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EX-32 - EXHIBIT 32 - AMERICAN CAPITAL, LTDacas10q63015ex32.htm
EX-31.2 - EXHIBIT 31.2 - AMERICAN CAPITAL, LTDacas10q63015ex312.htm
EX-31.1 - EXHIBIT 31.1 - AMERICAN CAPITAL, LTDacas10q63015ex311.htm
EX-10.2 - EXHIBIT 10.2 - AMERICAN CAPITAL, LTDacas10q63015ex102.htm

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 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
 
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
 
Commission file number 814-00149
 
 
AMERICAN CAPITAL, LTD.
(Exact name of registrant as specified in its charter)

Delaware
 
52-1451377
(State or Other Jurisdiction of
Incorporation or Organization)
 
(I.R.S. Employer
Identification No.)
 

2 Bethesda Metro Center
14th Floor
Bethesda, Maryland 20814
(Address of principal executive offices)
(301) 951-6122
(Registrant’s telephone number, including area code)



Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  x    No  o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§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  o    No  o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer  x
 
 
  
Accelerated filer  o
Non-accelerated filer  o
 
(Do not check if a smaller reporting company)
  
Smaller Reporting Company  o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  o    No.  x
 
The number of shares of the issuers common stock, $0.01 par value legally outstanding as of July 31, 2015, was 272,243,288.
________________________________________________________________________________________________________________________





2


PART I. FINANCIAL INFORMATION
 
ITEM 1.
Financial Statements

AMERICAN CAPITAL, LTD.
CONSOLIDATED BALANCE SHEETS
(in millions, except per share amounts)
 
 
June 30,
 
December 31,
 
2015
 
2014
 
(unaudited)
 
 
Assets
 
 
 
Investments at fair value
 
 
 
Non-Control/Non-Affiliate investments (cost of $4,375 and $3,846, respectively)
$
4,179

 
$
3,472

Affiliate investments (cost of $36 and $29, respectively)
55

 
26

Control investments (cost of $2,602 and $2,542, respectively)
3,026

 
2,782

Total investments at fair value (cost of $7,013 and $6,417, respectively)
7,260

 
6,280

Cash and cash equivalents
274

 
676

Restricted cash and cash equivalents
78

 
167

Interest and dividend receivable
50

 
46

Deferred tax asset, net
264

 
354

Other
159

 
117

Total assets
$
8,085

 
$
7,640

Liabilities and Shareholders’ Equity
 
 
 
Debt ($5 and $5 due within one year, respectively)
$
2,107

 
$
1,703

Trade date settlement liability
402

 
191

Other
120

 
274

Total liabilities
2,629

 
2,168

Commitments and contingencies (Note 12)
 
 
 
Shareholders’ equity:
 
 
 
Undesignated preferred stock, $0.01 par value, 5.0 shares authorized, 0 issued and outstanding

 

Common stock, $0.01 par value, 1,000.0 shares authorized, 271.9 and 271.1 issued and 268.1 and 266.9 outstanding, respectively
3

 
3

Capital in excess of par value
6,231

 
6,246

Cumulative translation adjustment, net of tax
(116
)
 
(38
)
Distributions in excess of net realized earnings
(824
)
 
(505
)
Net unrealized appreciation (depreciation) of investments
162

 
(234
)
Total shareholders’ equity
5,456

 
5,472

Total liabilities and shareholders’ equity
$
8,085

 
$
7,640

Net Asset Value Per Common Share Outstanding
$
20.35

 
$
20.50

 
See accompanying notes.

3


AMERICAN CAPITAL, LTD.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
(in millions, except per share data)
 
Three Months Ended June 30,
 
Six Months Ended
June 30,
 
2015
 
2014
 
2015
 
2014
Operating Revenue
 
 
 
 
 
 
 
Interest and dividend income
 
 
 
 
 
 
 
Non-Control/Non-Affiliate investments
$
85

 
$
28

 
$
163

 
$
41

Affiliate investments

 
(5
)
 

 
(5
)
Control investments
66

 
60

 
126

 
118

Total interest and dividend income
151

 
83

 
289

 
154

Fee income
 
 
 
 
 
 
 
Non-Control/Non-Affiliate investments
3

 
5

 
5

 
6

Affiliate investments

 

 

 

Control investments
14

 
12

 
28

 
24

Total fee income
17

 
17

 
33

 
30

Total operating revenue
168

 
100

 
322

 
184

Operating Expenses
 
 
 
 
 
 
 
Interest
20

 
11

 
37

 
23

Salaries, benefits and stock-based compensation
32

 
35

 
72

 
77

European Capital management fees
4

 

 
8

 

General and administrative
15

 
13

 
30

 
27

Total operating expenses
71

 
59

 
147

 
127

Net Operating Income Before Income Taxes
97

 
41

 
175

 
57

Tax provision
(30
)
 
(15
)
 
(58
)
 
(26
)
Net Operating Income
67

 
26

 
117

 
31

Net realized gain (loss)
 
 
 
 
 
 
 
Non-Control/Non-Affiliate investments
(230
)
 
32

 
(238
)
 
34

Affiliate investments

 
(27
)
 

 
(8
)
Control investments
(54
)
 
(19
)
 
(252
)
 
(19
)
Foreign currency transactions
3

 
1

 
1

 
3

Derivative agreements and other
46

 
1

 
(2
)
 
2

Tax benefit
12

 
5

 
55

 
2

Total net realized (loss) gain
(223
)
 
(7
)
 
(436
)
 
14

Net unrealized appreciation (depreciation)
 
 
 
 
 
 
 
Portfolio company investments
140

 
185

 
369

 
220

Foreign currency translation
13

 
(12
)
 
32

 
(16
)
Derivative agreements and other
65

 
(3
)
 
71

 
(2
)
Tax benefit (provision)

 
23

 
(76
)
 
35

Total net unrealized appreciation
218

 
193

 
396

 
237

Total net (loss) gain
(5
)
 
186

 
(40
)
 
251

Net Increase in Net Assets Resulting from Operations (“Net Earnings”)
$
62

 
$
212

 
$
77

 
$
282

 
 
 
 
 
 
 
 
Net Operating Income Per Common Share
 
 
 
 
 
 
 
Basic
$
0.25

 
$
0.10

 
$
0.43

 
$
0.12

Diluted
$
0.24

 
$
0.09

 
$
0.41

 
$
0.11

Net Earnings Per Common Share
 
 
 
 
 
 
 
Basic
$
0.23

 
$
0.80

 
$
0.28

 
$
1.05

Diluted
$
0.22

 
$
0.76

 
$
0.27

 
$
1.00

Weighted Average Shares of Common Stock Outstanding
 
 
 
 
 
 
 
Basic
272.4

 
266.2

 
271.8

 
268.4

Diluted
283.4

 
278.5

 
283.2

 
280.9

See accompanying notes.

4


AMERICAN CAPITAL, LTD.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(unaudited)
(in millions, except per share data)
 
Three Months Ended June 30,
 
Six Months Ended
June 30,
 
2015
 
2014
 
2015
 
2014
 
 
 
 
 
 
 
 
Net earnings
$
62

 
$
212

 
$
77

 
$
282

Other comprehensive income (loss):
 
 
 
 
 
 
 
Cumulative translation adjustment, net of tax of $3 and ($17), respectively
18

 

 
(78
)
 

Comprehensive income (loss)
$
80

 
$
212

 
$
(1
)
 
$
282


See accompanying notes.


5


AMERICAN CAPITAL, LTD.
CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS
(unaudited)
(in millions, except per share data)
 
 
Six Months Ended
June 30,
 
2015
 
2014
Operations
 
 
 
Net operating income, net of tax
$
117

 
$
31

Net realized (loss) gain, net of tax
(436
)
 
14

Net unrealized appreciation, net of tax
396

 
237

Net earnings
77

 
282

Capital Share Transactions
 
 
 
Proceeds from issuance of common stock upon exercise of stock options
52

 
16

Repurchase of common stock
(93
)
 
(137
)
Stock-based compensation
20

 
13

Cumulative translation adjustment, net of tax
(78
)
 

Other
6

 
5

Net decrease in net assets resulting from capital share transactions
(93
)
 
(103
)
Total (decrease) increase in net assets
(16
)
 
179

Net assets at beginning of period
5,472

 
5,126

Net assets at end of period
$
5,456

 
$
5,305

 
 
 
 
Net asset value per common share outstanding
$
20.35

 
$
20.12

Common shares outstanding at end of period
268.1

 
263.7

 
See accompanying notes.

6


AMERICAN CAPITAL, LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(in millions)
 
Six Months Ended
June 30,
 
2015
 
2014
Operating Activities
 
 
 
Net earnings
$
77

 
$
282

Adjustments to reconcile net earnings to net cash provided by operating activities:
 
 
 
Net unrealized appreciation of investments before income taxes
(472
)
 
(202
)
Net realized loss (gain) on investments before income taxes
491

 
(12
)
Effects on exchange rate changes on assets and liabilities denominated in foreign currencies
4

 

Accrued PIK interest and dividends on investments
(48
)
 
(3
)
Stock-based compensation
15

 
18

Increase in interest and dividend receivable
(5
)
 
(2
)
Decrease (increase) in deferred tax asset, net
77

 
(11
)
Increase in other assets
(5
)
 
(5
)
Decrease in other liabilities
(17
)
 
(16
)
Payment of Long Term Incentive Plan Liability
(46
)
 

Other
1

 
(2
)
Net cash provided by operating activities
72

 
47

Investing Activities
 
 
 
Purchases and originations of investments
(1,738
)
 
(915
)
Repayments from (fundings on) portfolio company revolving credit facility investments, net
5

 
(9
)
Principal repayments on debt investments
347

 
239

Proceeds from loan syndications and loan sales
260

 
21

Payment of accrued PIK notes and dividends and accreted original issue discounts
29

 
124

Proceeds from equity investments
183

 
466

Decrease (increase) in cash collateral on total return swaps
95

 
(35
)
Other
(1
)
 
(2
)
Net cash used in investing activities
(820
)
 
(111
)
Financing Activities
 
 
 
Proceeds from revolving credit facilities, net
465

 

Payments on secured borrowings
(58
)
 

Increase in debt service escrows
(11
)
 

Proceeds from issuance of common stock upon exercise of stock options
52

 
16

Repurchase of common stock
(93
)
 
(137
)
Other
3

 
5

Net cash provided by (used in) financing activities
358

 
(116
)
Effect of currency rate changes on cash and cash equivalents
(12
)
 

Net decrease in cash and cash equivalents
(390
)
 
(180
)
Cash and cash equivalents at beginning of period
676

 
315

Cash and cash equivalents at end of period
$
274

 
$
135

 
See accompanying notes.

7


AMERICAN CAPITAL, LTD.
CONSOLIDATED FINANCIAL HIGHLIGHTS
(unaudited)
(in millions, except per share data)
 
 
Six Months Ended
June 30,
 
2015
 
2014
Per Share Data
 
 
 
Net asset value at beginning of the period
$
20.50

 
$
18.97

Net operating income(1)
0.43

 
0.12

Net realized (loss) gain, net of tax(1)
(1.61
)
 
0.05

Net unrealized appreciation, net of tax(1)
1.46

 
0.88

Net earnings(1)
0.28

 
1.05

Issuance of common stock from stock compensation plans
(0.35
)
 
(0.11
)
Repurchase of common stock
0.14

 
0.15

Cumulative translation adjustment, net of tax
(0.29
)
 

Other, net(2)
0.07

 
0.06

Net asset value at end of period
$
20.35

 
$
20.12

Ratio/Supplemental Data
 
 
 
Per share market value at end of period
$
13.55

 
$
15.29

Total investment loss(3)
(7.26
%)
 
(2.24
%)
Shares of common stock outstanding at end of period
268.1

 
263.7

Net assets at end of period
$
5,456

 
$
5,305

Average net assets(4)
$
5,451

 
$
5,170

Average debt outstanding(5)
$
2,025

 
$
800

Average debt outstanding per common share(1)
$
7.45

 
$
2.98

Portfolio turnover rate(6)
25.31
%
 
33.25
%
Ratio of operating expenses to average net assets(6)
5.44
%
 
4.95
%
Ratio of operating expenses, net of interest expense, to average net assets(6)
4.07
%
 
4.06
%
Ratio of interest expense to average net assets(6)
1.37
%
 
0.90
%
Ratio of net operating income to average net assets(6)
4.33
%
 
1.21
%
 
(1)
Weighted average basic per share data.
(2)
Represents the impact of (i) the other components in the changes in net assets, including other capital transactions such as the purchase of common stock held in deferred compensation trusts, stock-based compensation, income tax deductions related to the exercise of stock options and distribution of stock awards in excess of U.S. GAAP expense credited to additional paid-in capital and (ii) the different share amounts used in calculating per share data as a result of calculating certain per share data based upon the weighted average basic shares outstanding during the period and certain per share data based on the shares outstanding as of a period end.
(3)
Total investment return is based on the change in the market value of our common stock taking into account dividends, if any, reinvested in accordance with the terms of our dividend reinvestment plan. The total investment return has not been annualized.
(4)
Based on the quarterly average of net assets as of the beginning and end of each period presented.
(5)
Based on a daily weighted average balance of debt outstanding, excluding discounts, during the period.
(6)
Ratios are annualized.



See accompanying notes.

8


AMERICAN CAPITAL, LTD.
CONSOLIDATED SCHEDULE OF INVESTMENTS
June 30, 2015
(unaudited)
(in millions, except share data)
Company(1)
 
Industry
 
Investments
Cash
Interest
Rate(2)
PIK
Interest
Rate(2)
Maturity
Date(2)
# of
Shares/
Units
Owned
 
Principal
 
Cost
 
Fair
Value
AMERICAN CAPITAL NON-CONTROL / NON-AFFILIATE INVESTMENTS
 
 
 
 
 
 
 
2 TransAm LLC(7)
 
Real Estate
 
First Lien Senior Debt(6)
5.4
%
N/A

1/18
 
 
$
5.6

 
$
5.6

 
$
5.6

Aderant North America, Inc.
 
