will also have floating interest rates. These loans are usually based on a floating LIBOR and typically have interest rate re-set provisions that adjust applicable LIBOR under such loans to current market rates on a regular basis. In addition, the CLO has a floating interest rate provision based on a cost of funds that approximates LIBOR and we expect that any other credit facilities into which we enter in the future may have floating interest rate provisions.

Assuming that the interim and unaudited consolidated statement of financial condition as of September 30, 2014 were to remain constant and that we took no actions to alter our existing interest rate sensitivity, the following table shows the annualized impact of hypothetical base rate changes in interest rates.


Change in interest rates (in thousands)	Increase (decrease) in interest income		Increase (decrease) in interest expense			Net increase (decrease) in investment income
Down 25 basis points	$	0	$	(287	)	$	287
Up 50 basis points		52		1,227			(1,175	)
Up 100 basis points		619		2,373			(1,754	)
Up 200 basis points		3,833		4,664			(831	)
Up 300 basis points		7,319		6,955			364

Although management believes that this analysis is indicative of our existing sensitivity to interest rate changes, it does not adjust for changes in the credit markets, the size, credit quality or composition of the assets in our portfolio and other business developments, including indebtedness under the CLO or other borrowings, that could affect net increase in net assets resulting from operations, or net income. Accordingly, we cannot assure you that actual results would not differ materially from the statement above.

We may in the future hedge against currency and interest rate fluctuations by using standard hedging instruments such as futures, forward contracts, currency options and interest rate swaps, caps, collars and floors, and the collateral manager may engage in similar hedging activities with respect to the obligations of the CLO, to the extent permitted under the 1940 Act and applicable commodities laws. While hedging activities may insulate us against adverse changes in currency exchange and interest rates, they may also limit our ability to participate in the benefits of lower interest rates with respect to the investments in our portfolio with fixed interest rates. We, our Investment Adviser and the collateral manager have not hedged any of the obligations of the CLO.

Item 4: Controls and Procedures

As of the period covered by this report, we, including our chief executive officer and chief financial officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act). Based on our evaluation, our management, including the chief

TABLE OF CONTENTS

executive officer and chief financial officer, concluded that our disclosure controls and procedures were effective in timely alerting management, including the chief executive officer and chief financial officer, of material information about us required to be included in our periodic SEC filings. However, in evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, are based upon certain assumptions about the likelihood of future events and can provide only reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. There has not been any change in our internal controls over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that occurred during the period covered by this report 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

Garrison Capital, the Investment Adviser and the Administrator are not currently subject to any material legal proceedings.

Item 1A: Risk Factors

In addition to other information set forth in this report, you should carefully consider the “Risk Factors” discussed in our Annual Report on Form 10-K filed with the SEC on March 13, 2014, and our Form N-2, as amended, filed on July 11, 2014 (effective as of July 14, 2014), which could materially affect our business, financial condition and/or operating results. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially affect our business, financial condition and/or operating results.

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

None.

Item 3: Defaults Upon Senior Securities

None.

Item 4: Mine Safety Disclosures

Not applicable.

Item 5: Other Information

Effective as of the conclusion of the meeting of our Board of Directors on October 31, 2014, Julian Weldon resigned as Chief Compliance Officer and Secretary of Garrison Capital. Matthew B. Goldstein will serve as our Chief Compliance Officer and Secretary effective on October 31, 2014.

TABLE OF CONTENTS

Item 6: Exhibits

EXHIBIT INDEX


Number		Description
31.1*		Certifications by Chief Executive Officer pursuant to Exchange Act Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*		Certifications by Chief Financial Officer pursuant to Exchange Act Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1*		Certification by Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2*		Certification by Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
99.1*		GLC Trust 2013-2 Consumer Loan Pool Schedule of Investments.

Filed herewith.

TABLE OF CONTENTS

SIGNATURES

Pursuant to the requirements 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.


