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Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

 

FORM 10-Q

 

 

(Mark One)

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

For the quarterly period ended June 30, 2015

OR

 

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

For the transition period from                      to                     

Commission file number 814-00789

 

 

THL CREDIT, INC.

(Exact Name of Registrant as Specified in Its Charter)

 

 

 

Delaware   27-0344947

(State or Other Jurisdiction of

Incorporation or Organization)

 

(I.R.S. Employer

Identification No.)

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

Registrant’s Telephone Number, Including Area Code: 800-450-4424

 

 

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

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

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

 

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

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

The number of shares of the registrant’s common stock, $0.001 par value per share, outstanding at August 6, 2015 was 33,601,002.

 

 

 


Table of Contents

THL CREDIT, INC.

FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 2015

Table of Contents

 

    

INDEX

   PAGE
NO.
 

PART I.

  FINANCIAL INFORMATION   

Item 1.

  Financial Statements   
  Consolidated Statements of Assets and Liabilities as of June 30, 2015 (unaudited) and December 31, 2014      2   
  Consolidated Statements of Operations for the six months ended June 30, 2015 and 2014 (unaudited)      3   
  Consolidated Statements of Changes in Net Assets for the six months ended June 30, 2015 and 2014 (unaudited)      4   
  Consolidated Statements of Cash Flows for the six months ended June 30, 2015 and 2014 (unaudited)      5   
  Consolidated Schedules of Investments as of June 30, 2015 (unaudited) and December 31, 2014      6   
  Notes to Consolidated Financial Statements (unaudited)      17   

Item 2.

  Management’s Discussion and Analysis of Financial Condition and Results of Operations      48   

Item 3.

  Quantitative and Qualitative Disclosures About Market Risk      81   

Item 4.

  Controls and Procedures      81   

PART II.

  OTHER INFORMATION   

Item 1.

  Legal Proceedings      82   

Item 1A.

  Risk Factors      82   

Item 2.

  Unregistered Sales of Equity Securities and Use of Proceeds      82   

Item 3.

  Defaults Upon Senior Securities      82   

Item 4.

  Mine Safety Disclosures      82   

Item 5.

  Other Information      82   

Item 6.

  Exhibits      83   

SIGNATURES

       84   

 

1


Table of Contents

THL Credit, Inc. and Subsidiaries

Consolidated Statements of Assets and Liabilities

(in thousands, except per share data)

(unaudited)

 

     June 30,
2015
    December 31,
2014
 

Assets:

    

Investments at fair value:

    

Non-controlled, non-affiliated investments (cost of $683,752 and $726,811, respectively)

   $ 690,808      $ 732,862   

Controlled investments (cost of $70,990 and $52,208, respectively)

     75,413        51,349   

Non-controlled, affiliated investments (cost of $8 and $9, respectively)

     8        9   
  

 

 

   

 

 

 

Total investments at fair value (cost of $754,750 and $779,028, respectively)

   $ 766,229      $ 784,220   

Cash

     7,798        2,656   

Interest, dividends, and fees receivable

     9,192        6,221   

Deferred financing costs

     6,230        7,021   

Due from affiliate

     722        1,216   

Deferred tax assets

     661        285   

Other deferred assets

     488        600   

Receivable for paydown of investments

     717        329   

Prepaid expenses and other assets

     136        399   

Deferred offering costs

     94        —     

Receivable for investments sold

     —          9,538   

Total assets

   $ 792,267      $ 812,485   

Liabilities:

    

Loans payable

   $ 282,851      $ 294,851   

Notes payable

     50,000        50,000   

Payable for investment purchased

     —          10,400   

Accrued incentive fees

     4,006        4,175   

Base management fees payable

     2,889        2,810   

Deferred tax liability

     2,781        2,565   

Accrued expenses and other payables

     1,078        1,856   

Other deferred liabilities

     1,305        1,418   

Accrued interest and fees

     483        576   

Interest rate derivative

     356        213   

Accrued administrator expenses

     23        —     

Total liabilities

     345,772        368,864   

Commitments and contingencies (Note 8)

    

Net Assets:

    

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

     —          —     

Common stock, par value $.001 per share, 100,000 common shares authorized, 33,601 and 33,905 shares issued and outstanding at June 30, 2015 and December 31, 2014, respectively

     34        34   

Paid-in capital in excess of par

     444,788        448,726   

Net unrealized appreciation on investments, net of provision

     8,698        2,627   

for taxes of $2,781 and $2,565, respectively

    

Net unrealized depreciation on interest rate derivative

     (356     (213

Accumulated undistributed net realized losses

     (13,587     (13,360

Accumulated undistributed net investment income

     6,918        5,807   

Total net assets

     446,495        443,621   

Total liabilities and net assets

   $ 792,267      $ 812,485   
  

 

 

   

 

 

 

Net asset value per share

   $ 13.29      $ 13.08   
  

 

 

   

 

 

 

See accompanying notes to these consolidated financial statements.

 

2


Table of Contents

THL Credit, Inc. and Subsidiaries

Consolidated Statements of Operations

(in thousands, except per share data)

(unaudited)

 

     For the three months ended June 30,     For the six months ended June 30,  
     2015     2014     2015     2014  

Investment Income:

        

From non-controlled, non-affiliated investments:

        

Interest income

   $ 20,872      $ 21,721      $ 41,781      $ 39,273   

Dividend income

     293        637        293        2,785   

Other income

     847        588        2,501        1,030   

From non-controlled, affiliated investments:

        

Other income

     650        760        1,245        1,514   

From controlled investments:

        

Interest income

     238        39        476        39   

Dividend income

     776        —          1,104        —     

Other income

     75        —          113        —     
  

 

 

   

 

 

   

 

 

   

 

 

 

Total investment income

     23,751        23,745        47,513        44,641   

Expenses:

        

Interest and fees on borrowings

     3,159        2,475        6,240        4,565   

Incentive fees

     2,983        2,321        5,961        5,066   

Base management fees

     2,889        2,879        5,894        5,402   

Administrator expenses

     923        947        1,870        1,874   

Other general and administrative expenses

     743        702        1,429        1,264   

Amortization of deferred financing costs

     398        328        825        635   

Professional fees

     463        706        797        1,017   

Directors’ fees

     236        143        436        292   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total expenses

     11,794        10,501        23,452        20,115   

Income tax provision, excise and other taxes

     23        357        218        937   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net investment income

     11,934        12,887        23,843        23,589   

Realized Gain and Change in Unrealized Appreciation on Investments:

        

Net realized gain (loss) on non-controlled, non-affiliated investments

     46        (573     77        (274

Net change in unrealized appreciation (depreciation) on investments:

        

Non-controlled, non-affiliated investments

     (881     (2,851     1,004        (3,460

Controlled, non-affiliated investments

     3,420        —          5,282        —     

Non-controlled, affiliated investments

     —          —          —          —     
  

 

 

   

 

 

   

 

 

   

 

 

 

Net change in unrealized appreciation (depreciation) on investments

     2,539        (2,851     6,286        (3,460
  

 

 

   

 

 

   

 

 

   

 

 

 

Net realized and unrealized gain (loss) from investments

     2,585        (3,424     6,363        (3,734

Benefit (provision) for taxes on realized gain on investments

     —          72        —          (249

(Provision) benefit for taxes on unrealized gain on investments

     (388     14        (216     984   

Interest rate derivative periodic interest payments, net

     (111     (114     (227     (227

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

     39        (152     (143     (99
  

 

 

   

 

 

   

 

 

   

 

 

 

Net increase in net assets resulting from operations

   $ 14,059      $ 9,283      $ 29,620      $ 20,264   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net investment income per common share:

        

Basic and diluted

   $ 0.35      $ 0.38      $ 0.70      $ 0.70   

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

        

Basic and diluted

   $ 0.42      $ 0.27      $ 0.87      $ 0.60   

Dividends declared and paid

   $ 0.34      $ 0.34      $ 0.68      $ 0.68   

Weighted average shares of common stock outstanding:

        

Basic and diluted

     33,810        33,905        33,857        33,905   

See accompanying notes to these consolidated financial statements.

 

3


Table of Contents

THL Credit, Inc. and Subsidiaries

Consolidated Statements of Changes in Net Assets

(in thousands, except per share data)

(unaudited)

 

     For the six months ended June 30,  
     2015     2014  

Increase in net assets from operations:

    

Net investment income

   $ 23,843      $ 23,589   

Interest rate derivative periodic interest payments, net

     (227     (227

Net realized gain (loss) on investments

     77        (274

Income tax provision, realized gain

     —          (249

Net change in unrealized appreciation (depreciation) on investments

     6,286        (3,460

(Provision) benefit for taxes on unrealized gain (loss) on investments

     (216     984   

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

     (143     (99
  

 

 

   

 

 

 

Net increase in net assets resulting from operations

     29,620        20,264   

Distributions to stockholders

    

Distributions to stockholders from net investment income

     (22,981     (20,771

Distributions to stockholders from net realized gain

     —          (2,284
  

 

 

   

 

 

 

Total distributions to stockholders

     (22,981     (23,055

Capital share transactions:

    

Repurchase of common stock

     (3,765     —     
  

 

 

   

 

 

 

Net decrease in net assets from capital share transactions

     (3,765     —     
  

 

 

   

 

 

 

Total increase (decrease) in net assets

     2,874        (2,791

Net assets at beginning of period

     443,621        452,942   
  

 

 

   

 

 

 

Net assets at end of period

   $ 446,495      $ 450,151   
  

 

 

   

 

 

 

Common shares outstanding at end of period

     33,601        33,905   
  

 

 

   

 

 

 

Capital share activity:

    

Shares repurchased

     304        —     
  

 

 

   

 

 

 

Net decrease in capital activity

     304        —     
  

 

 

   

 

 

 

See accompanying notes to these consolidated financial statements

 

4


Table of Contents

THL Credit, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

(in thousands)

(unaudited)

 

     For the six months ended June 30,  
     2015     2014  

Cash flows from operating activities

    

Net increase in net assets resulting from operations

   $ 29,620      $ 20,264   

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

    

Net change in unrealized (depreciation) appreciation on investments

     (6,286     3,460   

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

     143        99   

Net realized loss on investments

     8        455   

Increase in investments due to PIK

     (2,369     (1,126

Amortization of deferred financing costs

     825        635   

Accretion of discounts on investments and other fees

     (1,577     (2,748

Changes in operating assets and liabilities:

    

Purchases of investments, net of payable for investment purchased

     (79,825     (183,746

Proceeds from sale and paydown of investments

     106,789        92,204   

Increase in interest, dividends and fees receivable

     (2,971     (1,906

Decrease in escrow receivable

     —          1,800   

Decrease in other deferred assets

     113        112   

Decrease in due from affiliate

     494        142   

Decrease in prepaid expenses and other assets

     263        287   

Increase in deferred tax asset

     (376     —     

Decrease in accrued expenses

     (827     (462

Decrease (increase) in accrued credit facility fees and interest

     (93     324   

Increase in income taxes payable

     40        11   

Increase (decrease) in deferred tax liability

     216        (1,111

Increase in base management fees payable

     79        636   

Increase (decrease) in accrued administrator expenses

     23        (11

(Decrease) increase in other deferred liabilities

     (113     233   

(Decrease) increase in accrued incentive fees payable

     (169     564   

Increase in due to affiliate

     —          (361
  

 

 

   

 

 

 

Net cash provided by (used in) operating activities

     44,007        (70,245

Cash flows from financing activities

    

Repurchase of common stock

     (3,765     —     

Borrowings under credit facility

     76,000        210,750   

Repayments under credit facility

     (88,000     (101,249

Distributions paid to stockholders

     (22,981     (23,055

Financing and offering costs paid

     (119     (1,811
  

 

 

   

 

 

 

Net cash (used in) provided by financing activities

     (38,865     84,635   
  

 

 

   

 

 

 

Net increase in cash

     5,142        14,390   

Cash, beginning of period

     2,656        7,829   
  

 

 

   

 

 

 

Cash, end of period

   $ 7,798      $ 22,219   
  

 

 

   

 

 

 

Supplemental Disclosure of Cash Flow Information:

    

Cash interest paid

   $ 5,934      $ 2,722   

Income taxes paid

   $ 66      $ 752   

PIK income earned

   $ 2,380      $ 1,162   

See accompanying notes to these consolidated financial statements.

 

5


Table of Contents

THL Credit, Inc. and Subsidiaries

Consolidated Schedule of Investments

June 30, 2015

(dollar amounts in thousands)

(unaudited)

 

Type of Investment/Portfolio company(1)(2)

 

Industry

 

Interest Rate(3)

  Initial
Acquisition
Date
    Maturity/
Dissolution
Date
    Principal(4)
No.  of Shares /
No. of Units
    Amortized
Cost
    Fair Value  

Non-controlled/non-affiliated
investments —154.73% of net asset value

             

First lien secured debt

             

20-20 Technologies Inc.(5)

  IT services   10.8%(6)     9/12/2012        3/29/2019      $ 30,236      $ 29,945      $ 30,236   

Airborne Tactical Advantage Company, LLC

  Aerospace & defense   11.0%     9/7/2011        3/7/2016        2,750        2,725        2,750   

Airborne Tactical Advantage Company, LLC

  Aerospace & defense   11.0%     6/24/2014        3/7/2016        1,788        1,772        1,788   

Allied Wireline Services, LLC

  Energy / Utilities   9.5% (LIBOR + 8.0%)     2/28/2014        2/28/2019        9,670        9,318        9,186   

BeneSys Inc.

  Business services   10.8% (LIBOR + 9.8%)     3/31/2014        3/31/2019        8,506        8,370        8,506   

BeneSys Inc.(7) (8)

  Business services   10.8% (LIBOR + 9.8%)     8/1/2014        3/31/2019        —          (9     —     

Charming Charlie, LLC.

  Retail & grocery   9.0% (LIBOR + 8.0%)     12/18/2013        12/24/2019        16,700        16,504        16,678   

Copperweld Bimetallics LLC

  Industrials   12.0%     12/11/2013        12/11/2018        20,075        19,478        19,874   

CRS Reprocessing, LLC

  Manufacturing   10.5% (LIBOR + 9.5%)     6/16/2011        6/16/2016        14,935        14,935        14,188   

Dodge Data & Analytics LLC

  IT services   9.8% (LIBOR + 8.8%)     11/20/2014        10/31/2019        11,615        11,407        11,440   

Duff & Phelps Corporation(9)

  Financial services   4.5% (LIBOR + 3.5%)     5/15/2013        4/23/2020        245        248        245   

Embarcadero Technologies, Inc.

  IT services   10.5% (6)     2/15/2013        12/28/2017        9,042        8,966        9,042   

Food Processing Holdings, LLC

  Food & beverage   10.5% (LIBOR + 9.5%)     10/31/2013        10/31/2018        22,202        21,884        22,202   

Harrison Gypsum, LLC

  Industrials   10.5% (LIBOR + 8.5% and 0.5% PIK)(10)     12/21/2012        12/21/2017        31,828        31,525        31,828   

Hart InterCivic, Inc.

  IT services   13.0% (LIBOR + 10.0% Cash + 1.5% PIK)     7/1/2011        7/1/2016        8,596        8,555        8,467   

Hart InterCivic, Inc.(7)

  IT services   11.5% (LIBOR + 10.0% Cash)     7/1/2011        7/1/2016        3,000        2,988        3,000   

HEALTHCAREfirst, Inc.

  Healthcare   13.1% (6)     8/31/2012        8/30/2017        9,294        9,142        8,830   

Holland Intermediate Acquisition Corp.

  Energy / Utilities   10.0% (LIBOR + 9.0%)     5/29/2013        5/29/2018        23,415        23,092        22,244   

Holland Intermediate Acquisition Corp.(7)

  Energy / Utilities   10.0% (LIBOR + 9.0%)     5/29/2013        5/29/2018        —          —          —     

Igloo Products Corp.

  Consumer products   11.3% (LIBOR + 9.8%)     3/28/2014        3/28/2020        24,636        24,151        24,267   

Key Brand Entertainment, Inc.

  Media, entertainment and leisure   8.8% (LIBOR + 7.5%)     8/8/2013        8/8/2018        12,519        12,351        12,519   

Key Brand Entertainment, Inc.

  Media, entertainment and leisure   12.5% (LIBOR + 11.3%)     5/29/2014        8/8/2018        2,874        2,829        2,903   

Key Brand Entertainment, Inc.(7) (8)

  Media, entertainment and leisure   8.8% (LIBOR + 7.5%)     8/8/2013        8/8/2018        —          (18     —     

Key Brand Entertainment, Inc.(8)

  Media, entertainment and leisure   12.5% (LIBOR + 11.3%)     5/29/2014        8/8/2018        —          (47     —     

LAI International, Inc.

  Manufacturing   9.8% (6)     10/22/2014        10/22/2019        19,308        18,920        19,018   

LAI International, Inc.(7)

  Manufacturing   8.3% (6)     10/22/2014        10/22/2019        1,000        1,000        1,000   

Loadmaster Derrick & Equipment, Inc.

  Energy / Utilities   11.3% (LIBOR + 10.3%)     9/28/2012        9/28/2017        8,288        8,176        7,708   

Loadmaster Derrick & Equipment, Inc.(7)

  Energy / Utilities   11.3% (LIBOR + 10.3%)     9/28/2012        9/28/2017        3,755        3,755        3,492   

Loadmaster Derrick & Equipment, Inc.(7)

  Energy / Utilities   11.3% (LIBOR + 10.3%)     7/16/2014        9/28/2017        3,286        3,238        3,056   

OEM Group, Inc.

  Manufacturing   15.0% (12.5% Cash + 2.5% PIK)(10)     10/7/2010        10/7/2015        28,912        28,807        27,467   

OEM Group, Inc.

  Manufacturing   15.0% (12.5% Cash + 2.5% PIK)(10)     6/6/2014        10/7/2015        3,081        3,078        2,927   

Virtus Pharmaceuticals, LLC

  Healthcare   10.6%(6)     7/17/2014        7/17/2019        19,869        19,463        19,671   

Wheels Up Partners, LLC

  Transportation   9.6% (LIBOR + 8.6%)     1/31/2014        10/15/2022        9,295        9,185        9,202   

Wheels Up Partners, LLC

  Transportation   9.6% (LIBOR + 8.6%)     8/27/2014        7/15/2023        6,777        6,777        6,709   
         

 

 

   

 

 

   

 

 

 

Subtotal first lien secured debt

          $ 367,497      $ 362,510      $ 360,443   

Second lien debt

             

Aerogroup International Inc.

  Consumer products   9.5% (LIBOR + 8.5%)     6/9/2014        12/9/2019      $ 13,648      $ 13,419      $ 12,692   

Aerogroup International Inc.(7)(8)

  Consumer products   9.5% (LIBOR + 8.5%)     6/9/2014        12/9/2019        —          (40     —     

Alex Toys, LLC

  Consumer products   11.0% (LIBOR + 10.0%)     6/30/2014        12/30/2019        30,201        29,654        29,597   

Allen Edmonds Corporation

  Consumer products   10.0% (LIBOR + 9.0%)     11/26/2013        5/27/2019        7,333        7,221        7,260   

BBB Industries US Holding, Inc.

  Manufacturing   9.8% (LIBOR + 8.8%)     10/17/2014        11/18/2022        4,500        4,246        4,410   

Connecture, Inc.

  Healthcare   12.0% (LIBOR + 11.0%)     3/18/2013        7/15/2018        21,831        21,637        22,049   

Expert Global Solutions, Inc.

  Business services   12.5% (LIBOR + 10.3% and 0.8% PIK)(10)     6/21/2013        10/3/2018        12,703        12,831        12,782   

Expert Global Solutions, Inc.

  Business services   13.0% PIK     6/21/2013        10/3/2018        144        3        145   

Hostway Corporation

  IT services   10.0% (LIBOR + 8.8%)     12/27/2013        12/13/2020        12,000        11,801        11,880   

Merchants Capital Access, LLC

  Financial services   11.5% (LIBOR + 10.5%)     4/20/2015        4/20/2021        12,500        12,258        12,258   

Oasis Legal Finance Holding Company LLC

  Financial services   10.5%     9/30/2013        9/30/2018        13,246        13,060        13,379   

Specialty Brands Holdings, LLC

  Restaurants   11.3% (LIBOR + 9.8%)     7/16/2013        7/16/2018        20,977        20,698        20,348   

Synarc-Biocore Holdings, LLC

  Healthcare   9.3% (LIBOR + 8.3%)     3/13/2014        3/13/2022        11,000        10,904        10,175   

Vision Solutions, Inc.

  IT services   9.5% (LIBOR + 8.0%)     3/31/2011        7/23/2017        9,625        9,594        9,577   

Washington Inventory Service

  Business services   10.3% (LIBOR + 9.0%)     12/27/2012        6/20/2019        11,000        10,897        11,000   
         

 

 

   

 

 

   

 

 

 

Subtotal second lien debt

          $ 180,708      $ 178,183      $ 177,552   

 

(continued on next page)

See accompanying notes to these consolidated financial statements.

 

6


Table of Contents

THL Credit, Inc. and Subsidiaries

Consolidated Schedule of Investments

June 30, 2015

(dollar amounts in thousands)

(unaudited)

 

Type of Investment/Portfolio company(1)(2)

 

Industry

 

Interest Rate(3)

  Initial
Acquisition
Date
    Maturity/
Dissolution
Date
    Principal(4)
No.  of Shares /
No. of Units
    Amortized
Cost
    Fair Value  

Subordinated debt

             

A10 Capital, LLC(7)

  Financial services   12.0%     8/25/2014        2/25/2021      $ 10,444      $ 10,347      $ 10,444   

Dr. Fresh, LLC(11)

  Consumer products   16.0% (10.0% Cash and 6.0% PIK)(10)     5/15/2012        11/15/2017        15,189        15,040        14,961   

Gold, Inc.

  Consumer products   11.0%     12/31/2012        6/30/2019        16,788        16,788        16,788   

Martex Fiber Southern Corp.

  Industrials   13.5% (12.0% Cash and 1.5% PIK)(10)     4/30/2012        10/31/2019        9,094        9,005        8,275   

Tri Starr Management Services, Inc.

  IT services   15.8% (2.1% Cash and 13.7%
PIK)
(10)
    3/4/2013        3/4/2019        20,201        19,828        16,261   
         

 

 

   

 

 

   

 

 

 

Subtotal subordinated debt

          $ 71,716      $ 71,008      $ 66,729   

Equity investments(13)

             

A10 Capital, LLC(12)(14)(21)

  Financial services       8/25/2014          14,889      $ 14,884      $ 14,884   

Aerogroup International Inc.(22)

  Consumer products       6/9/2014          253,616        11        —     

Aerogroup International Inc.(21)

  Consumer products       6/9/2014          28,180        1,108        200   

AIM Media Texas Operating,
LLC
(12)(15)(22)

  Media, entertainment and leisure       6/21/2012          0.763636        764        875   

Airborne Tactical Advantage Company,
LLC
(22)

  Aerospace & defense       9/7/2011          512        113        35   

Airborne Tactical Advantage Company,
LLC
(21)

  Aerospace & defense       9/17/2013          225        169        216   

Alex Toys, LLC(12)(13)(15)(22)

  Consumer products       5/22/2015          154        1,000        1,000   

Allied Wireline Services,
LLC
(12)(15)(22)

  Energy / Utilities       2/28/2014          619        619        718   

Allied Wireline Services,
LLC
(12)(15)(22)

  Energy / Utilities       2/28/2014          501        175        243   

Firebirds International,
LLC
(22)

  Restaurants       5/17/2011          1,906        191        338   

Food Processing Holdings,
LLC
(22)

  Food & beverage       4/20/2010          162.44        163        235   

Food Processing Holdings,
LLC
(22)

  Food & beverage       4/20/2010          406.09        408        839   

Hostway Corporation(22)

  IT services       12/27/2013          20,000        200        —     

Hostway Corporation(21)

  IT services       12/27/2013          1,800        1,800        2,006   

Igloo Products Corp.(12)(22)

  Consumer products       4/30/2014          1,902        1,716        1,716   

OEM Group, Inc.(22)(23)

  Manufacturing       10/7/2010          —          —          —     

Surgery Center Holdings,
Inc.
(12)(22)

  Healthcare       4/20/2013          469,673        —          7,097   

Virtus Pharmaceuticals,
LLC
(15)(22)

  Healthcare       3/31/2015          6,796.47        127        220   

Virtus Pharmaceuticals,
LLC
(15)(22)

  Healthcare       3/31/2015          83.92        94        99   

Virtus Pharmaceuticals,
LLC
(15)(22)

  Healthcare       3/31/2015          589.76        590        602   

Wheels Up Partners,
LLC
(12)(15)(22)

  Transportation       1/31/2014          1,000        1,000        1,000   

YP Equity Investors,
LLC
(12)(15)(22)

  Media, entertainment and leisure       5/8/2012          —          —          4,000   
           

 

 

   

 

 

 

Subtotal equity

            $ 25,132      $ 36,323   

CLO residual interests

             

Adirondack Park CLO Ltd.(5)(16)

  Structured Products   15.0%     3/27/2013          —        $ 7,768      $ 8,050   

Dryden CLO, Ltd.(5)(16)

  Structured Products   14.8%     9/12/2013          —          7,399        7,704   

Flagship VII, Ltd.(5)(16)

  Structured Products   14.5%     12/18/2013          —          3,836        4,080   

Flagship VIII, Ltd.(5)(16)

  Structured Products   12.3%     10/3/2014          —          7,465        7,217   

Sheridan Square CLO, Ltd(5)(16)

  Structured Products   16.5%     3/12/2013          —          5,164        5,590   
           

 

 

   

 

 

 

Subtotal CLO residual interests

            $ 31,632      $ 32,641   

Investment in payment rights

             

Duff & Phelps Corporation(9) (16)

  Financial services   16.9%     6/1/2012          —        $ 11,877      $ 13,490   
           

 

 

   

 

 

 

Subtotal investment in payment rights

            $ 11,877      $ 13,490   

Investments in funds(17)

             

Freeport Financial SBIC Fund LP

  Financial services       6/14/2013          $ 2,544      $ 2,578   

Gryphon Partners 3.5, L.P.

  Financial services       11/20/2012            866        1,052   
           

 

 

   

 

 

 

Subtotal investments in funds

            $ 3,410      $ 3,630   
           

 

 

   

 

 

 

Total non-controlled/non-affiliated investments—154.73% of net asset value

            $ 683,752      $ 690,808   
           

 

 

   

 

 

 

 

(continued on next page)

 

See accompanying notes to these consolidated financial statements.

 

7


Table of Contents

THL Credit, Inc. and Subsidiaries

Consolidated Schedule of Investments

June 30, 2015

(dollar amounts in thousands)

(unaudited)

 

Type of Investment/Portfolio company(1)(2)

 

Industry

 

Interest
Rate(3)

  Initial
Acquisition
Date
    Maturity/
Dissolution
Date
    Principal(4)
No.  of Shares /
No. of Units
    Amortized
Cost
    Fair Value  

Controlled investments—16.89% of net asset value

             

First lien secured debt

             

Thibaut, Inc(18)

 

Consumer

products

  14.0%     6/19/2014        $ 6,488      $ 6,420      $ 6,488   
         

 

 

   

 

 

   

 

 

 

Subtotal first lien secured debt

          $ 6,488      $ 6,420      $ 6,488   

Subordinated debt

             

Dimont & Associates, Inc.(18)(24)

 

Financial

services

  11.0% PIK     10/20/2014        4/20/2018      $ 4,556      $ 4,474      $ 2,962   
         

 

 

   

 

 

   

 

 

 

Subtotal subordinated debt

          $ 4,556      $ 4,474      $ 2,962   

Equity investments

             

C&K Market, Inc.(18)(22)

  Retail & grocery       11/3/2010          1,967,367      $ 2,271      $ 13,777   

C&K Market, Inc.(18)(21)

  Retail & grocery       11/3/2010          1,967,367        10,956        9,837   

Dimont & Associates, Inc.(18)(22)

  Financial services       10/20/2014          50,004        6,569        —     

Thibaut, Inc(12) (13) (18) (19) (21)

  Consumer products       6/19/2014          4,747        4,700        5,030   

Thibaut, Inc(12)(13)(18)(22)

  Consumer products       6/19/2014          20,639        —          1,661   
           

 

 

   

 

 

 

Subtotal equity

            $ 24,496      $ 30,305   

Investments in funds

             

THL Credit Logan JV LLC(12)(17)(18)(20)(22)

 

Financial

services

      12/3/2014          —        $ 35,600      $ 35,658   
           

 

 

   

 

 

 

Subtotal investments in funds

            $ 35,600      $ 35,658   
           

 

 

   

 

 

 

Total controlled investments
—16.89% of net asset value

            $ 70,990      $ 75,413   
           

 

 

   

 

 

 

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

             

Investments in funds

             

THL Credit Greenway Fund LLC(12)(17)(22)

 

Financial

services

      1/27/2011          $ 4      $ 4   

THL Credit Greenway Fund II LLC(12)(17)(22)

 

Financial

services

      3/1/2013            4        4   
           

 

 

   

 

 

 

Subtotal investments in funds

            $ 8      $ 8   
           

 

 

   

 

 

 

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

            $ 8      $ 8   
           

 

 

   

 

 

 

    

             
           

 

 

   

 

 

 

Total investments—171.61%
of net asset value

            $ 754,750      $ 766,229   
           

 

 

   

 

 

 

 

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

ING Capital Markets, LLC

  Interest Rate Swap – Pay Fixed/Receive Floating   1.1425%/LIBOR     05/10/17        1      $ 50,000      $ —        $ (356
         

 

 

   

 

 

   

 

 

 

Total derivative instruments—0.08 % of net asset value

      $ 50,000      $ —        $ (356
         

 

 

   

 

 

   

 

 

 

 

(1) All debt investments are income-producing, unless otherwise noted. Equity and member interests are non-income-producing unless otherwise noted.
(2) All investments are pledged as collateral under the Revolving Facility and Term Loan Facility.
(3) Variable interest rate investments bear interest in reference to LIBOR or ABR, which are effective as of June 30, 2015. LIBOR loans are typically indexed to 30-day, 60-day, 90-day or 180-day LIBOR rates, at the borrower’s option, and ABR rates are typically indexed to the current prime rate or federal funds rate. Both LIBOR and ABR rates are subject to interest floors.
(4) Principal includes accumulated PIK, or paid-in-kind, interest and is net of repayments.
(5) Foreign company at the time of investment and, as a result, is not a qualifying asset under Section 55(a) of the 1940 Act.
(6) Unitranche investment; interest rate reflected represents the implied interest rate earned on the investment for the most recent quarter.
(7) Issuer pays 0.50% unfunded commitment fee on delayed draw term loan and revolving loan facility.
(8) The negative cost is the result of the capitalized discount being greater than the principal amount outstanding on the loan.
(9) Publicly-traded company with a market capitalization in excess of $250 million at the time of investment and, as a result, is not a qualifying asset under Section 55(a) of the Investment Company Act of 1940.

 

(continued on next page)

 

See accompanying notes to these consolidated financial statements.

 

8


Table of Contents
(10) At the option of the issuer, interest can be paid in cash or cash and PIK. The percentage of PIK shown is the maximum PIK that can be elected by the company.
(11) Amended rate was 8% cash and 10% PIK from April 1, 2015 to June 29, 2015. The rate changed to 10% cash and 6% PIK from June 30, 2015 and will revert back to 12% cash and 2% PIK upon the earlier of achievement of certain milestones or maturity.
(12) Member interests of limited liability companies are the equivalent of the stock of corporations.
(13) Equity ownership may be held as a commitment amount, in shares or in units of companies related to the portfolio company.
(14) Preferred stock investment return is income-producing with a stated rate of 12% cash and 2% PIK due on a monthly basis
(15) Interest held by a wholly owned subsidiary of THL Credit, Inc.
(16) Income-producing security with no stated coupon; interest rate reflects an estimation of the effective yield to expected maturity as of June 30, 2015.
(17) Non-registered investment company at the time of investment and, as a result, is not a qualifying asset under Section 55(a) of the 1940 Act.
(18) As defined in Section 2(a)(9) of the 1940 Act, the Company is deemed to control this portfolio company because it owns more than 25% of the portfolio company’s outstanding voting securities.
(19) Part of our preferred stock investment return is income-producing with a stated rate of 3% due on a quarterly basis.
(20) On December 3, 2014, the Company entered into an agreement with Perspecta to create THL Credit Logan JV LLC, or Logan JV, a joint venture, which will invest primarily in senior secured first lien term loans. All Logan JV investment decisions must be unanimously approved by the Logan JV investment committee consisting of one representative from each of the Company and Perspecta. Although the Company owns more than 25% of the voting securities of Logan JV, the Company does not believe that it has control over Logan JV (other than for purposes of the 1940 Act or otherwise). Funding to Logan JV will only be made pursuant to unanimous approval from the Company and Perspecta.
(21) Preferred stock
(22) Common stock, member interest, and warrants
(23) Warrants received at initial acquisition date at no cost to the Company
(24) Loan was on non-accrual as of June 30, 2015.

See accompanying notes to these consolidated financial statements.

 

9


Table of Contents

THL Credit, Inc. and Subsidiaries

Consolidated Schedule of Investments

December 31, 2014

(dollar amounts in thousands)

 

Type of Investment/ Portfolio company(1)(2)

  Industry  

Interest Rate(3)

  Initial
Acquisition
Date
    Maturity/
Dissolution
Date
    Principal(4)
No.  of Shares /
No. of Units
    Amortized
Cost
    Fair Value  

Non-controlled/non-affiliated investments—170.46% of net asset value

             

First lien secured debt

             

20-20 Technologies Inc.(5)

  IT services   10.8%(6)     9/12/2012        3/29/2019      $ 31,600      $ 31,275      $ 31,600   

Airborne Tactical Advantage Company, LLC

  Aerospace &
defense
  11.0%     9/7/2011        3/7/2016        4,000        3,939        3,980   

Airborne Tactical Advantage Company, LLC

  Aerospace &
defense
  11.0%     6/24/2014        3/7/2016        2,600        2,563        2,587   

Allied Wireline Services, LLC

  Energy /
Utilities
 

9.5% (LIBOR

+ 8.0%)

    2/28/2014        2/28/2019        9,928        9,524        9,630   

BeneSys Inc.