Software
 
Second Lien Senior Debt(6)
10.0
%
N/A

6/19
 
 
27.6

 
27.5

 
27.9

AmWINS Group, LLC
 
Insurance
 
Second Lien Senior Debt
9.5
%
N/A

9/20
 
 
46.0

 
44.9

 
46.5

Bensussen Deutsch & Associates, LLC
 
Distributors
 
Second Lien Senior Debt(6)
12.0
%
2.0
%
9/19
 
 
45.8

 
43.6

 
46.7

 
 
 
Common Stock(4)
 
 
 
1,224,089

 
 
 
2.2

 
8.6

 
 
 
 
 
 
 
 
 
 
 
45.8

 
55.3

BeyondTrust Software, Inc.
 
Software
 
First Lien Senior Debt(6)
8.0
%
N/A

9/19
 
 
32.1

 
32.1

 
32.1

Blue Wolf Capital Fund II, L.P.(7)
 
Capital Markets
 
Limited Partnership Interest(4)
 
 
 
 
 
 
 
8.8

 
8.2

BRG Sports, Inc.
 
Leisure Products
 
Redeemable Preferred Stock(4)
 
 
 
2,009

 
 
 
2.5

 
3.0

 
 
 
 
Common Units(4)
 
 
 
6,569,721

 
 
 
0.7

 

 
 
 
 
 
 
 
 
 
 
 
 
3.2

 
3.0

CAMP International Holding Company
 
Transportation Infrastructure
 
Second Lien Senior Debt(6)
8.3
%
N/A

11/19
 
 
15.0

 
15.0

 
15.1

CGSC of Delaware Holdings Corporation(7)
 
Insurance
 
Second Lien Senior Debt(6)
8.3
%
N/A

10/20
 
 
2.0

 
2.0

 
1.7

Compusearch Software Systems, Inc.
 
Software
 
Second Lien Senior Debt(6)
9.8
%
N/A

11/21
 
 
51.0

 
51.0

 
51.0

Convergint Technologies, LLC
 
Commercial Services & Supplies
 
Second Lien Senior Debt(6)
9.0
%
N/A

12/17-12/20
 
 
94.0

 
94.0

 
94.0

CPI Buyer, LLC
 
Trading Companies & Distributors
 
Second Lien Senior Debt(6)
8.5
%
N/A

8/22
 
 
25.0

 
24.7

 
24.7

Crossroads Equity Holdings LLC
 
Real Estate
 
First Lien Senior Debt(6)
5.7
%
N/A

6/18
 
 
3.2

 
3.2

 
3.2

Datapipe, Inc.
 
IT Services
 
Second Lien Senior Debt(6)
8.5
%
N/A

9/19
 
 
29.5

 
29.1

 
28.9

Delsey Holding S.A.S.(7)
 
Textiles, Apparel & Luxury Goods
 
First Lien Senior Debt(6)
6.5
%
3.2
%
12/16
 
 
15.1

 
15.1

 
13.1

 
 
 
Mezzanine Debt(6)
N/A

11.0
%
12/22
 
 
2.2

 
2.2

 
1.3

 
 
 
 
 
 
 
 
 
 
 
 
17.3

 
14.4

Denver II Hospitality, LLC
 
Real Estate
 
First Lien Senior Debt(6)
5.2
%
N/A

7/18
 
 
12.0

 
12.0

 
12.0

DiversiTech Corporation
 
Building Products
 
Second Lien Senior Debt(6)
9.0
%
N/A

11/22
 
 
9.5

 
9.4

 
9.4

Electronic Warfare Associates, Inc.
 
IT Services
 
First Lien Senior Debt(6)
12.0
%
3.1%

2/19
 
 
21.7

 
21.0

 
21.0

 
 
 
Common Stock Warrants(4)
 
 
 
863,887

 
 
 
0.8

 
0.8

 
 
 
 
 
 
 
 
 
 
 
 
21.8

 
21.8

Exchange South Owner, LLC(7)
 
Real Estate
 
First Lien Senior Debt(6)
7.7
%
N/A

1/18
 
 
6.9

 
6.9

 
6.9

Financière OFIC S.A.S.(7)
 
Building Products
 
Warrants(4)
 
 
 
3,047,200

 
 
 

 
4.1

Flexera Software LLC
 
Software
 
Second Lien Senior Debt(6)
8.0
%
N/A

4/21
 
 
5.0

 
5.0

 
5.0

Foamex Innovations, Inc.
 
Household Durables
 
Common Stock(4)
 
 
 
2,708

 
 
 

 
0.6

 
 
 
 
Common Stock Warrants(4)(6)
 
 
 
7,067

 
 
 

 
0.2

 
 
 
 
 
 
 
 
 
 
 
 

 
0.8

Hyland Software, Inc.
 
Software
 
Second Lien Senior Debt(6)
8.3
%
N/A

7/23
 
 
10.0

 
10.0

 
10.0

Inmar, Inc.
 
Commercial Services & Supplies
 
Second Lien Senior Debt(6)
8.0
%
N/A

1/22
 
 
20.0

 
19.8

 
19.7

Iotum Global Holdings, Inc.(7)
 
Diversified Telecommunication Services
 
First Lien Senior Debt(6)
N/A

10.0
%
5/17
 
 
1.9

 
1.9

 
1.9

iParadigms, LLC
 
Internet Software & Services
 
Second Lien Senior Debt(6)
8.3
%
N/A

7/22
 
 
39.5

 
39.3

 
39.5

Jazz Acquisition, Inc.
 
Aerospace & Defense
 
Second Lien Senior Debt(6)
7.8
%
N/A

6/22
 
 
25.0

 
24.9

 
24.3

Landslide Holdings, Inc.
 
Software
 
Second Lien Senior Debt(6)
8.3
%
N/A

2/21
 
 
9.0

 
9.0

 
8.7

Lenox Park C-F Owner, LLC
 
Real Estate
 
First Lien Senior Debt(6)
4.9
%
N/A

4/18
 
 
17.0

 
17.0

 
17.0

LTG Acquisition, Inc.
 
Communications Equipment
 
Second Lien Senior Debt(6)
9.0
%
N/A

10/20
 
 
46.0

 
46.0

 
44.4

 
 
 
Common Stock(4)(6)
 
 
 
5,000

 
 
 
5.0

 
5.0

 
 
 
 
 
 
 
 
 
 
 
 
51.0

 
49.4

Mitchell International, Inc.
 
Software
 
Second Lien Senior Debt(6)
8.5
%
N/A

10/21
 

 
7.0

 
6.9

 
7.0

M-IV Lake Center LLC(7)
 
Real Estate
 
First Lien Senior Debt(6)
5.4
%
N/A

12/17
 
 
7.0

 
7.0

 
7.0

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

9


AMERICAN CAPITAL, LTD.
CONSOLIDATED SCHEDULE OF INVESTMENTS—(Continued)
June 30, 2015
(unaudited)
(in millions, except share data)
Company(1)
 
Industry
 
Investments
Cash
Interest
Rate(2)
PIK
Interest
Rate(2)
Maturity
Date(2)
# of
Shares/
Units
Owned
 
Principal
 
Cost
 
Fair
Value
OnCourse Learning Corporation
 
Diversified Consumer Services
 
First Lien Senior Debt(6)
8.5
%
N/A

2/19
 
 
19.9

 
19.7

 
19.7

Parkeon S.A.S.(7)
 
Electronic Equipment, Instruments & Components
 
First Lien Senior Debt(6)
2.3
%
N/A

12/17
 
 
4.2

 
3.9

 
2.8

 
Redeemable Preferred Stock(4)(6)
 
 
 
5,234,743

 
 
 
0.5

 
2.3

 
 
 
 
 
 
 
 
 
4.4

 
5.1

Parts Holding Coörperatief U.A(7)
 
Distributors
 
Membership Entitlements(4)
 
 
 
173,060

 
 
 
6.4

 
1.8

Photonis Technologies SAS(7)
 
Aerospace & Defense
 
First Lien Senior Debt(6)
8.5
%
N/A

9/19
 
 
19.9

 
19.7

 
19.7

Qualium I(7)
 
Capital Markets
 
Common Stock(4)
 
 
 
247,939

 
 
 
5.4

 
5.5

Ranpak Corp.
 
Containers & Packaging
 
Second Lien Senior Debt(6)
8.3
%
N/A

10/22
 
 
25.0

 
25.0

 
25.1

Sage Products Holdings III, LLC
 
Health Care Equipment & Supplies
 
Second Lien Senior Debt(6)
9.3
%
N/A

6/20
 
 
20.6

 
20.7

 
20.9

Sparta Systems, Inc.
 
IT Services
 
First Lien Senior Debt(6)
6.5
%
N/A

7/20
 
 
24.8

 
24.6

 
24.9

 
 
 
 
Convertible Preferred Stock(6)
 
 
 
743

 
 
 
0.8

 
0.8

 
 
 
 
Common Stock(4)
 
 
 
308,224

 
 
 

 
0.4

 
 
 
 
 
 
 
 
 
 
 
 
25.4

 
26.1

Systems Maintenance Services Holding, Inc.
 
IT Services
 
Second Lien Senior Debt(6)
9.3
%
N/A

10/20
 
 
33.0

 
32.8

 
32.8

Teasdale Foods, Inc.
 
Food & Staples Retailing
 
Second Lien Senior Debt(6)
8.8
%
N/A

10/21
 
 
31.5

 
31.5

 
31.5

Tectum Holdings, Inc.
 
Auto Components
 
Second Lien Senior Debt(6)
9.8
%
N/A

1/21
 
 
41.5

 
40.9

 
41.9

 
 
 
 
Convertible Preferred Stock(4)(6)
 
 
 
25,000

 
 
 
2.5

 
3.3

 
 
 
 
 
 
 
 
 
 
 
 
43.4

 
45.2

Tyche Holdings, LLC
 
IT Services
 
Second Lien Senior Debt(6)
9.0
%
N/A

11/22
 
 
33.0

 
32.9

 
33.2

Tyden Cayman Holdings Corp.(7)
 
Electronic Equipment, Instruments & Components
 
Convertible Preferred Stock(4)(6)
 

 
 
46,276

 
 
 
0.1

 
0.2

 
 
Common Stock(4)(6)
 

 
 
5,521,203

 
 
 
5.5

 
3.0

 
 
 
 
 
 
 
 
 
 
 
5.6

 
3.2

W3 Co.
 
Commercial Services & Supplies
 
Second Lien Senior Debt(6)
9.3
%
N/A

9/20
 
 
10.7

 
10.6

 
8.6

WP CPP Holdings, LLC
 
Aerospace & Defense
 
Second Lien Senior Debt(6)
8.8
%
N/A

4/21
 
 
19.7

 
19.6

 
19.8

WRH, Inc.
 
Life Sciences Tools & Services
 
Mezzanine Debt(6)
9.1
%
6.1
%
8/18
 
 
100.0

 
99.7

 
95.3

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
EUROPEAN CAPITAL NON-CONTROL / NON-AFFILIATE INVESTMENTS
 
 
 
 
 
 
 
Delsey Holding S.A.S.(7)
 
Textiles, Apparel & Luxury Goods
 
First Lien Senior Debt
6.5
%
3.3
%
12/16
 
 
81.1

 
81.1

 
79.4

 
 
 
Mezzanine Debt
N/A

11.0
%
12/22
 
 
11.7

 
11.7

 
7.7

 
 
 
 
 
 
 
 
 
 
 
 
92.8

 
87.1

Financière Newglass S.A.S.(7)
 
Building Products
 
Convertible Preferred Stock
 
 
 
15,000,000

 
 
 
17.0

 
12.6

Hilding Anders AB(7)
 
Household Durables
 
Mezzanine Debt(5)
N/A

12.0
%
12/19
 
 
35.1

 
16.2

 

Legendre Holding 31 S.A.(7)
 
Leisure Products
 
First Lien Senior Debt
7.2%

N/A

1/21
 
 
9.1

 
9.1

 
8.7

Modacin France S.A.S.(7)
 
Specialty Retail
 
Mezzanine Debt(5)
%
4.3
%
11/19
 
 
21.6

 
11.5

 

MP Equity S.A.S.(7)
 
Food Products
 
Redeemable Preferred Stock(4)
 
 
 
 
 
2.3

 
2.3

 

Parts Holding Coörperatief U.A.(7)
 
Distributors
 
Common Stock(4)
 
 
 
568,624

 
 
 

 
5.9

Tiama 2 S.A.S.(7)
 
Machinery
 
Mezzanine Debt(5)
4.6
%
5.0
%
2/17
 
 
47.9

 
25.6

 

Zodiac Marine and Pool S.A.(7)
 
Marine
 
Second Lien Senior Debt(5)
%
4.0
%
3/17
 
 
35.3

 
25.2

 

 
 
 
Mezzanine Debt(5)
%
8.3
%
9/17
 
 
72.9

 
38.8

 

 
 
 
 
 
 
 
 
 
 
 
 
64.0

 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
SENIOR FLOATING RATE LOANS
 
 
 
 
 
 
 
1011778 B.C. Unlimited Liability Company(7)
 
Hotels, Restaurants & Leisure
 
First Lien Senior Debt(6)
3.8
%
N/A

12/21
 
 
17.9

 
17.8

 
17.9

24 Hour Fitness Worldwide, Inc.
 
Hotels, Restaurants & Leisure
 
First Lien Senior Debt(6)
4.8
%
N/A

5/21
 
 
7.6

 
7.6

 
7.2

Accellent Inc.
 
Health Care Equipment & Supplies
 
First Lien Senior Debt(6)
4.5
%
N/A

3/21
 
 
17.4

 
17.3

 
17.3

Acosta Holdco, Inc.
 