		Garrison Capital Inc.
Dated: November 5, 2014		By /s/ Joseph Tansey Joseph Tansey Chief Executive Officer (Principal Executive Officer)
Dated: November 5, 2014		By /s/ Brian Chase Brian Chase Chief Financial Officer (Principal Accounting and Financial Officer)

Garrison Capital Inc. - FORM 10-Q - November 5, 2014

Attached files

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549

FORM 10-Q

Garrison Capital Inc.

Table of Contents

Garrison Capital Inc. and Subsidiaries Consolidated Statements of Financial Condition

Part I. Financial Information

Item 1. Financial Statements

Garrison Capital Inc. and Subsidiaries Consolidated Schedule of Investments September 30, 2014 (unaudited)

Garrison Capital Inc. and Subsidiaries Consolidated Schedule of Investments – (continued) September 30, 2014 (unaudited)

Garrison Capital Inc. and Subsidiaries Consolidated Schedule of Investments – (continued) September 30, 2014 (unaudited)

Garrison Capital Inc. and Subsidiaries Consolidated Schedule of Investments – (continued) September 30, 2014 (unaudited)

Garrison Capital Inc. and Subsidiaries Consolidated Schedule of Investments – (continued) September 30, 2014 (unaudited)

Garrison Capital Inc. and Subsidiaries Consolidated Schedule of Investments – (continued) September 30, 2014 (unaudited)

Garrison Capital Inc. and Subsidiaries Consolidated Schedule of Investments – (continued) September 30, 2014 (unaudited)

Garrison Capital Inc. and Subsidiaries Consolidated Schedule of Investments December 31, 2013

Garrison Capital Inc. and Subsidiaries Consolidated Schedule of Investments – (continued) December 31, 2013

Garrison Capital Inc. and Subsidiaries Consolidated Schedule of Investments – (continued) December 31, 2013

Garrison Capital Inc. and Subsidiaries Consolidated Schedule of Investments – (continued) December 31, 2013

Garrison Capital Inc. and Subsidiaries Consolidated Schedule of Investments – (continued) December 31, 2013

Garrison Capital Inc. and Subsidiaries Consolidated Schedule of Investments – (continued) December 31, 2013

Garrison Capital Inc. and Subsidiaries Consolidated Schedule of Investments – (continued) December 31, 2013

Garrison Capital Inc. and Subsidiaries Consolidated Statements of Operations (unaudited) For the three and nine months ended September 30, 2014 and September 30, 2013

Garrison Capital Inc. and Subsidiaries Consolidated Statements of Changes in Net Assets (unaudited) For the nine months ended September 30, 2014 and September 30, 2013

Garrison Capital Inc. and Subsidiaries Consolidated Statements of Cash Flows (unaudited) For the nine months ended September 30, 2014 and September 30, 2013

Supplemental disclosure of non-cash information

Garrison Capital Inc. and Subsidiaries Notes to Consolidated Financial Statements (unaudited) September 30, 2014

1. Organization

Garrison Capital Inc. and Subsidiaries Notes to Consolidated Financial Statements (unaudited) September 30, 2014

1. Organization – (continued)

Garrison Capital Inc. and Subsidiaries Notes to Consolidated Financial Statements (unaudited) September 30, 2014

1. Organization – (continued)

2. Significant Accounting Policies and Recent Updates

Basis of Presentation

Basis for Consolidation

Garrison Capital Inc. and Subsidiaries Notes to Consolidated Financial Statements (unaudited) September 30, 2014

2. Significant Accounting Policies and Recent Updates – (continued)

Investment Classification

Use of Estimates

Cash and Cash Equivalents

Cash and Cash Equivalents, Restricted

Garrison Capital Inc. and Subsidiaries Notes to Consolidated Financial Statements (unaudited) September 30, 2014

2. Significant Accounting Policies and Recent Updates – (continued)

Investment Transactions and Related Investment Income and Expense

Interest Expense

Expenses

Garrison Capital Inc. and Subsidiaries Notes to Consolidated Financial Statements (unaudited) September 30, 2014

2. Significant Accounting Policies and Recent Updates – (continued)

Loan Origination, Facility, Commitment and Amendment Fees

Valuation of Investments

Garrison Capital Inc. and Subsidiaries Notes to Consolidated Financial Statements (unaudited) September 30, 2014