  Business
services
 

10.8% (LIBOR

+ 9.8%)

    3/31/2014        3/31/2019        8,611        8,457        8,525   

BeneSys Inc.(7)(8)

  Business
services
  10.8% (LIBOR
+ 9.8%)
    8/1/2014        3/31/2019        —         (10     —    

Charming Charlie, LLC.

  Retail &
grocery
  9.0% (LIBOR
+ 8.0%)
    12/18/2013        12/24/2019        26,798        26,446        26,459   

Copperweld Bimetallics LLC

  Industrials   12.0%     12/11/2013        12/11/2018        20,625        19,934        20,212   

CRS Reprocessing, LLC

  Manufacturing   10.5% (LIBOR
+ 9.5%)
    6/16/2011        6/16/2015        15,461        15,447        14,687   

Dodge Data & Analytics LLC

  IT services   9.8% (LIBOR
+ 8.8%)
    11/20/2014        10/31/2019        13,000        12,745        12,745   

Duff & Phelps Corporation(9)

  Financial
services
  4.5% (LIBOR
+ 3.5%)
    5/15/2013        4/23/2020        246        249        244   

Embarcadero Technologies, Inc.

  IT services   10.7%(6)     2/15/2013        12/28/2017        9,300        9,208        9,300   

Food Processing Holdings, LLC

  Food &
beverage
  10.5% (LIBOR
+9.5%)
    10/31/2013        10/31/2018        22,202        21,842        22,202   

Harrison Gypsum, LLC

  Industrials   10.0% (LIBOR
+ 8.5% and 0.5%
PIK)
(10)
    12/21/2012        12/21/2017        25,963        25,699        25,444   

Hart InterCivic, Inc.

  IT services   12.3% (LIBOR
+ 9.8% Cash +
1.0% PIK)
    7/1/2011        7/1/2016        8,556        8,496        8,342   

Hart InterCivic, Inc.(7)

  IT services   11.3% (LIBOR
+ 9.8% Cash)
    7/1/2011        7/1/2016        3,000        2,982        3,000   

HEALTHCAREfirst, Inc.

  Healthcare   13.6%(6)     8/31/2012        8/30/2017        8,558        8,403        8,173   

Holland Intermediate Acquisition Corp.

  Energy /
Utilities
  10.0% (LIBOR
+ 9.0%)
    5/29/2013        5/29/2018        24,227        23,841        23,500   

Holland Intermediate Acquisition Corp.(7)

  Energy /
Utilities
  10.0% (LIBOR
+ 9.0%)
    5/29/2013        5/29/2018        —         —         —    

Igloo Products Corp.

  Consumer
products
  11.3% (LIBOR
+ 9.8%)
    3/28/2014        3/28/2020        38,286        37,479        37,425   

Ingenio Acquisition, LLC

  Media,
entertainment
and leisure
  11.3% (10.3%
Cash + 1.0%
PIK)
    5/9/2013        3/14/2019        9,108        8,971        9,108   

 

10


Table of Contents

Type of Investment/ Portfolio company(1)(2)

  Industry   Interest Rate(3)   Initial
Acquisition
Date
    Maturity/
Dissolution
Date
    Principal(4)
No. of  Shares /
No. of Units
    Amortized
Cost
    Fair Value  

Key Brand Entertainment, Inc.

  Media,
entertainment
and leisure
  9.8% (LIBOR
+ 8.5%)
    8/8/2013        8/8/2018        12,849        12,651        12,849   

Key Brand Entertainment, Inc.

  Media,
entertainment
and leisure
  12.5% (LIBOR
+ 11.3%)
    5/29/2014        8/8/2018        2,874        2,823        2,874   

Key Brand Entertainment, Inc.(7)(8)

  Media,
entertainment
and leisure
  9.8% (LIBOR
+ 8.5%)
    8/8/2013        8/8/2018        —         (21     —    

Key Brand Entertainment, Inc.(8)

  Media,
entertainment
and leisure
  12.5% (LIBOR
+ 11.3%)
    5/29/2014        8/8/2018        —         (54     —    

LAI International, Inc.

  Manufacturing   10.1%(6)     10/22/2014        10/22/2019        19,308        18,899        18,899   

LAI International, Inc.

  Manufacturing   10.1%(6)     10/22/2014        10/22/2019        —         —         —    

Loadmaster Derrick & Equipment, Inc.

  Energy /
Utilities
  9.3% (LIBOR
+ 8.3%)
    9/28/2012        9/28/2017        8,828        8,686        7,990   

Loadmaster Derrick & Equipment, Inc.(7) 

  Energy /
Utilities
  9.3% (LIBOR
+ 8.3%)
    9/28/2012        9/28/2017        4,000        4,000        3,620   

Loadmaster Derrick & Equipment, Inc.(7)

  Energy /
Utilities
  9.3% (LIBOR
+ 8.3%)
    7/16/2014        9/28/2017        3,500        3,439        3,168   

OEM Group, Inc.

  Manufacturing   15.0% (12.5%
Cash + 2.5%
PIK)
(10)
    10/7/2010        10/7/2015        26,597        26,376        24,735   

OEM Group, Inc.

  Manufacturing   15.0% (12.5%
Cash + 2.5%
PIK)
(10)
    6/6/2014        10/7/2015        3,044        3,036        2,892   

Virtus Pharmaceuticals, LLC

  Healthcare   10.7%(6)     7/17/2014        7/17/2019        20,124        19,667        19,822   

Wheels Up Partners, LLC

  Transportation   9.6% (LIBOR
+ 8.6%)
    1/31/2014        10/15/2022        9,629        9,510        9,533   

Wheels Up Partners, LLC

  Transportation   9.6% (LIBOR
+ 8.6%)
    8/27/2014        7/15/2023        3,763        3,763        3,726   
         

 

 

   

 

 

   

 

 

 

Subtotal first lien secured debt

          $ 396,753      $ 390,265      $ 387,271   

Second lien debt

             

Aerogroup International Inc.

  Consumer
products
  9.0% (LIBOR
+ 8.0%)
    6/9/2014        12/9/2019      $ 13,648      $ 13,397      $ 13,102   

Aerogroup International
Inc.
(7)(8)

  Consumer
products
  9.0% (LIBOR
+ 8.0%)
    6/9/2014        12/9/2019        —         (45     —    

Alex Toys, LLC

  Consumer
products
  11.0% (LIBOR
+ 10.0%)
    6/30/2014        12/30/2019        17,000        16,683        16,683   

Allen Edmonds Corporation

  Consumer
products
  10.0% (LIBOR
+ 9.0%)
    11/26/2013        5/27/2019        7,333        7,210        7,223   

BBB Industries US Holding, Inc.

  Manufacturing   9.8% (LIBOR
+ 8.8%)
    10/7/2014        11/18/2022        7,500        7,059        7,144   

Connecture, Inc.

  Healthcare   12.0% (LIBOR
+ 11.0%)
    3/18/2013        7/15/2018        21,831        21,609        22,049   

Expert Global Solutions, Inc.

  Business
services
  12.5% (LIBOR
+ 10.3% and
0.8% PIK)
(10)
    6/21/2013        10/3/2018        12,703        12,849        12,576   

Expert Global Solutions, Inc.

  Business
services
  13.0% PIK     6/21/2013        10/3/2018        144        —         143   

Hostway Corporation

  IT services   10.0% (LIBOR
+ 8.8%)
    12/27/2013        12/13/2020        12,000        11,785        11,880   

 

11


Table of Contents

Type of Investment/ Portfolio company(1)(2)

 

Industry

 

Interest Rate(3)

  Initial
Acquisition
Date
    Maturity/
Dissolution
Date
    Principal(4)
No. of  Shares /
No. of Units
    Amortized
Cost
    Fair Value  

Oasis Legal Finance Holding Company LLC

  Financial
services
  10.5%     9/30/2013        9/30/2018        13,246        13,035        13,312   

Sheplers, Inc.

  Retail &
grocery
  13.2% (LIBOR
+ 11.7%)
    12/20/2011        12/20/2016        11,426        11,292        11,426   

Specialty Brands Holdings, LLC

  Restaurants   11.3% (LIBOR +
9.8%)
    7/16/2013        7/16/2018        20,977        20,656        20,453   

Synarc-Biocore Holdings, LLC

  Healthcare   9.3% (LIBOR +
8.3%)
    3/13/2014        3/13/2022        11,000        10,898        10,010   

Vision Solutions, Inc.

  IT services   9.5% (LIBOR +
8.0%)
    3/31/2011        7/23/2017        11,625        11,577        11,509   

Washington Inventory Service

  Business
services
  10.3% (LIBOR +
9.0%)
    12/27/2012        6/20/2019        11,000        10,886        11,000   
         

 

 

   

 

 

   

 

 

 

Subtotal second lien secured debt

          $ 171,433      $ 168,891      $ 168,510   

(Continued on next page)

 

12


Table of Contents

Type of Investment/ Portfolio company(1)(2)

  

Industry

  

Interest Rate(3)

   Initial
Acquisition
Date
     Maturity/
Dissolution
Date
     Principal(4)
No. of  Shares /
No. of Units
     Amortized
Cost
     Fair Value  

Subordinated debt

                    

A10 Capital, LLC(7)

   Financial
services
   12.0%      8/25/2014         2/25/2021       $ 5,444       $ 5,391       $ 5,431   

Country Pure Foods, LLC

   Food &
beverage
   13.0%      8/13/2010         2/13/2017         16,181         16,181         16,181   

Dr. Fresh, LLC

   Consumer
products
   14.0%
(12.0%
Cash
+ 2.0%
PIK)
(10)
     5/15/2012         11/15/2017         14,743         14,565         14,448   

Gold, Inc.

   Consumer
products
   12.0%      12/31/2012         6/30/2019         16,788         16,788         16,620   

Martex Fiber Southern Corp.

   Industrials    13.5%
(12.5%
Cash
+ 1.5%
PIK)
(10)
     4/30/2012         10/31/2019         9,026         8,928         8,394   

Sheplers, Inc.

   Retail &
grocery
   17.0%
(10.0%
Cash
+ 7.0%
PIK)
(11)
     12/20/11         12/20/2017         2,040         2,020         2,040   

The Studer Group, L.L.C.

   Healthcare    12.0%      9/29/2011         1/31/2019         16,910         16,910         16,910   

Tri Starr Management Services, Inc.

   IT services    15.8%
(12.5%
Cash
+ 3.3%
PIK)
(10)
     3/4/2013         3/4/2019         18,918         18,637         16,080   
              

 

 

    

 

 

    

 

 

 

Subtotal subordinated debt

            $ 100,050       $ 99,420       $ 96,104   

Equity investments(13)

                    

A10 Capital, LLC(12)(14)(23)

   Financial
services
        8/25/2014            2,967       $ 9,837       $ 9,837   

Aerogroup International Inc.(24)

   Consumer
products
        6/9/2014            253,616         11          

Aerogroup International Inc.(25)

   Consumer
products
        6/9/2014            28,180         1,108         467   

AIM Media Texas Operating, LLC(12)(15)(24)

   Media,
entertainment
and leisure
        6/21/2012            0.763636         764         857   

Airborne Tactical Advantage Company, LLC(24)

   Aerospace &
defense
        9/7/2011            511,812         113         9   

Airborne Tactical Advantage Company,
LLC
(23)

   Aerospace &
defense
        9/17/2013            225,000         169         204   

Allied Wireline Services,
LLC
(12)(15)(24)

   Energy /
Utilities
        2/28/2014            619         619         779   

Allied Wireline Services,
LLC
(12)(15)(24)

   Energy /
Utilities
        2/28/2014            501         175         302   

Firebirds International,
LLC
(24)

   Restaurants         5/17/2011            1,906         191         300   

Food Processing Holdings, LLC(24)

   Food &
beverage
        4/20/2010            162.44         163         226   

Food Processing Holdings, LLC(24)

   Food &
beverage
        4/20/2010            406.09         408         642   

 

13


Table of Contents

Hostway Corporation(24)

   IT services        12/27/2013            20,000         200        —     

Hostway Corporation(24)

   IT services        12/27/2013            1,800         1,800         2,111   

Igloo Products Corp.(12) (24)

   Consumer
products
       4/30/2014            2,406         2,407         2,241   

OEM Group, Inc.(24)(25)

   Manufacturing        10/7/2010            —          —          —    

Surgery Center Holdings, Inc.(12)(24)

   Healthcare        4/20/2013            469,673         —          6,200   

Wheels Up Partners, LLC(12)(15)(24)

   Transportation        1/31/2014            1,000         1,000         1,000   

YP Equity Investors, LLC(12)(15)(24)

   Media,
entertainment
and leisure
       5/8/2012            —          —          4,000   
                

 

 

    

 

 

 

Subtotal equity

           $ 18,965       $ 29,175   

CLO residual interests

                   

Adirondack Park CLO Ltd.(5)(16)

   Structured
Products
   12.8%     3/27/2013            —        $ 8,172       $ 8,216   

Dryden CLO, Ltd.(5)(16)

   Structured
Products
   13.8%     9/12/2013            —          8,040         8,244   

Flagship VII, Ltd.(5)(16)

   Structured
Products
   13.8%     12/18/2013            —          4,105         4,305   

Flagship VIII, Ltd.(5)(16)

   Structured
Products
   12.8%     10/3/2014            —          8,450         8,450   

Sheridan Square CLO, Ltd(5)(16)

   Structured
Products
   14.5%     3/12/2013            —          5,446         5,720   
                

 

 

    

 

 

 

Subtotal CLO residual interests

           $ 34,213       $ 34,935   

Investment in payment rights

                   

Duff & Phelps Corporation(9)(16)

   Financial
services
   16.8%     6/1/2012            —        $ 11,877       $ 13,488   
                

 

 

    

 

 

 

Subtotal investment in payment rights

           $ 11,877       $ 13,488   

(Continued on next page)

 

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Table of Contents

Type of Investment/ Portfolio company(1)(2)

  

Industry

  

Interest Rate(3)

   Initial
Acquisition
Date
     Maturity/
Dissolution
Date
     Principal(4)
No. of  Shares /
No. of Units
     Amortized
Cost
     Fair Value  

Investments in funds(17)

                    

Freeport Financial SBIC Fund LP

   Financial
services
        6/14/2013          $ 2,314       $ 2,314       $ 2,316   

Gryphon Partners 3.5, L.P.

   Financial
services
        11/20/2012            1,251         866         1,063   
              

 

 

    

 

 

    

 

 

 

Subtotal investments in funds

               $ 3,565       $ 3,180       $ 3,379   
              

 

 

    

 

 

    

 

 

 

Total non-controlled/non-affiliated investments—170.46% of net asset value

               $ 671,801       $ 726,811       $ 732,862   
              

 

 

    

 

 

    

 

 

 

Controlled investments—6.32% of net asset value

                    

First lien secured debt

                    

Thibaut, Inc(18)

   Consumer
products
   12.0%      6/19/2014          $ 6,520       $ 6,445       $ 6,520   
              

 

 

    

 

 

    

 

 

 

Subtotal first lien secured debt

               $ 6,520       $ 6,445       $ 6,520   

Subordinated debt

                    

Dimont & Associates, Inc.(18)(20)

   Financial
services
   11.0%
PIK
     10/20/2014         4/20/2018       $ 4,556       $ 4,473       $ 4,556   
              

 

 

    

 

 

    

 

 

 

Subtotal subordinated debt

               $ 4,556       $ 4,473       $ 4,556   

Equity investments

                    

C&K Market, Inc.(18)(19)(24)

   Retail &
grocery
        11/3/2010            1,967,367       $ 2,271       $ 6,036   

C&K Market, Inc.(18)(19)(23)

   Retail &
grocery
        11/3/2010            1,967,367         10,956         9,837   

Dimont & Associates, Inc.(18)(20)(24)

   Financial
services
        10/20/2014            50,004         6,569         2,000   

Thibaut, Inc(12)(13)(18)(21)(23)

   Consumer
products
        6/19/2014            4,747         4,694         4,874   

Thibaut, Inc(12)(13)(18)(24)

   Consumer
products
        6/19/2014            20,639         —          785   
                 

 

 

    

 

 

 

Subtotal equity

                  $ 24,490       $ 23,532   

Investments in Logan JV

                    

THL Credit Logan JV LLC(12)(18)(22)(24)

   Financial
services
        12/3/2014            —          16,800         16,741   
                 

 

 

    

 

 

 

Subtotal investments in funds

                  $ 16,800       $ 16,741   
              

 

 

    

 

 

    

 

 

 

Total controlled investments—6.32% of net asset value

               $ 11,076       $ 52,208       $ 51,349   
              

 

 

    

 

 

    

 

 

 

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

                    

Investments in funds

                    

THL Credit Greenway Fund
LLC
(12) (17)(24)

   Financial
services
        1/27/2011               5         5   

THL Credit Greenway Fund II
LLC
(12)(17)(24)

   Financial
services
        3/1/2013               4         4   
                 

 

 

    

 

 

 

Subtotal investments in funds

                  $ 9       $ 9   

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

                  $ 9       $ 9   
              

 

 

    

 

 

    

 

 

 

Total investments—176.78% of net asset value

               $ 682,877       $ 779,028       $ 784,220   
              

 

 

    

 

 

    

 

 

 

(Continued on next page)

 

15


Table of Contents
Derivative Instruments  
Counterparty   

Instrument

  

Interest Rate

   Expiration
Date
     # of Contracts      Notional      Cost      Fair Value  

ING Capital Markets, LLC

   Interest Rate Swap –
Pay Fixed/Receive
Floating
   1.1425%/LIBOR      05/10/17         1       $ 50,000       $ —        $ (213
              

 

 

    

 

 

    

 

 

 

Total derivative instruments—0.03% of net asset value

  

      $ 50,000       $ —        $ (213
              

 

 

    

 

 

    

 

 

 

 

(1) All debt investments are income-producing, unless otherwise noted. Equity and member interests are non-income-producing unless otherwise noted.
(2) All investments are pledged as collateral under the Revolving Facility and Term Loan Facility.
(3) Variable interest rate investments bear interest in reference to LIBOR or ABR, which are effective as of December 31, 2014. LIBOR loans are typically indexed to 30-day, 60-day, 90-day or 180-day LIBOR rates, at the borrower’s option, and ABR rates are typically indexed to the current prime rate or federal funds rate. Both LIBOR and ABR rates are subject to interest floors.
(4) Principal includes accumulated PIK, or paid-in-kind, interest and is net of repayments.
(5) Foreign company at the time of investment and, as a result, is not a qualifying asset under Section 55(a) of the 1940 Act.
(6) Unitranche investment; interest rate reflected represents the implied interest rate earned on the investment for the most recent quarter.
(7) Issuer pays 0.50% unfunded commitment fee on delayed draw term loan and revolving loan facility.
(8) The negative cost is the result of the capitalized discount being greater than the principal amount outstanding on the loan.
(9) Publicly-traded company with a market capitalization in excess of $250 million at the time of investment and, as a result, is not a qualifying asset under Section 55(a) of the Investment Company Act of 1940.
(10) At the option of the issuer, interest can be paid in cash or cash and PIK. The percentage of PIK shown is the maximum PIK that can be elected by the company.
(11) Issuer has the option to increase its aggregate interest rate to 18.5% all PIK for a period of time under certain conditions in the credit agreement.
(12) Member interests of limited liability companies are the equity equivalents of the stock of corporations.
(13) Equity ownership may be held in shares or units of companies related to the portfolio company.
(14) Preferred stock investment return is income-producing with a stated rate of 12% cash and 2% PIK due on a monthly basis
(15) Interest held by a wholly owned subsidiary of THL Credit, Inc.
(16) Income-producing security with no stated coupon; interest rate reflects an estimation of the effective yield to expected maturity as of December 31, 2014.
(17) Non-registered investment company at the time of investment and, as a result, is not a qualifying asset under Section 55(a) of the 1940 Act.
(18) As defined in Section 2(a)(9) of the 1940 Act, the Company is deemed to control this portfolio company because it owns more than 25% of the portfolio company’s outstanding voting securities.
(19) C&K Market, Inc., or C&K, filed for bankruptcy in November 2013. On August 12, 2014, the date C&K emerged from bankruptcy, the cost basis of the senior subordinated note, certain interest due and warrants totaling $14,272 were converted to common and preferred equity. In connection with the extinguishment and conversion to equity, the Company recognized a loss in the amount of $1,000. See Note 4, Realized Gains and Losses on Investments for additional detail.
(20) On October 20, 2014, THL Credit restructured its investment in Wingspan Portfolio Holdings, Inc., or Wingspan. As part of the restructuring, THL Credit exchanged the cost basis of its subordinated term loan totaling $18,447 for a controlled equity position of an affiliated entity, Dimont Acquisition Inc., or Dimont. In connection with the restructuring and conversion to equity, the Company recognized a loss in the amount of $11,878 and invested $4,557 in the subordinated term loan of Dimont. See Note 4, Realized Gains and Losses on Investments for additional detail.
(21) Part of our preferred stock investment return is income-producing with a stated rate of 3% due on a quarterly basis.
(22) On December 3, 2014, the Company entered into an agreement with Perspecta to create THL Credit Logan JV LLC, or Logan JV, a joint venture, which will invest primarily in senior secured first lien term loans. All Logan JV investment decisions must be unanimously approved by the Logan JV investment committee consisting of one representative from each of the Company and Perspecta. Although the Company owns more than 25% of the voting securities of Logan JV, the Company does not believe that it has control over Logan JV (other than for purposes of the 1940 Act or otherwise).
(23) Preferred stock
(24) Common stock, member interest, and warrants
(25) Warrants received at initial acquisition date at no cost to the Company

 

16


Table of Contents

THL Credit, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

June 30, 2015

(in thousands, except per share data)

(unaudited)

1. Organization

THL Credit, Inc., or the Company, was organized as a Delaware corporation on May 26, 2009 and was initially funded on July 23, 2009. The Company has elected to be regulated as a business development company, or BDC, under the Investment Company Act of 1940, as amended, or 1940 Act. The Company has elected to be treated for tax purposes as a regulated investment company, or RIC, under the Internal Revenue Code of 1986, or as amended, the Code. The Company’s investment objective is to generate both current income and capital appreciation, primarily through privately negotiated investments in debt and equity securities of middle market companies.

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

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

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

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

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

In December 2014, the Company completed a public debt offering selling $50,000 of 6.75% Notes due 2021, or the Notes, including the exercise of the over allotment option, through a group of underwriters, less an underwriting discount, and received net proceeds of $48,500.

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

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

2. Significant Accounting Policies

Basis of Presentation

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

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

 

17


Table of Contents

The accompanying consolidated financial statements of the Company have been presented in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and pursuant to the requirements for reporting on Form 10-Q and Article 10 of Regulation S-X. Accordingly, certain disclosures accompanying annual financial statements prepared in accordance with GAAP are omitted. In the opinion of management, the unaudited financial results included herein contain all adjustments, consisting solely of normal accruals, considered necessary for the fair statement of financial statements for the interim period included herein. The current period’s results of operations are not necessarily indicative of the operating results to be expected for the period ending December 31, 2015.

The information included in this Form 10-Q should be read in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of Operations and the audited consolidated financial statements and notes thereto included in our annual report on Form 10-K for the year ended December 31, 2014 filed with the SEC on March 10, 2015. The financial results of the Company’s portfolio companies are not consolidated in the financial statements.

The accounting records of the Company are maintained in U.S. dollars.

Consolidation

The Company follows the guidance in ASC Topic 946 Financial Services—Investment Companies and will not generally consolidate its investment in a company other than an investment company subsidiary or a controlled operating company whose business consists of providing services to the Company. Accordingly, the Company consolidated the results of its wholly owned subsidiaries in its consolidated financial statements. The Company does not consolidate its non-controlling interest in THL Credit Logan JV LLC, or Logan JV. See also the disclosure below under the heading, Significant Accounting Policies—THL Credit Logan JV LLC.

Use of Estimates

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

Cash

Cash consists of funds held in demand deposit accounts at several financial institutions and, at certain times, balances may exceed the Federal Deposit Insurance Corporation insured limit and is therefore subject to credit risk. There were no cash equivalents as of June 30, 2015 and December 31, 2014.

Deferred Financing Costs

Deferred financing costs consist of fees and expenses paid in connection with the closing of credit facilities and the public debt offering of Notes. These costs are capitalized at the time of payment and are amortized using the straight line and effective yield methods over the term of the credit facilities and Notes, respectively.

Deferred Offering Costs

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

Deferred Revenue

Deferred revenues consist of proceeds received for interest and other fees for which the earnings process is not yet complete. Such amounts will be recognized into income over such time that the income is earned.

Interest Rate Derivative

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

Partial Loan Sales

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

 

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Fair Value of Financial Instruments

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

Valuation of Investments

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

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

 

   

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

 

   

preliminary valuation conclusions are then documented and discussed with senior management of THL Credit Advisors LLC, or the Advisor;

 

   

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

 

   

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

 

   

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

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

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

 

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

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

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

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

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

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

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

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

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

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

Investment Risk

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

 

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

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

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

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

Loans are placed on non-accrual status when principal or interest payments are past due 30 days or more and/or when it is no longer probable that principal or interest will be collected. However, the Company may make exceptions to this policy if the loan has sufficient collateral value and is in the process of collection. The Company records the reversal of any previously accrued income against the same income category reflected in the Consolidated Statement of Operations. As of June 30, 2015, the Company had one loan on non-accrual with an amortized cost basis of $4,474 and fair value of $2,962. As of December 31, 2014, the Company had no loans on non-accrual.

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

The following shows a rollforward of PIK income activity for the three and six months ended June 30, 2015 and 2014:

 

     Three months ended June 30,      Six months ended June 30,  
     2015      2014      2015      2014  

Accumulated PIK balance, beginning of period

   $ 6,245       $ 6,599       $ 7,041       $ 6,064   

PIK income capitalized/receivable

     1,786         627         2,380         1,162   

PIK received in cash from repayments

     (464      —           (1,854      —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Accumulated PIK balance, end of period

   $ 7,567       $ 7,226       $ 7,567       $ 7,226   
  

 

 

    

 

 

    

 

 

    

 

 

 

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

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

In certain investment transactions, the Company may provide advisory services. For services that are separately identifiable and external evidence exists to substantiate fair value, income is recognized as earned. The Company had no income from advisory services related to portfolio companies for the six months ended June 30, 2015 and 2014.

The Company may also generate revenue in the form of fees from the management of Greenway and Greenway II, prepayment premiums, commitment, loan origination, structuring or due diligence fees, exit fees, portfolio company administration fees, fees for providing significant managerial assistance and consulting fees.

 

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The following is a summary of the levels within the fair value hierarchy in which the Company invests as of June 30, 2015:

 

Description

   Fair Value          Level 1          Level 2      Level 3  

First lien secured debt

   $ 366,931       $ —         $ —         $ 366,931   

Second lien debt

     177,552         —           —           177,552   

Subordinated debt

     69,691         —           —           69,691   

Equity investments

     66,628         —           —           66,628   

CLO residual interests

     32,641         —           —           32,641   

Investment in Logan JV

     35,658         —           —           35,658   

Investment in payment rights

     13,490         —           —           13,490   

Investments in funds

     3,638         —           —           3,638   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total investments

   $ 766,229       $ —         $ —         $ 766,229   
  

 

 

    

 

 

    

 

 

    

 

 

 

Interest rate derivative

     (356      —           (356      —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total liability at fair value

   $ (356    $ —         $ (356    $ —     
  

 

 

    

 

 

    

 

 

    

 

 

 

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

 

Description

   Fair Value          Level 1          Level 2     Level 3  

First lien secured debt

   $ 393,791       $ —        $ —       $ 393,791   

Second lien debt

     168,510         —          —         168,510   

Subordinated debt

     100,660         —          —         100,660   

Equity investments

     52,707         —          —         52,707   

CLO residual interests

     34,935         —          —         34,935   

Investment in Logan JV

     16,741         —          —         16,741   

Investment in payment rights

     13,488         —          —         13,488   

Investments in funds

     3,388         —          —         3,388   
  

 

 

    

 

 

    

 

 

   

 

 

 

Total investments

   $ 784,220       $ —        $ —       $ 784,220   
  

 

 

    

 

 

    

 

 

   

 

 

 

Interest rate derivative

     (213      —          (213     —    
  

 

 

    

 

 

    

 

 

   

 

 

 

Total liability at fair value

   $ (213    $ —        $ (213   $ —    
  

 

 

    

 

 

    

 

 

   

 

 

 

The following is a summary of the industry classification in which the Company invests as of June 30, 2015:

 

Industry

   Amortized
Cost
     Fair Value      % of Net Assets  

Consumer products

   $ 121,188       $ 121,660         27.25

Financial services

     112,735         106,958         23.96

IT services

     105,084         101,909         22.82

Manufacturing

     70,986         69,010         15.46

Healthcare

     61,957         68,743         15.40

Industrials

     60,008         59,977         13.43

Energy / utilities

     48,373         46,647         10.45

Retail & grocery

     29,731         40,292         9.02

Structured products

     31,632         32,641         7.31

Business services

     32,092         32,433         7.26

Food & beverage

     22,455         23,276         5.21

Restaurants

     20,889         20,686         4.63

Media, entertainment and leisure

     15,879         20,297         4.55

Transportation

     16,962         16,911         3.79

Aerospace & defense

     4,779         4,789         1.07
  

 

 

    

 

 

    

 

 

 

Total Investments

   $ 754,750       $ 766,229         171.61
  

 

 

    

 

 

    

 

 

 

 

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The following is a summary of the industry classification in which the Company invests as of December 31, 2014:

 

Industry

   Amortized
Cost
     Fair Value      % of
Net Assets
 

Consumer products

   $ 120,742       $ 120,388         27.15

IT services

     108,705         106,567         24.02

Healthcare

     77,487         83,164         18.75

Financial services

     71,420         68,997         15.55

Manufacturing

     70,817         68,357         15.41

Retail & grocery

     52,985         55,798         12.58

Industrials

     54,561         54,050         12.18

Energy / utilities

     50,284         48,989         11.04

Food & beverage

     38,594         39,251         8.85

Structured products

     34,213         34,935         7.87

Business services

     32,182         32,244         7.27

Media, entertainment and leisure

     25,134         29,688         6.69

Restaurants

     20,847         20,753         4.68

Transportation

     14,273         14,259         3.21

Aerospace & defense

     6,784         6,780         1.53
  

 

 

    

 

 

    

 

 

 

Total Investments

   $ 779,028       $ 784,220         176.78
  

 

 

    

 

 

    

 

 

 

The following is a summary of the geographical concentration of our investment portfolio as of June 30, 2015:

 

Region

   Amortized
Cost
     Fair Value      % of Net Assets  

Northeast

   $ 253,746       $ 252,553         56.56

Southwest

     182,252         172,597         38.66

Midwest

     101,605         100,851         22.59

Southeast

     86,593         98,629         22.09

West

     62,151         62,420         13.98

Northwest

     38,458         48,943         10.96

International

     29,945         30,236         6.77
  

 

 

    

 

 

    

 

 

 

Total Investments

   $ 754,750       $ 766,229         171.61
  

 

 

    

 

 

    

 

 

 

The following is a summary of the geographical concentration of our investment portfolio as of December 31, 2014:

 

Region

   Amortized
Cost
     Fair Value      % of
Net Assets
 

Northeast

   $ 208,928       $ 208,218         46.95

Southwest

     211,098         204,531         46.10

Southeast

     109,082         119,214         26.87

Midwest

     117,329         116,468         26.25

West

     72,861         73,048         16.47

International

     31,275         31,600         7.12

Northwest

     28,455         31,141         7.02
  

 

 

    

 

 

    

 

 

 

Total Investments

   $ 779,028       $ 784,220         176.78
  

 

 

    

 

 

    

 

 

 

 

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The following table rolls forward the changes in fair value during the six months ended June 30, 2015 for investments classified within Level 3:

 

    First lien
secured debt
    Second lien
debt
    Subordinated
debt
    Investments in
funds(2)
    Equity
investments
    Investment in
payment rights
    CLO residual
interests
    Totals  

Beginning balance, January 1, 2015

  $ 393,791      $ 168,510      $ 100,660      $ 20,129      $ 52,707      $ 13,488      $ 34,935      $ 784,220   

Purchases

    13,495        25,188        4,949        19,029        6,764        —          —          69,425   

Sales and repayments

    (42,897     (16,258     (35,187     —          (717     —          (2,581     (97,640

Unrealized appreciation (depreciation)(1)

    918        (251     (2,554     138        7,746        2        287        6,286   

Realized loss

    (5     (3     —          —          —          —          —          (8

Net amortization of premiums, discounts and fees

    1,125        363        74        —          15        —          —          1,577   

PIK

    504        3        1,749        —          113        —          —          2,369   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Ending balance, June 30, 2015

  $ 366,931      $ 177,552      $ 69,691      $ 39,296      $ 66,628      $ 13,490      $ 32,641      $ 766,229   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net change in unrealized appreciation (depreciation) from investments still held as of the reporting date(1)

  $ 1,055      $ (116   $ (2,535   $ 138      $ 7,746      $ 2      $ 287      $ 6,579   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

 

(1) All unrealized appreciation (depreciation) in the table above is reflected in the accompanying Consolidated Statements of Operations.
(2) Includes investment in Logan JV.