Media
 
First Lien Senior Debt(6)
4.3
%
N/A

9/21
 
 
26.9

 
27.0

 
26.9

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

10


AMERICAN CAPITAL, LTD.
CONSOLIDATED SCHEDULE OF INVESTMENTS—(Continued)
June 30, 2015
(unaudited)
(in millions, except share data)
Company(1)
 
Industry
 
Investments
Cash
Interest
Rate(2)
PIK
Interest
Rate(2)
Maturity
Date(2)
# of
Shares/
Units
Owned
 
Principal
 
Cost
 
Fair
Value
Advantage Sales & Marketing Inc.
 
Professional Services
 
First Lien Senior Debt(6)
4.3
%
N/A

7/21
 
 
25.8

 
25.8

 
25.8

 
 
 
Second Lien Senior Debt(6)
7.5
%
N/A

7/22
 
 
1.0

 
1.0

 
1.0

 
 
 
 
 
 
 
 
 
 
 
 
26.8

 
26.8

Affinia Group Inc.
 
Auto Components
 
First Lien Senior Debt(6)
4.8
%
N/A

4/20
 
 
7.6

 
7.6

 
7.6

Air Medical Group Holdings, Inc.
 
Health Care Providers & Services
 
First Lien Senior Debt(6)
4.5
%
N/A

4/22
 
 
4.0

 
4.0

 
4.0

Akorn, Inc.(7)
 
Pharmaceuticals
 
First Lien Senior Debt(6)
4.5
%
N/A

4/21
 
 
5.0

 
5.0

 
5.0

Albertson's LLC
 
Food & Staples Retailing
 
First Lien Senior Debt(6)
5.4
%
N/A

3/19
 
 
2.0

 
2.0

 
2.0

AlixPartners, LLP
 
Diversified Financial Services
 
First Lien Senior Debt(6)
4.0
%
N/A

7/20
 
 
18.9

 
18.9

 
18.9

Alliance Laundry Systems LLC
 
Machinery
 
First Lien Senior Debt(6)
4.3
%
N/A

12/18
 
 
9.8

 
9.8

 
9.8

Alliant Holdings I, LLC
 
Insurance
 
First Lien Senior Debt(6)
5.0
%
N/A

12/19
 
 
2.2

 
2.2

 
2.2

Allison Transmission, Inc.(7)
 
Auto Components
 
First Lien Senior Debt(6)
3.5
%
N/A

8/19
 
 
5.0

 
5.0

 
5.0

American Airlines, Inc.(7)
 
Airlines
 
First Lien Senior Debt(6)
3.5
%
N/A

6/20
 
 
9.9

 
9.9

 
9.9

American Renal Holdings Inc.
 
Health Care Providers & Services
 
First Lien Senior Debt(6)
4.5
%
N/A

8/19
 
 
7.5

 
7.5

 
7.5

American Tire Distributors, Inc.
 
Distributors
 
First Lien Senior Debt(6)
5.3
%
N/A

9/21
 
 
5.0

 
4.9

 
5.0

AmSurg Corp.(7)
 
Health Care Providers & Services
 
First Lien Senior Debt(6)
3.8
%
N/A

7/21
 
 
16.9

 
16.9

 
16.9

AmWINS Group, LLC
 
Insurance
 
First Lien Senior Debt(6)
5.3
%
N/A

9/19
 
 
8.8

 
8.8

 
8.8

Anchor Glass Container Corporation
 
Containers & Packaging
 
First Lien Senior Debt(6)
4.6
%
N/A

6/21-6/22
 
 
19.6

 
19.6

 
19.6

Applied Systems, Inc.
 
Software
 
First Lien Senior Debt(6)
4.3
%
N/A

1/21
 
 
8.9

 
8.9

 
8.9

Aquilex LLC
 
Commercial Services & Supplies
 
First Lien Senior Debt(6)
5.0
%
N/A

12/20
 
 
2.0

 
2.0

 
1.9

Aramark Corporation(7)
 
Commercial Services & Supplies
 
First Lien Senior Debt(6)
3.3
%
N/A

2/21
 
 
14.7

 
14.6

 
14.7

Ardent Medical Services, Inc.
 
Health Care Providers & Services
 
First Lien Senior Debt(6)
6.8
%
N/A

7/18
 
 
0.3

 
0.3

 
0.3

ARG IH Corporation
 
Hotels, Restaurants & Leisure
 
First Lien Senior Debt(6)
4.8
%
N/A

11/20
 
 
6.8

 
6.8

 
6.8

Aristocrat Leisure Limited(7)
 
Hotels, Restaurants & Leisure
 
First Lien Senior Debt(6)
4.8
%
N/A

10/21
 
 
6.9

 
6.8

 
6.9

Ascend Learning, LLC
 
Diversified Consumer Services
 
First Lien Senior Debt(6)
5.5
%
N/A

7/19
 
 
2.4

 
2.4

 
2.4

Ascensus, Inc.
 
Commercial Services & Supplies
 
First Lien Senior Debt(6)
5.0
%
N/A

12/19
 
 
5.7

 
5.8

 
5.7

Asurion, LLC
 
Commercial Services & Supplies
 
First Lien Senior Debt(6)
5.0
%
N/A

5/19
 
 
7.3

 
7.4

 
7.4

Atlantic Power Limited Partnership(7)
 
Independent Power & Renewable Electricity Producers
 
First Lien Senior Debt(6)
4.8
%
N/A

2/21
 
 
4.1

 
4.1

 
4.1

Axalta Coating Systems Dutch Holding B B.V.(7)
 
Chemicals
 
First Lien Senior Debt(6)
3.8
%
N/A

2/20
 
 
5.0

 
5.0

 
5.0

AZ Chem US Inc.
 
Chemicals
 
First Lien Senior Debt(6)
4.5
%
N/A

6/21
 
 
4.2

 
4.3

 
4.2

B/E Aerospace, Inc.(7)
 
Aerospace & Defense
 
First Lien Senior Debt(6)
4.0
%
N/A

12/21
 
 
6.0

 
6.0

 
6.0

BarBri, Inc.
 
Diversified Consumer Services
 
First Lien Senior Debt(6)
4.5
%
N/A

7/19
 
 
9.3

 
9.3

 
8.7

Bass Pro Group, LLC
 
Specialty Retail
 
First Lien Senior Debt(6)
4.0
%
N/A

6/20
 
 
8.0

 
8.0

 
8.0

Berlin Packaging L.L.C.
 
Containers & Packaging
 
First Lien Senior Debt(6)
4.5
%
N/A

10/21
 
 
9.4

 
9.4

 
9.5

BJ's Wholesale Club, Inc.
 
Food & Staples Retailing
 
First Lien Senior Debt(6)
4.5
%
N/A

9/19
 
 
6.9

 
6.9

 
6.9

Blackboard Inc.
 
Software
 
First Lien Senior Debt(6)
4.8
%
N/A

10/18
 
 
4.9

 
5.0

 
4.9

Blue Coat Holdings, Inc.
 
Communications Equipment
 
First Lien Senior Debt(6)
4.5
%
N/A

5/22
 
 
7.0

 
7.0

 
7.0

Boulder Brands, Inc.(7)
 
Food Products
 
First Lien Senior Debt(6)
4.5
%
N/A

7/20
 
 
6.3

 
6.3

 
6.2

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

11


AMERICAN CAPITAL, LTD.
CONSOLIDATED SCHEDULE OF INVESTMENTS—(Continued)
June 30, 2015
(unaudited)
(in millions, except share data)
Company(1)
 
Industry
 
Investments
Cash
Interest
Rate(2)
PIK
Interest
Rate(2)
Maturity
Date(2)
# of
Shares/
Units
Owned
 
Principal
 
Cost
 
Fair
Value
Boyd Gaming Corporation(7)
 
Hotels, Restaurants & Leisure
 
First Lien Senior Debt(6)
4.0
%
N/A

8/20
 
 
6.2

 
6.2

 
6.2

The Brickman Group Ltd. LLC
 
Commercial Services & Supplies
 
First Lien Senior Debt(6)
4.0
%
N/A

12/20
 
 
17.9

 
17.8

 
17.8

Burlington Coat Factory Warehouse Corporation(7)
 
Specialty Retail
 
First Lien Senior Debt(6)
4.3
%
N/A

8/21
 
 
10.6

 
10.6

 
10.6

BWay Intermediate Company, Inc.
 
Containers & Packaging
 
First Lien Senior Debt(6)
5.5
%
N/A

8/20
 
 
4.0

 
3.9

 
4.0

Camp International Holding Company
 
Transportation Infrastructure
 
First Lien Senior Debt(6)
4.8
%
N/A

5/19
 
 
7.7

 
7.7

 
7.7

Capital Automotive L.P.
 
Real Estate
 
First Lien Senior Debt(6)
4.0
%
N/A

4/19
 
 
16.3

 
16.3

 
16.3

Capital Safety North America Holdings Inc.
 
Commercial Services & Supplies
 
First Lien Senior Debt(6)
3.8
%
N/A

3/21
 
 
9.3

 
9.2

 
9.3

Capsugel Holdings US, Inc.
 
Pharmaceuticals
 
First Lien Senior Debt(6)
3.5
%
N/A

8/18
 
 
29.4

 
29.3

 
29.4

Carecore National, LLC
 
Health Care Providers & Services
 
First Lien Senior Debt(6)
5.5
%
N/A

3/21
 
 
4.9

 
5.0

 
5.0

Carros Finance Luxembourg S.A.R.L.(7)
 
Machinery
 
First Lien Senior Debt(6)
4.5
%
N/A

9/21
 
 
8.9

 
9.0

 
9.0

Catalent Pharma Solutions, Inc.(7)
 
Pharmaceuticals
 
First Lien Senior Debt(6)
4.3
%
N/A

5/21
 
 
15.4

 
15.4

 
15.4

CCM MERGER INC.
 
Hotels, Restaurants & Leisure
 
First Lien Senior Debt(6)
4.5
%
N/A

8/21
 
 
4.6

 
4.6

 
4.6

CEC Entertainment, Inc.
 
Hotels, Restaurants & Leisure
 
First Lien Senior Debt(6)
4.0
%
N/A

2/21
 
 
12.4

 
12.2

 
12.1

Cequel Communications, LLC
 
Media
 
First Lien Senior Debt(6)
3.5
%
N/A

2/19
 
 
30.9

 
30.8

 
30.9

Checkout Holding Corp.
 
Media
 
First Lien Senior Debt(6)
4.5
%
N/A

4/21
 
 
5.0

 
5.0

 
4.4

CHS/Community Health Systems, Inc.(7)
 
Health Care Providers & Services
 
First Lien Senior Debt(6)
3.9
%
N/A

12/19-1/21
 
 
17.0

 
17.0

 
17.0

CityCenter Holdings, LLC
 
Hotels, Restaurants & Leisure
 
First Lien Senior Debt(6)
4.3
%
N/A

10/20
 
 
24.5

 
24.5

 
24.6

ClubCorp Club Operations, Inc.(7)
 
Hotels, Restaurants & Leisure
 
First Lien Senior Debt(6)
4.3
%
N/A

7/20
 
 
3.0

 
3.0

 
3.0

Commscope, Inc.(7)
 
Communications Equipment
 
First Lien Senior Debt(6)
3.8
%
N/A

12/22
 
 
1.5

 
1.5

 
1.5

Compuware Corporation
 
Software
 
First Lien Senior Debt(6)
6.3
%
N/A

12/21
 
 
2.0

 
1.9

 
1.9

Connolly, LLC
 
Professional Services
 
First Lien Senior Debt(6)
4.5
%
N/A

5/21
 
 
3.6

 
3.6

 
3.6

 
 
 
 
Second Lien Senior Debt(6)
8.0
%
N/A

5/22
 
 
1.0

 
1.0

 
1.0

 
 
 
 
 
 
 
 
 
 
 
 
4.6

 
4.6

Consolidated Communications, Inc.(7)
 
Diversified Telecommunication Services
 
First Lien Senior Debt(6)
4.3
%
N/A

12/20
 
 
4.9

 
5.0

 
4.9

ConvaTec Inc.(7)
 
Health Care Equipment & Supplies
 
First Lien Senior Debt(6)
4.3
%
N/A

6/20
 
 
1.0

 
1.0

 
1.0

CPG International Inc.
 
Building Products
 
First Lien Senior Debt(6)
4.8
%
N/A

9/20
 
 
7.4

 
7.4

 
7.4

CPI Buyer, LLC
 
Trading Companies & Distributors
 
First Lien Senior Debt(6)
5.5
%
N/A

8/21
 
 
2.0

 
2.0

 
2.0

CPI International Inc.
 
Electronic Equipment, Instruments & Components
 
First Lien Senior Debt(6)
4.3
%
N/A

11/17
 
 
10.4

 
10.4

 
10.4

CT Technologies Intermediate Holdings, Inc.
 
Health Care Technology
 
First Lien Senior Debt(6)
5.7
%
N/A

12/21
 
 
4.5

 
4.4

 
4.5

DAE Aviation Holdings, Inc.
 
Aerospace & Defense
 
First Lien Senior Debt(6)
6.3
%
N/A

11/18
 
 
3.2

 
3.2

 
3.2

Del Monte Foods, Inc.(7)
 
Food Products
 
First Lien Senior Debt(6)
4.3
%
N/A

2/21
 
 
4.9

 
4.9

 
4.7

Dell International LLC
 
Technology Hardware, Storage & Peripherals
 
First Lien Senior Debt(6)
4.0
%
N/A

4/20
 
 
22.1

 
22.2

 
22.2

Deltek, Inc.
 
Software
 
First Lien Senior Debt(6)
5.0
%
N/A

6/22
 
 
7.9

 
7.9

 
7.9

Devix Topco(7)
 
Containers & Packaging
 
First Lien Senior Debt(6)
4.3
%
N/A

5/21
 
 
2.0

 
2.0

 
2.0

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

12


AMERICAN CAPITAL, LTD.
CONSOLIDATED SCHEDULE OF INVESTMENTS—(Continued)
June 30, 2015
(unaudited)
(in millions, except share data)
Company(1)
 
Industry
 
Investments
Cash
Interest
Rate(2)
PIK
Interest
Rate(2)
Maturity
Date(2)
# of
Shares/
Units
Owned
 
Principal
 
Cost
 
Fair
Value
Dialysis Newco, Inc.
 