2. Significant Accounting Policies and Recent Updates – (continued)

Garrison Capital Inc. and Subsidiaries Notes to Consolidated Financial Statements (unaudited) September 30, 2014

2. Significant Accounting Policies and Recent Updates – (continued)

Offering Costs

Dividends and Distributions

Income Taxes

Garrison Capital Inc. and Subsidiaries Notes to Consolidated Financial Statements (unaudited) September 30, 2014

2. Significant Accounting Policies and Recent Updates – (continued)

Garrison Capital Inc. and Subsidiaries Notes to Consolidated Financial Statements (unaudited) September 30, 2014

2. Significant Accounting Policies and Recent Updates – (continued)

Garrison Capital Inc. and Subsidiaries Notes to Consolidated Financial Statements (unaudited) September 30, 2014

2. Significant Accounting Policies and Recent Updates – (continued)

Recent Accounting Pronouncements

3. Investments

Garrison Capital Inc. and Subsidiaries Notes to Consolidated Financial Statements (unaudited) September 30, 2014

3. Investments – (continued)

4. Fair Value of Financial Instruments

Garrison Capital Inc. and Subsidiaries Notes to Consolidated Financial Statements (unaudited) September 30, 2014

4. Fair Value of Financial Instruments – (continued)

Garrison Capital Inc. and Subsidiaries Notes to Consolidated Financial Statements (unaudited) September 30, 2014

4. Fair Value of Financial Instruments – (continued)

Garrison Capital Inc. and Subsidiaries Notes to Consolidated Financial Statements (unaudited) September 30, 2014

4. Fair Value of Financial Instruments – (continued)

Garrison Capital Inc. and Subsidiaries Notes to Consolidated Financial Statements (unaudited) September 30, 2014

4. Fair Value of Financial Instruments – (continued)

Garrison Capital Inc. and Subsidiaries Notes to Consolidated Financial Statements (unaudited) September 30, 2014

4. Fair Value of Financial Instruments – (continued)

Garrison Capital Inc. and Subsidiaries Notes to Consolidated Financial Statements (unaudited) September 30, 2014

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Garrison Capital Inc. and Subsidiaries

Consolidated Statements of Financial Condition

Garrison Capital Inc. and Subsidiaries

Consolidated Schedule of Investments

September 30, 2014 (unaudited)

Garrison Capital Inc. and Subsidiaries

Consolidated Schedule of Investments – (continued)

September 30, 2014 (unaudited)

Garrison Capital Inc. and Subsidiaries

Consolidated Schedule of Investments – (continued)

September 30, 2014 (unaudited)

Garrison Capital Inc. and Subsidiaries

Consolidated Schedule of Investments – (continued)

September 30, 2014 (unaudited)

Garrison Capital Inc. and Subsidiaries

Consolidated Schedule of Investments – (continued)

September 30, 2014 (unaudited)

Garrison Capital Inc. and Subsidiaries

Consolidated Schedule of Investments – (continued)

September 30, 2014 (unaudited)

Garrison Capital Inc. and Subsidiaries

Consolidated Schedule of Investments – (continued)

September 30, 2014 (unaudited)

Garrison Capital Inc. and Subsidiaries

Consolidated Schedule of Investments

December 31, 2013

Garrison Capital Inc. and Subsidiaries

Consolidated Schedule of Investments – (continued)

December 31, 2013

Garrison Capital Inc. and Subsidiaries

Consolidated Schedule of Investments – (continued)

December 31, 2013

Garrison Capital Inc. and Subsidiaries

Consolidated Schedule of Investments – (continued)

December 31, 2013

Garrison Capital Inc. and Subsidiaries

Consolidated Schedule of Investments – (continued)

December 31, 2013

Garrison Capital Inc. and Subsidiaries

Consolidated Schedule of Investments – (continued)

December 31, 2013

Garrison Capital Inc. and Subsidiaries

Consolidated Schedule of Investments – (continued)

December 31, 2013

Garrison Capital Inc. and Subsidiaries

Consolidated Statements of Operations (unaudited)