The following table rolls forward the changes in fair value during the six months ended June 30, 2014 for investments classified within Level 3:

 

     First lien
secured debt
    Second
lien debt
    Subordinated
debt
    Investments
in Funds
    Equity
investments
    Investment in
payment
rights
     CLO residual
interest
    Totals  

Beginning balance, January 1, 2014

   $ 262,965      $ 157,878      $ 155,979      $ 9,546      $ 11,037      $ 13,844       $ 37,618      $ 648,867   

Purchases

     87,679        89,857        8,275        850        9,345        —           —          196,006   

Sales and repayments

     (59,375     (14,797     (16,500     (8,354     (938     —           (2,464     (102,428

Unrealized appreciation (depreciation)(1)

     1,338        (1,263     (3,092     85        (1,333     3         802        (3,460

Realized loss(1)

     —          —          —          —          (455     —           —          (455

Net amortization of premiums, discounts and fees

     1,796        445        369        —          —          —           138        2,748   

PIK

     105        196        825        —          —          —           —          1,126   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Ending balance, June 30, 2014

   $ 294,508      $ 232,316      $ 145,856      $ 2,127      $ 17,656      $ 13,847       $ 36,094      $ 742,404   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Net change in unrealized appreciation from investments still held as of the reporting
date(1)

   $ 3,383      $ (1,263   $ (2,471   $ 85      $ (877   $ 3       $ 802      $ (338
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

 

 

(1) All unrealized appreciation (depreciation) in the table above is reflected in the accompanying Consolidated Statements of Operations.

 

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The following provides quantitative information about Level 3 fair value measurements as of June 30, 2015:

 

Description

   Fair Value     

Valuation Technique

  

Unobservable Inputs

  

Range (Average) (1)

First lien secured debt

   $ 330,050       Discounted cash flows (income approach)    Weighted average cost of capital (WACC)    11% - 13% (12%)
     36,881       Market comparable companies (market approach)    EBITDA Multiple    5.5x - 6.0x (5.8x)

Second lien debt

     177,552       Discounted cash flows (income approach)    Weighted average cost of capital (WACC)    11% - 13% (12%)

Subordinated debt

     66,729       Discounted cash flows (income approach)    Weighted average cost of capital (WACC)    16% - 18% (17%)
     2,962       Market comparable companies (market approach)    EBITDA Multiple    1.8x - 1.9x (1.9x)

Investments in funds

     3,638       Net asset value, as a practical expedient    Net asset value    N/A

Equity investments

     51,744       Market comparable companies (market approach)    EBITDA Multiple    6.4x - 7.2x (6.8x)
     14,884       Discounted cash flows (income approach)    Weighted average cost of capital (WACC)    14% - 15% (15%)

Investment in Logan JV

     35,658       Net asset value, as a practical expedient    Net asset value    N/A

Investment in payment rights

     13,490       Discounted cash flows (income approach)    Weighted average cost of capital (WACC)    15% - 16% (15%)
         Federal Tax Rates    35% - 40% (38%)

CLO residual interests

     32,641       Discounted cash flows (income approach)    Weighted average cost of capital (WACC)    13% - 15% (14%)
         Weighted average prepayment rate    25%
         Weighted average default rate    2%
  

 

 

          

Total Investments

   $ 766,229            
  

 

 

          

 

(1) Averages were determined using a weighted average based upon the fair value of the investments in each investment category.

 

25


Table of Contents

The following provides quantitative information about Level 3 fair value measurements as of December 31, 2014:

 

Description

  

Fair Value

  

Valuation Technique

  

Unobservable Inputs

  

Range (Average) (1)

First lien secured debt

   $393,791    Discounted cash flows (income approach)    Weighted average cost of capital (WACC)    13% - 14% (13%)

Second lien debt

   168,510    Discounted cash flows (income approach)    Weighted average cost of capital (WACC)    11% - 13% (12%)

Subordinated debt

   100,660    Discounted cash flows (income approach)    Weighted average cost of capital (WACC)    15% - 16% (15%)

Investments in funds

   3,388    Net asset value, as a practical expedient    Net asset value    N/A

Equity investments

   42,870    Market comparable companies (market approach)    EBITDA Multiple    5.8x - 6.5x (6.2x)
   9,837    Discounted cash flows (income approach)    Weighted average cost of capital (WACC)    15% - 17% (16%)

Investment in Logan JV

   16,741    Net asset value, as a practical expedient    Net asset value    N/A

Investment in payment rights

   13,488    Discounted cash flows (income approach)    Weighted average cost of capital (WACC)    14% - 15% (15%)
         Federal Tax Rates    35% - 40% (38%)

CLO residual interests

   34,935    Discounted cash flows (income approach)    Weighted average cost of capital (WACC)    13% - 15% (14%)
         Weighted average prepayment rate    25%
         Weighted average default rate    2%
  

 

        

Total Investments

   $784,220         
  

 

        

 

(1) Averages were determined using a weighted average based upon the fair value of the investments in each investment category.

The primary significant unobservable input used in the fair value measurement of the Company’s debt securities (first lien secured debt, second lien debt and subordinated debt); including income-producing investments in funds and income producing securities, payment rights and CLO residual interests is the weighted average cost of capital, or WACC. Significant increases (decreases) in the WACC in isolation would result in a significantly lower (higher) fair value measurement. In determining the WACC, for the income, or yield approach, the Company considers current market yields and multiples, portfolio company performance, leverage levels, credit quality, among other factors, including U.S. federal tax rates, in its analysis. In the case of CLO residual interests, the Company considers prepayment, re-investment and loss assumptions based upon historical and projected performance as well as comparable yields for other similar structured products. In the case of the TRA, the Company considers the risks associated with changes in tax rates, the performance of the portfolio company and the expected term of the investment. Changes in one or more of these factors can have a similar directional change on other factors in determining the appropriate WACC to use in the income approach.

The primary significant unobservable input used in the fair value measurement of the Company’s equity investments is the EBITDA multiple adjusted by management for differences between the investment and referenced comparables, or the Multiple. Significant increases (decreases) in the Multiple in isolation would result in a significantly higher (lower) fair value measurement. To determine the Multiple for the market approach, the Company considers current market trading and/or transaction multiples, portfolio company performance (financial ratios) relative to public and private peer companies and leverage levels, among other factors. Changes in one or more of these factors can have a similar directional change on other factors in determining the appropriate Multiple to use in the market approach.

 

26


Table of Contents

THL Credit Logan JV LLC

On December 3, 2014, the Company entered into an agreement with Perspecta Trident LLC, an affiliate of Perspecta Trust LLC, or Perspecta, to create THL Credit Logan JV LLC, or Logan JV, a joint venture, which will invest primarily in senior secured first lien term loans. All Logan JV investment decisions must be unanimously approved by the Logan JV investment committee consisting of one representative from each of the Company and Perspecta.

The Company has determined that Logan JV is an investment company under ASC 946, however, in accordance with such guidance, the Company will generally not consolidate its investment in a company other than a wholly owned investment company subsidiary or a controlled operating company whose business consists of providing services to the Company. Accordingly, the Company does not consolidate its non-controlling interest in Logan JV.

Logan JV is capitalized with equity contributions which are generally called from its members as transactions are completed. As of June 30, 2015, Logan JV had equity commitments totaling $250,000, of which the Company committed $200,000 and Perspecta committed $50,000. As of December 31, 2014, Logan JV had equity commitments totaling $150,000, of which the Company committed $120,000 and Perspecta committed $30,000.

Equity contributions are called from each member pro-rata, based on their equity commitments. As of June 30, 2015 and December 31, 2014, Logan JV had received $44,500 and $8,000 in aggregate capital of which the Company funded $35,600 and $6,400, respectively. As of December 31, 2014, Logan JV had called but not yet received an additional $13,000 in aggregate capital of which the Company’s pro-rata share is $10,400 and which is recorded as a payable for investments purchased in the Consolidated Statements of Assets and Liabilities. As of June 30, 2015, remaining equity commitments to Logan JV totaled $205,500, of which the Company’s share is $164,400 and Perspecta’s share is $41,100. As of December 31, 2014, remaining equity commitments to Logan JV totaled $129,000, of which the Company’s share is $103,200 and Perspecta’s share is $25,800.

On December 17, 2014, Logan JV entered into a senior credit facility, or the Logan JV Credit Facility, with Deutsche Bank AG which allows Logan JV to borrow up to $50,000 subject to leverage and borrowing base restrictions. On May 1, 2015, in accordance with the terms of the Logan JV Credit Facility, Deutsche Bank AG increased its commitment amount to $75,000. On July 27, 2015, in accordance with the terms of the Logan JV Credit Facility, Deutsche Bank AG increased its commitment amount to $100,000. The revolving loan period ends on December 17, 2016 and the final maturity date is December 17, 2019. As of June 30, 2015, Logan JV had $67,500 outstanding debt under the credit facility. As of December 31, 2014, Logan JV had no outstanding debt under the credit facility. The Logan JV Credit Facility bears interest at three month LIBOR (with no LIBOR floor) plus 2.50%.

As of June 30, 2015 and December 31, 2014, Logan JV had total investments at fair value of $111,250 and $30,678, respectively. As of June 30, 2015 and December 31, 2014, Logan JV’s portfolio was comprised of senior secured first lien and second lien loans to 68 and 22 different borrowers, respectively. As of June 30, 2015 and December 31, 2014, none of these loans were on non-accrual status. Additionally, as of June 30, 2015 and December 31, 2014, Logan JV had unfunded commitments to fund revolver and delayed draw loans to its portfolio companies totaling $209 and $170, respectively. The portfolio companies in Logan JV are in industries similar to those in which the Company may invest directly.

Below is a summary of Logan JV’s portfolio, followed by a listing of the individual loans in Logan JV’s portfolio as of June 30, 2015 and December 31, 2014:

 

     As of June 30,     As of December 31,  
     2015     2014  
     (Dollars in thousands)     (Dollars in thousands)  

First lien secured debt (1)

   $ 96,222      $ 30,237   

Second lien debt (1)

     16,524        1,000   
  

 

 

   

 

 

 

Total debt investments

   $ 112,746      $ 31,237   
  

 

 

   

 

 

 

Weighted average yield on first lien secured loans(2)

     6.4     6.7

Weighted average yield on second lien loans(2)

     8.9     10.0

Weighted average yield on all loans(2)

     6.8     6.6

Number of borrowers in Logan JV

     68        22   

Largest loan to a single borrower(1)

   $ 4,988      $ 2,500   

Total of five largest loans to borrowers(1)

   $ 18,005      $ 8,994   

 

(1) At current principal amount.
(2) Weighted average yield at their current cost.

 

27


Table of Contents

For the three and six months ended June 30, 2015, the Company’s share of dividend income from distributions declared related to its Logan JV LLC equity interest was $776 and $1,104, respectively, which amounts are included in dividend income from controlled investments in the Consolidated Statement of Operations. As of June 30, 2015 and December 31, 2014, $944 and $0, respectively, of dividend income related to the Logan JV was included in Interest, dividends and fees receivable on the Consolidated Statements of Assets and Liabilities. As of June 30, 2015, dividend income earned of $776 for the three months ended June 30, 2015, represented a dividend yield to the Company of 11.1% based upon average equity invested. As of June 30, 2014, Logan JV was not yet formed.

 

28


Table of Contents

Logan JV Loan Portfolio as of June 30, 2015

(dollar amounts in thousands)

 

Portfolio Company

  Industry   Interest Rate(1)   Initial
Acquisition
Date
    Maturity
Date
    Principal     Amortized
Cost
    Fair
Value(2)
 

Senior Secured First Lien Term Loans

             

Ability Networks Inc.

  Healthcare &
Pharmaceuticals
  6% (LIBOR
+5%)
    3/17/2015        05/14/2021      $ 1,492      $ 1,507      $ 1,499   

Albertson’s Holdings LLC

  Retail   5.5% (LIBOR
+4.5%)
    12/5/2014        08/25/2021        1,995        1,999        2,007   

American Pacific Corporation

  Chemicals, Plastics
& Rubber
  7% (LIBOR
+6%)
    12/10/2014        02/27/2019        992        992        1,004   

AP Gaming I LLC

  Hotel, Gaming &
Leisure
  9.25% (LIBOR
+8.25%)
    5/27/2015        12/20/2020        997        988        996   

Arctic Glacier U.S.A., Inc

  Beverage, Food &
Tobacco
  6% (LIBOR
+5%)
    2/12/2015        05/10/2019        995        986        992   

Avaya Inc

  Telecommunications   6.25% (LIBOR
+5.25%)
    4/30/2015        04/30/2020        1,983        1,965        1,949   

Bioplan USA

  Services: Business   5.75% (LIBOR
+4.75%)
    5/13/2015        09/23/2021        998        851        858   

BioScrip, Inc.

  Healthcare &
Pharmaceuticals
  6.5% (LIBOR
+5.25%)
    12/22/2014        07/31/2020        1,500        1,504        1,490   

Birch Communications, Inc.

  Telecommunications   7.75% (LIBOR
+6.75%)
    12/5/2014        07/17/2020        972        952        975   

CAbi

  Retail   5.75% (LIBOR
+4.75%)
    6/19/2015        06/10/2019        1,250        1,238        1,250   

Caesars Entertainment Resort Properties, LLC

  Hotel, Gaming &
Leisure
  7% (LIBOR
+6%)
    1/15/2015        10/11/2020        2,989        2,867        2,727   

Cengage Learning Acquisitions, Inc.

  Media: Advertising,
Printing &
Publishing
  7% (LIBOR
+6%)
    12/15/2014        03/31/2020        2,417        2,396        2,424   

Communications Sales & Leasing, Inc.

  Telecommunications   5% (LIBOR
+4%)
    5/28/2015        10/24/2022        3,000        2,996        2,947   

Compuware Corp

  Services: Business   6.25% (LIBOR
+5.25%)
    12/11/2014        12/15/2021        2,989        2,899        2,926   

Creative Artists

  Media: Diversified
& Production
  5.5% (LIBOR
+4.5%)
    3/16/2015        12/17/2021        2,488        2,523        2,513   

Crowne Group LLC

  Automotive   6% (LIBOR
+5%)
    1/14/2015        09/30/2020        1,492        1,475        1,489   

CT Technologies Intermediate Holdings, Inc

  Healthcare &
Pharmaceuticals
  6% (LIBOR
+5%)
    2/11/2015        12/01/2021        1,990        2,011        2,000   

CWGS Group, LLC

  Automotive   5.25% (LIBOR
+4.25%)
    12/22/2014        02/20/2020        2,439        2,440        2,456   

Delta 2 Lux Sarl

  Telecommunications   4.75% (LIBOR
+3.75%)
    12/18/2014        07/30/2021        1,500        1,469        1,493   

EnergySolutions, LLC

  Environmental
Industries
  6.75% (LIBOR
+5.75%)
    3/16/2015        05/29/2020        2,000        2,024        2,012   

Evergreen Skills Lux S.á r.l.

  High Tech
Industries
  5.75% (LIBOR
+4.75%)
    1/15/2015        04/28/2021        1,494        1,465        1,455   

FR Utility Services LLC

  Construction &
Building
  6.75% (LIBOR
+5.75%)
    12/18/2014        10/18/2019        1,489        1,485        1,497   

FullBeauty Brands LP / OSP Group Inc.

  Retail   4.75% (LIBOR
+3.75%)
    3/20/2015        03/18/2021        997        993        997   

Getty Images, Inc.

  Media: Advertising,
Printing &
Publishing
  4.75% (LIBOR
+3.5%)
    2/18/2015        10/18/2019        995        924        740   

Gold Standard Baking Inc

  Wholesale   5.5% (LIBOR
+4.5%)
    5/19/2015        05/11/2021        3,000        2,985        2,985   

Green Plains Renewable Energy Inc

  Energy: Oil & Gas   6.5% (LIBOR
+5.5%)
    6/9/2015        06/30/2020        1,997        1,998        2,006   

GTCR Valor Companies, Inc.

  Services: Business   6% (LIBOR
+5%)
    12/5/2014        05/30/2021        1,987        1,969        1,989   

IMG LLC/William Morris Endeavor Entertainment, LLC

  Media: Diversified
& Production
  5.25% (LIBOR
+4.25%)
    12/31/2014        05/06/2021        1,489        1,458        1,489   

Insurance Technologies

  High Tech
Industries
  8% (LIBOR
+7%)
    3/26/2015        12/01/2019        1,948        1,930        1,928   

Insurance Technologies (3)

  High Tech
Industries
  0% (LIBOR
+0%)
    3/26/2015        12/01/2019        —          —          (2

J Jill

  Retail   6% (LIBOR
+5%)
    5/8/2015        05/08/2022        1,050        1,045        1,050   

KOOSHAREM, LLC

  Services: Business   7.5% (LIBOR
+6.5%)
    2/4/2015        05/15/2020        2,987        2,976        2,973   

Lattice Semiconductor Corp.

  High Tech
Industries
  5.25% (LIBOR
+4.25%)
    3/6/2015        03/10/2021        998        988        1,001   

LegalZoom

  Services: Business   8% (LIBOR
+7%)
    6/15/2015        06/18/2020        2,993        2,993        2,992   

 

29


Table of Contents

Portfolio Company

 

Industry

  Interest Rate(1)   Initial
Acquisition
Date
    Maturity
Date
    Principal     Amortized
Cost
    Fair
Value(2)
 

Lindblad Expeditions Inc

  Hotel, Gaming & Leisure   6.5% (LIBOR
+5.5%)
    6/23/2015        06/08/2022        2,657        2,674        2,664   

Lindblad Maritime

  Hotel, Gaming & Leisure   5.5% (LIBOR
+4.5%)
    6/23/2015        06/17/2022        343        345        344   

Margaritaville Holdings LLC

  Beverage, Food & Tobacco   7% (LIBOR
+6%)
    3/12/2015        03/11/2021        4,988        4,940        4,938   

MediArena Acquisition B.V.

  Media: Broadcasting & Subscription   6.75%
(LIBOR
+5.75%)
    12/18/2014        08/13/2021        1,489        1,468        1,475   

Merrill Communications LLC

  Media: Advertising, Printing & Publishing   6.25%
(LIBOR
+5.25%)
    5/29/2015        06/01/2022        2,000        1,988        1,999   

Mood Media Corporation

  Media: Broadcasting & Subscription   7% (LIBOR
+6%)
    12/5/2014        05/01/2019        992        979        970   

Novitex Acquisition, LLC

  Consumer goods: Non-Durable   7.5% (LIBOR
+6.25%)
    12/5/2014        07/07/2020        993        977        943   

Parq Holdings LP

  Hotel, Gaming & Leisure   8.5% (LIBOR
+7.5%)
    12/5/2014        12/17/2020        170        167        172   

Parq Holdings LP

  Hotel, Gaming & Leisure   8.5% (LIBOR
+7.5%)
    12/5/2014        12/17/2020        830        815        838   

Physiotherapy Associates Inc

  Healthcare & Pharmaceuticals   5.75%
(LIBOR
+4.75%)
    6/4/2015        05/07/2021        1,000        995        1,003   

Pre-Paid Legal Services, Inc

  Services: Business   6.5% (LIBOR
+5.25%)
    5/21/2015        07/01/2019        1,000        995        1,005   

RentPath, Inc.

  Media: Diversified & Production   6.25%
(LIBOR
+5.25%)
    12/11/2014        12/17/2021        2,488        2,461        2,512   

Riverbed Technology, Inc.

  High Tech Industries   6% (LIBOR
+5%)
    2/25/2015        04/27/2022        998        993        1,009   

Roundy’s Supermarkets, Inc.

  Retail   5.75%
(LIBOR
+4.75%)
    5/28/2015        03/03/2021        3,000        2,931        2,910   

Sirva Worldwide, Inc.

  Transportation: Cargo   7.5% (LIBOR
+6.25%)
    12/18/2014        03/27/2019        1,928        1,923        1,943   

SourceHOV LLC

  Services: Business   7.75%
(LIBOR
+6.75%)
    3/17/2015        10/31/2019        1,975        1,896        1,824   

Stonewall Gas Gathering LLC

  Energy: Oil & Gas   8.75%
(LIBOR
+7.75%)
    1/26/2015        01/28/2022        998        951        1,010   

TOMS Shoes LLC

  Retail   6.5% (LIBOR
+5.5%)
    12/18/2014        10/31/2020        1,995        1,861        1,850   

TTM Technologies Inc

  High Tech Industries   6% (LIBOR
+5%)
    5/7/2015        05/31/2021        1,000        966        988   

TWCC Holding Corp.

  Media: Broadcasting & Subscription   5.75%
(LIBOR
+5%)
    5/21/2015        02/13/2020        1,529        1,514        1,512   

Varsity Brands

  Consumer goods: Durable   5% (LIBOR
+4%)
    12/10/2014        12/11/2021        995        986        1,003   

Verdesian Life Sciences LLC

  Chemicals, Plastics & Rubber   6% (LIBOR
+5%)
    12/9/2014        07/01/2020        962        961        964   

Visant Corp.

  Consumer goods: Non-Durable   7% (LIBOR
+6%)
    1/6/2015        09/23/2021        1,990        1,948        1,925   
           

 

 

   

 

 

 

Total Senior Secured First Lien Term Loans

            $ 95,025      $ 94,908   
           

 

 

   

 

 

 

Second Lien Term Loans

             

ABG Intermediate Holdings 2 LLC

  Consumer goods: Durable   9.5% (LIBOR
+8.5%)
    6/19/2015        05/27/2022        1,000        990        1,004   

Asurion Delivery and Installation Services, Inc.

  Telecommunications   8.5% (LIBOR
+7.5%)
    2/18/2015        03/03/2021        2,000        2,008        2,037   

Cirque Du Soleil

  Hotel, Gaming & Leisure   9.25%
(LIBOR
+8.25%)
    6/25/2015        06/10/2023        1,000        985        996   

Confie Seguros Holding II Co

  Banking, Finance, Insurance & Real Estate   10.25%
(LIBOR
+9%)
    6/29/2015        05/09/2019        500        495        500   

Eastman Kodak Company

  High Tech Industries   10.75%
(LIBOR
+9.5%)
    3/24/2015        09/03/2020        1,000        996        999   

Filtration Group Corporation

  Services: Business   8.25%
(LIBOR
+7.25%)
    3/16/2015        11/22/2021        524        526        527   

GENEX Services, Inc.

  Services: Business   8.75%
(LIBOR
+7.75%)
    6/26/2015        05/30/2022        1,000        988        990   

Hyland Software, Inc.

  High Tech Industries   8.5% (LIBOR
+7.5%)
    6/12/2015        05/27/2023        1,500        1,493        1,503   

IPC Corp

  Telecommunications   10.5%
(LIBOR
+9.5%)
    3/3/2015        02/06/2022        1,500        1,394        1,436   

Learfield Communications, Inc.

  Media: Broadcasting & Subscription   8.75%
(LIBOR
+7.75%)
    2/18/2015        10/08/2021        1,000        1,005        1,010   

 

30


Table of Contents

Portfolio Company

 

Industry

  Interest Rate(1)   Initial
Acquisition
Date
    Maturity
Date
    Principal     Amortized
Cost
    Fair
Value(2)
 

MRI SOFTWARE LLC

  High Tech Industries   9% (LIBOR
+8%)
    6/19/2015        06/05/2022        1,000        985        1,005   

RentPath, Inc.

  Media: Diversified & Production   10% (LIBOR
+9%)
    12/11/2014        12/17/2022        1,000        916        954   

Royal Adhesives and Sealants LLC/Adco Global Inc.

  Chemicals, Plastics & Rubber   8.5% (LIBOR
+7.5%)
    6/12/2015        06/19/2023        1,000        993        1,003   

TWCC Holding Corp.

  Media: Broadcasting & Subscription   7% (LIBOR
+6%)
    5/28/2015        06/26/2020        2,000        1,867        1,872   

Wash Multifamily Laundry Systems, LLC.

  Services: Consumer   8% (LIBOR
+7%)
    5/4/2015        05/12/2023        500        496        506   
           

 

 

   

 

 

 

Total Second Lien Term Loans

            $ 16,137      $ 16,342   
           

 

 

   

 

 

 
             
           

 

 

   

 

 

 
            $ 111,162      $ 111,250   
           

 

 

   

 

 

 

 

(1) Variable interest rates indexed to 30-day, 60-day, 90-day or 180-day LIBOR rates, at the borrower’s option. LIBOR rates are subject to interest rate floors.
(2) Represents fair value in accordance with ASC Topic 820. The determination of such fair value is not included in our board of director’s valuation process described elsewhere herein.
(3) Represents a revolver commitment of $209, which was unfunded as of June 30, 2015.

Logan JV Loan Portfolio as of December 31, 2014

(dollar amounts in thousands)

 

Portfolio Company

 

Industry

  Interest Rate(1)   Initial
Acquisition
Date
    Maturity
Date
    Principal     Amortized
Cost
    Fair
Value(2)
 

Senior Secured First Lien Term Loans

             

Albertson’s Holdings LLC

  Retail   5.5% (LIBOR
+ 4.5%)
    12/05/2014        08/25/2021      $ 2,000      $ 2,004      $ 2,003   

American Pacific Corporation

  Chemicals, Plastics & Rubber   7% (LIBOR
+ 6%)
    12/10/2014        02/27/2019        997        997        996   

AP NMT Acquisition B.V.

  Media: Broadcasting & Subscription   6.75% (LIBOR
+ 5.75%)
    12/18/2014        08/13/2021        1,496        1,474        1,474   

Avaya Inc.

  Telecommunications   6.5% (LIBOR
+ 5.5%)
    12/18/2014        03/31/2018        1,496        1,481        1,476   

BioScrip, Inc.

  Healthcare & Pharmaceuticals   6.5% (LIBOR
+ 5.25%)
    12/22/2014        07/31/2020        1,500        1,504        1,496   

Birch Communications, Inc.

  Telecommunications   7.75% (LIBOR
+ 6.75%)
    12/05/2014        07/17/2020        972        950        957   

Cengage Learning Acquisitions, Inc.

  Media: Advertising, Printing & Publishing   7% (LIBOR
+ 6%)
    12/15/2014        03/31/2020        2,494        2,470        2,473   

Compuware Corp

  Services: Business   6.25% (LIBOR
+ 5.25%)
    12/11/2014        12/15/2021        1,500        1,426        1,427   

CWGS Group, LLC

  Automotive   5.75% (LIBOR
+ 4.75%)
    12/22/2014        02/20/2020        1,490        1,494        1,494   

Delta 2 Lux Sarl

  Telecommunications   4.75% (LIBOR
+ 3.75%)
    12/18/2014        07/30/2021        1,500        1,466        1,468   

FR Utility Services LLC

  Construction & Building   6.75% (LIBOR
+ 5.75%)
    12/18/2014        10/18/2019        1,496        1,493        1,491   

GTCR Valor Companies, Inc.

  Services: Business   6% (LIBOR
+ 5%)
    12/05/2014        05/30/2021        995        975        972   

IMG LLC/William Morris Endeavor Entertainment, LLC

  Media: Diversified & Production   5.25% (LIBOR
+ 4.25%)
    12/31/2014        05/06/2021        1,496        1,463        1,451   

Mood Media Corporation

  Media: Broadcasting & Subscription   7% (LIBOR
+ 6%)
    12/05/2014        05/01/2019        997        983        979   

 

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Table of Contents

Portfolio Company

 

Industry

  Interest Rate(1)   Initial
Acquisition
Date
    Maturity
Date
    Principal     Amortized
Cost
    Fair
Value(2)
 

Novitex Acquisition, LLC

  Consumer goods: Non- Durable   7.5% (LIBOR
+ 6.25%)
    12/05/2014        07/07/2020        998        980        958   

Parq Holdings L.P.(3)

  Hotel, Gaming & Leisure   8.5% (LIBOR
+ 7.5%)
    12/05/2014        12/17/2020        —         (3     —    

Parq Holdings L.P.

  Hotel, Gaming & Leisure   8.5% (LIBOR
+ 7.5%)
    12/05/2014        12/17/2020        830        814        818   

Radio One, Inc.

  Media: Broadcasting & Subscription   7.5% (LIBOR
+ 6%)
    12/22/2014        03/31/2016        1,496        1,492        1,491   

RentPath, Inc.

  Media: Diversified & Production   6.25% (LIBOR
+ 5.25%)
    12/11/2014        12/17/2021        1,500        1,470        1,476   

Sirva Worldwide, Inc.

  Transportation: Cargo   7.5% (LIBOR
+ 6.25%)
    12/18/2014        03/27/2019        1,496        1,489        1,492   

TOMS Shoes LLC

  Retail   6.5% (LIBOR
+ 5.5%)
    12/18/2014        10/31/2020        1,500        1,388        1,388   

Varsity Brands

  Consumer goods: Durable   6% (LIBOR
+ 5%)
    12/10/2014        12/11/2021        1,000        990        1,001   

Verdesian Life Sciences LLC

  Chemicals, Plastics & Rubber   6% (LIBOR
+ 5%)
    12/09/2014        07/01/2020        987        986        982   
           

 

 

   

 

 

 

Total Senior Secured First Lien Term Loans

            $ 29,786      $ 29,763   
           

 

 

   

 

 

 

Second Lien Term Loans

             

RentPath, Inc.

  Media: Diversified & Production   10% (LIBOR
+ 9%)
    12/11/2014        12/17/2022      $ 1,000      $ 911      $ 915   
           

 

 

   

 

 

 

Total Second Lien Term Loans

            $ 911      $ 915   
           

 

 

   

 

 

 
            $ 30,697      $ 30,678   
           

 

 

   

 

 

 

 

(1) Variable interest rates indexed to 30-day, 60-day, 90-day or 180-day LIBOR rates, at the borrower’s option. LIBOR rates are subject to interest rate floors.
(2) Represents fair value in accordance with ASC Topic 820. The determination of such fair value is not included in our board of director’s valuation process described elsewhere herein.
(3) Represents a delayed draw commitment of $170, which was unfunded as of December 31, 2014.

The Company has committed to fund $200,000 of LLC equity interest subscriptions to Logan JV. As of June 30, 2015 and December 31, 2014, $35,600 and $6,400 of the Company’s LLC equity interest subscriptions to Logan JV had been called and contributed. For the three and six months ended June 30, 2015, the Company recorded $776 and $1,104 in dividend income from the Logan JV LLC equity interests, respectively. As of June 30, 2014, Logan JV was not yet formed.

 

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Below is certain summarized financial information for Logan JV as of June 30, 2015 and December 31, 2014 and for the three and six months ended June 30, 2015:

Selected Balance Sheet Information

 

     As of June 30,      As of December 31,  
     2015      2014  
     (Dollars in thousands)      (Dollars in thousands)  

Investments at fair value (cost of $111,162 and $30,697, respectively)

   $ 111,250       $ 30,678   

Capital contributions receivable

     —           13,000   

Cash

     20,297         3,898   

Other assets

     1,459         898   
  

 

 

    

 

 

 

Total assets

   $ 133,006       $ 48,474   
  

 

 

    

 

 

 

Loans payable

   $ 67,500       $ —     

Payable for investments purchased

     19,301         26,732   

Distribution payable

     1,180         —     

Other liabilities

     453         813   
  

 

 

    

 

 

 

Total liabilities

   $ 88,434       $ 27,545   
  

 

 

    

 

 

 

Members’ Equity

   $ 44,572       $ 20,929   
  

 

 

    

 

 

 

Total liabilities and Member’s Equity

   $ 133,006       $ 48,474   
  

 

 

    

 

 

 

Selected Statement of Operations Information

 

     For the three months
ended June 30, 2015
     For the six months
ended June 30, 2015
 
     (Dollars in thousands)      (Dollars in thousands)  

Interest income

   $ 1,472       $ 2,203   

Fee income

     61         61   
  

 

 

    

 

 

 

Total revenues

     1,533         2,264   

Credit facility expenses

     455         731   

Other expenses

     92         117   
  

 

 

    

 

 

 

Total expenses

     547         848   
  

 

 

    

 

 

 

Net investment income

     986         1,416   

Net change in unrealized appreciation (depreciation) on investments

     (376      107   
  

 

 

    

 

 

 

Net increase in net assets

   $ 610       $ 1,523   
  

 

 

    

 

 

 

As of June 30, 2014, Logan JV was not yet formed.

Investment in Tax Receivable Agreement Payment Rights

In June 2012, the Company invested in a TRA that entitles it to certain payment rights, or TRA Payment Rights, from Duff & Phelps Corporation, or Duff & Phelps. The TRA transfers the economic value of certain tax deductions, or tax benefits, taken by Duff & Phelps to the Company and entitles the Company to a stream of payments to be received. The TRA payment right is, in effect, a subordinated claim on the issuing company which can be valued based on the credit risk of the issuer, which includes projected future earnings, the liquidity of the underlying payment right, risk of tax law changes, the effective tax rate and any other factors which might impact the value of the payment right.

 

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Through the TRA, the Company is entitled to receive an annual tax benefit payment based upon 85% of the savings from certain deductions along with interest. The payments that the Company is entitled to receive result from cash savings, if any, in U.S. federal, state or local income tax that Duff & Phelps realizes (i) from the tax savings derived from the goodwill and other intangibles created in connection with the Duff & Phelps initial public offering and (ii) from other income tax deductions. These tax benefit payments will continue until the relevant deductions are fully utilized, which is projected to be 16 years from the initial investment date. Pursuant to the TRA, the Company maintains the right to enforce Duff & Phelps payment obligations as a transferee of the TRA contract. If Duff & Phelps chooses to pre-pay and terminate the TRA, the Company will be entitled to the present value of the expected future TRA payments. If Duff & Phelps breaches any material obligation than all obligations are accelerated and calculated as if an early termination occurred. Failure to make a payment is a breach of a material obligation if the failure occurs for more than three months.

The projected annual tax benefit payment will be accrued on a quarterly basis and paid annually. The payment will be allocated between a reduction in the cost basis of the investment and interest income based upon an amortization schedule. Based upon the characteristics of the investment, the Company has chosen to categorize the investment in the TRA payment rights as investment in payment rights in the fair value hierarchy. The amortized cost basis and fair value of the TRA as of June 30, 2015 was $11,877 and $13,490, respectively. The amortized cost basis and fair value of the TRA as of December 31, 2014 was $11,877 and $13,488, respectively. For the three and six months ended June 30, 2015, the Company recognized interest income totaling $502 and $1,000, respectively, related to the TRA. For the three and six months ended June 30, 2014, the Company recognized interest income totaling $516 and $1,026, respectively, related to the TRA.