Health Care Providers & Services
 
First Lien Senior Debt(6)
4.5
%
N/A

4/21
 
 
11.9

 
11.9

 
11.9

Dole Food Company, Inc.
 
Food Products
 
First Lien Senior Debt(6)
4.5
%
N/A

11/18
 
 
14.8

 
14.8

 
14.8

Dollar Tree, Inc.(7)
 
Multiline Retail
 
First Lien Senior Debt(6)
3.5
%
N/A

3/22
 
 
12.2

 
12.3

 
12.2

DPX Holdings B.V.(7)
 
Life Sciences Tools & Services
 
First Lien Senior Debt(6)
4.3
%
N/A

3/21
 
 
6.9

 
6.9

 
6.9

Drew Marine Group Inc.
 
Chemicals
 
First Lien Senior Debt(6)
4.5
%
N/A

11/20
 
 
4.9

 
4.9

 
4.9

DTZ U.S. Borrower, LLC(7)
 
Real Estate
 
First Lien Senior Debt(6)
5.5
%
N/A

11/21
 
 
2.0

 
2.0

 
2.0

Duff & Phelps Corporation
 
Capital Markets
 
First Lien Senior Debt(6)
4.5
%
N/A

4/20
 
 
13.3

 
13.4

 
13.4

DynCorp International Inc.
 
Aerospace & Defense
 
First Lien Senior Debt(6)
6.3
%
N/A

7/16
 
 
1.0

 
1.0

 
1.0

Dynegy Inc.(7)
 
Independent Power & Renewable Electricity Producers
 
First Lien Senior Debt(6)
4.0
%
N/A

4/20
 
 
2.0

 
2.0

 
2.0

Eco Services Operations LLC
 
Chemicals
 
First Lien Senior Debt(6)
4.8
%
N/A

12/21
 
 
2.0

 
2.0

 
2.0

EFS Cogen Holdings I LLC
 
Independent Power & Renewable Electricity Producers
 
First Lien Senior Debt(6)
3.8
%
N/A

12/20
 
 
13.7

 
13.7

 
13.7

Electrical Components International, Inc.
 
Electrical Equipment
 
First Lien Senior Debt(6)
5.8
%
N/A

5/21
 
 
3.0

 
3.0

 
3.0

Emdeon Inc.
 
Health Care Technology
 
First Lien Senior Debt(6)
3.8
%
N/A

11/18
 
 
13.9

 
13.9

 
13.9

Emerald Expositions Holding, Inc.
 
Media
 
First Lien Senior Debt(6)
4.8
%
N/A

6/20
 
 
4.6

 
4.6

 
4.6

Energy Transfer Equity, L.P.(7)
 
Oil, Gas & Consumable Fuels
 
First Lien Senior Debt(6)
4.0
%
N/A

12/19
 
 
5.6

 
5.6

 
5.6

Entravision Communications Corporation(7)
 
Media
 
First Lien Senior Debt(6)
3.5
%
N/A

5/20
 
 
1.9

 
1.9

 
1.8

Evergreen Acqco 1 LP
 
Multiline Retail
 
First Lien Senior Debt(6)
5.0
%
N/A

7/19
 
 
1.4

 
1.4

 
1.3

EWT Holdings III Corp.
 
Machinery
 
First Lien Senior Debt(6)
4.8
%
N/A

1/21
 
 
4.9

 
5.0

 
4.9

Fairmount Minerals, Ltd.
 
Metals & Mining
 
First Lien Senior Debt(6)
4.5
%
N/A

9/19
 
 
4.9

 
5.0

 
4.7

FCA US LLC(7)
 
Automobiles
 
First Lien Senior Debt(6)
3.3
%
N/A

12/18
 
 
11.9

 
11.9

 
11.9

Ferro Corporation(7)
 
Chemicals
 
First Lien Senior Debt(6)
4.0
%
N/A

7/21
 
 
6.0

 
5.9

 
6.0

Filtration Group Corporation
 
Industrial Conglomerates
 
First Lien Senior Debt(6)
4.3
%
N/A

11/20
 
 
5.6

 
5.6

 
5.6

First Data Corporation
 
IT Services
 
First Lien Senior Debt(6)
3.9
%
N/A

3/18-6/22
 
 
37.4

 
37.4

 
37.4

Fitness International, LLC
 
Hotels, Restaurants & Leisure
 
First Lien Senior Debt(6)
5.5
%
N/A

7/20
 
 
3.6

 
3.6

 
3.5

Flexera Software LLC
 
Software
 
First Lien Senior Debt(6)
4.5
%
N/A

4/20
 
 
5.1

 
5.2

 
5.1

Fly Funding II S.à r.l.(7)
 
Trading Companies & Distributors
 
First Lien Senior Debt(6)
3.5
%
N/A

8/19
 
 
4.4

 
4.5

 
4.4

Flying Fortress Inc.(7)
 
Capital Markets
 
First Lien Senior Debt(6)
3.5
%
N/A

4/20
 
 
5.3

 
5.3

 
5.3

FMG Resources (August 2006) Pty LTD(7)
 
Metals & Mining
 
First Lien Senior Debt(6)
3.8
%
N/A

6/19
 
 
4.9

 
4.9

 
4.4

FullBeauty Brands, Inc.
 
Internet & Catalog Retail
 
First Lien Senior Debt(6)
4.8
%
N/A

3/21
 
 
8.4

 
8.4

 
8.4

Gates Global LLC
 
Machinery
 
First Lien Senior Debt(6)
4.3
%
N/A

7/21
 
 
18.0

 
17.9

 
17.8

Generic Drug Holdings, Inc.
 
Pharmaceuticals
 
First Lien Senior Debt(6)
5.0
%
N/A

8/20
 
 
3.5

 
3.5

 
3.5

Global Tel*Link Corporation
 
Diversified Telecommunication Services
 
First Lien Senior Debt(6)
5.0
%
N/A

5/20
 
 
6.2

 
6.2

 
6.1

The Goodyear Tire & Rubber Company(7)
 
Auto Components
 
Second Lien Senior Debt(6)
3.8
%
N/A

4/19
 
 
6.3

 
6.3

 
6.3

Greeneden U.S. Holdings II, LLC
 
Software
 
First Lien Senior Debt(6)
4.0
%
N/A

2/20
 
 
18.9

 
18.7

 
18.8

Grosvenor Capital Management Holdings, LLLP
 
Capital Markets
 
First Lien Senior Debt(6)
3.8
%
N/A

1/21
 
 
13.3

 
13.3

 
13.3

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

13


AMERICAN CAPITAL, LTD.
CONSOLIDATED SCHEDULE OF INVESTMENTS—(Continued)
June 30, 2015
(unaudited)
(in millions, except share data)
Company(1)
 
Industry
 
Investments
Cash
Interest
Rate(2)
PIK
Interest
Rate(2)
Maturity
Date(2)
# of
Shares/
Units
Owned
 
Principal
 
Cost
 
Fair
Value
Guggenheim Partners Investment Management Holdings, LLC
 
Capital Markets
 
First Lien Senior Debt(6)
4.3
%
N/A

7/20
 
 
4.9

 
4.9

 
5.0

H. J. Heinz Company
 
Food Products
 
First Lien Senior Debt(6)
3.3
%
N/A

6/20
 
 
37.2

 
37.2

 
37.2

Hampton Rubber Company
 
Energy Equipment & Services
 
First Lien Senior Debt(6)
5.0
%
N/A

3/21
 
 
4.0

 
4.0

 
3.6

Harbor Freight Tools USA, Inc.
 
Specialty Retail
 
First Lien Senior Debt(6)
4.8
%
N/A

7/19
 
 
24.9

 
25.0

 
25.0

Hearthside Group Holdings, LLC
 
Food Products
 
First Lien Senior Debt(6)
4.5
%
N/A

6/21
 
 
12.4

 
12.4

 
12.4

Hemisphere Media Holdings, LLC(7)
 
Media
 
First Lien Senior Debt(6)
5.0
%
N/A

7/20
 
 
0.9

 
0.9

 
0.9

The Hertz Corporation(7)
 
Road & Rail
 
First Lien Senior Debt(6)
3.5
%
N/A

3/18
 
 
15.0

 
14.9

 
14.9

HFOTCO LLC
 
Oil, Gas & Consumable Fuels
 
First Lien Senior Debt(6)
4.3
%
N/A

8/21
 
 
1.0

 
1.0

 
1.0

The Hillman Group, Inc.
 
Machinery
 
First Lien Senior Debt(6)
4.5
%
N/A

6/21
 
 
10.9

 
10.9

 
10.9

Houghton Mifflin Harcourt Company(7)
 
Diversified Consumer Services
 
First Lien Senior Debt(6)
4.0
%
N/A

5/21
 
 
2.9

 
2.9

 
2.9

Hub International Limited
 
Insurance
 
First Lien Senior Debt(6)
4.0
%
N/A

10/20
 
 
23.4

 
23.2

 
23.2

Hudson Products Holdings Inc.
 
Energy Equipment & Services
 
First Lien Senior Debt(6)
5.0
%
N/A

3/19
 
 
7.1

 
7.1

 
7.0

Huntsman International LLC(7)
 
Chemicals
 
First Lien Senior Debt(6)
3.8
%
N/A

10/21
 
 
7.0

 
7.0

 
7.0

Hyland Software, Inc.
 
Software
 
First Lien Senior Debt(6)
4.8
%
N/A

2/21-6/22
 
 
11.0

 
11.0

 
11.0

Immucor, Inc.
 
Health Care Equipment & Supplies
 
First Lien Senior Debt(6)
5.0
%
N/A

8/18
 
 
7.9

 
7.9

 
7.9

IMS Health Incorporated(7)
 
Health Care Technology
 
First Lien Senior Debt(6)
3.5
%
N/A

3/21
 
 
5.4

 
5.3

 
5.4

Indra Holdings Corp.
 
Textiles, Apparel & Luxury Goods
 
First Lien Senior Debt(6)
5.3
%
N/A

5/21
 
 
4.1

 
4.1

 
4.0

Ineos US Finance LLC(7)
 
Chemicals
 
First Lien Senior Debt(6)
4.3
%
N/A

3/22
 
 
8.0

 
8.0

 
8.0

Infinity Acquisition, LLC
 
Software
 
First Lien Senior Debt(6)
4.0
%
N/A

8/21
 
 
5.0

 
4.9

 
4.9

Informatica Corporation
 
Software
 
First Lien Senior Debt(6)
4.5
%
N/A

6/22
 
 
12.0

 
12.0

 
12.0

Information Resources, Inc.
 
Professional Services
 
First Lien Senior Debt(6)
4.8
%
N/A

9/20
 
 
12.9

 
12.9

 
12.9

Inmar, Inc.
 
Commercial Services & Supplies
 
First Lien Senior Debt(6)
4.3
%
N/A

1/21
 
 
4.9

 
4.9

 
4.8

Intelsat Jackson Holdings S.A.(7)
 
Diversified Telecommunication Services
 
First Lien Senior Debt(6)
3.8
%
N/A

6/19
 
 
5.0

 
5.0

 
5.0

Interactive Data Corporation
 
Media
 
First Lien Senior Debt(6)
4.8
%
N/A

5/21
 
 
13.4

 
13.4

 
13.5

Ion Media Networks, Inc.
 
Media
 
First Lien Senior Debt(6)
4.8
%
N/A

12/20
 
 
7.9

 
8.0

 
8.0

J. Crew Group, Inc.
 
Specialty Retail
 
First Lien Senior Debt(6)
4.0
%
N/A

3/21
 
 
7.4

 
7.4

 
6.4

J.C. Penney Corporation, Inc.(7)
 
Multiline Retail
 
First Lien Senior Debt(6)
5.0
%
N/A

6/19
 
 
2.0

 
2.0

 
2.0

Jazz Acquisition, Inc.
 
Aerospace & Defense
 
First Lien Senior Debt(6)
4.5
%
N/A

6/21
 
 
5.0

 
4.9

 
4.9

Key Safety Systems, Inc.
 
Auto Components
 
First Lien Senior Debt(6)
4.8
%
N/A

8/21
 
 
7.2

 
7.2

 
7.2

Kindred Healthcare, Inc.(7)
 
Health Care Providers & Services
 
First Lien Senior Debt(6)
4.3
%
N/A

4/21
 
 
14.3

 
14.3

 
14.4

La Frontera Generation, LLC
 
Independent Power & Renewable Electricity Producers
 
First Lien Senior Debt(6)
4.5
%
N/A

9/20
 
 
13.6

 
13.7

 
13.6

La Quinta Intermediate Holdings L.L.C.(7)
 
Hotels, Restaurants & Leisure
 
First Lien Senior Debt(6)
4.0
%
N/A

4/21
 
 
6.3

 
6.3

 
6.3

Landmark Aviation FBO Canada, Inc.(7)
 
Aerospace & Defense
 
First Lien Senior Debt(6)
4.8
%
N/A

10/19
 
 
0.3

 
0.3

 
0.3

Landslide Holdings, Inc.
 
Software
 
First Lien Senior Debt(6)
5.0
%
N/A

2/20
 
 
7.3

 
7.3

 
7.3

Leonardo Acquisition Corp.
 
Internet & Catalog Retail
 
First Lien Senior Debt(6)
4.3
%
N/A

1/21
 
 
12.3

 
12.3

 
12.3

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

14


AMERICAN CAPITAL, LTD.
CONSOLIDATED SCHEDULE OF INVESTMENTS—(Continued)
June 30, 2015
(unaudited)
(in millions, except share data)
Company(1)
 
Industry
 
Investments
Cash
Interest
Rate(2)
PIK
Interest
Rate(2)
Maturity
Date(2)
# of
Shares/
Units
Owned
 
Principal
 
Cost
 
Fair
Value
Level 3 Financing, Inc.(7)
 
Diversified Telecommunication Services
 
First Lien Senior Debt(6)
3.5
%
N/A

5/22
 
 
7.0

 
7.0

 
7.0

Libbey Glass Inc.(7)
 
Household Durables
 
First Lien Senior Debt(6)
3.8
%
N/A

4/21
 
 
4.5

 
4.4

 
4.5

Liberty Cablevision of Puerto Rico LLC
 
Media
 
First Lien Senior Debt(6)
4.5
%
N/A

1/22
 
 
5.0

 
5.0

 
5.0

Life Time Fitness, Inc.
 