For the three and nine months ended September 30, 2014 and September 30, 2013

Garrison Capital Inc. and Subsidiaries

Consolidated Statements of Changes in Net Assets (unaudited)

For the nine months ended September 30, 2014 and September 30, 2013

Garrison Capital Inc. and Subsidiaries

Consolidated Statements of Cash Flows (unaudited)

For the nine months ended September 30, 2014 and September 30, 2013

Garrison Capital Inc. and Subsidiaries

Notes to Consolidated Financial Statements (unaudited)

September 30, 2014

Garrison Capital Inc. and Subsidiaries

Notes to Consolidated Financial Statements (unaudited)

September 30, 2014

Garrison Capital Inc. and Subsidiaries

Notes to Consolidated Financial Statements (unaudited)

September 30, 2014

Garrison Capital Inc. and Subsidiaries

Notes to Consolidated Financial Statements (unaudited)

September 30, 2014

Garrison Capital Inc. and Subsidiaries

Notes to Consolidated Financial Statements (unaudited)

September 30, 2014

Garrison Capital Inc. and Subsidiaries

Notes to Consolidated Financial Statements (unaudited)

September 30, 2014

Garrison Capital Inc. and Subsidiaries

Notes to Consolidated Financial Statements (unaudited)

September 30, 2014

Garrison Capital Inc. and Subsidiaries

Notes to Consolidated Financial Statements (unaudited)

September 30, 2014

Garrison Capital Inc. and Subsidiaries

Notes to Consolidated Financial Statements (unaudited)

September 30, 2014

Garrison Capital Inc. and Subsidiaries

Notes to Consolidated Financial Statements (unaudited)

September 30, 2014

Garrison Capital Inc. and Subsidiaries

Notes to Consolidated Financial Statements (unaudited)

September 30, 2014

Garrison Capital Inc. and Subsidiaries

Notes to Consolidated Financial Statements (unaudited)

September 30, 2014

Garrison Capital Inc. and Subsidiaries

Notes to Consolidated Financial Statements (unaudited)

September 30, 2014

Garrison Capital Inc. and Subsidiaries

Notes to Consolidated Financial Statements (unaudited)

September 30, 2014

Garrison Capital Inc. and Subsidiaries

Notes to Consolidated Financial Statements (unaudited)

September 30, 2014

Garrison Capital Inc. and Subsidiaries

Notes to Consolidated Financial Statements (unaudited)

September 30, 2014

Garrison Capital Inc. and Subsidiaries

Notes to Consolidated Financial Statements (unaudited)

September 30, 2014

Garrison Capital Inc. and Subsidiaries

Notes to Consolidated Financial Statements (unaudited)

September 30, 2014

Garrison Capital Inc. and Subsidiaries

Notes to Consolidated Financial Statements (unaudited)

September 30, 2014

Garrison Capital Inc. and Subsidiaries

Notes to Consolidated Financial Statements (unaudited)

September 30, 2014

Garrison Capital Inc. and Subsidiaries

Notes to Consolidated Financial Statements (unaudited)

September 30, 2014

Garrison Capital Inc. and Subsidiaries

Notes to Consolidated Financial Statements (unaudited)

September 30, 2014

Garrison Capital Inc. and Subsidiaries

Notes to Consolidated Financial Statements (unaudited)

September 30, 2014

Garrison Capital Inc. and Subsidiaries

Notes to Consolidated Financial Statements (unaudited)

September 30, 2014

Garrison Capital Inc. and Subsidiaries

Notes to Consolidated Financial Statements (unaudited)

September 30, 2014

Garrison Capital Inc. and Subsidiaries

Notes to Consolidated Financial Statements (unaudited)

September 30, 2014

Garrison Capital Inc. and Subsidiaries

Notes to Consolidated Financial Statements (unaudited)

September 30, 2014

Garrison Capital Inc. and Subsidiaries

Notes to Consolidated Financial Statements (unaudited)

September 30, 2014

Garrison Capital Inc. and Subsidiaries

Notes to Consolidated Financial Statements (unaudited)

September 30, 2014