Managed Funds

The Advisor and its affiliates may also manage other funds in the future that may have investment mandates that are similar, in whole and in part, with ours. For example, the Advisor may serve as investment adviser to one or more private funds or registered closed-end funds, and presently serves as an investment adviser to collateralized loan obligations (CLO), THL Credit Wind River 2013-2 CLO, Ltd., THL Credit Wind River 2014-1 CLO, Ltd., THL Credit Wind River 2014-2 CLO, Ltd., and a subadviser to a closed-end fund, THL Credit Senior Loan Fund (NYSE: TSLF). In addition, the Company’s officers may serve in similar capacities for one or more private funds or registered closed-end funds. The Advisor and its affiliates may determine that an investment is appropriate for us and for one or more of those other funds. In such event, depending on the availability of such investment and other appropriate factors, the Advisor or its affiliates may determine that the Company should invest side-by-side with one or more other funds. Any such investments will be made only to the extent permitted by applicable law and interpretive positions of the SEC and its staff, and consistent with the Advisor’s allocation procedures.

 

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Greenway

On January 14, 2011, THL Credit Greenway Fund LLC, or Greenway, was formed as a Delaware limited liability company. Greenway is a portfolio company of the Company. Greenway is a closed-end investment fund which provides for no liquidity or redemption options and is not readily marketable. Greenway operates under a limited liability agreement dated January 19, 2011, or the Agreement. Greenway will continue in existence until January 14, 2021, subject to earlier termination pursuant to certain terms of the Agreement. The term may also be extended for up to three additional one-year periods pursuant to certain terms of the Agreement. Greenway had a two year investment period.

Greenway has $150,000 of capital committed by affiliates of a single institutional investor and is managed by the Company. The Company’s capital commitment to Greenway is $15. The Company’s nominal investment in Greenway is reflected in the June 30, 2015 and December 31, 2014 Consolidated Schedules of Investments.

The Company acts as the investment adviser to Greenway and is entitled to receive certain fees relating to its investment management services provided, including a base management fee, a performance fee and a portion of the closing fees on each investment transaction. As a result, Greenway is classified as an affiliate of the Company. For the three and six months ended June 30, 2015, the Company earned $222 and $391, respectively, in fees related to Greenway, which are included in other income from non-controlled, affiliated investment in the Consolidated Statements of Operations. For the three and six months ended June 30, 2014, the Company earned $195 and $402, respectively, in fees related to Greenway, which are included in other income from non-controlled, affiliated investment in the Consolidated Statements of Operations. As of June 30, 2015 and December 31, 2014, $274 and $277 of fees and expenses related to Greenway, respectively, were included in due from affiliate on the Consolidated Statements of Assets and Liabilities.

Greenway invests in securities similar to those of the Company pursuant to investment and allocation guidelines which address, among other things, the size of the borrowers, the types of transactions and the concentration and investment ratio amongst Greenway and the Company. However, the Company has the discretion to invest in other securities.

Greenway II

On January 31, 2013, THL Credit Greenway Fund II, LLC, or Greenway II LLC, was formed as a Delaware limited liability company and is a portfolio company of the Company. Greenway II LLC is a closed-end investment fund which provides for no liquidity or redemption options and is not readily marketable. Greenway II LLC operates under a limited liability agreement dated February 11, 2013, as amended, or the Greenway II LLC Agreement. Greenway II LLC will continue in existence for eight years from the final closing date, subject to earlier termination pursuant to certain terms of the Greenway II LLC Agreement. The term may also be extended for up to three additional one-year periods pursuant to certain terms of the Greenway II LLC Agreement. Greenway II LLC has a two year investment period.

As contemplated in the Greenway II LLC Agreement, the Company has established a related investment vehicle and entered into an investment management agreement with an account set up by an unaffiliated third party investor to invest alongside Greenway II LLC pursuant to similar economic terms. The account is also managed by the Company. References to “Greenway II” herein include Greenway II LLC and the account of the related investment vehicle. The Company’s capital commitment to Greenway II is $5. The Company’s nominal investment in Greenway II LLC is reflected in the June 30, 2015 and December 31, 2014 Consolidated Schedules of Investments. Greenway II LLC is managed by the Company.

The Company acts as the investment adviser to Greenway II and is entitled to receive certain fees relating to its investment management services provided, including a base management fee, a performance fee and a portion of the closing fees on each investment transaction. As a result, Greenway II is classified as an affiliate of the Company. For the three and six months ended June 30, 2015, the Company earned $428 and $855, respectively, in fees related to Greenway II, which are included in other income from non-controlled, affiliated investment in the Consolidated Statements of Operations. For the three and six months ended June 30, 2014, the Company earned $565 and $1,112, respectively, in fees related to Greenway II, which are included in other income from non-controlled, affiliated investment in the Consolidated Statements of Operations. As of June 30, 2015 and December 31, 2014, $447 and $748, respectively, of fees and expenses related to Greenway II were included in due from affiliate on the Consolidated Statements of Assets and Liabilities.

Other deferred costs consist of placement agent expenses incurred in connection with the offer and sale of partnership interests in Greenway II. These costs are capitalized when the partner signs the Greenway II subscription agreement and are recognized as an expense over the period when the Company expects to collect management fees from Greenway II. For the three and six months ended June 30, 2015, the Company recognized $56 and $113, respectively, related to placement agent expenses, which are included in other general and administrative expenses in the Consolidated Statements of Operations. For the three and six months ended June 30, 2014, the Company recognized $56 and $113, respectively, related to placement agent expenses, which are included in other general and administrative expenses in the Consolidated Statements of Operations. As of June 30, 2015 and December 31, 2014, $488 and $600, respectively, was included in other deferred costs on the Consolidated Statements of Assets and Liabilities.

 

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Greenway II invests in securities similar to those of the Company pursuant to investment and allocation guidelines which address, among other things, the size of the borrowers, the types of transactions and the concentration and investment ratio amongst Greenway II and the Company. However, the Company has the discretion to invest in other securities.

CLO Residual Interests

As of June 30, 2015 and December 31, 2014, the Company had investments in the CLO residual interests, or subordinated notes, which can also be structured as income notes. The subordinated notes are subordinated to the secured notes issued in connection with each CLO. The secured notes in each structure are collateralized by portfolios consisting primarily of broadly syndicated senior secured bank loans.

The following table shows a summary of the Company investments in CLO residual interests:

 

                     As of June 30, 2015     As of December 31, 2014  

Issuer

   Security Description   Ownership
Interest
    Total
CLO
Amount at
initial par
    THL Credit
Residual
Amount at
Amortized Cost
    THL Credit
Residual
Amount at
Fair Value
    THL Credit
Residual
Amount at
Amortized Cost
     THL Credit
Residual
Amount at
Fair Value
 

Adirondack Park CLO Ltd.

   Subordinated Notes,
Residual Interest
    18.7   $ 517,000      $ 7,768      $ 8,050      $ 8,172       $ 8,216   

Dryden CLO, Ltd.

   Subordinated Notes,
Residual Interest
    23.1     516,400        7,399        7,704        8,040         8,244   

Flagship VII, Ltd.

   Subordinated Notes,
Residual Interest
    12.6     441,810        3,836        4,080        4,105         4,305   

Flagship VIII, Ltd.

   Subordinated Notes,
Residual Interest
    25.1     470,895        7,465        7,217        8,450         8,450   

Sheridan Square CLO, Ltd

   Income Notes,
Residual Interest
    10.4     724,534        5,164        5,590        5,446         5,720   
        

 

 

   

 

 

   

 

 

    

 

 

 

Total CLO residual interests

      $ 31,632      $ 32,641      $ 34,213       $ 34,935   
        

 

 

   

 

 

   

 

 

    

 

 

 

The subordinated notes and income notes do not have a stated rate of interest, but are entitled to receive distributions on quarterly payment dates subject to the priority of payments to secured note holders in the structures if and to the extent funds are available for such purpose. The payments on the subordinated notes and income notes are subordinated not only to the interest and principal claims of all secured notes issued, but to certain administrative expenses, taxes, and the base and subordinated fees paid to the collateral manager. Payments to the subordinated notes and income notes may vary significantly quarter to quarter for a variety of reasons and may be subject to 100% loss. Investments in subordinated notes and income notes, due to the structure of the CLO, can be significantly impacted by change in the market value of the assets, the distributions on the assets, defaults and recoveries on the assets, capital gains and losses on the assets along with prices, interest rates and other risks associated with the assets.

For the three and six months ended June 30, 2015, the Company recognized interest income totaling $1,149 and $2,293, respectively, related to CLO residual interests. For the three and six months ended June 30, 2014, the Company recognized interest income totaling $1,207 and $2,439, respectively, related to CLO residual interests.

Revolving and Unfunded Delayed Draw Loans

For the Company’s investments in revolving and delayed draw loans, the cost basis of the investments purchased is adjusted for the cash received for the discount on the total balance committed. The fair value is also adjusted for price appreciation or depreciation on the unfunded portion. As a result, the purchase of commitments not completely funded may result in a negative value until it is offset by the future amounts called and funded.

Income Taxes, Including Excise Tax

The Company has elected to be taxed as a RIC under Subchapter M of the Code and currently qualifies, and intends to continue to qualify each year, as a RIC under the Code. Accordingly, the Company is not subject to U.S. federal income tax on the portion of its taxable income and gains distributed to stockholders.

In order to qualify for favorable tax treatment as a RIC, the Company is required to distribute annually to its stockholders at least 90% of its investment company taxable income, as defined by the Code. To avoid a 4% U.S. federal excise tax on undistributed earnings, the Company is required to distribute each calendar year the sum of (i) 98% of its ordinary income for such calendar year (ii) 98.2% of its net capital gains for the one-year period ending October 31 of that calendar year (iii) any income recognized, but not distributed, in preceding years and on which the Company paid no U.S. federal income tax. The Company, at its discretion, may choose not to distribute all of its taxable income for the calendar year and pay a non-deductible 4% excise tax on this income. If the Company chooses to do so, all other things being equal, this would increase expenses and reduce the amount available to be distributed to stockholders. To the extent that the Company determines that its estimated current year annual taxable income will be in excess of estimated current year dividend distributions from such taxable income, the Company accrues excise taxes on estimated excess taxable income as taxable income is earned using an annual effective excise tax rate. The annual effective excise tax rate is determined by dividing the estimated annual excise tax by the estimated annual taxable income. See also the disclosure in Note 9, Dividends, for a summary of the dividends paid. For the three months ended June 30, 2015 and 2014, the Company incurred excise tax expense of $225 and $73, respectively. For the six months

 

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ended June 30, 2015 and 2014, the Company incurred excise tax expense of $283 and $123, respectively. In addition, for the three and six months ended June 30, 2015, the Company incurred Delaware franchise tax expense of $22 and $45, respectively. For the three and six months ended June 30, 2014, the Company incurred Delaware franchise tax expense of $23 and $45, respectively.

Certain consolidated subsidiaries of the Company are subject to U.S. federal and state income taxes. These taxable entities are not consolidated for income tax purposes and may generate income tax liabilities or assets from permanent and temporary differences in the recognition of items for financial reporting and income tax purposes at the subsidiaries.

The following shows the breakdown of current and deferred income tax provisions for the three and six months ended June 30, 2015, and 2014:

 

     For the three months ended June
30,
     For the six months ended June
30,
 
     2015      2014      2015      2014  

Current income tax provision:

           

Current income tax (benefit) provision

   $ (224    $ 261       $ (110    $ 769   

Current (benefit) provision for taxes on realized gain on investments

     —           (72      —           249   

Deferred income tax provision:

           

Provision (benefit) for taxes on unrealized gain on investments

     388         (14      216         (984

These current and deferred income taxes are determined from taxable income estimates provided by portfolio companies where the Company holds equity or equity-like investments organized as pass-through entities in its tax blocker corporations. These tax estimates may be subject to further change once tax information is finalized for the year. As of June 30, 2015 and December 31, 2014, $0 and $162, respectively, of income tax receivable was included in prepaid expenses and other assets and $40 and $0 of income taxes payable, respectively, was included as accrued expenses and other payables on the Consolidated Statements of Assets and Liabilities. As of June 30, 2015 and December 31, 2014, $2,781 and $2,565, respectively, were included in deferred tax liability on the Consolidated Statements of Assets and Liabilities primarily relating to deferred taxes on unrealized gains on investments held in tax blocker corporations. As of June 30, 2015 and December 31, 2014, $661 and $285, respectively of deferred tax assets were included in deferred tax assets on the Consolidated Statements of Assets and Liabilities relating to net operating loss carryforwards that are expected to be used in future periods.

Because U.S. federal income tax regulations differ from GAAP, distributions in accordance with tax regulations may differ from net investment income and realized gains recognized for financial reporting purposes. Differences may be permanent or temporary. Permanent differences are reclassified among capital accounts in the consolidated financial statements to reflect their tax character. Temporary differences arise when certain items of income, expense, gain or loss are recognized at some time in the future. Differences in classification may also result from the treatment of short-term gains as ordinary income for tax purposes.

The Company follows the provisions under the authoritative guidance on accounting for and disclosure of uncertainty in tax positions. The provisions require management to determine whether a tax position of the Company is more likely than not to be sustained upon examination, including resolution of any related appeals or litigation processes, based on the technical merits of the position. For tax positions not meeting the more likely than not threshold, the tax amount recognized in the consolidated financial statements is reduced by the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement with the relevant taxing authority. There are no unrecognized tax benefits or obligations in the accompanying consolidated financial statements. Although the Company files U.S. federal and state tax returns, the Company’s major tax jurisdiction is U.S. federal. The Company’s inception-to-date U.S. federal tax years remain subject to examination by taxing authorities.

Dividends

Dividends and distributions to stockholders are recorded on the applicable record date. The amount to be paid out as a dividend is determined by the Company’s board of directors on a quarterly basis. Net realized capital gains, if any, are generally distributed at least annually out of assets legally available for such distributions, although the Company may decide to retain such capital gains for investment.

Capital transactions in connection with the Company’s dividend reinvestment plan are recorded when shares are issued.

 

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Recent Accounting Pronouncements

In February 2015, the FASB issued ASU 2015-02, “Consolidation (Topic 810) – Amendments to the Consolidation Analysis,” which amends the current consolidation guidance and ends the deferral granted to investment companies from applying the VIE guidance. ASU 2015-02 changes the manner in which a reporting entity assesses one of the five characteristics that determine if an entity is a variable interest entity. The Company is currently assessing any additional disclosure requirements. ASU 2015-2 will be effective for annual reporting periods in fiscal years that begin after December 15, 2015.

In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers (Topic 606),” which amends the criteria for revenue recognition where an entity enters into contracts with customers to transfer goods or services or where there is a transfer of nonfinancial assets. Under ASU 2014-09, an entity should recognize revenue in an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services. ASU 2014-09 will be effective for annual and interim reporting periods after December 15, 2017. The Company is currently evaluating the impact of the adoption of ASU 2014-09 on its consolidated financial statements.

In April 2015, the FASB issued ASU 2015-03, “Simplifying the Presentation of Debt Issuance Costs (Topic 835),” which amends the presentation of debt issuance costs on an entity’s balance sheet. Under ASU 2015-03, an entity would present debt issuance costs as a direct deduction from the carrying value of the associated liability instead of a separate deferred asset. ASU 2015-03 will be effective for annual and interim reporting periods after December 15, 2015. The Company is currently assessing any additional disclosure requirements.

In May 2015, the FASB issued ASU 2015-07, “Fair Value Measurement (Topic 820): Disclosures for Investments in Certain Entities that Calculate Net Asset Value per Share (or its Equivalent),” which amends the presentation of investments measured at net asset value, as a practical expedient for fair value, from the fair value hierarchy. Under ASU 2015-07, an entity would remove investments measured using the practical expedient from the fair value hierarchy. ASU 2015-07 will be effective for annual and interim reporting periods after December 15, 2015. The Company is currently assessing any additional disclosure requirements.

3. Related Party Transactions

Investment Management Agreement

On March 6, 2015, the Company’s investment management agreement was re-approved by its board of directors, including a majority of the Company’s directors who are not interested persons of the Company. Under the investment management agreement, the Advisor, subject to the overall supervision of the Company’s board of directors, manages the day-to-day operations of, and provides investment advisory services to the Company.

The Advisor receives a fee for investment advisory and management services consisting of a base management fee and a two-part incentive fee.

The base management fee is calculated at an annual rate of 1.5% of the Company’s gross assets payable quarterly in arrears on a calendar quarter basis. For purposes of calculating the base management fee, “gross assets” is determined as the value of the Company’s assets without deduction for any liabilities. The base management fee is calculated based on the value of the Company’s gross assets at the end of the most recently completed calendar quarter, and appropriately adjusted for any share issuances or repurchases during the current calendar quarter.

For the three and six months ended June 30, 2015, the Company incurred base management fees of $2,889 and $5,894, respectively. For the three and six months ended June 30, 2014, the Company incurred base management fees of $2,879 and $5,402, respectively. As of June 30, 2015 and December 31, 2014, $2,889 and $2,810, respectively, was payable to the Advisor.

The incentive fee has two components, ordinary income and capital gains, as follows:

The ordinary income component is calculated, and payable, quarterly in arrears based on the Company’s preincentive fee net investment income for the immediately preceding calendar quarter, subject to a cumulative total return requirement and to deferral of non-cash amounts. The preincentive fee net investment income, which is expressed as a rate of return on the value of the Company’s net assets attributable to the Company’s common stock, for the immediately preceding calendar quarter, will have a 2.0% (which is 8.0% annualized) hurdle rate (also referred to as “minimum income level”). Preincentive fee net investment income means interest income, dividend income and any other income (including any other fees, such as commitment, origination, structuring, diligence, managerial assistance and consulting fees or other fees that we receive from portfolio companies) accrued during the calendar quarter, minus the Company’s operating expenses for the quarter (including the base management fee, expenses payable under the Company’s administration agreement (discussed below), and any interest expense and any dividends paid on any issued and outstanding preferred stock, but excluding the incentive fee and any offering expenses and other expenses not charged to operations but excluding certain reversals to the extent such reversals have the effect of reducing previously accrued incentive fees based on the deferral of non-cash interest. Preincentive fee net investment income includes, in the case of investments with a deferred interest feature (such as original issue discount, debt instruments with PIK interest and zero coupon securities), accrued income that we have not yet received in cash. The Advisor receives no

 

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incentive fee for any calendar quarter in which the Company’s preincentive fee net investment income does not exceed the minimum income level. Subject to the cumulative total return requirement described below, the Advisor receives 100% of the Company’s preincentive fee net investment income for any calendar quarter with respect to that portion of the preincentive net investment income for such quarter, if any, that exceeds the minimum income level but is less than 2.5% (which is 10.0% annualized) of net assets (also referred to as the “catch-up” provision) and 20.0% of the Company’s preincentive fee net investment income for such calendar quarter, if any, greater than 2.5% (10.0% annualized) of net assets. The foregoing incentive fee is subject to a total return requirement, which provides that no incentive fee in respect of the Company’s preincentive fee net investment income is payable except to the extent 20.0% of the cumulative net increase in net assets resulting from operations over the then current and 11 preceding calendar quarters exceeds the cumulative incentive fees accrued and/or paid for the 11 preceding quarters. In other words, any ordinary income incentive fee that is payable in a calendar quarter is limited to the lesser of (i) 20% of the amount by which the Company’s preincentive fee net investment income for such calendar quarter exceeds the 2.0% hurdle, subject to the “catch-up” provision, and (ii) (x) 20% of the cumulative net increase in net assets resulting from operations for the then current and 11 preceding quarters minus (y) the cumulative incentive fees accrued and/or paid for the 11 preceding calendar quarters. For the foregoing purpose, the “cumulative net increase in net assets resulting from operations” is the amount, if positive, of the sum of the Company’s preincentive fee net investment income, base management fees, realized gains and losses and unrealized appreciation and depreciation for the then current and 11 preceding calendar quarters. In addition, the portion of such incentive fee that is attributable to deferred interest (sometimes referred to as payment-in-kind interest, or PIK, or original issue discount, or OID) will be paid to THL Credit Advisors, together with interest thereon from the date of deferral to the date of payment, only if and to the extent we actually receive 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. There is no accumulation of amounts on the hurdle rate from quarter to quarter and accordingly there is no clawback of amounts previously paid if subsequent quarters are below the quarterly hurdle rate and there is no delay of payment if prior quarters are below the quarterly hurdle rate.

For the three and six months ended June 30, 2015, the Company incurred $2,983 and $5,961, respectively, of incentive fees related to ordinary income. For the three and six months ended June 30, 2014, the Company incurred $3,042 and $5,731, respectively, of incentive fees related to ordinary income. As of June 30, 2015 and December 31, 2014, $2,867 and $3,119, respectively, of such incentive fees are currently payable to the Advisor. As of June 30, 2015 and December 31, 2014, $1,139 and $1,056, respectively of incentive fees incurred by the Company were generated from deferred interest (i.e. PIK, certain discount accretion and deferred interest) and are not payable until such amounts are received in cash.

The second component of the incentive fee (capital gains incentive fee) is determined and payable in arrears as of the end of each calendar year (or upon termination of the investment management agreement, as of the termination date). This component is equal to 20.0% of the cumulative aggregate realized capital gains from inception through the end of that calendar year, computed net of the cumulative aggregate realized capital losses and cumulative aggregate unrealized capital depreciation through the end of such year. The aggregate amount of any previously paid capital gains incentive fees is subtracted from such capital gains incentive fee calculated. There was no capital gains incentive fee payable to the Company’s Advisor under the investment management agreement as of June 30, 2015 and December 31, 2014.

GAAP requires that the incentive fee accrual considers the cumulative aggregate realized gains and losses and unrealized capital appreciation or depreciation of investments or other financial instruments, such as an interest rate derivative, in the calculation, as an incentive fee would be payable if such realized gains and losses or unrealized capital appreciation or depreciation were realized, even though such realized gains and losses and unrealized capital appreciation or depreciation is not permitted to be considered in calculating the fee actually payable under the investment management agreement (“GAAP Incentive Fee”). There can be no assurance that such unrealized appreciation or depreciation will be realized in the future. Accordingly, such fee, as calculated and accrued, would not necessarily be payable under the investment management agreement, and may never be paid based upon the computation of incentive fees in subsequent periods. For the three and six months ended June 30, 2015, the Company incurred $0 and $0, respectively, of incentive fees related to the GAAP incentive fee. For the three and six months ended June 30, 2014, the Company reversed $721 and $665, respectively, of incentive fees related to the GAAP incentive fee.

Administration Agreement

The Company has also entered into an administration agreement with the Advisor under which the Advisor will provide administrative services to the Company. Under the administration agreement, the Advisor performs, or oversees the performance of administrative services necessary for the operation of the Company, which include, among other things, being responsible for the financial records which the Company is required to maintain and preparing reports to the Company’s stockholders and reports filed with the SEC. In addition, the Advisor assists in determining and publishing the Company’s net asset value, oversees the preparation and filing of the Company’s tax returns and the printing and dissemination of reports to the Company’s stockholders, 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 will reimburse the Advisor for its allocable portion of the costs and expenses incurred by the Advisor for overhead in performance by the Advisor of its duties under the administration agreement and the investment management agreement, including facilities, office equipment and the Company’s

 

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allocable portion of cost of compensation and related expenses of the Company’s chief financial officer and chief compliance officer and their respective staffs, as well as any costs and expenses incurred by the Advisor relating to any administrative or operating services provided by the Advisor to the Company. The Company’s board of directors reviews the allocation methodologies with respect to such expenses. Such costs are reflected as administrator expenses in the accompanying Consolidated Statements of Operations. Under the administration agreement, the Advisor provides, on behalf of the Company, managerial assistance to those portfolio companies to which the Company is required to provide such assistance. To the extent that the Company’s Advisor outsources any of its functions, the Company pays the fees associated with such functions on a direct basis without profit to the Advisor.

For the three and six months ended June 30, 2015, the Company incurred administrator expenses of $923 and $1,870, respectively. For the three and six months ended June 30, 2014, the Company incurred administrator expenses of $947 and $1,874, respectively. As of June 30, 2015 and December 31, 2014, $23 and $0, respectively, was payable to the Advisor.

License Agreement

The Company and the Advisor have entered into a license agreement with THL Partners, L.P., or THL Partners, under which THL Partners has granted to the Company and the Advisor a non-exclusive, personal, revocable, worldwide, non-transferable license to use the trade name and service mark THL, which is a proprietary mark of THL Partners, for specified purposes in connection with the Company’s and the Advisor’s respective businesses. This license agreement is royalty-free, which means the Company is not charged a fee for its use of the trade name and service mark THL. The license agreement is terminable either in its entirety or with respect to the Company or the Advisor by THL Partners at any time in its sole discretion upon 60 days prior written notice, and is also terminable with respect to either the Company or the Advisor by THL Partners in the case of certain events of non-compliance. After the expiration of its first one year term, the entire license agreement is terminable by either the Company or the Advisor at the Company or its sole discretion upon 60 days prior written notice. Upon termination of the license agreement, the Company and the Advisor must cease to use the name and mark THL, including any use in the Company’s respective legal names, filings, listings and other uses that may require the Company to withdraw or replace the Company’s names and marks. Other than with respect to the limited rights contained in the license agreement, the Company and the Advisor have no right to use, or other rights in respect of, the THL name and mark. The Company is an entity operated independently from THL Partners, and third parties who deal with the Company have no recourse against THL Partners.

Due To and From Affiliates

The Advisor paid certain other general and administrative expenses on behalf of the Company. As of June 30, 2015 and December 31, 2014, the Company overpaid $0 and $145 of Administrator expense to the Advisor, respectively, which was included in due from affiliate on the Consolidated Statements of Assets and Liabilities.

The Company acts as the investment adviser to Greenway and Greenway II and is entitled to receive certain fees. As a result, Greenway and Greenway II are classified as affiliates of the Company. As of June 30, 2015 and December 31, 2014, $721 and $1,026 of total fees and expenses related to Greenway and Greenway II, respectively, were included in due from affiliate on the Consolidated Statements of Assets and Liabilities.

The Company paid certain professional fees related to organizing Logan JV, on behalf of Logan JV. As of June 30, 2015 and December 31, 2014, $0 and $45 of expenses, respectively, included in due from affiliate on the Consolidated Statements of Assets and Liabilities.

 

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4. Realized Gains and Losses on Investments, net of income tax provision

The following shows the breakdown of realized gains and losses for the three and six months ended June 30, 2015 and 2014:

 

     For the three months ended June
30,
     For the six months ended June
30,
 
     2015      2014      2015      2014  

Escrow receivable settlement (a)

     —         $ (1,030    $ —         $ (1,030

Blue Coat Systems, Inc.

     —           414         —           414   

Jefferson Management Holdings, LLC

     —           —           —           (455

Surgery Center Holdings, Inc.

     —           —           —           716   

Other

     46         43         77         81   
  

 

 

    

 

 

    

 

 

    

 

 

 

Net realized (losses)/gains

   $ 46       $ (573    $ 77       $ (274
  

 

 

    

 

 

    

 

 

    

 

 

 

 

 

(a) Escrow receivable settlement in connection with arbitration proceedings. Escrow related to the sale of IMDS Corporation in a prior period. In addition to the realized loss, the Company reversed $270 of previously accelerated amortization income against interest income recognized for the three and six months ended June 30, 2014.

For the three and six months ended June 30, 2015, the Company did not record a tax (benefit) provision related to realized gains. For the three and six months ended June 30, 2014, a tax (benefit) provision of ($72) and $249 were recorded in the Consolidated Statements of Operations and reflected a revision to previously recognized estimated realized gains and dividend income as a result of adjusted tax estimates from the portfolio company.

5. Net Increase in Net Assets Per Share Resulting from Operations

The following information sets forth the computation of basic and diluted net increase in net assets per share resulting from operations:

 

     For the three months ended June 30,      For the six months ended June 30,  
     2015      2014      2015      2014  

Numerator—net increase in net assets resulting from operations:

   $ 14,059       $ 9,283       $ 29,620       $ 20,264   

Denominator—basic and diluted weighted average common shares:

     33,810         33,905         33,857         33,905   

Basic and diluted net increase in net assets per common share resulting from operations:

   $ 0.42       $ 0.27       $ 0.87       $ 0.60   

Diluted net increase in net assets per share resulting from operations equals basic net increase in net assets per share resulting from operations for each period because there were no common stock equivalents outstanding during the above periods.

 

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6. Borrowings

The following shows a summary of the Company’s borrowings as of June 30, 2015 and December 31, 2014:

 

     As of  
     June 30, 2015     December 31, 2014  

Facility

   Commitments      Borrowings
Outstanding
     Weighted
Average
Interest Rate
    Commitments      Borrowings
Outstanding
     Weighted Average
Interest Rate
 

Revolving Facility

   $ 303,500       $ 176,351         2.69   $ 303,500       $ 188,351         2.69

Term Loan Facility

     106,500         106,500         3.44     106,500         106,500         3.44

2021 Notes

     50,000         50,000         6.75     50,000         50,000         6.75
  

 

 

    

 

 

      

 

 

    

 

 

    

Total

   $ 460,000       $ 332,851         3.54   $ 460,000       $ 344,851         3.51
  

 

 

    

 

 

      

 

 

    

 

 

    

Credit Facility

On April 30, 2014, the Company entered into an amendment, or the Revolving Amendment, to its existing revolving credit agreement, or Revolving Facility, and entered into an amendment, or the Term Loan Amendment, to its Term Loan Facility. The Revolving Facility and Term Loan Facility are collectively referred to as the Facilities.

The Revolving Loan Amendment revised the Facility dated May 10, 2012 to, among other things, increase the amount available for borrowing under the Revolving Facility from $232,000 to $303,500 and extend the maturity date from May 2017 to April 2018 (with a one year term out period beginning in April 2017). The one year term out period is the one year anniversary between the revolver termination date, or the end of the availability period, and the maturity date. During this time, the Company is required to make mandatory prepayments on its loans from the proceeds it receives from the sale of assets, extraordinary receipts, returns of capital or the issuances of equity or debt. The Revolving Amendment also changes the interest rate of the Revolving Facility to LIBOR plus 2.5% (with no LIBOR floor). The non-use fee is 1.0% annually if the Company uses 35% or less of the Revolving Facility and 0.50% annually if the Company uses more than 35% of the Revolving Facility. The Company elects the LIBOR rate on the loans outstanding on its Revolving Facility, which can have a maturity date that is one, two, three or nine months. The LIBOR rate on the borrowings outstanding on its Revolving Facility currently has a one month maturity.

The Term Loan Amendment revised the Term Loan Facility dated May 10, 2012 to, among other things, increase the amount borrowed from $93,000 to $106,500 and extend the maturity date from May 2018 to April 2019. The Term Loan Amendment also changes the interest rate of the Term Loan Facility to LIBOR plus 3.25% (with no LIBOR Floor) and has substantially similar terms to the existing Revolving Facility (as amended by the Revolving Amendment). The Company elects the LIBOR rate on its Term Loan, which can have a maturity date that is one, two, three or nine months. The LIBOR rate on its Term Loan currently has a one month maturity.

Each of the Facilities includes an accordion feature permitting the Company to expand the Facilities if certain conditions are satisfied; provided, however, that the aggregate amount of the Facilities, collectively, is capped at $600,000.

The Facilities generally require payment of interest on a quarterly basis for ABR loans (commonly based on the Prime Rate or the Federal Funds Rate), and at the end of the applicable interest period for Eurocurrency loans bearing interest at LIBOR, the interest rate benchmark used to determine the variable rates paid on the Facilities. LIBOR maturities can range between one and nine months at the election of the Company. All outstanding principal is due upon each maturity date. The Facilities also require a mandatory prepayment of interest and principal upon certain customary triggering events (including, without limitation, the disposition of assets or the issuance of certain securities).

Borrowings under the Facilities are subject to, among other things, a minimum borrowing/collateral base. The Facilities have certain collateral requirements and/or financial covenants, including covenants related to: (a) limitations on the incurrence of additional indebtedness and liens, (b) limitations on certain investments, (c) limitations on certain restricted payments, (d) limitations on the creation or existence of agreements that prohibit liens on certain properties of the Company and its subsidiaries, and (e) compliance with certain financial maintenance standards including (i) minimum stockholders’ equity, (ii) a ratio of total assets (less total liabilities not represented by senior securities) to the aggregate amount of senior securities representing indebtedness, of the Company and its subsidiaries, of not less than 2.10:1.0, (iii) minimum liquidity, (iv) minimum net worth, and (v) a consolidated interest coverage ratio. In addition to the financial maintenance standards, described in the preceding sentence, borrowings under the Facilities (and the incurrence of certain other permitted debt) are subject to compliance with a borrowing base that applies different advance rates to different types of assets in the Company’s portfolio.

 

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The Facilities’ documents also include default provisions such as the failure to make timely payments under the Facilities, the occurrence of a change in control, and the failure by the Company to materially perform under the operative agreements governing the Facilities, which, if not complied with, could, at the option of the lenders under the Facilities, accelerate repayment under the Facilities, thereby materially and adversely affecting the Company’s liquidity, financial condition and results of operations. Each loan originated under the Revolving Facility is subject to the satisfaction of certain conditions. The Company cannot be assured that it will be able to borrow funds under the Revolving Facility at any particular time or at all. The Company is currently in compliance with all financial covenants under the Facilities.

For the six months ended June 30, 2015, the Company borrowed $76,000 and repaid $88,000 under the Facilities. For the six months ended June 30, 2014, the Company borrowed $210,750 and repaid $101,249 under the Facilities.

As of June 30, 2015 and December 31, 2014, the carrying amount of the Company’s outstanding Facilities approximated fair value. The fair values of the Company’s Facilities are determined in accordance with ASC 820, which defines fair value in terms of the price that would be paid to transfer a liability in an orderly transaction between market participants at the measurement date under current market conditions. The fair value of the Company’s Facilities are estimated based upon market interest rates and entities with similar credit risk. As of June 30, 2015 and December 31, 2014, the Facilities would be deemed to be Level 3 of the fair value hierarchy.