Hotels, Restaurants & Leisure
 
First Lien Senior Debt(6)
4.3
%
N/A

6/22
 
 
6.0

 
6.0

 
6.0

LM U.S. Member LLC
 
Aerospace & Defense
 
First Lien Senior Debt(6)
4.8
%
N/A

10/19
 
 
7.6

 
7.6

 
7.6

MCC Iowa LLC
 
Media
 
First Lien Senior Debt(6)
4.0
%
N/A

1/20-6/21
 
 
14.2

 
14.2

 
14.2

McJunkin Red Man Corporation(7)
 
Trading Companies & Distributors
 
First Lien Senior Debt(6)
5.0
%
N/A

11/19
 
 
3.4

 
3.4

 
3.3

Mediacom Illinois, LLC
 
Media
 
First Lien Senior Debt(6)
3.8
%
N/A

6/21
 
 
7.4

 
7.4

 
7.4

The Men's Wearhouse, Inc.(7)
 
Specialty Retail
 
First Lien Senior Debt(6)
4.5
%
N/A

6/21
 
 
6.3

 
6.3

 
6.3

Michaels Stores, Inc.(7)
 
Specialty Retail
 
First Lien Senior Debt(6)
3.8
%
N/A

1/20
 
 
29.6

 
29.6

 
29.5

Midas Intermediate Holdco II, LLC
 
Diversified Consumer Services
 
First Lien Senior Debt(6)
4.5
%
N/A

8/21
 
 
5.5

 
5.5

 
5.5

Millennium Health, LLC
 
Health Care Providers & Services
 
First Lien Senior Debt(6)
5.3
%
N/A

4/21
 
 
7.8

 
7.8

 
3.3

Minerals Technologies Inc.(7)
 
Chemicals
 
First Lien Senior Debt(6)
3.8
%
N/A

5/21
 
 
2.1

 
2.1

 
2.1

Mirror Bidco Corp.(7)
 
Machinery
 
First Lien Senior Debt(6)
4.3
%
N/A

12/19
 
 
8.4

 
8.5

 
8.4

Mitchell International, Inc.
 
Software
 
First Lien Senior Debt(6)
4.5
%
N/A

10/20
 
 
9.2

 
9.3

 
9.2

Moneygram International, Inc.(7)
 
IT Services
 
First Lien Senior Debt(6)
4.3
%
N/A

3/20
 
 
3.0

 
3.0

 
2.9

MPG Holdco I Inc.
 
Auto Components
 
First Lien Senior Debt(6)
3.8
%
N/A

10/21
 
 
6.4

 
6.4

 
6.4

MPH Acquisition Holdings LLC
 
Health Care Providers & Services
 
First Lien Senior Debt(6)
3.8
%
N/A

3/21
 
 
26.6

 
26.4

 
26.4

National Financial Partners Corp.
 
Insurance
 
First Lien Senior Debt(6)
4.5
%
N/A

7/20
 
 
10.4

 
10.4

 
10.4

The Neiman Marcus Group Inc.
 
Multiline Retail
 
First Lien Senior Debt(6)
4.3
%
N/A

10/20
 
 
18.4

 
18.3

 
18.3

New Albertson's, Inc.
 
Food & Staples Retailing
 
First Lien Senior Debt(6)
4.8
%
N/A

6/21
 
 
4.0

 
3.9

 
4.0

Novelis Inc.(7)
 
Metals & Mining
 
First Lien Senior Debt(6)
4.0
%
N/A

6/22
 
 
4.1

 
4.0

 
4.0

Numericable U.S. LLC(7)
 
Media
 
First Lien Senior Debt(6)
4.5
%
N/A

5/20
 
 
7.0

 
7.0

 
7.0

NVA Holdings, Inc.
 
Health Care Providers & Services
 
First Lien Senior Debt(6)
4.8
%
N/A

8/21
 
 
10.4

 
10.4

 
10.4

On Assignment, Inc.(7)
 
Professional Services
 
First Lien Senior Debt(6)
3.8
%
N/A

6/22
 
 
1.2

 
1.2

 
1.2

Onex Carestream Finance LP
 
Health Care Equipment & Supplies
 
First Lien Senior Debt(6)
5.0
%
N/A

6/19
 
 
13.3

 
13.4

 
13.4

Opal Acquisition, Inc.
 
Health Care Providers & Services
 
First Lien Senior Debt(6)
5.0
%
N/A

11/20
 
 
9.9

 
9.9

 
9.8

Ortho-Clinical Diagnostics S.A.(7)
 
Health Care Providers & Services
 
First Lien Senior Debt(6)
4.8
%
N/A

6/21
 
 
12.2

 
12.3

 
12.0

OSG Bulk Ships, Inc.(7)
 
Oil, Gas & Consumable Fuels
 
First Lien Senior Debt(6)
5.3
%
N/A

8/19
 
 
2.8

 
2.8

 
2.8

P2 Lower Acquisition, LLC
 
Health Care Providers & Services
 
First Lien Senior Debt(6)
5.5
%
N/A

10/20
 
 
1.8

 
1.8

 
1.8

Par Pharmaceutical Companies, Inc.
 
Pharmaceuticals
 
First Lien Senior Debt(6)
4.1
%
N/A

9/19
 
 
18.5

 
18.5

 
18.6

Party City Holdings Inc.(7)
 
Specialty Retail
 
First Lien Senior Debt(6)
4.0
%
N/A

7/19
 
 
19.5

 
19.4

 
19.5

Peabody Energy Corporation(7)
 
Oil, Gas & Consumable Fuels
 
First Lien Senior Debt(6)
4.3
%
N/A

9/20
 
 
8.4

 
8.4

 
7.1

Penn Engineering & Manufacturing Corp.
 
Building Products
 
First Lien Senior Debt(6)
4.0
%
N/A

8/21
 
 
11.5

 
11.5

 
11.5

Performance Food Group, Inc.
 
Food & Staples Retailing
 
Second Lien Senior Debt(6)
6.3
%
N/A

11/19
 
 
4.0

 
4.0

 
4.0

Petroleum GEO-Services ASA(7)
 
Energy Equipment & Services
 
First Lien Senior Debt(6)
3.3
%
N/A

3/21
 
 
4.9

 
4.9

 
4.5

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

15


AMERICAN CAPITAL, LTD.
CONSOLIDATED SCHEDULE OF INVESTMENTS—(Continued)
June 30, 2015
(unaudited)
(in millions, except share data)
Company(1)
 
Industry
 
Investments
Cash
Interest
Rate(2)
PIK
Interest
Rate(2)
Maturity
Date(2)
# of
Shares/
Units
Owned
 
Principal
 
Cost
 
Fair
Value
PetSmart, Inc.
 
Specialty Retail
 
First Lien Senior Debt(6)
4.3
%
N/A

3/22
 
 
5.8

 
5.8

 
5.8

Pharmaceutical Product Development, Inc.
 
Life Sciences Tools & Services
 
First Lien Senior Debt(6)
4.0
%
N/A

12/18
 
 
40.2

 
40.3

 
40.2

Pharmedium Healthcare Corporation
 
Pharmaceuticals
 
First Lien Senior Debt(6)
4.3
%
N/A

1/21
 
 
8.2

 
8.2

 
8.2

Phillips-Medisize Corporation
 
Health Care Equipment & Supplies
 
First Lien Senior Debt(6)
4.8
%
N/A

6/21
 
 
6.0

 
6.0

 
6.0

Pilot Travel Centers LLC
 
Specialty Retail
 
First Lien Senior Debt(6)
4.3
%
N/A

10/21
 
 
23.9

 
24.0

 
24.1

Pinnacle Foods Finance LLC(7)
 
Food Products
 
First Lien Senior Debt(6)
3.0
%
N/A

4/20
 
 
14.3

 
14.2

 
14.3

Planet Fitness Holdings, LLC
 
Hotels, Restaurants & Leisure
 
First Lien Senior Debt(6)
4.8
%
N/A

3/21
 
 
5.3

 
5.3

 
5.3

PODS, LLC
 
Road & Rail
 
First Lien Senior Debt(6)
5.3
%
N/A

2/22
 
 
6.0

 
6.1

 
6.0

Post Holdings, Inc.(7)
 
Food Products
 
First Lien Senior Debt(6)
3.8
%
N/A

6/21
 
 
12.9

 
12.9

 
12.9

PQ Corporation
 
Chemicals
 
First Lien Senior Debt(6)
4.0
%
N/A

8/17
 
 
4.0

 
3.9

 
4.0

Quikrete Holdings, Inc.
 
Construction Materials
 
First Lien Senior Debt(6)
4.0
%
N/A

9/20
 
 
25.0

 
24.9

 
25.0

Quintiles Transnational Corp.(7)
 
Life Sciences Tools & Services
 
First Lien Senior Debt(6)
3.3
%
N/A

5/22
 
 
2.0

 
2.0

 
2.0

Ranpak Corp.
 
Containers & Packaging
 
First Lien Senior Debt(6)
4.3
%
N/A

10/21
 
 
0.5

 
0.5

 
0.5

RCHP, Inc.
 
Health Care Providers & Services
 
First Lien Senior Debt(6)
5.3
%
N/A

4/19
 
 
2.0

 
2.0

 
2.0

Renaissance Learning, Inc.
 
Software
 
First Lien Senior Debt(6)
4.5
%
N/A

4/21
 
 
9.9

 
9.9

 
9.8

Riverbed Technology, Inc.
 
Communications Equipment
 
First Lien Senior Debt(6)
6.0
%
N/A

4/22
 
 
13.0

 
13.1

 
13.1

Road Infrastructure Investment, LLC
 
Chemicals
 
First Lien Senior Debt(6)
4.3
%
N/A

3/21
 
 
12.3

 
12.3

 
12.2

RPI Finance Trust(7)
 
Pharmaceuticals
 
First Lien Senior Debt(6)
3.5
%
N/A

11/20
 
 
4.0

 
4.0

 
4.0

Sabre GLBL Inc.(7)
 
Software
 
First Lien Senior Debt(6)
4.0
%
N/A

2/19
 
 
7.4

 
7.4

 
7.4

Sage Products Holdings III, LLC
 
Health Care Equipment & Supplies
 
First Lien Senior Debt(6)
4.3
%
N/A

12/19
 
 
2.0

 
2.0

 
2.0

Schaeffler AG(7)
 
Auto Components
 
First Lien Senior Debt(6)
4.3
%
N/A

5/20
 
 
10.2

 
10.2

 
10.2

Scientific Games International, Inc.(7)
 
Hotels, Restaurants & Leisure
 
First Lien Senior Debt(6)
6.0
%
N/A

10/21
 
 
4.0

 
3.9

 
4.0

Sears Roebuck Acceptance Corp.(7)
 
Multiline Retail
 
First Lien Senior Debt(6)
5.5
%
N/A

6/18
 
 
5.0

 
5.0

 
4.9

Securus Technologies Holdings, Inc.
 
Diversified Telecommunication Services
 
First Lien Senior Debt(6)
4.8
%
N/A

4/20
 
 
7.9

 
7.9

 
7.7

Sedgwick Claims Management Services, Inc.
 
Insurance
 
First Lien Senior Debt(6)
3.8
%
N/A

3/21
 
 
20.8

 
20.5

 
20.6

 
 
 
Second Lien Senior Debt(6)
6.8
%
N/A

2/22
 
 
5.0

 
5.0

 
4.9

 
 
 
 
 
 
 
 
 
 
 
25.5

 
25.5

Seminole Hard Rock Entertainment, Inc.
 
Hotels, Restaurants & Leisure
 
First Lien Senior Debt(6)
3.5
%
N/A

5/20
 
 
5.9

 
5.9

 
5.9

Serta Simmons Holdings, LLC
 
Household Durables
 
First Lien Senior Debt(6)
4.3
%
N/A

10/19
 
 
20.1

 
20.1

 
20.1

The Servicemaster Company, LLC(7)
 
Diversified Consumer Services
 
First Lien Senior Debt(6)
4.3
%
N/A

7/21
 
 
6.5

 
6.4

 
6.5

Ship Luxco 3 S.a r.l.(7)
 
IT Services
 
First Lien Senior Debt(6)
4.8
%
N/A

11/19
 
 
5.0

 
5.0

 
5.0

Sinclair Television Group, Inc.(7)
 
Media
 
First Lien Senior Debt(6)
3.5
%
N/A

7/21
 
 
4.0

 
4.0

 
4.0

Six Flags Theme Parks, Inc.(7)
 
Hotels, Restaurants & Leisure
 
First Lien Senior Debt(6)
3.5
%
N/A

6/22
 
 
1.0

 
1.0

 
1.0

Southcross Energy Partners, L.P.(7)
 
Oil, Gas & Consumable Fuels
 
First Lien Senior Debt(6)
5.3
%
N/A

8/21
 
 
1.0

 
1.0

 
1.0

Southwire Company, LLC
 
Electrical Equipment
 
First Lien Senior Debt(6)
3.0
%
N/A

2/21
 
 
20.2

 
20.1

 
20.1

Spectrum Brands, Inc.(7)
 
Household Products
 
First Lien Senior Debt(6)
3.8
%
N/A

6/22
 
 
1.5

 
1.5

 
1.5

Spin Holdco Inc.
 
Diversified Consumer Services
 
First Lien Senior Debt(6)
4.3
%
N/A

11/19
 
 
15.4

 
15.3

 
15.3

SS&C European Holdings S.a.r.L(7)
 
Software
 
First Lien Senior Debt(6)
4.0
%
N/A

6/22
 
 
0.6

 
0.5

 
0.6

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

16


AMERICAN CAPITAL, LTD.
CONSOLIDATED SCHEDULE OF INVESTMENTS—(Continued)
June 30, 2015
(unaudited)
(in millions, except share data)
Company(1)
 
Industry
 
Investments
Cash
Interest
Rate(2)
PIK
Interest
Rate(2)
Maturity
Date(2)
# of
Shares/
Units
Owned
 
Principal
 
Cost
 
Fair
Value
SS&C Technologies, Inc.(7)
 
Software
 
First Lien Senior Debt(6)
4.0
%
N/A

6/22
 
 
2.4

 
2.4

 
2.5

Standard Aero Limited(7)
 
Aerospace & Defense
 
First Lien Senior Debt(6)
6.3
%
N/A

11/18
 
 
1.3

 
1.3

 
1.3

Star West Generation LLC
 
Independent Power & Renewable Electricity Producers
 
First Lien Senior Debt(6)
4.3
%
N/A

3/20
 
 
1.9

 
1.9

 
1.9

Station Casinos LLC
 
Hotels, Restaurants & Leisure
 
First Lien Senior Debt(6)
4.3
%
N/A

3/20
 
 
16.4

 
16.4

 
16.4

Steinway Musical Instruments, Inc.
 
Leisure Products
 
First Lien Senior Debt(6)
4.8
%
N/A

9/19
 
 
4.9

 
4.9

 
4.9

STS Operating, Inc.
 
Trading Companies & Distributors
 
First Lien Senior Debt(6)
4.8
%
N/A

2/21
 
 
2.0

 
2.0

 
2.0

Summit Materials Companies I, LLC(7)
 
Construction Materials
 
First Lien Senior Debt(6)
4.3
%
N/A

6/22
 
 
3.0

 
3.0

 
3.0

SunGard Data Systems Inc
 
IT Services
 
First Lien Senior Debt(6)
4.0
%
N/A

3/20
 
 
17.5

 
17.5

 
17.5

Swift Transportation Co., LLC(7)
 
Road & Rail
 
First Lien Senior Debt(6)
3.8
%
N/A

6/21
 
 
4.0

 
4.0

 
4.0

Syniverse Holdings, Inc.
 
Wireless Telecommunication Services
 
First Lien Senior Debt(6)
4.0
%
N/A

4/19
 
 
15.0

 
14.9

 
14.2

TI Group Automotive Systems, L.L.C.(7)
 
Auto Components
 
First Lien Senior Debt(6)
4.5
%
N/A

6/22
 
 
3.8

 
3.7

 
3.7

TNS, Inc.
 
IT Services
 
First Lien Senior Debt(6)
5.0
%
N/A

2/20
 
 
3.6

 
3.6

 
3.6

TPF II LC, LLC
 
Independent Power & Renewable Electricity Producers
 
First Lien Senior Debt(6)
5.5
%
N/A

10/21
 
 
2.0

 
2.0

 
2.0

Trans Union LLC
 
Professional Services
 
First Lien Senior Debt(6)
3.8
%
N/A

4/21
 
 
32.8

 
32.6

 
32.5

TransDigm Inc.(7)
 
Aerospace & Defense
 
First Lien Senior Debt(6)
3.7
%
N/A

2/20-5/22
 
 
19.5

 
19.4

 
19.4

Travelport Finance (Luxembourg) S.à r.l.(7)
 
Internet Software & Services
 
First Lien Senior Debt(6)
5.8
%
N/A

9/21
 
 
4.0

 
3.9

 
4.0

Tribune Media Company(7)
 
Media
 
First Lien Senior Debt(6)
3.8
%
N/A

12/20
 
 
4.1

 
4.1

 
4.1

TWCC Holding Corp.
 
Media
 
First Lien Senior Debt(6)
5.8
%
N/A

2/20
 
 
4.6

 
4.5

 
4.5

 
 
 
 
Second Lien Senior Debt(6)
7.0
%
N/A

6/20
 
 
5.0

 
5.0

 
4.7

 
 
 
 
 
 
 
 
 
 
 
 
9.5

 
9.2

Tyche Holdings, LLC
 
IT Services
 
First Lien Senior Debt(6)
4.8
%
N/A

11/21
 
 
5.4

 
5.4

 
5.4

U.S. Renal Care, Inc.
 
Health Care Providers & Services
 
First Lien Senior Debt(6)
4.3
%
N/A

7/19
 
 
21.2

 
21.3

 
21.2

United Air Lines, Inc.(7)
 
Airlines
 
First Lien Senior Debt(6)
3.8
%
N/A

9/21
 
 
7.9

 
7.9

 
8.0

Univision Communications Inc.
 
Media
 
First Lien Senior Debt(6)
4.0
%
N/A

3/20
 
 
21.4

 
21.3

 
21.2

US Foods, Inc.
 
Food & Staples Retailing
 
First Lien Senior Debt(6)
4.5
%
N/A

3/19
 
 
14.9

 
15.0

 
15.0

USI, Inc.
 
Insurance
 
First Lien Senior Debt(6)
4.3
%
N/A

12/19
 
 
13.4

 
13.4

 
13.4

USIC Holdings, Inc.
 
Construction & Engineering
 
First Lien Senior Debt(6)
4.0
%
N/A

7/20
 
 
14.7

 
14.5

 
14.6

Valeant Pharmaceuticals International, Inc.(7)
 
Pharmaceuticals
 
First Lien Senior Debt(6)
3.5
%
N/A

2/19-8/20
 
 
14.7

 
14.7

 
14.6

Vencore, Inc.
 
Aerospace & Defense
 
First Lien Senior Debt(6)
5.8
%
N/A

11/19
 
 
4.0

 
3.9

 
4.0

Virgin Media Investment Holdings Limited(7)
 
Media
 
First Lien Senior Debt(6)
3.5
%
N/A

6/23
 
 
5.0

 
5.0

 
5.0

W3 Co.
 
Commercial Services & Supplies
 
Second Lien Senior Debt(6)
9.3
%
N/A

9/20
 
 
0.6

 
0.6

 
0.5

Wall Street Systems Delaware, Inc.(7)
 
Software
 
First Lien Senior Debt(6)
4.5
%
N/A

4/21
 
 
4.4

 
4.3

 
4.4

Waste Industries USA Inc.
 
Commercial Services & Supplies
 
First Lien Senior Debt(6)
4.3
%
N/A

2/20
 
 
3.0

 
3.0

 
3.0

Wastequip, LLC
 
Machinery
 
First Lien Senior Debt(6)
5.5
%
N/A

8/19
 
 
4.9

 
5.0

 
4.9

WaveDivision Holdings, LLC
 
Media
 
First Lien Senior Debt(6)
4.0
%
N/A

10/19
 
 
8.4

 
8.4

 
8.4

Wesco Aircraft Hardware Corp.(7)
 
Aerospace & Defense
 
First Lien Senior Debt(6)
3.3
%
N/A

2/21
 
 
4.7

 
4.7

 
4.6

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

17


AMERICAN CAPITAL, LTD.
CONSOLIDATED SCHEDULE OF INVESTMENTS—(Continued)
June 30, 2015
(unaudited)
(in millions, except share data)
Company(1)
 
Industry
 
Investments
Cash
Interest
Rate(2)
PIK
Interest
Rate(2)
Maturity
Date(2)
# of
Shares/
Units
Owned
 
Principal
 
Cost
 
Fair
Value
William Morris Endeavor Entertainment, LLC
 
Media
 
First Lien Senior Debt(6)
5.3
%
N/A

5/21
 
 
4.0

 
4.0

 
4.0

Wilsonart LLC
 
Building Products
 
First Lien Senior Debt(6)
4.0
%
N/A

10/19
 
 
10.4

 
10.4

 
10.3

WP CPP Holdings, LLC
 
Aerospace & Defense
 
First Lien Senior Debt(6)
4.5
%
N/A

12/19
 
 
12.0

 
12.0

 
12.0

XO Communications, LLC
 
Diversified Telecommunication Services
 
First Lien Senior Debt(6)
4.3
%
N/A

3/21
 
 
18.1

 
18.1

 
18.1

Yankee Cable Acquisition, LLC
 
Media
 
First Lien Senior Debt(6)
4.3
%
N/A

3/20
 
 
13.0

 
13.1

 
13.1

Yonkers Racing Corporation
 
Hotels, Restaurants & Leisure
 
First Lien Senior Debt(6)
4.3
%
N/A

8/19
 
 
4.7

 
4.7

 
4.5

Zayo Group LLC(7)
 
Diversified Telecommunication Services
 
First Lien Senior Debt(6)
3.8
%
N/A

5/21
 
 
15.9

 
15.9

 
15.8

Ziggo B.V.(7)
 
Media
 
First Lien Senior Debt(6)
3.5
%
N/A

1/22
 
 
10.0

 
9.9

 
9.9

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
AMERICAN CAPITAL CMBS INVESTMENTS
 
 
 
 
 
 
 
CD 2007-CD4 Commercial Mortgage Trust(7)
 
Real Estate
 
Commercial Mortgage Pass-Through Certificates(4)(6)
5.9
%
N/A

12/49
 
 
16.0

 
1.1

 
4.1

CD 2007-CD5 Mortgage Trust(7)
 
Real Estate
 
Commercial Mortgage Pass-Through Certificates(4)(6)
6.3
%
N/A

12/17
 
 
9.1

 
4.0

 
1.9

Citigroup Commercial Mortgage Securities Trust 2007-C6(7)
 
Real Estate
 
Commercial Mortgage Pass-Through Certificates(4)(6)
5.9
%
N/A

7/17
 
 
45.4

 
18.9

 
9.7

Credit Suisse Commercial Mortgage Trust Series 2007-C4(7)
 
Real Estate
 
Commercial Mortgage Pass-Through Certificates(4)(6)
6.1
%
N/A

8/17
 
 
5.9

 
2.2

 
1.2

LB-UBS Commercial Mortgage Trust 2006-C4(7)
 
Real Estate
 
Commercial Mortgage Pass-Through Certificates(4)(6)
5.9
%
N/A

6/38
 
 
5.0

 
0.4

 
0.7

LB-UBS Commercial Mortgage Trust 2007-C6(7)
 
Real Estate
 
Commercial Mortgage Pass-Through Certificates(4)(6)
6.4
%
N/A

8/17
 
 
4.9

 
0.4

 
2.1

Wachovia Bank Commercial Mortgage Trust 2005-C22(7)
 
Real Estate
 
Commercial Mortgage Pass-Through Certificates(4)(6)
5.5
%
N/A

3/16
 
 
7.2

 
1.1

 
3.7

Wachovia Bank Commercial Mortgage Trust 2007-C31(7)
 
Real Estate
 
Commercial Mortgage Pass-Through Certificates(4)(6)
5.9
%
N/A

5/17
 
 
20.0

 
10.6

 
1.4

Wachovia Bank Commercial Mortgage Trust, Series 2007-C32(7)
 
Real Estate
 
Commercial Mortgage Pass-Through Certificates(4)(6)
5.9
%
N/A

10/17
 
 
60.9

 
12.3

 
6.9

Wachovia Bank Commercial Mortgage Trust, Series 2007-C34(7)
 
Real Estate
 
Commercial Mortgage Pass-Through Certificates(4)(6)
6.1
%
N/A

10/17
 
 
5.2

 
5.2

 
4.1

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
AMERICAN CAPITAL CLO INVESTMENTS
 
 
 
 
 
 
 
ACAS CLO 2007-1, Ltd.(7)
 
 
 
Secured Notes(6)
 
 
4/21
 
 
8.5

 
8.4

 
8.3

 
 
 
Subordinated Notes(6)
 
 
4/21
 
 
25.9

 
9.8

 
13.9

 
 
 
 
 
 
 
 
 
 
 
 
18.2

 
22.2

ACAS CLO 2013-2, Ltd.(7)
 
 
 
Subordinated Notes(6)
 
 
10/25
 
 
8.0

 
6.4

 
5.9

Apidos CLO XIV(7)
 
 
 
Income Notes(6)
 
 
4/25
 
 
8.1

 
6.8

 
6.8

Apidos CLO XVIII, Ltd.(7)
 
 
 
Subordinated Notes(6)
 
 
7/26
 
 
39.4

 
35.4

 
32.4

Apidos CLO XIX(7)
 
 
 
Income Notes(6)
 
 
10/26
 
 
10.5

 
8.8

 
8.8

Apidos CLO XXI(7)
 
 
 
Subordinated Notes(6)
 
 
6/27
 
 
12.4

 
10.8

 
10.8

Ares IIIR/IVR CLO Ltd.(7)
 
 
 
Subordinated Notes(6)
 
 
4/21
 
 
20.0

 
10.6

 
6.8

Ares XXIX CLO Ltd.(7)
 
 
 
Subordinated Notes(6)
 
 
4/26
 
 
7.3

 
6.3

 
6.0

Avery Point II CLO, Limited(7)
 
 
 
Income Notes(6)
 
 
7/25
 
 
2.6

 
2.1

 
2.1

A Voce CLO, Ltd.(7)
 
 
 
Subordinated Notes(6)
 
 
7/26
 
 
10.5

 
8.3

 
8.3

Babson CLO Ltd. 2006-II(7)
 
 
 
Income Notes(6)
 
 
10/20
 
 
15.0

 
9.0

 
8.9

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

18


AMERICAN CAPITAL, LTD.
CONSOLIDATED SCHEDULE OF INVESTMENTS—(Continued)
June 30, 2015
(unaudited)
(in millions, except share data)
Company(1)
 
Industry
 
Investments
Cash
Interest
Rate(2)
PIK
Interest
Rate(2)
Maturity
Date(2)
# of
Shares/
Units
Owned
 
Principal
 
Cost
 
Fair
Value
Babson CLO Ltd. 2013-II(7)
 
 
 