Interest expense and related fees, excluding amortization of deferred financing costs, of $3,159 and $2,475 were incurred in connection with the Facilities during the three months ended June 30, 2015 and 2014, respectively. Interest expense and related fees, excluding amortization of deferred financing costs, of $6,240 and $4,565 were incurred in connection with the Facilities during the six months ended June 30, 2015 and 2014, respectively.

Notes

In December 2014, the Company completed a public offering of $50,000 in aggregate principal amount of 6.75% notes due 2021, or the Notes. The Notes mature on November 15, 2021, and may be redeemed in whole or in part at any time or from time to time at our option on or after November 15, 2017. The Notes bear interest at a rate of 6.75% per year payable quarterly on March 30, June 30, September 30 and December 30, of each year, beginning December 30, 2014 and trade on the New York Stock Exchange under the trading symbol “TCRX.”

As of June 30, 2015, the carrying amount and fair value of the Company’s Notes was $50,000 and $50,660, respectively. As of December 31, 2014, the carrying amount and fair value of Company’s Notes was $50,000 and $51,620, respectively. The fair value of Company’s Notes are determined in accordance with ASC 820, which defines fair value in terms of the price that would be paid to transfer a liability in an orderly transaction between market participants at the measurement date under current market conditions. The fair value of the Notes is based on the closing price of the security, which is a Level 2 input under ASC 820 due to the trading volume. In connection with the issuance of the Notes, the Company incurred $2,125 of fees and expenses. These amounts were capitalized and are being amortized using the effective yield method over the term of the Notes. For the three and six months ended June 30, 2015, the Company amortized $76 and $151 of deferred financing costs, respectively, which is listed under Amortization of Deferred Financing Costs on the Consolidated Statements of Operations. As of June 30, 2015 and December 31, 2014, the Company had $1,938 and $2,073, respectively, of remaining deferred financing costs on the Notes, which is listed under Deferred Financing Costs on the Company’s Consolidated Statements of Assets and Liabilities.

For the three and six months ended June 30, 2015, the Company incurred interest expense on the Notes of $844 and $1,688, respectively.

The indenture and supplements relating to the Notes contain certain covenants, including but not limited to (i) an inability to incur additional borrowings, including through the issuance of additional debt or the sale of additional debt securities unless the Company’s asset coverage, as defined in the 1940 Act, is at least 200% after such borrowing and (ii) if the Company is not subject to the reporting requirements under the Securities and Exchange Act of 1934 to file periodic reports with the SEC the Company will provide interim and consolidated financial information to the holders of the Notes and the trustee.

7. Interest Rate Derivative

On May 10, 2012, the Company entered into a five-year interest rate swap agreement, or swap agreement, with ING Capital Markets, LLC. Under the swap agreement, with a notional value of $50,000, the Company pays a fixed rate of 1.1425% and receives a floating rate based upon the current three-month LIBOR rate. The Company entered into the swap agreement to manage interest rate risk and not for speculative purposes.

The Company records the change in valuation of the swap agreement in unrealized appreciation (depreciation) as of each measurement period. When the quarterly interest rate swap amounts are paid or received under the swap agreement, the amounts are recorded as a realized gain (loss) through interest rate derivative periodic interest payments, net on the Consolidated Statement of Operations.

The Company recognized a realized loss for three and six months ended June 30, 2015 of $111 and $227, respectively, which is reflected as interest rate derivative periodic interest payments, net on the Consolidated Statements of Operations. The Company recognized a realized loss for three and six months ended June 30, 2014 of $114 and $227, respectively, which is reflected as interest rate derivative periodic interest payments, net on the Consolidated Statements of Operations.

 

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For the three and six months ended June 30, 2015, the Company recognized $39 and ($143), respectively, of net change in unrealized appreciation (depreciation) from the swap agreement, respectively, which is listed under net change in unrealized appreciation (depreciation) on interest rate derivative in the Consolidated Statements of Operations. For the three and six months ended June 30, 2014, the Company recognized ($152) and ($99), respectively, of net change in unrealized appreciation (depreciation) from the swap agreement, respectively, which is listed under net change in unrealized appreciation (depreciation) on interest rate derivative in the Consolidated Statements of Operations. As of June 30, 2015 and December 31, 2014, the Company’s fair value of its swap agreement is ($356) and ($213), respectively, which is listed as an interest rate derivative liability on the Consolidated Statements of Assets and Liabilities.

8. Contractual Obligations and Off-Balance Sheet Arrangements

From time to time, the Company, or the Advisor, may become party to legal proceedings in the ordinary course of business, including proceedings related to the enforcement of the Company’s rights under contracts with its portfolio companies. Neither the Company, nor the Advisor, is currently subject to any material legal proceedings.

Unfunded commitments to provide funds to portfolio companies are not reflected on the Company’s Consolidated Statements of Assets and Liabilities. The Company’s unfunded commitments may be significant from time to time. These commitments will be subject to the same underwriting and ongoing portfolio maintenance as are the on-balance sheet financial instruments that the Company holds. Since these commitments may expire without being drawn upon, the total commitment amount does not necessarily represent future cash requirements. The Company intends to use cash flow from normal and early principal repayments and proceeds from borrowings and offerings to fund these commitments. Funding to Logan JV will only be made pursuant to unanimous approval from the Company and Perspecta.

As of June 30, 2015 and December 31, 2014, the Company has the following unfunded commitments to portfolio companies:

 

     As of  
     June 30, 2015      December 31, 2014  

Unfunded delayed draw facilities

   $ 10,707       $ 29,826   

Unfunded revolving commitments

     4,478         4,478   

Unfunded commitments to investments in funds

     1,624         1,854   

Unfunded commitments to Logan JV

     164,400         113,600   
  

 

 

    

 

 

 

Total unfunded commitments

   $ 181,209       $ 149,758   
  

 

 

    

 

 

 

9. Dividends

The Company has elected to be taxed as a RIC under Subchapter M of the Code. In order to maintain its status as a RIC, it is required to distribute annually to its stockholders at least 90% of its investment company taxable income, as defined by the Code. To avoid a 4% excise tax on undistributed earnings, the Company is required to distribute each calendar year the sum of (i) 98% of its ordinary income for such calendar year (ii) 98.2% of its net capital gains for the one-year period ending October 31 of that calendar year (iii) any income recognized, but not distributed, in preceding years and on which the Company paid no U.S. federal income tax. The Company intends to make distributions to stockholders on a quarterly basis of substantially all of its net investment income. In addition, although the Company intends to make distributions of net realized capital gains, if any, at least annually, out of assets legally available for such distributions, it may in the future decide to retain such capital gains for investment.

In addition, the Company may be limited in its ability to make distributions due to the BDC asset coverage test for borrowings applicable to the Company as a BDC under the 1940 Act.

 

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The following table summarizes the Company’s dividends declared and paid or to be paid on all shares, including dividends reinvested, if any:

 

Date Declared    Record Date    Payment Date    Amount Per Share  

August 5, 2010

   September 2, 2010    September 30, 2010    $ 0.05   

November 4, 2010

   November 30, 2010    December 28, 2010    $ 0.10   

December 14, 2010

   December 31, 2010    January 28, 2011    $ 0.15   

March 10, 2011

   March 25, 2011    March 31, 2011    $ 0.23   

May 5, 2011

   June 15, 2011    June 30, 2011    $ 0.25   

July 28, 2011

   September 15, 2011    September 30, 2011    $ 0.26   

October 27, 2011

   December 15, 2011    December 30, 2011    $ 0.28   

March 6, 2012

   March 20, 2012    March 30, 2012    $ 0.29   

March 6, 2012

   March 20, 2012    March 30, 2012    $ 0.05   

May 2, 2012

   June 15, 2012    June 29, 2012    $ 0.30   

July 26, 2012

   September 14, 2012    September 28, 2012    $ 0.32   

November 2, 2012

   December 14, 2012    December 28, 2012    $ 0.33   

December 20, 2012

   December 31, 2012    January 28, 2013    $ 0.05   

February 27, 2013

   March 15, 2013    March 29, 2013    $ 0.33   

May 2, 2013

   June 14, 2013    June 28, 2013    $ 0.34   

August 2, 2013

   September 16, 2013    September 30, 2013    $ 0.34   

August 2, 2013

   September 16, 2013    September 30, 2013    $ 0.08   

October 30, 2013

   December 16, 2013    December 31, 2013    $ 0.34   

March 4, 2014

   March 17, 2014    March 31, 2014    $ 0.34   

May 7, 2014

   June 16, 2014    June 30, 2014    $ 0.34   

August 7, 2014

   September 15, 2014    September 30, 2014    $ 0.34   

November 4, 2014

   December 15, 2014    December 31, 2014    $ 0.34   

March 6, 2015

   March 20, 2015    March 31, 2015    $ 0.34   

May 5, 2015

   June 15, 2015    June 30, 2015    $ 0.34   

August 4, 2015

   September 15, 2015    September 30, 2015    $ 0.34   

The Company may not be able to achieve operating results that will allow it to make distributions at a specific level or to increase the amount of these distributions from time to time. If the Company does not distribute a certain percentage of its income annually, it will suffer adverse tax consequences, including possible loss of its status as a regulated investment company. The Company cannot assure stockholders that they will receive any distributions at a particular level.

The Company maintains an “opt in” dividend reinvestment plan for our common stockholders. As a result, unless stockholders specifically elect to have their dividends automatically reinvested in additional shares of common stock, stockholders will receive all such dividends in cash. There were no dividends reinvested for the three and six months ended June 30, 2015 and 2014 under the dividend reinvestment plan.

Under the terms of our dividend reinvestment plan, dividends will primarily be paid in newly issued shares of common stock. However, the Company reserves the right to purchase shares in the open market in connection with the implementation of the plan. This feature of the plan means that, under certain circumstances, the Company may issue shares of our common stock at a price below net asset value per share, which could cause our stockholders to experience dilution.

Distributions in excess of the Company’s current and accumulated profits and earnings would be treated first as a return of capital to the extent of the stockholder’s tax basis, and any remaining distributions would be treated as a capital gain. The determination of the tax attributes of the Company’s distributions will be made annually as of the end of our fiscal year based upon its taxable income for the full year and distributions paid for the full year. Therefore, a determination made on a quarterly basis may not be representative of the actual tax attributes of the Company’s distributions for a full year. If the Company had determined the tax attributes of its 2015 distributions as of June 30, 2015, 100% would be from ordinary income, 0% would be from capital gains and 0% would be a return of capital. There can be no certainty to stockholders that this determination is representative of what the tax attributes of the Company’s 2015 distributions to stockholders will actually be. Each year, a statement on Form 1099-DIV identifying the source of the distribution will be mailed to the Company’s stockholders.

 

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10. Financial Highlights

 

     For the three months ended June 30,     For the six months ended June 30,  
     2015     2014     2015     2014  

Per Share Data:

        

Net asset value, beginning of period

   $ 13.20      $ 13.34      $ 13.08      $ 13.36   

Net investment income, after taxes(1)

     0.35        0.38        0.70        0.70   

Net realized (loss) gains on investments(1)

     —          (0.02     —          (0.01

Income tax provision, realized gain(1)

     —          —          —          (0.01

Net change in unrealized appreciation on investments(1)(2)

     0.08        (0.08     0.18        (0.11

(Provision) benefit for taxes on unrealized gain on investments(1)

     (0.01     —          —          0.03   

Net change in unrealized appreciation (depreciation) of interest rate
derivative
(1)

     —          —          (0.01     —     
  

 

 

   

 

 

   

 

 

   

 

 

 

Net increase in net assets resulting from operations

     0.42        0.28        0.87        0.60   

Accretive effect of repurchase of common stock(2)

     0.01        —          0.02        —     

Distributions to stockholders from net investment income

     (0.34     (0.34     (0.68     (0.61

Distributions to stockholders from net realized gains

     —          —          —          (0.07
  

 

 

   

 

 

   

 

 

   

 

 

 

Net asset value, end of period

   $ 13.29      $ 13.28      $ 13.29      $ 13.28   
  

 

 

   

 

 

   

 

 

   

 

 

 

Per share market value at end of period

   $ 11.55      $ 14.00      $ 11.55      $ 14.00   

Total return(3)(4)

     (3.25 %)      3.91     3.91     (10.90 %) 

Shares outstanding at end of period

     33,601        33,905        33,601        33,905   

Ratio/Supplemental Data:

        

Net assets at end of period

   $ 446,495      $ 450,151      $ 446,495      $ 450,151   

Ratio of total expenses to average net
assets
(5)(6)

     10.70     9.39     10.71     8.99

Ratio of net investment income to average net assets

     10.49     11.45     10.74     10.53

Portfolio turnover

     5.14     8.56     11.81     14.42

 

 

(1) Calculated based on weighted average common shares outstanding.
(2) Includes the cumulative effect of rounding.
(3) Total return is based on the change in market price per share during the period. Total return takes into account dividends and distributions, if any, reinvested in accordance with the Company’s dividend reinvestment plan.
(4) Not annualized
(5) Annualized, except for dividend income, the reversal of previously accrued interest income, taxes and the related impact of incentive fees.
(6) For the three months ended June 30, 2015, the ratio components included 2.59% of base management fee, 2.69% of incentive fee, 3.19% of the cost of borrowing, 2.12% of other operating expenses, and 0.11% of the impact of all taxes. For the three months ended June 30, 2014, the ratio components included 2.56% of base management fee, 2.05% of incentive fee, 2.49% of the cost of borrowing, 2.22% of other operating expenses, and 0.07% of the impact of all taxes.

For the six months ended June 30, 2015, the ratio components included 2.66% of base management fee, 2.70% of incentive fee, 3.19% of the cost of borrowing, 2.05% of other operating expenses, and 0.11% of the impact of all taxes. For the six months ended June 30, 2014, the ratio components included 2.41% of base management fee, 2.22% of incentive fee, 2.32% of the cost of borrowing, 1.98% of other operating expenses, and 0.06% of the impact of all taxes.

11. Stock Repurchase Program

On March 6, 2015, our board of directors authorized a $25.0 million stock repurchase program that was put into effect in May 2015. The timing and amount of any stock repurchases will depend on the terms and conditions of the repurchase program and no assurances can be given that any common stock, or any particular amount, will be purchased. Unless extended by our board of directors, the stock repurchase program will terminate on March 6, 2016 and may be modified or terminated at any time for any reason without prior notice. The Company have provided our stockholders with notice of our intention to repurchase shares of our common stock in accordance with 1940 Act requirements. The Company will retire immediately all such shares of common stock that the Company purchases in connection with the stock repurchase program. The Company’s net asset value per share was increased by approximately $0.01 as a result of the share repurchases.

 

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The following table summarizes our share repurchases under our stock repurchase program for the three and six months ended June 30, 2015:

 

     For the three months ended June 30,      For the six months ended June 30,  
     2015     2014      2015     2014  

Dollar amount repurchased

   $ 3,765        —         $ 3,765        —     

Shares repurchased

     304        —           304        —     

Average price per share (including commission)

   $ 12.38        —         $ 12.38        —     

Weighted average discount to net asset value

     6.20     —           6.20     —     

12. Subsequent Events

From July 1, 2015 through August 6, 2015, the Company made $2,324 of revolver, delayed draw and follow-on debt investments and a $4,800 investment in the Logan JV.

From July 1, 2015 through August 6, 2015, the Company sold its CLO residual interests in Adirondack Park CLO Ltd. and Sheridan Square, CLO Ltd. for proceeds of $12,736.

On August 4, 2015, the Company’s board of directors declared a dividend of $0.34 per share payable on September 30, 2015 to stockholders of record at the close of business on September 15, 2015.

As of August 6, 2015, Logan JV has $122,950 of investments in 71 companies with a weighted average yield, based upon current cost, of 6.90%.

 

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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 the consolidated financial statements and notes thereto appearing elsewhere in this report.

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This report, and other statements that we may make, may contain forward-looking statements with respect to future financial or business performance, strategies or expectations. Forward-looking statements are typically identified by words or phrases such as “trend,” “opportunity,” “pipeline,” “believe,” “comfortable,” “expect,” “anticipate,” “current,” “intention,” “estimate,” “position,” “assume,” “potential,” “outlook,” “continue,” “remain,” “maintain,” “sustain,” “seek,” “achieve” and similar expressions, or future or conditional verbs such as “will,” “would,” “should,” “could,” “may” or similar expressions.

Forward-looking statements are subject to numerous assumptions, risks and uncertainties, which change over time. Forward-looking statements speak only as of the date they are made, and we assume no duty to and do not undertake to update forward-looking statements. Actual results could differ materially from those anticipated in forward-looking statements and future results could differ materially from historical performance.

In addition to factors previously identified elsewhere in this filing, the following factors, among others, could cause actual results to differ materially from forward-looking statements or historical performance:

 

   

the introduction, withdrawal, success and timing of business initiatives and strategies;

 

   

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

 

   

the relative and absolute investment performance and operations of our investment adviser;

 

   

the impact of increased competition;

 

   

the impact of future acquisitions and divestitures;

 

   

the unfavorable resolution of legal proceedings;

 

   

our business prospects and the prospects of our portfolio companies;

 

   

the impact, extent and timing of technological changes and the adequacy of intellectual property protection;

 

   

the impact of legislative and regulatory actions and reforms and regulatory, supervisory or enforcement actions of government agencies relating to us or THL Credit Advisors LLC, the Advisor;

 

   

the ability of the Advisor to identify suitable investments for us and to monitor and administer our investments;

 

   

our contractual arrangements and relationships with third parties;

 

   

any future financings by us;

 

   

the ability of the Advisor to attract and retain highly talented professionals;

 

   

fluctuations in foreign currency exchange rates;

 

   

the impact of changes to tax legislation and, generally, our tax position; and

 

   

the ability to fund Logan JV’s unfunded commitments to the extent approved by each member of the Logan JV investment committee.

 

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Overview

THL Credit, Inc., or the Company, was organized as a Delaware corporation on May 26, 2009 and initially funded on July 23, 2009. We commenced principal operations on April 21, 2010. Our investment objective is to generate both current income and capital appreciation, primarily through investments in privately negotiated investments in debt and equity securities of middle market companies.

As of June 30, 2015, we, together with our credit-focused affiliates, collectively had $5,644 million of assets under management. This amount included $792 million of our assets, $208 million of assets of the managed funds and separate account managed by us, and $4,644 million of assets of the collateralized loan obligations (CLOs), separate accounts and various fund formats managed by the investment professionals of THL Credit Senior Loan Strategies LLC, the consolidated subsidiary of the Advisor.

We are a direct lender to middle market companies and invest in first lien and second lien secured loans, including through unitranche investments, as well as subordinated debt, which may include an associated equity component such as warrants, preferred stock or other similar securities. In certain instances, we will also make direct equity investments and may also selectively invest in the residual interests, or equity, of collateralized loan obligations. We may also provide advisory services to managed funds.

We are an externally managed, non-diversified, closed-end investment company that has elected to be regulated as a business development company, or BDC, under the Investment Company Act of 1940 Act, as amended, or the 1940 Act. As a BDC, we are required to comply with certain regulatory requirements. For instance, we generally have to invest at least 70% of our total assets in “qualifying assets,” including securities of private or thinly traded public U.S. companies, cash, cash equivalents, U.S. Government securities and high-quality debt investments that mature in one year or less.

As a BDC, we must not acquire any assets other than “qualifying assets” specified in the 1940 Act unless, at the time the acquisition is made, at least 70% of our total assets are qualifying assets (with certain limited exceptions). Qualifying assets include investments in “eligible portfolio companies.” Under the relevant U.S. Securities and Exchange Commission, or SEC, rules the term “eligible portfolio company” includes all private companies, companies whose securities are not listed on a national securities exchange, and certain public companies that have listed their securities on a national securities exchange and have a market capitalization of less than $250 million, in each case organized in the United States.

We are also registered as an investment adviser under the Investment Advisers Act of 1940, as amended, or the Advisers Act.

Since April 2010, after we completed our initial public offering and commenced principal operations, we have been responsible for making, on behalf of ourselves, managed funds and separately managed account, over approximately an aggregate of $1,615.7 million in commitments into 80 separate portfolio companies through a combination of both initial and follow-on investments. The Company alone represented $1,282.2 million of the $1,615.7 million aggregate investments made since April 2010. Since April 2010, we, along with our managed funds and separately managed account, have received $796.5 million from paydowns related to these investments. The Company alone has received $642.2 million from paydowns and sales of investments.

We have elected to be treated for tax purposes as a regulated investment company, or RIC, under Subchapter M of the Code. To qualify as a RIC, we must, among other things, meet certain source of income and asset diversification requirements. Pursuant to these elections, we generally will not have to pay corporate-level income taxes on any income we distribute to our stockholders.

Portfolio Composition and Investment Activity

Portfolio Composition

As of June 30, 2015, we had $766.2 million (at fair value) of portfolio investments, which represents a $18.0 million, or 2.3% decrease from the $784.2 million (at fair value) as of December 31, 2014. We also decreased our portfolio to 57 investments, including THL Credit Greenway Fund LLC, or Greenway, and THL Credit Greenway Fund II LLC, or Greenway II, as of June 30, 2015, from 60 portfolio investments, including Greenway and Greenway II, as of December 31, 2014.

At June 30, 2015, our average portfolio company investment, exclusive of Greenway, Greenway II and portfolio investments where we only have an equity investment (excluding restructured investments where we converted debt to equity and the Logan JV), at amortized cost and fair value was approximately $15.0 million and $15.1 million, respectively and our largest portfolio company investment by both amortized cost and fair value was approximately $35.6 million and $35.7 million, respectively. At December 31, 2014, our average portfolio company investment, exclusive of Greenway, Greenway II and portfolio investments where we only have an equity investment, at amortized cost and fair value was approximately $14.3 million and $14.3 million, respectively and our largest portfolio company investment by both amortized cost and fair value was approximately $39.9 million and $39.7 million, respectively.

At June 30, 2015, based upon fair value, 76.5% of our debt investments bore interest based on floating rates (subject to interest rate floors), such as LIBOR, and 23.5% bore interest at fixed rates. At December 31, 2014, 72.2% of our debt investments bore interest based on floating rates (subject to interest rate floors), such as LIBOR, and 27.8% bore interest at fixed rates.

 

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The following table shows the weighted average yield by investment category at their current cost.

 

     As of  

Description:

   June 30,
2015
    December 31,
2014
 

First lien secured debt

     11.5     11.3

Second lien debt

     11.0     11.0

Subordinated debt (1)

     13.2     13.4

Investments in payment rights(2)

     16.9     16.8

CLO residual interests(2)

     14.5     13.4

Income-producing equity securities

     11.0     10.6
  

 

 

   

 

 

 

Debt and income-producing investments(3)

     11.8     11.7

Debt investments

     11.5     11.6

 

(1) Includes the impact of all loans on non-accrual status.
(2) Yields from investments in payment rights and CLO residual interests represents an effective yield expected from anticipated cash flows.
(3) Excludes yield on the Logan JV as the fund commenced operations on December 3, 2014. As of June 30, 2015, dividend income earned of $776 for the three months ended June 30, 2015 represented a dividend yield to us of 11.1% based upon average equity invested.

As of June 30, 2015 and December 31, 2014, portfolio investments, in which we have debt investments, had an average earnings before interest, taxes, depreciation and amortization, or EBITDA of approximately $29 million and $27 million, respectively, based on the latest available financial information provided by the portfolio companies for each of these periods. As of June 30, 2015 and December 31, 2014, our weighted average attachment point in the capital structure of our portfolio companies is approximately 4.2 times and 4.1 times EBITDA, respectively, for each of these based on our latest available financial information for each of these periods.

As of June 30, 2015, excluding investments made in Greenway and Greenway II, 80.0% of our portfolio investments are in sponsored investments and 20.0% of our portfolio investments are in unsponsored investments. Our portfolio investments as of June 30, 2015 have used our capital for change of control transactions (23.6%), acquisitions/growth capital (29.1%), refinancings (14.5%), recapitalizations (14.5%) and other (18.3%). As June 30, 2015, we have closed portfolio investments with 46 different sponsors since inception.

As of December 31, 2014, excluding investments made in Greenway and Greenway II, 81.0% of our portfolio investments are in sponsored investments and 19.0% of our portfolio investments are in unsponsored investments. Our portfolio investments as of December 31, 2014 have used our capital for change of control transactions (25.9%), acquisitions/growth capital (25.9%), refinancings (13.8%), recapitalizations (17.2%) and other (17.2%). As December 31, 2014, we have closed portfolio investments with 46 different sponsors since inception.

The following table summarizes the amortized cost and fair value of investments as of June 30, 2015 (in millions).

 

Description

   Amortized
Cost
     Percentage of
Total
    Fair Value  (1)      Percentage of
Total
 

First lien secured debt

   $ 369.0         48.8   $ 366.9         47.7

Second lien debt

     178.2         23.6     177.6         23.2

Subordinated debt

     75.5         10.0     69.7         9.1

Equity investments

     49.6         6.6     66.6         8.7

CLO residual interests

     31.6         4.2     32.6         4.3

Investment in Logan JV

     35.6         4.7     35.7         4.7

Investment in payment rights

     11.9         1.6     13.5         1.8

Investments in funds

     3.4         0.5     3.6         0.5
  

 

 

    

 

 

   

 

 

    

 

 

 

Total investments

   $ 754.8         100.0   $ 766.2         100.0
  

 

 

    

 

 

   

 

 

    

 

 

 

 

(1) All investments are categorized as Level 3 in the fair value hierarchy.

 

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The following table summarizes the amortized cost and fair value of investments as of December 31, 2014 (in millions).

 

Description

   Amortized
Cost
     Percentage of
Total
    Fair Value  (1)      Percentage of
Total
 

First lien secured debt

   $ 396.6         50.9   $ 393.8         50.3

Second lien debt

     168.9         21.7     168.5         21.5

Subordinated debt

     103.9         13.3     100.7         12.8

Equity investments

     43.5         5.6     52.7         6.7

CLO residual interests

     34.2         4.4     34.9         4.5

Investment in Logan JV

     16.8         2.2     16.7         2.1

Investment in payment rights

     11.9         1.5     13.5         1.7

Investments in funds

     3.2         0.4     3.4         0.4
  

 

 

    

 

 

   

 

 

    

 

 

 

Total investments

   $ 779.0         100.0   $ 784.2         100.0
  

 

 

    

 

 

   

 

 

    

 

 

 

 

(1) All investments are categorized as Level 3 in the fair value hierarchy.

The following is a summary of the industry classification in which the Company invests as of June 30, 2015 (in millions).

 

Industry

   Amortized Cost      Fair Value      % of Net Assets  

Consumer products

   $ 121.2       $ 121.7         27.25

Financial services

     112.7         107.0         23.96

IT services

     105.1         101.9         22.82

Manufacturing

     70.9         68.9         15.46

Healthcare

     62.0         68.7         15.40

Industrials

     60.0         60.0         13.43

Energy / utilities

     48.4         46.6         10.45

Retail & grocery

     29.7         40.4         9.02

Structured products

     31.6         32.6         7.31

Business services

     32.1         32.4         7.26

Food & beverage

     22.5         23.3         5.21

Restaurants

     20.9         20.7         4.63

Media, entertainment and leisure

     15.9         20.3         4.55

Transportation

     17.0         16.9         3.79

Aerospace & defense

     4.8         4.8         1.07
  

 

 

    

 

 

    

 

 

 

Total Investments

   $ 754.8       $ 766.2         171.61
  

 

 

    

 

 

    

 

 

 

The following is a summary of the industry classification in which the Company invests as of December 31, 2014 (in millions).

 

Industry

   Amortized
Cost
     Fair Value      % of
Net Assets
 

Consumer products

   $ 120.7       $ 120.4         27.15

IT services

     108.7         106.5         24.02

Healthcare

     77.5         83.2         18.75

Financial services

     71.4         68.9         15.55

Manufacturing

     70.8         68.4         15.41

Retail & grocery

     53.0         55.8         12.58

Industrials

     54.6         54.1         12.18

Energy / utilities

     50.3         48.9         11.04

Food & beverage

     38.6         39.3         8.85

Structured products

     34.2         34.9         7.87

Business services

     32.2         32.2         7.27

Media, entertainment and leisure

     25.1         29.7         6.69

Restaurants

     20.8         20.8         4.68

Transportation

     14.3         14.3         3.21

Aerospace & defense

     6.8         6.8         1.53
  

 

 

    

 

 

    

 

 

 

Total Investments

   $ 779.0       $ 784.2         176.78
  

 

 

    

 

 

    

 

 

 

 

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Investment Activity

The following is a summary of our investment activity, presented on a cost basis, for the three and six months ended June 30, 2015 and 2014 (in millions).

 

     Three months ended June 30,     Six months ended June 30,  
     2015     2014     2015     2014  

New portfolio investments

   $ 12.3      $ 42.3      $ 12.3      $ 134.1   

Existing portfolio investments:

        

Follow-on investments

     37.5        22.8        53.1        54.9   

Delayed draw and revolver investments

     1.8        2.3        4.0        4.0   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total existing portfolio investments

     39.3        25.1        57.1        58.9   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total portfolio investment activity

   $ 51.6      $ 67.4      $ 69.4      $ 193.0   
  

 

 

   

 

 

   

 

 

   

 

 

 

Number of new portfolio investments

     1        3        1        10   

Number of existing portfolio investments

     7        7        10        8   

First lien secured debt

   $ 4.7      $ 17.1      $ 13.4      $ 84.7   

Second lien debt

     25.2        42.7        25.2        89.9   

Subordinated debt

     5.0        —          5.0        8.3   

Investments in funds

     —          —          0.2        0.8   

Investment in Logan JV

     10.7        —          18.8        —     

Equity investments

     6.0        7.6        6.8        9.3   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total portfolio investments

   $ 51.6      $ 67.4      $ 69.4      $ 193.0   
  

 

 

   

 

 

   

 

 

   

 

 

 

Weighted average yield of new debt investments

     11.9     11.5     11.6     11.0

Weighted average yield, including all new income-producing investments

     12.2     11.5     11.9     11.0

For the three and six months ended June 30, 2015, we received proceeds from prepayments and sales of our investments, including any prepayment premiums, totaling $38.9 million and $97.9 million, respectively. For the three and six months ended June 30, 2014, we received proceeds from prepayments and sales of our investments, including any prepayment premiums, totaling $65.0 million and $104.4 million, respectively.

The following are proceeds received from notable prepayments and sales of our investments (in millions):

For the six months ended June 30, 2015

 

   

Partial sale of a second lien debt investment in BBB US Industries Holdings, Inc., which resulted in proceeds of $2.8 million and included a nominal realized gain;

 

   

Partial sale of a first lien secured debt investment in Charming Charlie, LLC, which resulted in proceeds of $9.9 million and included a nominal realized gain;

 

   

Repayment of a subordinated debt investment in Country Pure Foods, LLC at par, resulting in proceeds of $16.2 million;

 

   

Repayment of a first lien secured debt investment in Ingenio Acquisition, LLC, resulting in proceeds of $9.3 million, which included a prepayment premium of $0.2 million;

 

   

Repayment of a subordinated debt investment in The Studer Group, L.L.C. at par, resulting in proceeds of $16.9 million;

 

   

Repayment of second lien and subordinated debt investments in Sheplers, Inc. at par, resulting in proceeds of $13.5 million;

 

   

Partial sale of first lien secured debt and common equity investments in Igloo Products Corp., which resulted in proceeds of $14.1 million and included a nominal realized gain; and

 

   

Partial sale of a second lien debt investment in Vision Solutions, Inc., which resulted in proceeds of $2.0 million.

For the six months ended June 30, 2014

 

   

Sale of a second lien debt investment in Blue Coat Systems, Inc., resulting in proceeds of $10.3 million and included a realized gain of $0.4 million;

 

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Repayment of a first lien secured debt investment in Cydcor LLC at par, resulting in proceeds of $13.2 million;

 

   

Sale of a first lien secured debt investment in Hostway Corporation, resulting in proceeds of $9.9 million and included a nominal realized gain;

 

   

Repayment of an investment in LCP Capital Fund LLC, resulting in proceeds of $8.4 million;

 

   

Repayment of a first lien secured debt investment in NCM Group Holdings, LLC, resulting in proceeds of $28.1 million, which included a prepayment premium of $1.3 million;

 

   

Repayment of a subordinated debt investment in SeaStar Solutions, resulting in proceeds of $16.8 million, which included a prepayment premium of $0.3 million; and

 

   

Partial sale of $4.9 million, which included a nominal realized gain, of a second lien debt investment in Surgery Center Holdings, Inc.

Our level of investment activity can vary substantially from period to period depending on many factors, including the amount of debt and equity capital available to middle market companies, the level of merger and acquisition activity, the general economic environment and the competitive environment for the types of investments we make. The frequency of volume of any prepayments may fluctuate significantly from period to period.

We expect the first lien secured debt and second lien debt composition of our portfolio and our investment in Logan JV will grow as percent of the portfolio as we continue to exit our CLO equity positions as opportunities allow, subordinated loans repay over time and our equity positions are realized in the future.

Aggregate Cash Flow Realized Gross Internal Rate of Return

Since April 2010, after we completed our initial public offering and commenced principal operations, our fully exited investments have resulted in an aggregate cash flow realized gross internal rate of return to us of 18.0% (based on cash principal invested of $496.5 million and total proceeds from these exited investments of $628.2 million). 94.7% of these exited investments resulted in an aggregate cash flow realized gross internal rate of return to us of 10% or greater.

Internal rate of return, or IRR, is a measure of our discounted cash flows (inflows and outflows). Specifically, IRR is the discount rate at which the net present value of all cash flows is equal to zero. That is, IRR is the discount rate at which the present value of total capital invested in our investments is equal to the present value of all realized returns from the investments. Our IRR calculations are unaudited.

Capital invested, with respect to an investment, represents the aggregate cost basis allocable to the realized or unrealized portion of the investment, net of any upfront fees paid at closing for the term loan portion of the investment.

Realized returns, with respect to an investment, represents the total cash received with respect to each investment, including all amortization payments, interest, dividends, prepayment fees, upfront fees (except upfront fees paid at closing for the term loan portion of an investment), amendment fees and other fees and proceeds.

Gross IRR, with respect to an investment, is calculated based on the dates that we invested capital and dates we received distributions, regardless of when we made distributions to our stockholders. Initial investments are assumed to occur at time zero, and all cash flows are deemed to occur on the date in which they did occur.

Gross IRR reflects historical results relating to our past performance and is not necessarily indicative of our future results. In addition, gross IRR does not reflect the effect of management fees, expenses, incentive fees or taxes borne, or to be borne, by us or our stockholders, and would be lower if it did.

Aggregate cash flow realized gross IRR on our exited investments reflects only invested and realized cash amounts as described above, and does not reflect any unrealized gains or losses in our portfolio or non-cash restructuring transactions. Cash flows exclude sales of participations if they were anticipated at the time of the initial investment.

Investment Risk

The value of our investments will generally fluctuate with, among other things, changes in prevailing interest rates, U.S. federal tax rates, counterparty risk, general economic conditions, the condition of certain financial markets, developments or trends in any particular industry and the financial condition of the issuer. During periods of limited liquidity and higher price volatility, our ability to dispose of investments at a price and time that we deem advantageous may be impaired.

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

 

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THL Credit Logan JV LLC

On December 3, 2014, we entered into an agreement with Perspecta Trident LLC, an affiliate of Perspecta Trust LLC, or Perspecta,, to create THL Credit Logan JV LLC, or Logan JV, a joint venture, which will invest primarily in senior secured first lien term loans. All Logan JV investment decisions must be unanimously approved by the Logan JV investment committee consisting of one representative from each of us and Perspecta.

We have determined that Logan JV is an investment company under ASC 946, however, in accordance with such guidance, we will generally not consolidate our investment in a company other than a wholly owned investment company subsidiary or a controlled operating company whose business consists of providing services to us. Accordingly, we do not consolidate our non-controlling interest in Logan JV.

Logan JV is capitalized with equity contributions which are generally called from its members as transactions are completed. As June 30, 2015, Logan JV had equity commitments totaling $250.0 million, of which we committed $200.0 million and Perspecta committed $50.0 million. As December 31, 2014, Logan JV had equity commitments totaling $150.0 million, of which we committed $120.0 million and Perspecta committed $30.0 million.

Equity contributions are called from each member pro-rata, based on their equity commitments. As of June 30, 2015 and December 31, 2014, Logan JV had received $44.5 million and $8.0 million in aggregate capital of which we funded $35.6 million and $6.4 million, respectively. As of December 31, 2014, Logan JV had called but not yet received an additional $13.0 million in aggregate capital of which our pro-rata share is $10.4 million and which is recorded as a payable for investments purchased in the Consolidated Statements of Assets and Liabilities. As of June 30, 2015, remaining equity commitments to Logan JV totaled $205.5 million, of which our share is $164.4 million and Perspecta’s share is $41.1 million. As of December 31, 2014, remaining equity commitments to Logan JV totaled $129.0 million, of which our share is $103.2 million and Perspecta’s share is $25.8 million.

On December 17, 2014, Logan JV entered into a senior credit facility, or the Logan JV Credit Facility, with Deutsche Bank AG which allows Logan JV to borrow up to $50.0 million subject to leverage and borrowing base restrictions. On May 1, 2015, in accordance with the terms of the Logan JV Credit Facility, Deutsche Bank AG increased its commitment amount to $75.0 million. On July 27, 2015, in accordance with the terms of the Logan JV Credit Facility, Deutsche Bank AG increased its commitment amount to $100.0 million. The revolving loan period ends on December 17, 2016 and the final maturity date is December 17, 2019. As of June 30, 2015, Logan JV had $67.5 million of outstanding debt under the credit facility. As of December 31, 2014, Logan JV had no outstanding debt under the credit facility. The Logan JV Credit Facility bears interest at three month LIBOR (with no LIBOR floor) plus 2.50%.

As of June 30, 2015 and December 31, 2014, Logan JV had total investments at fair value of $111.3 million and $30.7 million, respectively. As of June 30, 2015 and December 31, 2014, Logan JV’s portfolio was comprised of senior secured first lien and second lien loans to 68 and 22 different borrowers, respectively. As of June 30, 2015 and December 31, 2014, none of these loans were on non-accrual status. Additionally, as of June 30, 2015 and December 31, 2014, Logan JV had unfunded commitments to revolver and delayed draw loans to its portfolio companies totaling $0.2 million and $0.2 million, respectively. The portfolio companies in Logan JV are in industries similar to those in which we may invest directly.

Below is a summary of Logan JV’s portfolio, followed by a listing of the individual loans in Logan JV’s portfolio as of June 30, 2015 and December 31, 2014:

 

     As of June 30,     As of December 31,  
     2015     2014  
     (Dollars in thousands)     (Dollars in thousands)  

First lien secured debt (1)

   $ 96,222      $ 30,237   

Second lien debt (1)

     16,524        1,000   
  

 

 

   

 

 

 

Total debt investments

   $ 112,746      $ 31,237   
  

 

 

   

 

 

 

Weighted average yield on first lien secured loans(2)

     6.4     6.7

Weighted average yield on second lien loans(2)

     8.9     10.0

Weighted average yield on all loans(2)

     6.8     6.6

Number of borrowers in Logan JV

     68        22   

Largest loan to a single borrower(1)

   $ 4,988      $ 2,500   

Total of five largest loans to borrowers(1)

   $ 18,005      $ 8,994   

 

(1) At current principal amount.
(2) Weighted average yield at their current cost.

 

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Table of Contents

For the three and six months ended June 30, 2015, our share of dividend income from distributions declared related to its Logan JV LLC equity interest was $0.8 and $1.1 million, respectively, which amounts are included in dividend income from controlled investments in the Consolidated Statement of Operations. As of June 30, 2015 and December 31, 2014, $0.9 million and $0, respectively, of dividend income related to the Logan JV was included in Interest, dividends and fees receivable on the Consolidated Statements of Assets and Liabilities. As of June 30, 2015, dividend income earned of $0.8 for the three months ended June 30, 2015, represented a dividend yield to the Company of 11.1% based upon average equity invested. As of June 30, 2014, Logan JV was not yet formed.

 

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Table of Contents

Logan JV Loan Portfolio as of June 30, 2015

(dollar amounts in thousands)

 

Portfolio Company

  

Industry

  

Interest Rate(1)

   Initial
Acquisition
Date
     Maturity
Date
     Principal      Amortized
Cost
     Fair
Value(2)
 

Senior Secured First Lien Term Loans

                    

Ability Networks Inc.

   Healthcare & Pharmaceuticals    6% (LIBOR +5%)      3/17/2015         05/14/2021       $ 1,492       $ 1,507       $ 1,499   

Albertson’s Holdings LLC

   Retail    5.5% (LIBOR +4.5%)      12/5/2014         08/25/2021         1,995         1,999         2,007   

American Pacific Corporation

   Chemicals, Plastics & Rubber    7% (LIBOR +6%)      12/10/2014         02/27/2019         992         992         1,004   

AP Gaming I LLC

   Hotel, Gaming & Leisure    9.25% (LIBOR +8.25%)      5/27/2015         12/20/2020         997         988         996   

Arctic Glacier U.S.A., Inc

   Beverage, Food & Tobacco    6% (LIBOR +5%)      2/12/2015         05/10/2019         995         986         992   

Avaya Inc

   Telecommunications    6.25% (LIBOR +5.25%)      4/30/2015         04/30/2020         1,983         1,965         1,949   

Bioplan USA

   Services: Business    5.75% (LIBOR +4.75%)      5/13/2015         09/23/2021         998         851         858   

BioScrip, Inc.

   Healthcare & Pharmaceuticals    6.5% (LIBOR +5.25%)      12/22/2014         07/31/2020         1,500         1,504         1,490   

Birch Communications, Inc.

   Telecommunications    7.75% (LIBOR +6.75%)      12/5/2014         07/17/2020         972         952         975   

CAbi

   Retail    5.75% (LIBOR +4.75%)      6/19/2015         06/10/2019         1,250         1,238         1,250   

Caesars Entertainment Resort Properties, LLC

   Hotel, Gaming & Leisure    7% (LIBOR +6%)      1/15/2015         10/11/2020         2,989         2,867         2,727   

Cengage Learning Acquisitions, Inc.

   Media: Advertising, Printing & Publishing    7% (LIBOR +6%)      12/15/2014         03/31/2020         2,417         2,396         2,424   

Communications Sales & Leasing, Inc.

   Telecommunications    5% (LIBOR +4%)      5/28/2015         10/24/2022         3,000         2,996         2,947   

Compuware Corp

   Services: Business    6.25% (LIBOR +5.25%)      12/11/2014         12/15/2021         2,989         2,899         2,926   

Creative Artists

   Media: Diversified & Production    5.5% (LIBOR +4.5%)      3/16/2015         12/17/2021         2,488         2,523         2,513   

Crowne Group LLC

   Automotive    6% (LIBOR +5%)      1/14/2015         09/30/2020         1,492         1,475         1,489   

CT Technologies Intermediate Holdings, Inc

   Healthcare & Pharmaceuticals    6% (LIBOR +5%)      2/11/2015         12/01/2021         1,990         2,011         2,000   

CWGS Group, LLC

   Automotive    5.25% (LIBOR +4.25%)      12/22/2014         02/20/2020         2,439         2,440         2,456   

Delta 2 Lux Sarl

   Telecommunications    4.75% (LIBOR +3.75%)      12/18/2014         07/30/2021         1,500         1,469         1,493   

EnergySolutions, LLC

   Environmental Industries    6.75% (LIBOR +5.75%)      3/16/2015         05/29/2020         2,000         2,024         2,012   

Evergreen Skills Lux S.á r.l.

   High Tech Industries    5.75% (LIBOR +4.75%)      1/15/2015         04/28/2021         1,494         1,465         1,455   

FR Utility Services LLC

   Construction & Building    6.75% (LIBOR +5.75%)      12/18/2014         10/18/2019         1,489         1,485         1,497   

FullBeauty Brands LP / OSP Group Inc.

   Retail    4.75% (LIBOR +3.75%)      3/20/2015         03/18/2021         997         993         997   

Getty Images, Inc.

   Media: Advertising, Printing & Publishing    4.75% (LIBOR +3.5%)      2/18/2015         10/18/2019         995         924         740   

Gold Standard Baking Inc

   Wholesale    5.5% (LIBOR +4.5%)      5/19/2015         05/11/2021         3,000         2,985         2,985   

Green Plains Renewable Energy Inc

   Energy: Oil & Gas    6.5% (LIBOR +5.5%)      6/9/2015         06/30/2020         1,997         1,998         2,006   

GTCR Valor Companies, Inc.

   Services: Business    6% (LIBOR +5%)      12/5/2014         05/30/2021         1,987         1,969         1,989   

IMG LLC/William Morris Endeavor Entertainment, LLC

   Media: Diversified & Production    5.25% (LIBOR +4.25%)      12/31/2014         05/06/2021         1,489         1,458         1,489   

Insurance Technologies

   High Tech Industries    8% (LIBOR +7%)      3/26/2015         12/01/2019         1,948         1,930         1,928   

Insurance Technologies(3)

   High Tech Industries    0% (LIBOR +0%)      3/26/2015         12/01/2019         —           —           (2

J Jill

   Retail    6% (LIBOR +5%)      5/8/2015         05/08/2022         1,050         1,045         1,050   

KOOSHAREM, LLC

   Services: Business    7.5% (LIBOR +6.5%)      2/4/2015         05/15/2020         2,987         2,976         2,973   

Lattice Semiconductor Corp.

   High Tech Industries    5.25% (LIBOR +4.25%)      3/6/2015         03/10/2021         998         988         1,001   

LegalZoom

   Services: Business    8% (LIBOR +7%)      6/15/2015         06/18/2020         2,993         2,993         2,992   

 

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Table of Contents

Portfolio Company

  

Industry

  

Interest Rate(1)

   Initial
Acquisition
Date
     Maturity
Date
     Principal      Amortized
Cost
     Fair
Value(2)
 

Lindblad Expeditions Inc

   Hotel, Gaming & Leisure    6.5% (LIBOR +5.5%)      6/23/2015         06/08/2022         2,657         2,674         2,664   

Lindblad Maritime

   Hotel, Gaming & Leisure    5.5% (LIBOR +4.5%)      6/23/2015         06/17/2022         343         345         344   

Margaritaville Holdings LLC

   Beverage, Food & Tobacco    7% (LIBOR +6%)      3/12/2015         03/11/2021         4,988         4,940         4,938   

MediArena Acquisition B.V.

   Media: Broadcasting & Subscription    6.75% (LIBOR +5.75%)      12/18/2014         08/13/2021         1,489         1,468         1,475   

Merrill Communications LLC

   Media: Advertising, Printing & Publishing    6.25% (LIBOR +5.25%)      5/29/2015         06/01/2022         2,000         1,988         1,999   

Mood Media Corporation

   Media: Broadcasting & Subscription    7% (LIBOR +6%)      12/5/2014         05/01/2019         992         979         970   

Novitex Acquisition, LLC

   Consumer goods: Non-Durable    7.5% (LIBOR +6.25%)      12/5/2014         07/07/2020         993         977         943   

Parq Holdings LP

   Hotel, Gaming & Leisure    8.5% (LIBOR +7.5%)      12/5/2014         12/17/2020         170         167         172   

Parq Holdings LP

   Hotel, Gaming & Leisure    8.5% (LIBOR +7.5%)      12/5/2014         12/17/2020         830         815         838   

Physiotherapy Associates Inc

   Healthcare & Pharmaceuticals    5.75% (LIBOR +4.75%)      6/4/2015         05/07/2021         1,000         995         1,003   

Pre-Paid Legal Services, Inc

   Services: Business    6.5% (LIBOR +5.25%)      5/21/2015         07/01/2019         1,000         995         1,005   

RentPath, Inc.

   Media: Diversified & Production    6.25% (LIBOR +5.25%)      12/11/2014         12/17/2021         2,488         2,461         2,512   

Riverbed Technology, Inc.

   High Tech Industries    6% (LIBOR +5%)      2/25/2015         04/27/2022         998         993         1,009   

Roundy’s Supermarkets, Inc.

   Retail    5.75% (LIBOR +4.75%)      5/28/2015         03/03/2021         3,000         2,931         2,910   

Sirva Worldwide, Inc.

   Transportation: Cargo    7.5% (LIBOR +6.25%)      12/18/2014         03/27/2019         1,928         1,923         1,943   

SourceHOV LLC

   Services: Business    7.75% (LIBOR +6.75%)      3/17/2015         10/31/2019         1,975         1,896         1,824   

Stonewall Gas Gathering LLC

   Energy: Oil & Gas    8.75% (LIBOR +7.75%)      1/26/2015         01/28/2022         998         951         1,010   

TOMS Shoes LLC

   Retail    6.5% (LIBOR +5.5%)      12/18/2014         10/31/2020         1,995         1,861         1,850   

TTM Technologies Inc

   High Tech Industries    6% (LIBOR +5%)      5/7/2015         05/31/2021         1,000         966         988   

TWCC Holding Corp.

   Media: Broadcasting & Subscription    5.75% (LIBOR +5%)      5/21/2015         02/13/2020         1,529         1,514         1,512   

Varsity Brands

   Consumer goods: Durable    5% (LIBOR +4%)      12/10/2014         12/11/2021         995         986         1,003   

Verdesian Life Sciences LLC

   Chemicals, Plastics & Rubber    6% (LIBOR +5%)      12/9/2014         07/01/2020         962         961         964   

Visant Corp.

   Consumer goods: Non-Durable    7% (LIBOR +6%)      1/6/2015         09/23/2021         1,990         1,948         1,925   
                 

 

 

    

 

 

 

Total Senior Secured First Lien Term Loans

                  $ 95,025       $ 94,908   
                 

 

 

    

 

 

 

Second Lien Term Loans

                    

ABG Intermediate Holdings 2 LLC

   Consumer goods: Durable    9.5% (LIBOR +8.5%)      6/19/2015         05/27/2022         1,000         990         1,004   

Asurion Delivery and Installation Services, Inc.

   Telecommunications    8.5% (LIBOR +7.5%)      2/18/2015         03/03/2021         2,000         2,008         2,037   

Cirque Du Soleil

   Hotel, Gaming & Leisure    9.25% (LIBOR +8.25%)      6/25/2015         06/10/2023         1,000         985         996   

Confie Seguros Holding II Co

   Banking, Finance, Insurance & Real Estate    10.25% (LIBOR +9%)      6/29/2015         05/09/2019         500         495         500   

Eastman Kodak Company

   High Tech Industries    10.75% (LIBOR +9.5%)      3/24/2015         09/03/2020         1,000         996         999   

Filtration Group Corporation

   Services: Business    8.25% (LIBOR +7.25%)      3/16/2015         11/22/2021         524         526         527   

GENEX Services, Inc.

   Services: Business    8.75% (LIBOR +7.75%)      6/26/2015         05/30/2022         1,000         988         990   

Hyland Software, Inc.

   High Tech Industries    8.5% (LIBOR +7.5%)      6/12/2015         05/27/2023         1,500         1,493         1,503   

IPC Corp

   Telecommunications    10.5% (LIBOR +9.5%)      3/3/2015         02/06/2022         1,500         1,394         1,436   

Learfield Communications, Inc.

   Media: Broadcasting & Subscription    8.75% (LIBOR +7.75%)      2/18/2015         10/08/2021         1,000         1,005         1,010   

 

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Table of Contents

Portfolio Company

  

Industry

  

Interest Rate (1)

   Initial
Acquisition
Date
     Maturity
Date
     Principal      Amortized
Cost
     Fair
Value (2)
 

MRI SOFTWARE LLC

   High Tech Industries    9% (LIBOR +8%)      6/19/2015         06/05/2022         1,000         985         1,005   

RentPath, Inc.

   Media: Diversified & Production    10% (LIBOR +9%)      12/11/2014         12/17/2022         1,000         916         954   

Royal Adhesives and Sealants LLC/Adco Global Inc.

   Chemicals, Plastics & Rubber    8.5% (LIBOR +7.5%)      6/12/2015         06/19/2023         1,000         993         1,003   

TWCC Holding Corp.

   Media: Broadcasting & Subscription    7% (LIBOR +6%)      5/28/2015         06/26/2020         2,000         1,867         1,872   

Wash Multifamily Laundry Systems, LLC.

   Services: Consumer    8% (LIBOR +7%)      5/4/2015         05/12/2023         500         496         506   
                 

 

 

    

 

 

 

Total Second Lien Term Loans

                  $ 16,137       $ 16,342   
                 

 

 

    

 

 

 

    

                    
                 

 

 

    

 

 

 
                  $ 111,162       $ 111,250   
                 

 

 

    

 

 

 

 

(1) Variable interest rates indexed to 30-day, 60-day, 90-day or 180-day LIBOR rates, at the borrower’s option. LIBOR rates are subject to interest rate floors.
(2) Represents fair value in accordance with ASC Topic 820. The determination of such fair value is not included in our board of director’s valuation process described elsewhere herein.
(3) Represents a revolver commitment of $209, which was unfunded as of June 30, 2015.

Logan JV Loan Portfolio as of December 31, 2014

(dollar amounts in thousands)

 

Portfolio Company

  

Industry

  

Interest Rate(1)

   Initial
Acquisition
Date
     Maturity
Date
     Principal      Amortized
Cost
     Fair
Value(2)
 

Senior Secured First Lien Term Loans

                    

Albertson’s Holdings LLC

   Retail    5.5% (LIBOR + 4.5%)      12/05/2014         08/25/2021       $ 2,000       $ 2,004       $ 2,003   

American Pacific Corporation

   Chemicals, Plastics
& Rubber
   7% (LIBOR + 6%)      12/10/2014         02/27/2019         997         997         996   

AP NMT Acquisition B.V.

   Media: Broadcasting
& Subscription
   6.75% (LIBOR + 5.75%)      12/18/2014         08/13/2021         1,496         1,474         1,474   

Avaya Inc.

   Telecommunications    6.5% (LIBOR + 5.5%)      12/18/2014         03/31/2018         1,496         1,481         1,476   

BioScrip, Inc.

   Healthcare &
Pharmaceuticals
   6.5% (LIBOR + 5.25%)      12/22/2014         07/31/2020         1,500         1,504         1,496   

Birch Communications, Inc.

   Telecommunications    7.75% (LIBOR + 6.75%)      12/05/2014         07/17/2020         972         950         957   

Cengage Learning Acquisitions, Inc.

   Media: Advertising,
Printing &
Publishing
   7% (LIBOR + 6%)      12/15/2014         03/31/2020         2,494         2,470         2,473   

Compuware Corp

   Services: Business    6.25% (LIBOR + 5.25%)      12/11/2014         12/15/2021         1,500         1,426         1,427   

CWGS Group, LLC

   Automotive    5.75% (LIBOR + 4.75%)      12/22/2014         02/20/2020         1,490         1,494         1,494   

Delta 2 Lux Sarl

   Telecommunications    4.75% (LIBOR + 3.75%)      12/18/2014         07/30/2021         1,500         1,466         1,468   

FR Utility Services LLC

   Construction &
Building
   6.75% (LIBOR + 5.75%)      12/18/2014         10/18/2019         1,496         1,493         1,491   

GTCR Valor Companies, Inc.

   Services: Business    6% (LIBOR + 5%)      12/05/2014         05/30/2021         995         975         972   

IMG LLC/William Morris Endeavor Entertainment, LLC

   Media: Diversified
& Production
   5.25% (LIBOR + 4.25%)      12/31/2014         05/06/2021         1,496         1,463         1,451   

Mood Media Corporation

   Media: Broadcasting
& Subscription
   7% (LIBOR + 6%)      12/05/2014         05/01/2019         997         983         979   

 

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Table of Contents

Portfolio Company

  

Industry

  

Interest Rate(1)

   Initial
Acquisition
Date
     Maturity
Date
     Principal      Amortized
Cost
    Fair
Value(2)
 

Novitex Acquisition, LLC

   Consumer goods:
Non-Durable
   7.5% (LIBOR + 6.25%)      12/05/2014         07/07/2020         998         980        958   

Parq Holdings L.P.(3)

   Hotel, Gaming &
Leisure
   8.5% (LIBOR + 7.5%)      12/05/2014         12/17/2020                (3      

Parq Holdings L.P.

   Hotel, Gaming &
Leisure
   8.5% (LIBOR + 7.5%)      12/05/2014         12/17/2020         830         814        818   

Radio One, Inc.

   Media: Broadcasting
& Subscription
   7.5% (LIBOR + 6%)      12/22/2014         03/31/2016         1,496         1,492        1,491   

RentPath, Inc.

   Media: Diversified
& Production
   6.25% (LIBOR + 5.25%)      12/11/2014         12/17/2021         1,500         1,470        1,476   

Sirva Worldwide, Inc.

   Transportation:
Cargo
   7.5% (LIBOR + 6.25%)      12/18/2014         03/27/2019         1,496         1,489        1,492   

TOMS Shoes LLC

   Retail    6.5% (LIBOR + 5.5%)      12/18/2014         10/31/2020         1,500         1,388        1,388   

Varsity Brands

   Consumer goods:
Durable
   6% (LIBOR + 5%)      12/10/2014         12/11/2021         1,000         990        1,001   

Verdesian Life Sciences LLC

   Chemicals, Plastics
& Rubber
   6% (LIBOR + 5%)      12/09/2014         07/01/2020         987         986        982   
                 

 

 

   

 

 

 

Total Senior Secured First Lien Term Loans

                  $ 29,786      $ 29,763   
                 

 

 

   

 

 

 

Second Lien Term Loans

                   

RentPath, Inc.

   Media: Diversified
& Production
   10% (LIBOR + 9%)      12/11/2014         12/17/2022       $ 1,000       $ 911      $ 915   
                 

 

 

   

 

 

 

Total Second Lien Term Loans

                  $ 911      $ 915   
                 

 

 

   

 

 

 
                  $ 30,697      $ 30,678   
                 

 

 

   

 

 

 

 

(1) Variable interest rates indexed to 30-day, 60-day, 90-day or 180-day LIBOR rates, at the borrower’s option. LIBOR rates are subject to interest rate floors.
(2) Represents fair value in accordance with ASC Topic 820. The determination of such fair value is not included in our board of director’s valuation process described elsewhere herein.
(3) Represents a delayed draw commitment of $170, which was unfunded as of December 31, 2014.

We have committed to fund $200.0 million of LLC equity interest subscriptions to Logan JV. As of June 30, 2015 and December 31, 2014, $35.6 million and $6.4 million of our LLC equity interest subscriptions to Logan JV had been called and contributed. For the three and six months ended June 30, 2015, we recorded $0.8 million and $1.1 million in dividend income from the Logan JV LLC equity interests, respectively. As of June 30, 2014, Logan JV was not yet formed.

 

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Below is certain summarized financial information for Logan JV as of June 30, 2015 and December 31, 2014 and for the three and six months ended June 30, 2015:

Selected Balance Sheet Information

 

     As of June 30,      As of December 31,  
     2015      2014  
     (Dollars in thousands)      (Dollars in thousands)  

Investments at fair value (cost of $111,162 and $30,697, respectively)

   $ 111,250       $ 30,678   

Capital contributions receivable

     —           13,000   

Cash

     20,297         3,898   

Other assets

     1,459         898   
  

 

 

    

 

 

 

Total assets

   $ 133,006       $ 48,474   
  

 

 

    

 

 

 

Loans payable

   $ 67,500       $ —     

Payable for investments purchased

     19,301         26,732   

Distribution payable

     1,180         —     

Other liabilities

     453         813   
  

 

 

    

 

 

 

Total liabilities

   $ 88,434       $ 27,545   
  

 

 

    

 

 

 

Members’ Equity

   $ 44,572       $ 20,929   
  

 

 

    

 

 

 

Total liabilities and Member’s Equity

   $ 133,006       $ 48,474   
  

 

 

    

 

 

 

Selected Statement of Operations Information

 

     For the three months
ended June 30, 2015
     For the six months
ended June 30, 2015
 
     (Dollars in thousands)      (Dollars in thousands)  

Interest income

   $ 1,472       $ 2,203   

Fee income

     61         61   
  

 

 

    

 

 

 

Total revenues

     1,533         2,264   

Credit facility expenses

     455         731   

Other expenses

     92         117   
  

 

 

    

 

 

 

Total expenses

     547         848   
  

 

 

    

 

 

 

Net investment income

     986         1,416   

Net change in unrealized appreciation (depreciation) on investments

     (376      107   
  

 

 

    

 

 

 

Net increase in net assets

   $ 610       $ 1,523   
  

 

 

    

 

 

 

As of June 30, 2014, Logan JV was not yet formed.

Managed Funds

The Advisor and its affiliates may also manage other funds in the future that may have investment mandates that are similar, in whole and in part, with ours. For example, the Advisor may serve as investment adviser to one or more private funds or registered closed-end funds, and presently serves as an investment adviser to collateralized loan obligations, or CLOs, THL Credit Wind River 2013-2 CLO, Ltd., THL Credit Wind River 2014-1 CLO, Ltd., THL Credit Wind River 2014-2 CLO, Ltd., and a subadviser to a closed-end fund, THL Credit Senior Loan Fund (NYSE: TSLF). In addition, our officers may serve in similar capacities for one or more private funds or registered closed-end funds. The Advisor and its affiliates may determine that an investment is appropriate for us and for one or more of those other funds. In such event, depending on the availability of such investment and other appropriate factors, the Advisor or its affiliates may determine that we should invest side-by-side with one or more other funds. Any such investments will be made only to the extent permitted by applicable law and interpretive positions of the SEC and its staff, and consistent with the Advisor’s allocation procedures.

 

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Greenway

On January 14, 2011, THL Credit Greenway Fund LLC, or Greenway, was formed as a Delaware limited liability company. Greenway is a portfolio company of the Company. Greenway is a closed-end investment fund which provides for no liquidity or redemption options and is not readily marketable. Greenway operates under a limited liability agreement dated January 19, 2011, or the Agreement. Greenway will continue in existence until January 14, 2021, subject to earlier termination pursuant to certain terms of the Agreement. The term may also be extended for up to three additional one-year periods pursuant to certain terms of the Agreement. Greenway had a two year investment period.

Greenway has $150 million of capital committed by affiliates of a single institutional investor, and is managed by the Company. The Company’s capital commitment to Greenway is $0.02 million. As of June 30, 2015 and December 31, 2014, all of the capital had been called by Greenway. Our nominal investment in Greenway is reflected in the June 30, 2015 and December 31, 2014 Consolidated Schedules of Investments. As of June 30, 2015, distributions representing 97.0% of the committed capital of the investor have been made from Greenway. Distributions from Greenway, including return of capital and earnings, to its members from inception through June 30, 2015 totaled $145.6 million.

The Company acts as the investment adviser to Greenway and is entitled to receive certain fees relating to its investment management services provided, including a base management fee, a performance fee and a portion of the closing fees on each investment transaction. As a result, Greenway is classified as an affiliate of the Company. For the three months ended June 30, 2015 and 2014, the Company earned $0.2 million and $0.2 million in fees related to Greenway, respectively, which are included in other income from non-controlled, affiliated investment in the Consolidated Statements of Operations. For the six months ended June 30, 2015 and 2014, the Company earned $0.4 million and $0.4 million in fees related to Greenway, respectively, which are included in other income from non-controlled, affiliated investment in the Consolidated Statements of Operations. As of June 30, 2015 and December 31, 2014, $0.3 million and $0.3 million of fees and expenses related to Greenway, respectively, were included in due from affiliate on the Consolidated Statements of Assets and Liabilities.

Greenway invested in securities similar to those of the Company pursuant to investment and allocation guidelines which address, among other things, the size of the borrowers, the types of transactions and the concentration and investment ratio amongst Greenway and the Company. However, the Company has the discretion to invest in other securities.

Greenway II

On January 31, 2013, THL Credit Greenway Fund II, LLC, or Greenway II LLC, was formed as a Delaware limited liability company and is a portfolio company of the Company. Greenway II LLC is a closed-end investment fund which provides for no liquidity or redemption options and is not readily marketable. Greenway II LLC operates under a limited liability agreement dated February 11, 2013, as amended, or the Greenway II LLC Agreement. Greenway II LLC will continue in existence for eight years from the final closing date, subject to earlier termination pursuant to certain terms of the Greenway II LLC Agreement. The term may also be extended for up to three additional one-year periods pursuant to certain terms of the Greenway II LLC Agreement. Greenway II LLC has a two year investment period.

As contemplated in the Greenway II LLC Agreement, we have established a related investment vehicle and entered into an investment management agreement with an account set up by an unaffiliated third party investor to invest alongside Greenway II LLC pursuant to similar economic terms. The account is also managed by the Company. References to “Greenway II” herein include Greenway II LLC and the account of the related investment vehicle. Greenway II has $186.5 million of commitments primarily from institutional investors. As of June 30, 2015, the entire $186.5 million of commitments have been called. The Company’s capital commitment to Greenway II is $0.01 million. Our nominal investment in Greenway II LLC is reflected in the June 30, 2015 and December 31, 2014 Consolidated Schedules of Investments. Greenway II LLC is managed by the Company. As of June 30, 2015, distributions representing 18.7% of the committed capital of the Greenway II investors have been made from Greenway II. Distributions from Greenway II to its members and investors, including return of capital and earnings, from inception through June 30, 2015 totaled $35.0 million.

The Company acts as the investment adviser to Greenway II and is entitled to receive certain fees relating to its investment management services provided, including a base management fee, a performance fee and a portion of the closing fees on each investment transaction. As a result, Greenway II is classified as an affiliate of the Company. For the three months ended June 30, 2015 and 2014, we earned $0.4 million and $0.6 million, respectively, in fees related to Greenway II, which are included in other income from non-controlled, affiliated investment in the Consolidated Statements of Operations. For the six months ended June 30, 2015 and 2014, we earned $0.9 million and $1.1 million, respectively, in fees related to Greenway II, which are included in other income from non-controlled, affiliated investment in the Consolidated Statements of Operations. As of June 30, 2015 and December 31, 2014, $0.4 million and $0.8 million of fees and expenses related to Greenway II were included in due from affiliate on the Consolidated Statements of Assets and Liabilities.

 

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Other deferred costs consist of placement agent expenses incurred in connection with the offer and sale of partnership interests in Greenway II. These costs are capitalized when commitments close and are recognized as an expense over the period when the Company expects to collect management fees from Greenway II. For the three months ended June 30, 2015 and 2014, we recognized $0.1 million and $0.1 million, respectively, related to placement agent expenses, which are included in other general and administrative expenses in the Consolidated Statements of Operations. For the six months ended June 30, 2015 and 2014, we recognized $0.1 million and $0.1 million, respectively, related to placement agent expenses, which are included in other general and administrative expenses in the Consolidated Statements of Operations. As of June 30, 2015 and December 31, 2014, $0.5 million and $0.6 million, respectively, were included in other deferred costs on the Consolidated Statements of Assets and Liabilities.

Greenway II invests in securities similar to those of the Company pursuant to investment and allocation guidelines which address, among other things, the size of the borrowers, the types of transactions and the concentration and investment ratio amongst Greenway II and the Company. However, the Company has the discretion to invest in other securities.

 

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CLO Residual Interests

As of June 30, 2015 and December 31, 2014, we had investments in the CLO residual interests, or subordinated notes, which can also be structured as income notes. These subordinated notes are subordinate to the secured notes issued in connection with each CLO. The secured notes in each structure are collateralized by portfolios consisting primarily of broadly syndicated senior secured bank loans. The following table shows a summary of our investments in CLO residual interests (in millions):

 

                     As of June 30, 2015     As of December 31, 2014  

Issuer

   Security Description   Ownership
Interest
    Total CLO
Amount at
initial par
    THL Credit
Residual Amount at
Amortized Cost
    THL Credit
Residual
Amount at
Fair Value
    THL Credit
Residual Amount at
Amortized Cost
    THL Credit
Residual
Amount at
Fair Value
 

Adirondack Park CLO Ltd.