Income Notes(6)
 
 
1/25
 
 
5.0

 
4.2

 
4.2

Babson CLO Ltd. 2014-II(7)
 
 
 
Subordinated Notes(6)
 
 
9/26
 
 
25.0

 
22.0

 
21.1

Babson CLO Ltd. 2014-III(7)
 
 
 
Subordinated Notes(6)
 
 
1/26
 
 
3.8

 
3.3

 
3.3

Babson CLO Ltd. 2015-I(7)
 
 
 
Subordinated Notes(6)
 
 
4/27
 
 
12.5

 
11.3

 
11.0

Betony CLO, Ltd.(7)
 
 
 
Subordinated Notes(6)
 
 
4/27
 
 
2.5

 
2.2

 
2.2

Blue Hill CLO, Ltd.(7)
 
 
 
Subordinated Notes(6)
 
 
1/26
 
 
10.6

 
18.5

 
16.8

Carlyle Global Market Strategies CLO 2014-4, Ltd.(7)
 
 
 
Subordinated Notes(6)
 
 
10/26
 
 
14.6

 
12.4

 
12.3

Cent CDO 12 Limited(7)
 
 
 
Income Notes(6)
 
 
11/20
 
 
26.4

 
11.1

 
31.6

Cent CDO 17 Limited(7)
 
 
 
Subordinated Notes(6)
 
 
1/25
 
 
15.0

 
11.0

 
11.0

Cent CLO 18 Limited(7)
 
 
 
Subordinated Notes(6)
 
 
7/25
 
 
3.8

 
2.9

 
3.0

Cent CLO 19 Limited(7)
 
 
 
Subordinated Notes(6)
 
 
10/25
 
 
11.3

 
9.1

 
8.8

Cent CLO 22 Limited(7)
 
 
 
Subordinated Notes(6)
 
 
11/26
 
 
45.4

 
40.7

 
37.1

Centurion CDO 8 Limited(7)
 
 
 
Subordinated Notes(4)(6)
 
 
3/17
 
 
5.0

 
0.2

 

CoLTs 2005-1 Ltd.(7)
 
 
 
Preference Shares(4)(6)
 
 
3/16
360

 
 
 
1.7

 
0.1

CoLTs 2005-2 Ltd.(7)
 
 
 
Preference Shares(4)(6)
 
 
12/18
34,170,000

 
 
 
11.3

 
0.6

CREST Exeter Street Solar 2004-1(7)
 
 
 
Preferred Securities(4)(6)
 
 
6/39
3,500,000

 
 
 
3.2

 

Dryden 30 Senior Loan Fund(7)
 
 
 
Subordinated Notes(6)
 
 
11/25
 
 
3.9

 
2.9

 
2.9

Dryden 31 Senior Loan Fund(7)
 
 
 
Subordinated Notes(6)
 
 
4/26
 
 
2.3

 
1.9

 
1.6

Dryden XXVIII Senior Loan Fund(7)
 
 
 
Subordinated Notes(6)
 
 
8/25
 
 
7.0

 
5.5

 
5.5

Eaton Vance CDO X plc(7)
 
 
 
Secured Subordinated Notes(6)
 
 
2/27
 
 
15.0

 
11.3

 
8.2

Flagship CLO V(7)
 
 
 
Deferrable Notes(6)
 
 
9/19
 
 
1.7

 
1.5

 
1.6

 
 
 
 
Subordinated Securities(6)
 
 
9/19
15,000

 
 
 
7.1

 
2.3

 
 
 
 
 
 
 
 
 
 
 
 
8.6

 
3.9

Galaxy III CLO, Ltd(7)
 
 
 
Subordinated Notes(4)
 
 
8/16
 
 
4.0

 
0.2

 

Galaxy XVI CLO, Ltd.(7)
 
 
 
Subordinated Notes(6)
 
 
11/25
 
 
2.3

 
1.9

 
1.7

GoldenTree Loan Opportunities IX, Limited(7)
 
 
 
Subordinated Notes(6)
 
 
10/26
 
 
40.8

 
39.2

 
39.2

GoldenTree Loan Opportunities VII, Limited(7)
 
 
 
Subordinated Notes(6)
 
 
4/25
 
 
35.3

 
33.7

 
33.7

Halcyon Loan Advisors Funding 2014-1 Ltd.(7)
 
 
 
Subordinated Notes(6)
 
 
2/26
 
 
1.3

 
1.1

 
1.1

Halcyon Loan Advisors Funding 2015-2, Ltd.(7)
 
 
 
Subordinated Notes(6)
 
 
7/27
 
 
21.7

 
18.7

 
18.7

Herbert Park B.V.(7)
 
 
 
Subordinated Notes(6)
 
 
10/26
 
 
24.4

 
26.6

 
21.6

Highbridge Loan Management 2013-2, Ltd.(7)
 
 
 
Subordinated Notes(6)
 
 
10/24
 
 
27.0

 
21.5

 
22.3

LightPoint CLO IV, LTD(7)
 
 
 
Income Notes(4)(6)
 
 
4/18
 
 
6.7

 
3.6

 

LightPoint CLO VII, Ltd.(7)
 
 
 
Subordinated Notes(6)
 
 
5/21
 
 
9.0

 
2.8

 
2.0

Limerock CLO III, Ltd.(7)
 
 
 
Subordinated Notes(6)
 
 
10/26
 
 
12.5

 
10.6

 
9.9

Madison Park Funding XI, Ltd.(7)
 
 
 
Subordinated Notes(6)
 
 
10/25
 
 
8.0

 
7.4

 
7.4

Madison Park Funding XII, Ltd.(7)
 
 
 
Subordinated Notes(6)
 
 
7/26
 
 
10.0

 
9.4

 
9.4

Madison Park Funding XVI, Ltd.(7)
 
 
 
Subordinated Notes(6)
 
 
4/26
 
 
11.0

 
10.8

 
10.8

Magnetite VIII, Limited(7)
 
 
 
Subordinated Notes(6)
 
 
4/26
 
 
6.7

 
6.1

 
5.8

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

19


AMERICAN CAPITAL, LTD.
CONSOLIDATED SCHEDULE OF INVESTMENTS—(Continued)
June 30, 2015
(unaudited)
(in millions, except share data)
Company(1)
 
Industry
 
Investments
Cash
Interest
Rate(2)
PIK
Interest
Rate(2)
Maturity
Date(2)
# of
Shares/
Units
Owned
 
Principal
 
Cost
 
Fair
Value
Magnetite XIV, Limited(7)
 
 
 
Subordinated Notes(6)
 
 
7/28
 
 
21.0

 
20.0

 
20.0

Mayport CLO Ltd.(7)
 
 
 
Income Notes
 
 
2/20
 
 
14.0

 
9.5

 
3.0

Neuberger Berman CLO XV, Ltd.(7)
 
 
 
Subordinated Notes(6)
 
 
10/25
 
 
2.8

 
2.2

 
2.2

NYLIM Flatiron CLO 2006-1 LTD.(7)
 
 
 
Subordinated Securities(6)
 
 
8/20
10,000

 
 
 
4.0

 
3.6

Och-Ziff VIII, Ltd.(7)
 
 
 
Subordinated Notes(6)
 
 
9/26
 
 
16.0

 
13.4

 
13.4

Octagon Investment Partners XIV, Ltd.(7)
 
 
 
Income Notes(6)
 
 
1/24
 
 
4.5

 
3.1

 
3.2

Octagon Investment Partners XIX, Ltd.(7)
 
 
 
Subordinated Notes(6)
 
 
4/26
 
 
25.0

 
20.3

 
20.9

Octagon Investment Partners XX, Ltd.(7)
 
 
 
Subordinated Notes(6)
 
 
8/26
 
 
2.5

 
2.3

 
2.3

Octagon Investment Partners XXII, Ltd.(7)
 
 
 
Subordinated Notes(6)
 
 
11/25
 
 
8.4

 
7.4

 
7.1

Octagon Loan Funding, Ltd.(7)
 
 
 
Subordinated Notes(6)
 
 
9/26
 
 
4.0

 
3.3

 
3.3

OHA Credit Partners VIII, Ltd.(7)
 
 
 
Subordinated Notes(6)
 
 
4/25
 
 
5.0

 
4.2

 
4.2

OHA Credit Partners XI, Ltd.(7)
 
 
 
Subordinated Notes(4)(6)
 
 
12/17
 
 
25.0

 
25.0

 
25.0

Sapphire Valley CDO I, Ltd.(7)
 
 
 
Subordinated Notes(6)
 
 
12/22
 
 
14.0

 
15.4

 
11.1

THL Credit Wind River 2013-1 CLO Ltd.(7)
 
 
 
Subordinated Notes(6)
 
 
4/25
 
 
14.0

 
11.1

 
11.1

THL Credit Wind River 2014-1 CLO Ltd.(7)
 
 
 
Subordinated Notes(6)
 
 
4/26
 
 
16.0

 
13.6

 
13.2

Vitesse CLO, Ltd.(7)
 
 
 
Preferred Securities(6)
 
 
8/20
20,000,000

 
 
 
12.0

 

Voya CLO 2014-2, Ltd.(7)
 
 
 
Subordinated Notes(6)
 
 
7/26
 
 
17.5

 
14.8

 
14.2

Voya CLO 2014-4, Ltd.(7)
 
 
 
Subordinated Notes(6)
 
 
10/26
 
 
26.7

 
24.7

 
23.5

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
EUROPEAN CAPITAL CLO INVESTMENTS
 
 
 
 
 
 
 
Ares European III B.V.(7)
 
Diversified Financial Services
 
Subordinated Notes
 
 
8/24
 
 
5.4

 
2.6

 
3.2

Cordatus CLO II plc(7)
 
Diversified Financial Services
 
Subordinated Notes
 
 
7/24
 
 
5.4

 
1.7

 
5.7

Eaton Vance CDO X plc(7)
 
Diversified Financial Services
 
Secured Subordinated Notes
 
 
2/27
 
 
7.6

 
1.2

 
4.7

Euro-Galaxy II CLO B.V.(7)
 
Diversified Financial Services
 
Income Notes
 
 
10/22
 
 
2.8

 
2.5

 
2.6

 
 
Subordinated Notes
 
 
10/22
 
 
6.0

 
2.7

 
4.0

 
 
 
 
 
 
 
 
 
 
 
 
5.2

 
6.6

Subtotal Non-Control / Non-Affiliate Investments (57% of total investments at fair value)
 
 
 
$
4,375.1

 
$
4,179.3

 
 
 
 
 
 
 
 
AMERICAN CAPITAL AFFILIATE INVESTMENTS
 
 
 
 
 
 
 
IS Holdings I, Inc.
 
Software
 
Common Stock(4)(6)
 
 
 
2,000,000

 
 
 
$
5.2

 
$
13.7

Primrose Holding Corporation
 
Diversified Consumer Services
 
Common Stock(4)(6)
 
 
 
7,227

 
 
 
3.4

 
9.2

Roark - Money Mailer, LLC
 
Media
 
Common Membership Units(4)
 

 
 
6.0
%
 
 
 
0.7

 
1.4

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
EUROPEAN CAPITAL AFFILIATE INVESTMENTS
 
 
 
 
 
 
 
Blue Topco GmbH(7)
 
Commercial Services & Supplies
 
First Lien Senior Debt
3.0
%
N/A

6/16-6/18
 
 
$
2.3

 
2.0

 
2.0

 
 
Mezzanine Debt(5)
N/A

3.5%

12/18
 
 
8.0

 
7.0

 
3.3

 
 
 
 
 
 
 
 
 
 
 
 
9.0

 
5.3

Mobipark S.A.S.(7)
 
Machinery
 
First Lien Senior Debt
0.8
%
N/A

10/17-12/17
 
 
2.3

 
2.2

 
2.0

 
 
 
 
Convertible Preferred Stock
 
 
 
23,082,525

 
 
 
8.5

 
9.7

 
 
 
 
Redeemable Preferred Stock
 
 
 
25,751,312

 
 
 
7.2

 
13.8

 
 
 
 
 
 
 
 
 
 
 
 
17.9

 
25.5

Subtotal Affiliate Investments (1% of total investments at fair value)
 
 
 
$
36.2

 
$
55.1

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

20


AMERICAN CAPITAL, LTD.
CONSOLIDATED SCHEDULE OF INVESTMENTS—(Continued)
June 30, 2015
(unaudited)
(in millions, except share data)
Company(1)
 
Industry
 
Investments
Cash
Interest
Rate(2)
PIK
Interest
Rate(2)
Maturity
Date(2)
# of
Shares/
Units
Owned
 
Principal
 
Cost
 
Fair
Value
AMERICAN CAPITAL CONTROL INVESTMENTS
 
 
 
 
 
 
 
ACAS Real Estate Holdings Corporation
 
Real Estate
 
Mezzanine Debt(6)
N/A

15.0
%
5/16
 
 
$
2.5

 
$
2.5

 
$
2.5

 
 
 
Mezzanine Debt(5)(6)
N/A

15.0
%
5/16
 
 
6.0

 
3.2

 
3.7

 
 
 
Common Stock(6)
 
 
 
100
%
 
 
 
14.7

 
27.7

 
 
 
 
 
 

 
 
 
 
 
 
20.4

 
33.9

American Capital Asset Management, LLC
 
Capital Markets
 
Mezzanine Debt(6)
5.0
%
N/A

9/16
 
 
35.0

 
35.0

 
35.0

 
 
 
Common Membership Interest(6)
 
 
 
100
%
 
 
 
384.2

 
1,105.7

 
 
 
 
 
 
 
 
 
 
 
 
419.2

 
1,140.7

American Driveline Systems, Inc.
 