   Subordinated Notes,
Residual Interest
    18.7   $ 517.0      $ 7.7      $ 8.0      $ 8.2      $ 8.2   

Dryden CLO, Ltd.

   Subordinated Notes,
Residual Interest
    23.1     516.4        7.4        7.7        8.0        8.2   

Flagship VII, Ltd.

   Subordinated Notes,
Residual Interest
    12.6     441.8        3.8        4.1        4.1        4.3   

Flagship VIII, Ltd.

   Subordinated Notes,
Residual Interest
    25.1     470.9        7.5        7.2        8.5        8.5   

Sheridan Square CLO, Ltd

   Income Notes,
Residual Interest
    10.4     724.5        5.2        5.6        5.4        5.7   
        

 

 

   

 

 

   

 

 

   

 

 

 

Total CLO residual interests

      $ 31.6      $ 32.6      $ 34.2      $ 34.9   
        

 

 

   

 

 

   

 

 

   

 

 

 

The subordinated notes and income notes do not have a stated rate of interest, but are entitled to receive distributions on quarterly payment dates subject to the priority of payments to secured note holders in the structures if and to the extent funds are available for such purpose. The payments on the subordinated notes and income notes are subordinated not only to the interest and principal claims of all secured notes issued, but to certain administrative expenses, taxes, and the base and subordinated fees paid to the collateral manager. Payments to the subordinated notes and income notes may vary significantly quarter to quarter for a variety of reasons and may be subject to 100% loss. Investments in subordinated notes and income notes, due to the structure of the CLO, can be significantly impacted by change in the market value of the assets, the distributions on the assets, defaults and recoveries on the assets, capital gains and losses on the assets along with prices, interest rates and other risks associated with the assets.

For the three months ended June 30, 2015 and 2014, we recognized interest income totaling $1.1 million and $1.2 million, respectively, related to CLO residual interests. For the six months ended June 30, 2015 and 2014, we recognized interest income totaling $2.3 million and $2.4 million, respectively, related to CLO residual interests.

Investment in Tax Receivable Agreement Payment Rights

In June 2012, we invested in a TRA that entitles us to certain payment rights, or TRA Payment Rights, from Duff & Phelps Corporation, or Duff & Phelps. The TRA transfers the economic value of certain tax deductions, or tax benefits, taken by Duff & Phelps to us and entitles us to a stream of payments to be received. The TRA payment right is, in effect, a subordinated claim on the issuing company which can be valued based on the credit risk of the issuer, which includes projected future earnings, the liquidity of the underlying payment right, risk of tax law changes, the effective tax rate and any other factors which might impact the value of the payment right.

Through the TRA, we are entitled to receive an annual tax benefit payment based upon 85% of the savings from certain deductions along with interest. The payments that we are entitled to receive result from cash savings, if any, in U.S. federal, state or local income tax that Duff & Phelps realizes (i) from the tax savings derived from the goodwill and other intangibles created in connection with the Duff & Phelps initial public offering and (ii) from other income tax deductions. These tax benefit payments will continue until the relevant deductions are fully utilized, which is projected to be 16 years from the initial investment date. Pursuant to the TRA, we maintain the right to enforce Duff & Phelps payment obligations as a transferee of the TRA contract. If Duff & Phelps chooses to pre-pay and terminate the TRA, we will be entitled to the present value of the expected future TRA payments. If Duff & Phelps breaches any material obligation then all obligations are accelerated and calculated as if an early termination occurred. Failure to make a payment is a breach of a material obligation if the failure occurs for more than three months.

The projected annual tax benefit payment is accrued on a quarterly basis and paid annually. The payment is allocated between a reduction in the cost basis of the investment and interest income based upon an amortization schedule. Based upon the characteristics of the investment, we have chosen to categorize the investment in the TRA payment rights as an investment in payment rights.

The amortized cost basis and fair value of the TRA as of June 30, 2015 was $11.9 million and $13.5 million, respectively. The amortized cost basis and fair value of the TRA as of December 31, 2014 was $11.9 million and $13.5 million. For the three months ended June 30, 2015 and 2014, we recognized interest income totaling $0.5 million and $0.5 million, respectively, related to the TRA. For the six months ended June 30, 2015 and 2014, we recognized interest income totaling $1.0 million and $1.0 million, respectively, related to the TRA.

Asset Quality

We employ the use of board observation and information rights, regular dialogue with company management and sponsors, and detailed internally generated monitoring reports to actively monitor performance. Additionally, THL Credit has developed a monitoring template that promotes compliance with these standards and that is used as a tool to assess investment performance relative to plan.

 

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As part of the monitoring process, the Advisor assesses the risk profile of each of our investments and assigns each portfolio investment a score of a 1, 2, 3, 4 or 5

The revised investment performance scores, or IPS, are as follows:

1 – The portfolio investment is performing above our underwriting expectations.

2 – The portfolio investment is performing as expected at the time of underwriting. All new investments are initially scored a 2.

3 – The portfolio investment is operating below our underwriting expectations, and requires closer monitoring. The company may be out of compliance with financial covenants, however, principal or interest payments are generally not past due.

4 – The portfolio investment is performing materially below our underwriting expectations and returns on our investment are likely to be impaired. Principal or interest payments may be past due, however, full recovery of principal and interest payments are expected.

5 – The portfolio investment is performing substantially below expectations and the risk of the investment has increased substantially. The company is in payment default and the principal and interest payments are not expected to be repaid in full.

For any investment receiving a score of a 3 or lower THL Credit Advisors will increase their level of focus and prepare regular updates for the investment committee summarizing current operating results, material impending events and recommended actions.

The Advisor monitors and, when appropriate, changes the investment scores assigned to each investment in our portfolio. In connection with our investment valuation process, the Advisor and board of directors review these investment scores on a quarterly basis. Our average investment score was 2.16 and 2.07 at June 30, 2015 and December 31, 2014, respectively. The following is a distribution of the investment scores of our portfolio companies at June 30, 2015 and December 31, 2014 (in millions):

 

     June 30, 2015     December 31, 2014  

Investment Score

   Fair Value      % of Total
Portfolio
    Fair Value      % of Total
Portfolio
 

1(a)

   $ 63.5         8.3   $ 72.1         9.2

2(b)

     527.9         68.9     569.5         72.7

3(c)

     155.5         20.3     136.0         17.3

4(d)

     16.3         2.1     6.6         0.8

5(e)

     3.0         0.4     —           —     
  

 

 

    

 

 

   

 

 

    

 

 

 

Total

   $ 766.2         100.0   $ 784.2         100.0
  

 

 

    

 

 

   

 

 

    

 

 

 

 

(a) As of June 30, 2015 and December 31, 2014, Investment Score “1” included $22.2 million and $0, respectively, of loans to companies in which we also hold equity securities.
(b) As of June 30, 2015 and December 31, 2014, Investment Score “2” included $132.0 million and $126.0 million, respectively, of loans to companies in which we also hold equity securities.
(c) As of June 30, 2015 and December 31, 2014, Investment Score “3” included $40.2 million and $24.7 million, respectively, of loans to companies in which we also hold equity securities.
(d) As of June 30, 2015 and December 31, 2014, Investment Score “4” included $0 million and $4.6 million, respectively, of loans to companies in which we also hold equity securities.
(e) As of June 30, 2015 and December 31, 2014, Investment Score “5” included $3.0 million and $0, respectively, of loans to companies in which we also hold equity securities.

Loans are placed on non-accrual status when principal or interest payments are past due 30 days or more and/or when it is no longer probable that principal or interest will be collected. However, we may make exceptions to this policy if the loan has sufficient collateral value and is in the process of collection. As of June 30, 2015, we had one loan on non-accrual with an amortized cost basis of $4.5 million and fair value of $3.0 million. As of December 31, 2014, we had no loans on non-accrual. We record the reversal of any previously accrued income against the same income category reflected in the Consolidated Statement of Operations.

 

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Results of Operations

Comparison of the Three and Six Months Ended June 30, 2015 and 2014

Investment Income

We generate revenues primarily in the form of interest on the debt and other income-producing securities we hold. Other income-producing securities include investments in funds, investment in payment rights and residual interests, or equity, of CLOs. Our investments in fixed income instruments generally have an expected maturity of five to seven years, and typically bear interest at a fixed or floating rate. Interest on our debt securities is generally payable quarterly. Payments of principal of our debt investments may be amortized over the stated term of the investment, deferred for several years or due entirely at maturity. In some cases, our debt instruments and preferred stock investments may defer payments of dividends or pay interest in-kind, or PIK. Any outstanding principal amount of our debt securities and any accrued but unpaid interest will generally become due at the maturity date. The level of interest income we receive is directly related to the balance of interest-bearing investments multiplied by the weighted average yield of our investments. In addition to interest income, we may receive dividends and other distributions related to our equity investments. We may also generate revenue in the form of fees from the management of Greenway and Greenway II, prepayment premiums, commitment, loan origination, structuring or due diligence fees, exit fees, amendment fees, portfolio company administration fees, fees for providing significant managerial assistance and consulting fees.

The following shows the breakdown of investment income for the three and six months ended June 30, 2015 and 2014 (in millions):

 

     Three months ended June 30,      Six months ended June 30,  
     2015      2014      2015      2014  

Interest income on debt securities

           

Cash interest

   $ 16.7       $ 16.7       $ 34.5       $ 30.6   

PIK interest

     1.4         0.6         1.9         1.2   

Prepayment premiums

     —           1.3         0.2         1.7   

Net accretion of discounts and other fees

     0.9         1.4         1.6         2.3   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total interest on debt securities

     19.0         20.0         38.2         35.8   

Dividend income

     1.1         0.6         1.4         2.8   

Interest income on other income-producing securities

     2.1         1.7         4.1         3.5   

Fees related to Greenway and Greenway II

     0.7         0.8         1.2         1.5   

Other income

     0.9         0.6         2.6         1.0   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 23.8       $ 23.7       $ 47.5       $ 44.6   
  

 

 

    

 

 

    

 

 

    

 

 

 

The increases in investment income between the three month periods was primarily due to the growth in dividend income and other income primarily from amendment and other fees. This increase was offset by lower prepayment premiums received.

The increases in investment income between the six month periods ended June 30, 2015 and 2014 was primarily due to the growth in the overall investment portfolio since June 30, 2014, which led to higher interest income, as well as the increase in other income primarily from amendment and other fees. This increase was offset by lower dividends received from our equity investments.

The following shows a rollforward of PIK income activity for the three and six months ended June 30, 2015 and 2014 (in millions):

 

     Three months ended June 30,      Six months ended June 30,  
     2015      2014      2015      2014  

Accumulated PIK balance, beginning of period

   $ 6.3       $ 6.6       $ 7.0       $ 6.1   

PIK income capitalized/receivable

     1.8         0.6         2.4         1.1   

PIK received in cash from repayments

     (0.5      —           (1.8      —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Accumulated PIK balance, end of period

   $ 7.6       $ 7.2       $ 7.6       $ 7.2   
  

 

 

    

 

 

    

 

 

    

 

 

 

In certain investment transactions, we may provide advisory services. For services that are separately identifiable and external evidence exists to substantiate fair value, income is recognized as earned. We earned no income from advisory services related to portfolio companies for the three and six months ended June 30, 2015 and 2014.

 

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Expenses

Our primary operating expenses include the payment of base management fees, an incentive fee, borrowing expenses related to our credit facilities and Notes, and expenses reimbursable under the investment management agreement and the allocable portion of overhead under the administration and investment management agreements (“administrator expenses”). The base management fee compensates the Advisor for work in identifying, evaluating, negotiating, closing and monitoring our investments. Our investment management agreement and administration agreement provides that we will reimburse the Advisor for costs and expenses incurred by the Advisor for facilities, office equipment and utilities allocable to the performance by the Advisor of its duties under the agreements, as well as any costs and expenses incurred by the Advisor relating to any administrative or operating services provided by the Advisor to us. We bear all other costs and expenses of our operations and transactions.

The following shows the breakdown of expenses for the three and six months ended June 30, 2015 and 2014 (in millions):

 

     Three months ended June 30,      Six months ended June 30,  
     2015      2014      2015      2014  

Expenses

           

Interest and fees on Borrowings(b)

   $ 3.6       $ 2.8       $ 7.1       $ 5.2   

Incentive fees(a)

     3.0         2.3         6.0         5.1   

Base management fees

     2.9         2.9         5.9         5.4   

Other expenses

     1.4         1.7         2.6         2.6   

Administrator expenses

     0.9         0.9         1.9         1.9   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total expenses before taxes

     11.8         10.6         23.5         20.2   

Income tax provision, excise and other taxes(c)

     —           0.3         0.2         0.9   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total expenses after taxes

   $ 11.8       $ 10.9       $ 23.7       $ 21.1   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(a) For the three months ended June 30, 2015 and 2014, incentive fees include the effect of the GAAP Incentive Fee reversal of $0 and $0.7 million, respectively. For the six months ended June 30, 2015 and 2014, incentive fees include the effect of the GAAP Incentive Fee reversal of $0 and $0.7 million, respectively. The GAAP Incentive Fee accrual considers the cumulative aggregate realized gains and losses and unrealized appreciation or depreciation of investments or other financial instruments. There can be no assurance that such amounts of unrealized appreciation or depreciation will be realized in the future. Accordingly, such GAAP Incentive Fee, as calculated and accrued, would not necessarily be payable under the Investment Management Agreement, and may never be paid based upon the computation of incentive fees in subsequent quarters.
(b) Interest, fees and amortization of deferred financing costs related to our Revolving Facility, Term Loan Facility and Notes.
(c) Amounts include the income taxes related to earnings by our consolidated wholly-owned tax blocker corporations established to hold equity or equity-like portfolio company investments organized as pass-through entities, excise taxes related to our undistributed earnings and Delaware franchise taxes.

The increase in operating expenses for the respective periods was due primarily to the increase in base management and incentive fees related to the growth of the portfolio, since June 30, 2014, as well as interest and fees, which was a result of an increase in the credit facility commitments and borrowings outstanding. This increase in expenses for each respective period was offset by a decrease in income tax provision which was the result of updated tax estimates from portfolio companies held by our blocker corporations.

We expect certain of our operating expenses, including administrator expenses, professional fees and other general and administrative expenses to decline as a percentage of our total assets during periods of growth and increase as a percentage of our total assets during periods of asset declines.

Net Investment Income

Net investment income was $11.9 million, or $0.35 per common share based on a weighted average of 33,810,089 common shares outstanding for the three months ended June 30, 2015, as compared to $12.9 million, or $0.38 per common share based on a weighted average of 33,905,202 common shares outstanding for the three months ended June 30, 2014.

Net investment income was $23.8 million, or $0.70 per common share based on a weighted average of 33,857,384 common shares outstanding for the six months ended June 30, 2015, as compared to $23.6 million, or $0.70 per common share based on a weighted average of 33,905,202 common shares outstanding for the six months ended June 30, 2014.

The decrease in net investment income between the three month periods is primarily attributable to the increase in base management and incentive fees and borrowing expenses.

 

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The increase in net investment income between the six month periods is primarily attributable to the growth in the overall investment portfolio since June 30, 2014, which led to higher interest income, and was partially offset by an increase in base management fee, incentive fees and borrowing expenses.

Net Realized Gains and Losses on Investments, net of income tax provision

We measure realized gains or losses by the difference between the net proceeds from the repayment or sale and the amortized cost basis of the investment, using the specific identification method, without regard to unrealized appreciation or depreciation previously recognized.

The following shows the breakdown of realized gains and losses for the three and six months ended June 30, 2015 and 2014 (in millions):

 

     For the three months ended June 30,      For the six months ended June 30,  
     2015      2014      2015      2014  

Escrow receivable settlement (a)

   $ —         $ (1.0    $ —         $ (1.0

Blue Coat Systems, Inc.

     —           0.4         —           0.4   

Jefferson Management Holdings, LLC

     —           —           —           (0.5

Surgery Center Holdings, Inc.

     —           —           —           0.7   

Other

     —           —           0.1         0.1   
  

 

 

    

 

 

    

 

 

    

 

 

 

Net realized (losses)/gains

   $ —         $ (0.6    $ 0.1       $ (0.3
  

 

 

    

 

 

    

 

 

    

 

 

 

For the three and six months ended June 30, 2015, we did not record a tax (benefit) provision related to realized gains. For the three and six months ended June 30, 2014, a tax (benefit) provision of ($0.1) and $0.2 million, respectively, was recorded in the Consolidated Statements of Operations and reflected a revision to previously recognized estimated realized gains and dividend income as a result of adjusted tax estimates from the portfolio company.

Net Change in Unrealized Appreciation of Investments

Net change in unrealized appreciation primarily reflects the change in portfolio investment values during the reporting period, including the reversal of previously recorded appreciation or depreciation when gains or losses are realized.

The following shows the breakdown in the changes in unrealized appreciation of investments for the three and six months ended June 30, 2015 and 2014 (in millions):

 

     Three months ended June 30,      Six months ended June 30,  
     2015      2014      2015      2014  

Gross unrealized appreciation on investments

   $ 6.3       $ 4.7       $ 13.9       $ 9.6   

Gross unrealized depreciation on investments

     (3.7      (5.2      (7.3      (10.3

Reversal of prior period net unrealized depreciation (appreciation) upon a realization

     (0.1      (2.4      (0.3      (2.8
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 2.5       $ (2.9    $ 6.3       $ (3.5
  

 

 

    

 

 

    

 

 

    

 

 

 

The net change in unrealized appreciation on our investments was driven primarily by changes in the capital market conditions and financial performance of certain portfolio investments.

Provision for Taxes on Unrealized Gains on Investments

Certain consolidated subsidiaries of ours are subject to U.S. federal and state income taxes. These taxable entities are not consolidated with the Company for income tax purposes and may generate income tax liabilities or assets from temporary differences in the recognition of items for financial reporting and income tax purposes at the subsidiaries. For the three months ended June 30, 2015 and 2014, the Company recognized a provision (benefit) for tax on unrealized gains on investments of $0.4 million and ($0.0)

 

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million for consolidated subsidiaries, respectively. For the six months ended June 30, 2015 and 2014, the Company recognized a (benefit) provision for tax on unrealized gains on investments of $0.2 million and ($1.0) million for consolidated subsidiaries, respectively. As of June 30, 2015 and December 31, 2014, $2.8 million and $2.6 million, respectively, were included in deferred tax liability on the Consolidated Statements of Assets and Liabilities relating to deferred tax on unrealized gain on investments. The change in provision for tax on unrealized gains on investments relates primarily to changes to the unrealized appreciation of the investments held in these taxable consolidated subsidiaries as well as the change in prior year estimates received from certain portfolio companies.

Realized and Unrealized Appreciation (Depreciation) of Interest Rate Derivative

The interest rate derivative was entered into on May 10, 2012. Unrealized depreciation reflects the value of the interest rate derivative agreement at the end of the reporting period. For the three months ended June 30, 2015 and 2014, the net change of unrealized appreciation (depreciation) on interest rate derivative totaled $0.04 million and $(0.2) million, respectively, which is listed under net change in unrealized appreciation (depreciation) on interest rate derivatives in the Consolidated Statement of Operations. For the six months ended June 30, 2015 and 2014, the net change of unrealized appreciation (depreciation) on interest rate derivative totaled $(0.1) million and $(0.1) million, respectively, which is listed under net change in unrealized appreciation (depreciation) on interest rate derivatives in the Consolidated Statement of Operations. The changes were due to capital market changes impacting swap rates.

We measure realized gains or losses on the interest rate derivative based upon the difference between the proceeds received or the amount paid on the interest rate derivative. For the three months ended June 30, 2015 and 2014, we realized a loss of $0.1 million and $0.1 million, respectively, as interest rate derivative periodic interest payments, net on the Consolidated Statement of Operations. For the six months ended June 30, 2015 and 2014, we realized a loss of $0.2 million and $0.2 million, respectively, as interest rate derivative periodic interest payments, net on the Consolidated Statement of Operations

Net Increase in Net Assets Resulting from Operations

Net increase in net assets resulting from operations totaled $14.1 million, or $0.42 per common share based on a weighted average of 33,810,089 common shares for the three months ended June 30, 2015, as compared to $9.3 million, or $0.27 per common share, based on a weighted average of 33,905,202 common shares for the three months ended June 30, 2014.

Net increase in net assets resulting from operations totaled $29.6 million, or $0.87 per common share based on a weighted average of 33,857,384 common shares for the six months ended June 30, 2015, as compared to $20.3 million, or $0.60 per common share, based on a weighted average of 33,905,202 common shares for the six months ended June 30, 2014.

The increase in net assets resulting from operations between the three and six months periods ended June 30, 2015 and 2014 is due primarily to changes in unrealized appreciation in the portfolio.

Financial condition, liquidity and capital resources

Cash Flows from Operating and Financing Activities

Our liquidity and capital resources are derived from our borrowings, equity raises and cash flows from operations, including investment sales and repayments, and investment income earned. Our primary use of funds from operations includes investments in portfolio companies, payment of dividends to the holders of our common stock and payments of fees and other operating expenses we incur. We have used, and expect to continue to use, our borrowings and the proceeds from the turnover in our portfolio and from public and private offerings of securities to finance our investment objectives, to the extent permitted by the 1940 Act.

We may raise additional equity or debt capital through both registered offerings off our shelf registration statement and private offerings of securities, by securitizing a portion of our investments or borrowings from credit facilities. To the extent we determine to raise additional equity through an offering of our common stock at a price below net asset value, existing investors will experience dilution. During our 2015 Annual Stockholder Meeting held on June 2, 2015, our stockholders authorized us, with the approval of our Board of Directors, to sell up to 25% of our outstanding common stock at a price below our then current net asset value per share and to offer and issue debt with warrants or debt convertible into shares of our common stock at an exercise or conversion price that will not be less than the fair market value per share but may be below the then current net asset value per share. There can be no assurance that these capital resources will be available.

In December 2014, the Company completed a public debt offering selling $50.0 million of Notes due 2021, or the Notes, including the exercise of the over allotment option, through a group of underwriters, less an underwriting discount, and received net proceeds of $48.5 million.

 

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On April 30, 2014, we closed an additional $85.0 million of commitments to our Facilities, which brings the aggregate size to $410.0 million of commitments. For the six months ended June 30, 2015, we borrowed $76.0 million under our Revolving Facility and repaid $88.0 million on our Revolving Facility from proceeds received from prepayments and sales and investment income. For the six months ended June 30, 2014, we borrowed $197.3 million under our Revolving Facility and $13.5 million under our Term Loan Facility and repaid $101.2 million on our Revolving Facility from proceeds received from the Term Loan Facility and investment income.

Our operating activities provided (used) cash of $44.0 million and ($70.2) million for the six months ended June 30, 2015 and 2014, respectively, primarily in connection with the purchase, repayments and sales of portfolio investments. For the six months ended June 30, 2015, our financing activities used $12.0 million to repay borrowings, used $23.0 million for distributions to stockholders, used $3.8 million to repurchase common stock, and $0.1 million for the payment of financing and offering costs. For the six months ended June 30, 2014, our financing activities provided cash of $109.5 million from net borrowings and used cash of $23.1 million for distributions to stockholders and $1.8 million for the payment of financing and offering costs.

As of June 30, 2015 and December 31, 2014, we had cash of $7.8 million and $2.7 million, respectively.

We believe cash balances, our Revolving Facility capacity and any proceeds generated from the sale or pay down of investments provides us with the liquidity necessary to acquit our pipeline in the near future.

Borrowings

The following shows a summary of our Borrowings as of June 30, 2015 and December 31, 2014 (in millions):

 

     June 30, 2015     December 31, 2014  

Facility

   Commitments      Borrowings
Outstanding
     Weighted
Average
Interest Rate
    Commitments      Borrowings
Outstanding
     Weighted
Average
Interest Rate
 

Revolving Facility

   $ 303.5       $ 176.4         2.69   $ 303.5       $ 188.4         2.69

Term Loan Facility

     106.5         106.5         3.44     106.5         106.5         3.44

2021 Notes

     50.0         50.0         6.75     50.0         50.0         6.75
  

 

 

    

 

 

      

 

 

    

 

 

    

Total

   $ 460.0       $ 332.9         3.54   $ 460.0       $ 344.9         3.51
  

 

 

    

 

 

      

 

 

    

 

 

    

Credit Facility

On April 30, 2014, we entered into an amendment, or the Revolving Amendment, to our existing revolving credit agreement, or Revolving Facility, and entered into an amendment, or the Term Loan Amendment, to our Term Loan Facility. The Revolving Facility and Term Loan Facility are collectively referred to as the Facilities.

The Revolving Loan Amendment revised the Facility dated May 10, 2012 to, among other things, increase the amount available for borrowing under the Revolving Facility from $232.0 million to $303.5 million and extend the maturity date from May 2017 to April 2018 (with a one year term out period beginning in April 2017). The one year term out period is the one year anniversary between the revolver termination date, or the end of the availability period, and the maturity date. During this time, we are required to make mandatory prepayments on its loans from the proceeds we receive from the sale of assets, extraordinary receipts, returns of capital or the issuances of equity or debt. The Revolving Amendment also changes the interest rate of the Revolving Facility to LIBOR plus 2.5% (with no LIBOR floor). The non-use fee is 1.0% annually if we use 35% or less of the Revolving Facility and 0.50% annually if we use more than 35% (with LIBOR floor) of the Revolving Facility. We elect the LIBOR rate on the loans outstanding on our Revolving Facility, which can have a maturity date that is one, two, three or nine months. The LIBOR rate on the borrowings outstanding on our Revolving Facility currently has a one month maturity.

The Term Loan Amendment revised the Term Loan Facility dated May 10, 2012 to, among other things, increase the amount borrowed from $93.0 million to $106.5 million and extend the maturity date from May 2018 to April 2019. The Term Loan Amendment also changes the interest rate of the Term Loan Facility to LIBOR plus 3.25% (with no LIBOR Floor) and has substantially similar terms to our existing Revolving Facility (as amended by the Revolving Amendment). The Company elects the LIBOR rate on our Term Loan, which can have a maturity date that is one, two, three or nine months. The LIBOR rate on its Term Loan currently has a one month maturity.

Each of the Facilities includes an accordion feature permitting us to expand the Facilities, if certain conditions are satisfied; provided, however, that the aggregate amount of the Facilities, collectively, is capped at $600.0 million.

The Facilities generally require payment of interest on a quarterly basis for ABR loans (commonly based on the Prime Rate or the Federal Funds Rate), and at the end of the applicable interest period for Eurocurrency loans bearing interest at LIBOR, the interest rate benchmark used to determine the variable rates paid on the Facilities. LIBOR maturities can range between one and nine months at the election of the Company. All outstanding principal is due upon each maturity date. The Facilities also require a mandatory prepayment of interest and principal upon certain customary triggering events (including, without limitation, the disposition of assets or the issuance of certain securities).

 

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Borrowings under the Facilities are subject to, among other things, a minimum borrowing/collateral base. The Facilities have certain collateral requirements and/or financial covenants, including covenants related to: (a) limitations on the incurrence of additional indebtedness and liens, (b) limitations on certain investments, (c) limitations on certain restricted payments, (d) limitations on the creation or existence of agreements that prohibit liens on certain properties of ours and our subsidiaries, and (e) compliance with certain financial maintenance standards including (i) minimum stockholders’ equity, (ii) a ratio of total assets (less total liabilities not represented by senior securities) to the aggregate amount of senior securities representing indebtedness, of us and our subsidiaries, of not less than 2.10:1.0, (iii) minimum liquidity, (iv) minimum net worth, and (v) a consolidated interest coverage ratio. In addition to the financial maintenance standards, described in the preceding sentence, borrowings under the Facilities (and the incurrence of certain other permitted debt) are subject to compliance with a borrowing base that applies different advance rates to different types of assets in our portfolio.

The Facilities’ documents also include default provisions such as the failure to make timely payments under the Facilities, the occurrence of a change in control, and the failure by us to materially perform under the operative agreements governing the Facilities, which, if not complied with, could, at the option of the lenders under the Facilities, accelerate repayment under the Facilities, thereby materially and adversely affecting our liquidity, financial condition and results of operations. Each loan originated under the Revolving Facility is subject to the satisfaction of certain conditions. We cannot be assured that we will be able to borrow funds under the Revolving Facility at any particular time or at all. We are currently in compliance with all financial covenants under the Facilities.

For the six months ended June 30, 2015, we borrowed $76.0 million and repaid $88.0 million under the Facilities. For the six months ended June 30, 2014, we borrowed $210.8 million and repaid $101.2 million under the Facilities.

As of June 30, 2015 and December 31, 2014, the carrying amount of the Company’s outstanding Facilities approximated fair value. The fair values of the Company’s Facilities are determined in accordance with ASC 820, which defines fair value in terms of the price that would be paid to transfer a liability in an orderly transaction between market participants at the measurement date under current market conditions. The fair value of the Company’s Facilities are estimated based upon market interest rates and entities with similar credit risk. As of June 30, 2015 and December 31, 2014, the Facilities would be deemed to be Level 3 of the fair value hierarchy.

Interest expense and related fees, excluding amortization of deferred financing costs, of $3.2 million and $2.5 million were incurred in connection with the Facilities during the three months ended June 30, 2015 and 2014, respectively. Interest expense and related fees, excluding amortization of deferred financing costs, of $6.2 and $4.6 million were incurred in connection with the Facilities during the six months ended June 30, 2015 and 2014, respectively.

Notes

In December 2014, we completed a public offering of $50.0 million in aggregate principal amount of 6.75% notes due 2021, or the Notes. The Notes mature on November 15, 2021, and may be redeemed in whole or in part at any time or from time to time at our option on or after November 15, 2017. The Notes bear interest at a rate of 6.75% per year payable quarterly on March 30, June 30, September 30 and December 30, of each year, beginning December 30, 2014 and trade on the New York Stock Exchange under the trading symbol “TCRX.”

The Notes are our direct unsecured obligations and rank: (i) pari passu with our other outstanding and future senior unsecured indebtedness; (ii) senior to any of our future indebtedness that expressly provides it is subordinated to the Notes; (iii) effectively subordinated to all our existing and future secured indebtedness (including indebtedness that is initially unsecured to which we subsequently grant security), to the extent of the value of the assets securing such indebtedness, including without limitation, borrowings under our Revolving Facility and Term Loan Facility; (iv) structurally subordinated to all existing and future indebtedness and other obligations of any of our subsidiaries.

The Base Indenture, as supplemented by the First Supplemental Indenture, contains certain covenants including covenants requiring us to comply with (regardless of whether it is subject to) the Section 18 (a)(1)(A) as modified by Section 61(a)(1) of the 1940 Act or any successor provisions, whether or not we continue to be subject to such provisions of the 1940 Act, but giving effect, in either case, to any exemptive relief granted to us by the SEC. Currently these provisions generally prohibit us from making additional borrowings, including through the issuance of additional debt or the sale of additional debt securities, unless our asset coverage, as defined in the 1940 Act, equals at least 200% after such borrowings. These covenants are subject to important limitations and exceptions that are described in the Indenture, as supplemented by the First Supplemental Indenture. The Indenture provides for customary events of default and further provides that the Trustee or the holders of 25% in aggregate principal amount of the outstanding Notes in a series may declare such Notes immediately due and payable upon the occurrence of any event of default after expiration of any applicable grace period.

 

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As of June 30, 2015, the carrying amount and fair value of our Notes was $50.0 million and $50.7 million, respectively. As of December 31, 2014, the carrying value and fair value of our Notes was $50.0 million and $51.6 million, respectively. The fair value of our Notes are determined in accordance with ASC 820, which defines fair value in terms of the price that would be paid to transfer a liability in an orderly transaction between market participants at the measurement date under current market conditions. The fair value of the Notes is based on the closing price of the security, which is a Level 2 input under ASC 820 due to the trading volume. In connection with the issuance of the Notes, we incurred $2.1 million of fees and expenses. These amounts were capitalized and are being amortized using the effective interest method over the term of the Notes. For the three and six months ended June 30, 2015, we amortized approximately $0.1 million and $0.2 million, respectively, of deferred financing costs, which is included under amortization of deferred financing costs on the Consolidated Statements of Operations. As of June 30, 2015 and December 31, 2014, we had approximately $1.9 million and $2.1 million, respectively, of remaining deferred financing costs on the Notes, which is included under Deferred Financing Costs on our Consolidated Statements of Assets and Liabilities.

For the three and six months ending June 30, 2015, we incurred interest expense on the Notes of approximately $0.8 million and $1.7 million, respectively.

As of June 30, 2015, we were in compliance with the terms of the indenture and the supplemental indenture governing the Notes. See Note 6 to our consolidated financial statements for more detail on the Notes.

Interest Rate Derivative

On May 10, 2012, we entered into a five-year interest rate swap agreement, or swap agreement, with ING Capital Markets, LLC. Under the swap agreement, with a notional value of $50 million, we pay a fixed rate of 1.1425% and receive a floating rate based upon the current three-month LIBOR rate. We entered into the swap agreement to manage interest rate risk and not for speculative purposes.

We record the change in valuation of the swap agreement in unrealized appreciation (depreciation) as of each measurement period. When the quarterly swap amounts are paid or received under the swap agreement, the amounts are recorded as a realized gain (loss) as interest rate derivative periodic interest payments, net on the Consolidated Statement of Operations.

For the three months ended June 30, 2015 and 2014, we recognized $0.1 million and $0.1 million, respectively, of realized loss from the swap agreement, which is reflected as interest rate derivative periodic interest payments, net in the Consolidated Statements of Operations. For the six months ended June 30, 2015 and 2014, we recognized $0.2 million and $0.2 million, respectively, of realized loss from the swap agreement, which is reflected as interest rate derivative periodic interest payments, net in the Consolidated Statements of Operations.

For the three months ended June 30, 2015 and 2014, we recognized $0.04 million and ($0.2) million of net change in unrealized appreciation (depreciation) from the swap agreement, respectively, which is listed under net change in unrealized depreciation on interest rate derivative in the Consolidated Statements of Operations. For the six months ended June 30, 2015 and 2014, we recognized ($0.1) million and ($0.1) million of net change in unrealized appreciation (depreciation) from the swap agreement, respectively, which is listed under net change in unrealized depreciation on interest rate derivative in the Consolidated Statements of Operations. As of June 30, 2015 and December 31, 2014, our fair value of the swap agreement is $(0.4) million and $(0.2) million, respectively, which is listed as an interest rate derivative liability on the Consolidated Statements of Assets and Liabilities.

Contractual Obligations and Off-Balance Sheet Arrangements

From time to time, we, or the Advisor, may become party to legal proceedings in the ordinary course of business, including proceedings related to the enforcement of our rights under contracts with our portfolio companies. Neither we, nor the Advisor, are currently subject to any material legal proceedings.

Unfunded commitments to provide funds to portfolio companies are not reflected in our Consolidated Statements of Assets and Liabilities. Our unfunded commitments may be significant from time to time. These commitments will be subject to the same underwriting and ongoing portfolio maintenance as are the on-balance sheet financial instruments that we hold. Since these commitments may expire without being drawn upon, the total commitment amount does not necessarily represent future cash requirements. We intend to use cash flow from normal and early principal repayments and proceeds from borrowings and offerings to fund these commitments. Funding to Logan JV will only be made pursuant to unanimous approval from its board of directors, which is composed of a representative from each of us and Perspecta.

 

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As of June 30, 2015 and December 31, 2014, we have the following unfunded commitments to portfolio companies (in millions):

 

     As of  
     June 30, 2015      December 31, 2014  

Unfunded delayed draw facilities

   $ 10.7       $ 29.8   

Unfunded revolving commitments

     4.5         4.5   

Unfunded commitments to investments in funds

     1.6         1.9   

Unfunded commitments to Logan JV

     164.4         113.6   
  

 

 

    

 

 

 

Total unfunded commitments

   $ 181.2       $ 149.8   
  

 

 

    

 

 

 

Dividends

We have elected to be taxed as a regulated investment company under Subchapter M of the Code. In order to maintain our status as a regulated investment company, we are required to distribute at least 90% of our investment company taxable income. To avoid a 4% excise tax on undistributed earnings, we are required to distribute each calendar year the sum of (i) 98% of our ordinary income for such calendar year (ii) 98.2% of our net capital gains for the one-year period ending October 31 of that calendar year (iii) any income recognized, but not distributed, in preceding years and on which we paid no U.S. federal income tax. We intend to make distributions to stockholders on a quarterly basis of substantially all of our net investment income. Although we intend to make distributions of net realized capital gains, if any, at least annually, out of assets legally available for such distributions, we may in the future decide to retain such capital gains for investment. In addition, the extent and timing of special dividends, if any, will be determined by our board of directors and will largely be driven by portfolio specific events and tax considerations at the time.

In addition, we may be limited in our ability to make distributions due to the BDC asset coverage test for borrowings applicable to us as a BDC under the 1940 Act.

The following table summarizes our dividends declared and paid or to be paid on all shares including dividends reinvested, if any:

 

Date Declared

   Record Date    Payment Date    Amount Per Share  

August 5, 2010

   September 2, 2010    September 30, 2010    $ 0.05   

November 4, 2010

   November 30, 2010    December 28, 2010    $ 0.10   

December 14, 2010

   December 31, 2010    January 28, 2011    $ 0.15   

March 10, 2011

   March 25, 2011    March 31, 2011    $ 0.23   

May 5, 2011

   June 15, 2011    June 30, 2011    $ 0.25   

July 28, 2011

   September 15, 2011    September 30, 2011    $ 0.26   

October 27, 2011

   December 15, 2011    December 30, 2011    $ 0.28   

March 6, 2012

   March 20, 2012    March 30, 2012    $ 0.29   

March 6, 2012

   March 20, 2012    March 30, 2012    $ 0.05   

May 2, 2012

   June 15, 2012    June 29, 2012    $ 0.30   

July 26, 2012

   September 14, 2012    September 28, 2012    $ 0.32   

November 2, 2012

   December 14, 2012    December 28, 2012    $ 0.33   

December 20, 2012

   December 31, 2012    January 28, 2013    $ 0.05   

February 27, 2013

   March 15, 2013    March 29, 2013    $ 0.33   

May 2, 2013

   June 14, 2013    June 28, 2013    $ 0.34   

August 2, 2013

   September 16, 2013    September 30, 2013    $ 0.34   

August 2, 2013

   September 16, 2013    September 30, 2013    $ 0.08   

October 30, 2013

   December 16, 2013    December 31, 2013    $ 0.34   

March 4, 2014

   March 17, 2014    March 31, 2014    $ 0.34   

May 7, 2014

   June 16, 2014    June 30, 2014    $ 0.34   

August 7, 2014

   September 15, 2014    September 30, 2014    $ 0.34   

November 4, 2014

   December 15, 2014    December 31, 2014    $ 0.34   

March 6, 2015

   March 20, 2015    March 31, 2015    $ 0.34   

May 5, 2015

   June 15, 2015    June 30, 2015    $ 0.34   

August 4, 2015

   September 15, 2015    September 30, 2015    $ 0.34   

 

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We may not be able to achieve operating results that will allow us to make distributions at a specific level or to increase the amount of these distributions from time to time. If we do not distribute a certain percentage of our income annually, we will suffer adverse tax consequences, including possible loss of its status as a regulated investment company. We cannot assure stockholders that they will receive any distributions at a particular level.

We maintain an “opt in” dividend reinvestment plan for our common stockholders. As a result, unless stockholders specifically elect to have their dividends automatically reinvested in additional shares of common stock, stockholders will receive all such dividends in cash. There were no dividends reinvested for the three months ended June 30, 2015 and 2014 under the dividend reinvestment plan.

Under the terms of our dividend reinvestment plan, dividends will primarily be paid in newly issued shares of common stock. However, we reserve the right to purchase shares in the open market in connection with the implementation of the plan. This feature of the plan means that, under certain circumstances, we may issue shares of our common stock at a price below net asset value per share, which could cause our stockholders to experience dilution.

Distributions in excess of our current and accumulated profits and earnings would be treated first as a return of capital to the extent of the stockholder’s tax basis, and any remaining distributions would be treated as a capital gain. The determination of the tax attributes of our distributions will be made annually as of the end of our fiscal year based upon its taxable income for the full year and distributions paid for the full year. Therefore, a determination made on a quarterly basis may not be representative of the actual tax attributes of our distributions for a full year. If we had determined the tax attributes of its 2015 distributions as of June 30, 2015, 100% would be from ordinary income, 0% would be from capital gains and 0% would be a return of capital. There can be no certainty to stockholders that this determination is representative of what the tax attributes of our 2015 distributions to stockholders will actually be. Each year, a statement on Form 1099-DIV identifying the source of the distribution will be mailed to our stockholders.

Contractual obligations

We have entered into a contract with the Advisor to provide investment advisory services. Payments for investment advisory services under the investment management agreement in future periods will be equal to (a) an annual base management fee of 1.5% of our gross assets and (b) an incentive fee based on our performance. In addition, under our administration agreement, the Advisor will be reimbursed for administrative services incurred on our behalf. See description below under Related Party Transactions.

The following table shows our contractual obligations as of June 30, 2015 (in millions):

 

     Payments due by period  

Contractual Obligations(1)

   Total      Less than
1 year
     1 - 3 years      3 - 5 years      After 5
years
 

Term Loan Facility

   $ 106.5         —          —        $ 106.5         —    

Note Payable

   $ 50.0         —          —          —        $ 50.0   

 

(1) 

Excludes commitments to extend credit to our portfolio companies.

We entered into an interest rate derivative to manage interest rate risk. We record the change in valuation of the swap agreement in unrealized appreciation (depreciation) as of each measurement period. When the quarterly interest rate swap amounts are paid or received under the swap agreement, the amounts are recorded as a realized gain (loss). Further discussion of the interest rate derivative is included in Note 1 “Significant Accounting Policies” and Note 7 “Interest Rate Derivative” in the “Notes to Consolidated Financial Statements”.

Stock Repurchase Program

On March 6, 2015, our board of directors authorized a $25.0 million stock repurchase program that was put into effect in May 2015. The timing and amount of any stock repurchases will depend on the terms and conditions of the repurchase program and no assurances can be given that any common stock, or any particular amount, will be purchased. Unless extended by our board of directors, the stock repurchase program will terminate on March 6, 2016 and may be modified or terminated at any time for any reason without prior notice. We have provided our stockholders with notice of our intention to repurchase shares of our common stock in accordance with 1940 Act requirements. We will retire immediately all such shares of common stock that we purchase in connection with the stock repurchase program. Our net asset value per share was increased by approximately $0.01 as a result of the share repurchases.

 

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The following table summarizes our share repurchases under our stock repurchase program for the three and six months ended June 30, 2015 (in millions):

 

     For the three months ended June 30,      For the six months ended June 30,  
     2015     2014      2015     2014  

Dollar amount repurchased

   $ 3.8        —         $ 3.8        —     

Shares repurchased

     0.3        —           0.3        —     

Average price per share (including commission)

   $ 12.38        —         $ 12.38        —     

Weighted average discount to net asset value

     6.20     —           6.20     —     

Related Party Transactions

Investment Management Agreement

On March 6, 2015, our investment management agreement with the Advisor was re-approved by our Board of Directors. Under the investment management agreement, the Advisor, subject to the overall supervision of our board of directors, manages the day-to-day operations of, and provides investment advisory services to us.

The Advisor receives a fee for investment advisory and management services consisting of a base management fee and a two-part incentive fee.

The base management fee is calculated at an annual rate of 1.5% of our gross assets payable quarterly in arrears on a calendar quarter basis. For purposes of calculating the base management fee, “gross assets” is determined as the value of our assets without deduction for any liabilities. The base management fee is calculated based on the value of our gross assets at the end of the most recently completed calendar quarter, and appropriately adjusted for any share issuances or repurchases during the current calendar quarter.

For the three months ended June 30, 2015 and 2014, we incurred base management fees payable to the Advisor of $2.9 million and $2.9 million, respectively. For the six months ended June 30, 2015 and 2014, we incurred base management fees payable to the Advisor of $5.9 million and $5.4 million, respectively. As of June 30, 2015 and December 31, 2014, $2.9 million and $2.8 million, respectively, was payable to the Advisor.

The incentive fee has two components, ordinary income and capital gains, as follows:

The ordinary income component is calculated, and payable, quarterly in arrears based on our preincentive fee net investment income for the immediately preceding calendar quarter, subject to a cumulative total return requirement and to deferral of non-cash amounts. The preincentive fee net investment income, which is expressed as a rate of return on the value of our net assets attributable to our common stock, for the immediately preceding calendar quarter, will have a 2.0% (which is 8.0% annualized) hurdle rate (also referred to as “minimum income level”). Preincentive fee net investment income means interest income, dividend income and any other income (including any other fees, such as commitment, origination, structuring, diligence, managerial assistance and consulting fees or other fees that we receive from portfolio companies) accrued during the calendar quarter, minus our operating expenses for the quarter (including the base management fee, expenses payable under our administration agreement (discussed below), and any interest expense and any dividends paid on any issued and outstanding preferred stock, but excluding the incentive fee and any offering expenses and other expenses not charged to operations but excluding certain reversals to the extent such reversals have the effect of reducing previously accrued incentive fees based on the deferral of non-cash interest. Preincentive fee net investment income includes, in the case of investments with a deferred interest feature (such as original issue discount, debt instruments with PIK interest and zero coupon securities), accrued income that we have not yet received in cash. The Advisor receives no incentive fee for any calendar quarter in which our preincentive fee net investment income does not exceed the minimum income level. Subject to the cumulative total return requirement described below, the Advisor receives 100% of our preincentive fee net investment income for any calendar quarter with respect to that portion of the preincentive net investment income for such quarter, if any, that exceeds the minimum income level but is less than 2.5% (which is 10.0% annualized) of net assets (also referred to as the “catch-up” provision) and 20.0% of our preincentive fee net investment income for such calendar quarter, if any, greater than 2.5% (10.0% annualized) of net assets. The foregoing incentive fee is subject to a total return requirement, which provides that no incentive fee in respect of our preincentive fee net investment income is payable except to the extent 20.0% of the cumulative net increase in net assets resulting from operations over the then current and 11 preceding calendar quarters exceeds the cumulative incentive fees accrued and/or paid for the 11 preceding quarters. In other words, any ordinary income incentive fee that is payable in a calendar quarter is limited to the lesser of (i) 20% of the amount by which our preincentive fee net investment income for such calendar quarter exceeds the 2.0% hurdle, subject to the “catch-up” provision, and (ii) (x) 20% of the cumulative net increase in net assets resulting from operations for the then current and 11 preceding quarters minus (y) the cumulative incentive fees accrued and/or paid for the 11 preceding calendar quarters. For the foregoing purpose, the “cumulative net increase in net assets resulting from operations” is the amount, if positive, of the sum of our preincentive fee net investment income, base management fees, realized gains and losses and unrealized appreciation and depreciation for the then current and 11 preceding calendar quarters. In addition, the portion of such incentive fee that is attributable to deferred interest (sometimes referred to as payment-in-kind interest, or PIK, or original issue discount, or OID) will be paid to THL Credit

 

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Advisors, together with interest thereon from the date of deferral to the date of payment, only if and to the extent we actually receive 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. There is no accumulation of amounts on the hurdle rate from quarter to quarter and accordingly there is no clawback of amounts previously paid if subsequent quarters are below the quarterly hurdle rate and there is no delay of payment if prior quarters are below the quarterly hurdle rate.

For the three months ended June 30, 2015 and 2014, we incurred $2.9 million and $3.0 million, respectively, of incentive fees related to ordinary income. For the six months ended June 30, 2015 and 2014, we incurred $6.0 million and $5.7 million, respectively, of incentive fees related to ordinary income. As of June 30, 2015 and December 31, 2014, $2.9 million and $3.1 million, respectively, of such incentive fees are currently payable to the Advisor. As of June 30, 2015 and December 31, 2014, $1.1 million and $1.1 million, respectively of incentive fees incurred by us were generated from deferred interest (i.e. PIK, certain discount accretion and deferred interest) and are not payable until such amounts are received in cash.

The second component of the incentive fee (capital gains incentive fee) is determined and payable in arrears as of the end of each calendar year (or upon termination of the investment management agreement, as of the termination date). This component is equal to 20.0% of our cumulative aggregate realized capital gains from inception through the end of that calendar year, computed net of the cumulative aggregate realized capital losses and cumulative aggregate unrealized capital depreciation through the end of such year. The aggregate amount of any previously paid capital gains incentive fees is subtracted from such capital gains incentive fee calculated. There was no capital gains incentive fee payable to our Advisor under the investment management agreement as of June 30, 2015 and December 31, 2014.

GAAP requires that the incentive fee accrual considers the cumulative aggregate realized gains and losses and unrealized capital appreciation or depreciation of investments or other financial instruments, such as an interest rate derivative, in the calculation, as an incentive fee would be payable if such realized gains and losses or unrealized capital appreciation or depreciation were realized, even though such realized gains and losses and unrealized capital appreciation or depreciation is not permitted to be considered in calculating the fee actually payable under the investment management agreement (“GAAP Incentive Fee”). There can be no assurance that such unrealized appreciation or depreciation will be realized in the future. Accordingly, such fee, as calculated and accrued, would not necessarily be payable under the investment management agreement, and may never be paid based upon the computation of incentive fees in subsequent periods.

For the three months ended June 30, 2015 and 2014, we reversed $0 and $0.7 million, respectively, of incentive fees related to the GAAP incentive fee. For the six months ended June 30, 2015 and 2014, we reversed $0 and $0.7 million, respectively, of incentive fees related to the GAAP incentive fee.

Administration Agreement

We have also entered into an administration agreement with the Advisor under which the Advisor will provide administrative services to us. Under the administration agreement, the Advisor performs, or oversees the performance of administrative services necessary for our operation, which include, among other things, being responsible for the financial records which we are required to maintain and preparing reports to our stockholders and reports filed with the SEC. In addition, the Advisor assists in determining and publishing our net asset value, oversees the preparation and filing of our tax returns and the printing and dissemination of reports to our stockholders, and generally oversees the payment of our expenses and the performance of administrative and professional services rendered to us by others. We will reimburse the Advisor for our allocable portion of the costs and expenses incurred by the Advisor for overhead in performance by the Advisor of its duties under the administration agreement and the investment management agreement, including facilities, office equipment and our allocable portion of cost of compensation and related expenses of our chief financial officer and chief compliance officer and their respective staffs, as well as any costs and expenses incurred by the Advisor relating to any administrative or operating services provided to us by the Advisor. Our board of directors reviews the allocation methodologies with respect to such expenses. Such costs are reflected as Administrator expenses in the accompanying Consolidated Statements of Operations. Under the administration agreement, the Advisor provides, on our behalf, managerial assistance to those portfolio companies to which the Company is required to provide such assistance. To the extent that our Advisor outsources any of its functions, the Company pays the fees associated with such functions on a direct basis without profit to the Advisor.

For the three months ended June 30, 2015 and 2014, we incurred administrator expenses of $0.9 million and $0.9 million, respectively. For the six months ended June 30, 2015 and 2014, we incurred administrator expenses of $1.9 million and $1.9 million, respectively. As of June 30, 2015 and December 31, 2014, $0.02 million and $0, respectively, was payable to the Advisor.

License Agreement

We and the Advisor have entered into a license agreement with THL Partners under which THL Partners has granted to us and the Advisor a non-exclusive, personal, revocable worldwide non-transferable license to use the trade name and service mark THL, which is a proprietary mark of THL Partners, for specified purposes in connection with our respective businesses. This license agreement is royalty-free, which means we are not charged a fee for our use of the trade name and service mark THL. The license

 

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agreement is terminable either in its entirety or with respect to us or the Advisor by THL Partners at any time in its sole discretion upon 60 days prior written notice, and is also terminable with respect to either us or the Advisor by THL Partners in the case of certain events of non-compliance. After the expiration of its first one year term, the entire license agreement is terminable by either us or the Advisor at our or its sole discretion upon 60 days prior written notice. Upon termination of the license agreement, we and the Advisor must cease to use the name and mark THL, including any use in our respective legal names, filings, listings and other uses that may require us to withdraw or replace our names and marks. Other than with respect to the limited rights contained in the license agreement, we and the Advisor have no right to use, or other rights in respect of, the THL name and mark. We are an entity operated independently from THL Partners, and third parties who deal with us have no recourse against THL Partners.

Due to and from Affiliates

The Advisor paid certain other general and administrative expenses on our behalf. As of June 30, 2015 and December 31, 2014, we overpaid $0 and $0.1 million of Administrator expense to the Advisor, respectively, which was included in due from affiliate on the Consolidated Statements of Assets and Liabilities.

We act as the investment adviser to Greenway and Greenway II and are entitled to receive certain fees. As a result, each of Greenway and Greenway II is classified as an affiliate. As of June 30, 2015 and December 31, 2014, $0.7 million and $1.0 million of fees related to Greenway and Greenway II, respectively, were included in due from affiliate on the Consolidated Statements of Assets and Liabilities.

We paid certain professional fees related to organizing Logan JV, on behalf of Logan JV. As of June 30, 2015 and December 31, 2014, $0 and $0.04 million, respectively, of expenses were included in due from affiliate on the Consolidated Statements of Assets and Liabilities.

Critical accounting policies

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

Valuation of Portfolio Investments

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

With respect to investments for which market quotations are not readily available, our board of directors undertakes 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 the investment professionals responsible for the portfolio investment;

 

   

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

 

   

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

 

   

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

 

   

our board of directors discusses valuations and determines the fair value of each investment in our portfolio in good faith based on the input of the Advisor, the respective independent valuation firms and the audit committee.

 

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The types of factors that we may take into account in fair value pricing our investments include, as relevant, the nature and realizable value of any collateral, the portfolio company’s ability to make payments and its earnings and discounted cash flows, the markets in which the portfolio company does business, comparison to publicly traded securities and other relevant factors. We generally utilize an income approach to value our debt investments and a combination of income and market approaches to value our equity investments. With respect to unquoted securities, the Advisor and our board of directors, in consultation with our independent third party valuation firms, values each investment considering, among other measures, discounted cash flow models, comparisons of financial ratios of peer companies that are public and other factors, which valuation is then approved by our board of directors. For debt investments, we generally determine the fair value primarily using an income, or yield, approach that analyzes the discounted cash flows of interest and principal for the debt security, as set forth in the associated loan agreements, as well as the financial position and credit risk of each portfolio investments. Our estimate of the expected repayment date is generally the legal maturity date of the instrument. The yield analysis considers changes in leverage levels, credit quality, portfolio company performance and other factors. The enterprise value is used to determine the value of equity investments and for debt investments that are credit impaired, close to maturity or where we also hold a controlling equity interest. The method for determining enterprise value uses a multiple analysis, whereby appropriate multiples are applied to the portfolio company’s net income before net interest expense, income tax expense, depreciation and amortization, or EBITDA.

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

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

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

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

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

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

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

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

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

 

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

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

Revenue Recognition

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

Loans are placed on non-accrual status when principal or interest payments are past due 30 days or more and/or when it is no longer probable that principal or interest will be collected. However, we may make exceptions to this policy if the loan has sufficient collateral value and is in the process of collection. We record the reversal of any previously accrued income against the same income category reflected in the Consolidated Statement of Operations. As of June 30, 2015, we had one loan on non-accrual with an amortized cost basis of $4.5 million and fair value of $3.0 million. As of December 31, 2014, we had no loans on non-accrual status.

We have investments in our portfolio which contain a contractual paid-in-kind, or PIK, interest provision. PIK interest is computed at the contractual rate specified in each investment agreement, is added to the principal balance of the investment, and is recorded as income. We will cease accruing PIK interest if there is insufficient value to support the accrual or if we do not expect amounts to be collectible and will generally only begin to recognize PIK income again when all principal and interest have been paid or upon a restructuring of the investment where the interest is deemed collectable. To maintain our status as a RIC, PIK interest income, which is considered investment company taxable income, must be paid out to stockholders in the form of dividends even though we have not yet collected the cash. Amounts necessary to pay these dividends may come from available cash.

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

 

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Interest income from our investment in TRA and CLO residual interest investments are recorded based upon an estimation of an effective yield to expected maturity using anticipated cash flows with any remaining amount recorded to the cost basis of the investment. We monitor the anticipated cash flows from our TRA and CLO residual interest investments and will adjust our effective yield periodically as needed.

Other income includes commitment fees, fees related to the management of Greenway and Greenway II, fees related to the management of certain controlled equity investments, structuring fees, amendment fees and unused commitment fees associated with investments in portfolio companies. These fees are recognized as income when earned by us in accordance with the terms of the applicable management or credit agreement.

Net Realized Gains or Losses and Net Change in Unrealized Appreciation or Depreciation

We measure realized gains or losses by the difference between the net proceeds from the repayment or sale and the amortized cost basis of the investment, using the specific identification method, without regard to unrealized appreciation or depreciation previously recognized. We measure realized gains or losses on the interest rate derivative based upon the difference between the proceeds received or the amounts paid on the interest rate derivative. Net change in unrealized appreciation or depreciation reflects the change in portfolio investment values or value of the interest rate derivative during the reporting period, including any reversal of previously recorded unrealized appreciation or depreciation, when gains or losses are realized.

U.S. Federal Income Taxes, including excise tax

We operate so as to maintain our status as a RIC under Subchapter M of the Code and intend to continue to do so. Accordingly, we are not subject to U.S. federal income tax on the portion of our taxable income and gains distributed to stockholders. In order to qualify for favorable tax treatment as a RIC, we are required to distribute annually to our stockholders at least 90% of our investment company taxable income, as defined by the Code. To avoid a 4% U.S. federal excise tax, we must distribute each calendar year the sum of (i) 98% of our ordinary income for each such calendar year (ii) 98.2% of our net capital gains for the one-year period ending October 31 of that calendar year, and (iii) any income recognized, but not distributed, in preceding years and on which we paid no U.S. federal income tax. We may choose not to distribute all of our taxable income for the calendar year and pay a non-deductible 4% excise tax on this income. If we choose to do so, all other things being equal, this would increase expenses and reduce the amount available to be distributed to stockholders. To the extent that the Company determines that its estimated current year annual taxable income will be in excess of estimated current year dividend distributions from such taxable income, the Company accrues excise taxes on estimated excess taxable income as taxable income is earned using an annual effective excise tax rate. We will accrue excise tax on undistributed taxable income as required. Please refer to “Dividends” above for a summary of the distributions. For the three months ended June 30, 2015 and 2014, we incurred excise tax expense of $0.2 million and $0.1 million, respectively. For the six months ended June 30, 2015 and 2014, we incurred excise tax expense of $0.3 million and $0.1 million, respectively. In addition, for the three months ended June 30, 2015 and 2014, we incurred Delaware franchise tax expense of $0.02 million and $0.02 million, respectively. For the six months ended June 30, 2015 and 2014, we incurred Delaware franchise tax expense of $0.05 million and $0.05 million, respectively.

Certain consolidated subsidiaries are subject to U.S. federal and state income taxes. These taxable entities are not consolidated for income tax purposes and may generate income tax liabilities or assets from permanent and temporary differences in the recognition of items for financial reporting and income tax purposes at the subsidiaries.

The following shows the breakdown of current and deferred income tax provisions for the three and six months ended June 30, 2015 and 2014 (in millions):

 

     For the three months ended
June 30,
     For the six months ended
June 30,
 
     2015      2014      2015      2014  

Current income tax provision:

           

Current income tax provision

   $ (0.2    $ 0.3       $ (0.1    $ 0.8   

Current provision (benefit) for taxes on realized gain on investments

     —           (0.1      —           0.2   

Deferred income tax provision:

           

Provision (benefit) for taxes on unrealized gain on investments

     0.4         —           0.2         (1.0

 

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These current and deferred income taxes are determined from taxable income estimates provided by portfolio companies where we hold equity or equity-like investments organized as pass-through entities in its tax blocker corporations. These tax estimates may be subject to further change once tax information is finalized for the year. As of June 30, 2015 and December 31, 2014, $0 and $0.2 million, respectively, of income tax receivable was included in prepaid expenses and other assets and $0.04 million and $0 of income taxes payable, respectively, was included as income taxes payable on the Consolidated Statements of Assets and Liabilities. As of June 30, 2015 and December 31, 2014, $2.8 million and $2.6 million, respectively, were included in deferred tax liability on the Consolidated Statements of Assets and Liabilities primarily relating to deferred taxes on unrealized gains on investments held in tax blocker corporations. As of June 30, 2015 and December 31, 2014, $0.7 million and $0.3 million, respectively of deferred tax assets were included in prepaid expenses and other assets on the Consolidated Statements of Assets and Liabilities relating to net operating loss carryforwards that are expected to be used in future periods.

Because U.S. federal income tax regulations differ from GAAP, distributions in accordance with tax regulations may differ from net investment income and realized gains recognized for financial reporting purposes. Differences may be permanent or temporary. Permanent differences are reclassified among capital accounts in the consolidated financial statements to reflect their tax character. Temporary differences arise when certain items of income, expense, gain or loss are recognized at some time in the future. Differences in classification may also result from the treatment of short-term gains as ordinary income for tax purposes.

We follow the provisions under the authoritative guidance on accounting for and disclosure of uncertainty in tax positions. The provisions require us to determine whether a tax position is more likely than not to be sustained upon examination, including resolution of any related appeals or litigation processes, based on the technical merits of the position. For tax positions not meeting the more likely than not threshold, the tax amount recognized in the consolidated financial statements is reduced by the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement with the relevant taxing authority. There are no unrecognized tax benefits or obligations in the accompanying consolidated financial statements. Although we file U.S. federal and state tax returns, our major tax jurisdiction is U.S. federal. Our inception-to-date U.S. federal tax years remain subject to examination by taxing authorities.

Recent Developments

From July 1, 2015 through August 6, 2015, we made $2.3 million of revolver, delayed draw and follow-on debt investments and a $4.8 million investment in the Logan JV.

From July 1, 2015 through August 6, 2015, we sold our CLO residual interests in Adirondack Park CLO Ltd. and Sheridan Square, CLO Ltd. for proceeds of $12.7 million.

On August 4, 2015, our board of directors declared a dividend of $0.34 per share payable on September 30, 2015 to stockholders of record at the close of business on September 15, 2015.

As of August 6, 2015, Logan JV has $123.0 million of investments in 71 companies with a weighted average yield, based upon current cost, of 6.90%.

 

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

We are subject to financial market risks, including changes in interest rates. As of June 30, 2015, 23.5%, of the debt investments in our portfolio bore interest at fixed rates based upon fair value. All of the debt investments in our portfolio have interest rate floors, which have effectively converted the debt investments to fixed rate loans in the current interest rate environment. In the future, we expect other debt investments in our portfolio will have floating rates. Our borrowings as well as the amount we receive under the interest rate derivative agreement are based upon floating rates.

Based on our June 30, 2015 Consolidated Statement of Assets and Liabilities, the following table shows the annual impact on net income of changes in interest rates, which assumes no changes in our investments and borrowings (in millions):

 

Change in Basis Points

   Interest
Income
     Interest
Expense
     Net
Income  (1)
 

Up 300 basis points

   $ 10.2       $ 7.0       $ 3.2   

Up 200 basis points

   $ 5.4       $ 4.7       $ 0.7   

Up 100 basis points

   $ 0.8       $ 2.3       $ (1.5

Down 300 basis points

   $ —         $ —         $ —     

Down 200 basis points

   $ —         $ —         $ —     

Down 100 basis points

   $ —         $ —         $ —     

 

(1) Excludes the impact of incentive fees based on pre-incentive fee net investment income. See “Note 3. Related Party Transaction” footnote to our consolidated financial statements for the three and six months ended June 30, 2015 for more information on the incentive fee.

Based upon the current three month LIBOR rate, a hypothetical decrease in LIBOR would not affect our net income, due to the aforementioned floors in place on our debt investments. Based upon the current one month LIBOR rates, a hypothetical decrease in LIBOR would not affect interest expense, due to the current rates being lower than 100 basis points. We currently hedge against interest rate fluctuations by using an interest rate swap whereby we pay a fixed rate of 1.1425% and receive three-month LIBOR on a notional amount of $50 million. In the future, we may use other standard hedging instruments such as futures, options and forward contacts subject to the requirements of the 1940 Act. While hedging activities may insulate us against adverse changes in interest rates, they may also limit our ability to participate in the benefits of lower interest rates with respect to our portfolio of investments.

Although we believe that this measure is indicative of our sensitivity to interest rate changes, it does not adjust for potential changes in credit quality, size and composition of the assets on the balance sheet and other business developments that could affect net increase in net assets resulting from operations, or net income.

 

Item 4. Controls and Procedures

Disclosure Controls and Procedures

Our Co-Chief Executive Officers and Chief Financial Officer, under the supervision and with the participation of our management, conducted an evaluation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). As of the end of the period covered by this quarterly report on Form 10-Q, our Co-Chief Executive Officers and Chief Financial Officer have concluded that our disclosure controls and procedures were effective to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our Co-Chief Executive Officers and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control Over Financial Reporting

There have been no changes in our internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act, that occurred during our most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

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PART II. OTHER INFORMATION

 

Item 1. Legal Proceedings

We are not a defendant in any material pending legal proceeding, and no such material proceedings are known to be contemplated. However, from time to time, we may be party to certain legal proceedings incidental to the normal course of our business including the enforcement of our rights under the contracts with our portfolio companies.

 

Item 1A. Risk Factors

Other than as set forth below, there have been no changes to the risk factors described in Part I, Item 1A “Risk Factors” of the Company’s Annual Report on Form 10-K for the year ended December 31, 2014 filed with the Securities and Exchange Commission on March 10, 2015.

 

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

Stock Repurchase Program

On March 6, 2015, our board of directors authorized a $25.0 million stock repurchase program that was put into effect in May 2015. The timing and amount of any stock repurchases will depend on the terms and conditions of the repurchase program and no assurances can be given that any common stock, or any particular amount, will be purchased. Unless extended by our board of directors, the stock repurchase program will terminate on March 6, 2016 and may be modified or terminated at any time for any reason without prior notice. We have provided our stockholders with notice of our intention to repurchase shares of our common stock in accordance with 1940 Act requirements. We will retire immediately all such shares of common stock that we purchase in connection with the stock repurchase program. The Company’s net asset value per share was increased by approximately $0.01 as a result of the share repurchases.

The following table summarizes our share repurchases under our stock repurchase program for the three and six months ended June 30, 2015 (in millions):

 

     For the three months ended June 30,      For the six months ended June 30,  
     2015     2014      2015     2014  

Dollar amount repurchased

   $ 3.8        —         $ 3.8        —     

Shares repurchased

     0.3        —           0.3        —     

Average price per share (including commission)

   $ 12.38        —         $ 12.38        —     

Weighted average discount to net asset value

     6.20     —           6.20     —     

 

Item 3. Defaults Upon Senior Securities

None.

 

Item 4. Mine Safety Disclosures

Not applicable.

 

Item 5. Other Information

None.

 

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Item 6. Exhibits

Listed below are the exhibits that are filed as part of this report (according to the number assigned to them in Item 601 of Regulation S-K):

 

11    Computation of Per Share Earnings (included in the notes to the consolidated financial statements contained in this report).
31.1    Certification of Chief Executive Officer Pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as amended.*
31.2    Certification of Chief Executive Officer Pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as amended.*
31.3    Certification of Chief Financial Officer Pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as amended.*
32.1    Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350).*
32.2    Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350).*
32.3   

Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350).*

[ to include ING amendment]

 

 

(*) Filed herewith

 

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

  THL CREDIT, INC.
Date: August 6, 2015   By:  

/s/ SAM W. TILLINGHAST

    Sam W. Tillinghast
    Co-Chief Executive Officer
Date: August 6, 2015   By:  

/s/ CHRISTOPHER J. FLYNN

    Christopher J. Flynn
    Co-Chief Executive Officer
Date: August 6, 2015   By:  

/s/ TERRENCE W. OLSON

    Terrence W. Olson
    Chief Financial Officer

 

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