Diversified Consumer Services
 
Mezzanine Debt(6)
10.0
%
1.0
%
3/21
 
 
45.1

 
45.1

 
45.1

 
 
Redeemable Preferred Stock(4)(6)
 
 
 
7,121,150

 
 
 
83.5

 
20.2

 
 
Common Stock(4)(6)
 
 
 
289,215

 
 
 
18.2

 

 
 
 
 
Common Stock Warrants(4)(6)
 
 
 
233,603

 
 
 
9.9

 

 
 
 
 
 
 

 
 
 
 
 
 
156.7

 
65.3

ASAP Industries Holdings, LLC
 
Energy Equipment & Services
 
Mezzanine Debt(5)(6)
12.0
%
2.0
%
12/18
 
 
20.7

 
19.5

 
15.1

 
 
Membership Units(4)(6)
 
 
 
106,911

 
 
 
30.3

 

 
 
 
 
 
 
 
 
 
 
 
 
49.8

 
15.1

BMR Energy LLC(7)
 
Independent Power & Renewable Electricity Producers
 
Preferred Units(6)
 
 
 
13,771

 
 
 
14.7

 
14.7

 
 
 
Common Stock(4)(6)
 
 
 
85

 
 
 

 
2.9

 
 
 
 
 
 
 
 
 
 
 
14.7

 
17.6

Capital.com, Inc.
 
Diversified Financial Services
 
Common Stock(4)(6)
 

 
 
8,500,100

 
 
 
0.9

 

CML Pharmaceuticals, LLC
 
Life Sciences Tools & Services
 
First Lien Senior Debt(6)
6.5
%
N/A

3/17-10/20
 
 
96.4

 
95.5

 
98.4

 
 
Mezzanine Debt(6)
7.4
%
5.7%

10/20
 
 
136.9

 
135.8

 
136.9

 
 
Redeemable Preferred Stock(4)(6)
 
 
 
84,936

 
 
 
61.0

 
57.2

 
 
 
 
 
 
 
 
 
 
 
 
292.3

 
292.5

Core Financial Holdings, LLC(7)
 
Diversified Financial Services
 
Common Units(4)(6)
 
 
 
88,385,036

 
 
 
44.0

 
0.1

Dyno Holding Corp.
 
Auto Components
 
First Lien Senior Debt(6)
8.7
%
2.3
%
11/15
 
 
35.2

 
35.2

 
35.2

 
 
 
Mezzanine Debt(5)(6)
N/A

7.3
%
11/16
 
 
21.5

 
16.5

 
16.7

 
 
 
 
Common Stock(4)(6)
 
 
 
4,852,686

 
 
 
50.6

 

 
 
 
 
 
 

 
 
 
 
 
 
102.3

 
51.9

ECA Medical Instruments
 
Health Care Equipment & Supplies
 
First Lien Senior Debt(6)
10.0
%
N/A

3/16
 
 
8.5

 
8.5

 
8.5

 
 
Mezzanine Debt(6)
13.0
%
3.5
%
7/16
 
 
18.4

 
18.4

 
18.4

 
 
 
 
Common Stock(4)(6)
 
 
 
1,000

 
 
 
14.9

 
2.9

 
 
 
 
 
 

 
 
 
 
 
 
41.8

 
29.8

eLynx Holdings, Inc.
 
IT Services
 
Convertible Preferred Stock(4)(6)
 
 
 
11,728

 
 
 
26.9

 
23.7

 
 
 
 
Redeemable Preferred Stock(4)(6)
 
 
 
30,162

 
 
 
9.0

 

 
 
 
 
Common Stock(4)(6)
 
 
 
16,087

 
 
 
1.1

 

 
 
 
 
Common Stock Warrants(4)(6)
 
 
 
1,002,678

 
 
 
5.5

 

 
 
 
 
 
 

 
 
 
 
 
 
42.5

 
23.7

EXPL Pipeline Holdings LLC(7)
 
Oil, Gas & Consumable Fuels
 
First Lien Senior Debt(6)
8.1
%
N/A

1/17
 
 
44.9

 
44.5

 
44.8

 
 
Common Membership Units(4)(6)
 
 
 
100,000

 
 
 
60.6

 
39.0

 
 
 
 
 
 

 
 
 
 
 
 
105.1

 
83.8

FAMS Acquisition, Inc.
 
Diversified Financial Services
 
Mezzanine Debt(6)
12.3
%
2.7
%
1/16
 
 
38.3

 
38.3

 
36.2

Fosbel Holding, Inc.
 
Commercial Services & Supplies
 
Mezzanine Debt(5)(6)
N/A

17.0
%
10/18
 
 
11.7

 
9.5

 

FPI Holding Corporation
 
Food Products
 
First Lien Senior Debt(5)(6)
N/A

20.0
%
1/16
 
 
0.4

 
0.4

 

Group Montana, Inc.
 
Textiles, Apparel & Luxury Goods
 
First Lien Senior Debt(6)
6.3
%
N/A

1/17
 
 
6.1

 
6.1

 
6.1

 
 
 
Convertible Preferred Stock(6)
 
 
 
4,000

 
 
 
5.3

 
4.6

 
 
 
 
Common Stock(4)(6)
 
 
 
100
%
 
 
 
12.6

 

 
 
 
 
 
 

 
 
 
 
 
 
24.0

 
10.7

Halex Holdings, Inc.
 
Construction Materials
 
Second Lien Senior Debt(5)(6)
8.5
%
N/A

1/18
 
 
15.8

 
15.7

 
15.8

 
 
 
 
Common Stock(4)(6)
 
 
 
51,853

 
 
 
9.3

 
4.1

 
 
 
 
 
 

 
 
 
 
 
 
25.0

 
19.9

HALT Medical, Inc.
 
Health Care Equipment & Supplies
 
First Lien Senior Debt(5)(6)
N/A

22.0
%
9/15
 
 
85.7

 
57.8

 
24.8

Hard 8 Games, LLC
 
Hotels, Restaurants & Leisure
 
First Lien Convertible Senior Debt
N/A

5.4
%
7/15-4/16
 
 
22.3

 
22.3

 
22.3

 
 
 
Membership Unit(4)(6)
 
 
 
1

 
 
 
19.0

 
11.8

 
 
 
 
 
 
 
 
 
 
 
 
41.3

 
34.1

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

21


AMERICAN CAPITAL, LTD.
CONSOLIDATED SCHEDULE OF INVESTMENTS—(Continued)
June 30, 2015
(unaudited)
(in millions, except share data)
Company(1)
 
Industry
 
Investments
Cash
Interest
Rate(2)
PIK
Interest
Rate(2)
Maturity
Date(2)
# of
Shares/
Units
Owned
 
Principal
 
Cost
 
Fair
Value
Hollyhock Limited(7)
 
Independent Power & Renewable Electricity Producers
 
Common Stock(4)(6)
 
 
 
22,000,000

 
 
 
22.0

 
21.2

LLSC Holdings Corporation
 
Personal Products
 
Convertible Preferred Stock(4)(6)
 
 
 
9,000

 
 
 
10.9

 
17.6

Montgomery Lane, LLC(7)
 
Diversified Financial Services
 
Common Membership Units(4)(6)
 
 
 
100

 
 
 

 
6.8

MW Acquisition Corporation
 
Health Care Providers & Services
 
Mezzanine Debt(6)
14.4
%
1.0
%
2/19
 
 
24.1

 
24.1

 
24.1

 
 
Redeemable Preferred Stock(6)
 
 
 
2,485

 
 
 
2.5

 
2.5

 
 
 
 
Convertible Preferred Stock(4)(6)
 
 
 
88,084

 
 
 
41.2

 
45.8

 
 
 
 
 
 

 
 
 
 
 
 
67.8

 
72.4

NECCO Holdings, Inc.
 
Food Products
 
First Lien Senior Debt(5)(6)
6.5
%
N/A

12/15
 
 
11.0

 
8.5

 
5.2

 
 
 
 
Second Lien Senior Debt(5)(6)
N/A

18.0
%
11/15
 
 
7.0

 
3.2

 

 
 
 
 
Common Stock(4)(6)
 
 
 
860,189

 
 
 
0.1

 

 
 
 
 
 
 

 
 
 
 
 
 
11.8

 
5.2

NECCO Realty Investments, LLC
 
Real Estate
 
First Lien Senior Debt(5)(6)
2.8
%
11.2
%
12/17
 
 
71.1

 
32.8

 
24.9

 
 
 
Common Membership Units(4)(6)
 
 
 
7,450

 
 
 
4.9

 

 
 
 
 
 
 

 
 
 
 
 
 
37.7

 
24.9

Orchard Brands Corporation
 
Internet & Catalog Retail
 
Common Stock(4)(6)
 
 
 
87,838

 
 
 
55.1

 
91.7

PHC Sharp Holdings, Inc.
 
Commercial Services & Supplies
 
First Lien Senior Debt(6)
12.5
%
N/A

12/15
 
 
1.4

 
1.4

 
1.4

 
 
 
Mezzanine Debt(6)
N/A

17.0
%
12/16
 
 
13.4

 
13.4

 
13.4

 
 
 
 
Mezzanine Debt(5)(6)
N/A

19.0
%
12/16
 
 
27.5

 
13.0

 
13.3

 
 
 
 
Common Stock(4)(6)
 
 
 
631,049

 
 
 
4.2

 

 
 
 
 
 
 

 
 
 
 
 
 
32.0

 
28.1

RD Holdco Inc.
 
Household Durables
 
Second Lien Senior Debt(6)
11.3
%
N/A

6/17
 
 
16.9

 
14.9

 
16.6

 
 
 
 
Common Stock(4)(6)
 
 
 
458,596

 
 
 
23.6

 
7.4

 
 
 
 
Common Stock Warrants(4)(6)
 
 
 
56,372

 
 
 
2.9

 
0.9

 
 
 
 
 
 
 
 
 
 
 
 
41.4

 
24.9

Rebellion Media Group Corp.(7)
 
Internet Software & Services
 
First Lien Senior Debt(6)
N/A

12.0
%
7/15
 
 
4.5

 
4.5

 
4.5

 
 
First Lien Senior Debt(5)(6)
N/A

12.0
%
12/15
 
 
14.6

 
8.3

 
1.8

 
 
 
 
 
 
 
 
 
 
 
 
12.8

 
6.3

Scanner Holdings Corporation
 
Technology Hardware, Storage & Peripherals
 
Mezzanine Debt(6)
15.1
%
N/A

10/16-7/17
 
 
23.3

 
23.1

 
23.3

 
 
Convertible Preferred Stock(6)
 
 
 
66,424,135

 
 
 
10.0

 
15.8

 
 
 
Common Stock(4)(6)
 
 
 
167,387

 
 
 
0.1

 

 
 
 
 
 
 

 
 
 
 
 

 
33.2

 
39.1

SEHAC Holding Corporation
 
Diversified Consumer Services
 
Convertible Preferred Stock(6)
 
 
 
14,850

 
 
 
14.8

 
132.7

 
 
Common Stock(6)
 
 
 
150

 
 
 
0.2

 
1.3

 
 
 
 
 
 
 
 
 
 
 
 
15.0

 
134.0

Soil Safe Acquisition Corp.
 
Professional Services
 
First Lien Senior Debt(6)
8.0
%
N/A

1/18-12/18
 
 
22.2

 
22.2

 
22.3

 
 
 
 
Second Lien Senior Debt(6)
10.8
%
N/A

7/19
 
 
12.7

 
12.7

 
12.7

 
 
 
 
Mezzanine Debt(6)
8.8
%
7.3
%
12/19
 
 
69.6

 
69.5

 
69.6

 
 
 
 
Common Stock(4)
 
 
 
810

 
 
 
9.0

 
23.7

 
 
 
 
 
 
 
 
 
 
 
 
113.4

 
128.3

Warner Power, LLC
 
Electrical Equipment
 
Mezzanine Debt(5)(6)
N/A

14.6
%
9/15
 
 
10.4

 
5.7

 
3.1

 
 
 
 
Redeemable Preferred Membership Units(4)(6)
 
 
 
6,512,002

 
 
 
3.0

 

 
 
 
 
Common Membership Units(4)(6)
 
 
 
47,000

 
 
 
1.9

 

 
 
 
 
 
 

 
 
 
 
 
 
10.6

 
3.1

WIS Holding Company, Inc.
 
Commercial Services & Supplies
 
Convertible Preferred Stock(6)
 
 
 
1,206,598

 
 
 
121.7

 
136.2

 
 
Common Stock(4)(6)
 
 
 
301,650

 
 
 
16.0

 

 
 
 
 
 
 

 
 
 
 
 
 
137.7

 
136.2

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
EUROPEAN CAPITAL CONTROL INVESTMENTS
 
 
 
 
 
 
 
Bellotto Holdings Limited(7)
 
Household Durables
 
Redeemable Preferred Stock
 
 
 
7,300,610

 
2.2

 
38.5

 
40.4

 
 
 
Common Stock(4)
 
 
 
2,697,010

 
 
 
101.2

 
100.8

 
 
 
 
 
 
 
 
 
 
 
 
139.7

 
141.2

Columbo TopCo Limited(7)
 
Commercial Services & Supplies
 
Redeemable Preferred Stock(4)
 
 
 
34,179,330

 
23.5

 
79.0

 
64.5

 
 
 
Common Stock(4)
 
 
 
757,743

 
 
 
1.2

 

 
 
 
 
 
 
 
 
 
 
 
 
80.2

 
64.5

European Capital Private Debt LP(7)
 
Diversified Financial Services
 
Partnership Interest
 
 
 
1,650

 
 
 
91.9

 
94.6

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

22


AMERICAN CAPITAL, LTD.
CONSOLIDATED SCHEDULE OF INVESTMENTS—(Continued)
June 30, 2015
(unaudited)
(in millions, except share data)
Company(1)
 
Industry
 
Investments
Cash
Interest
Rate(2)
PIK
Interest
Rate(2)
Maturity
Date(2)
# of
Shares/
Units
Owned
 
Principal
 
Cost
 
Fair
Value
European Capital UK SME Debt LP(7)
 
Diversified Financial Services
 
Partnership Interest
 
 
 
500

 
 
 
5.3

 
5.0

Financière H S.A.S.(7)
 
Health Care Equipment & Supplies
 
Mezzanine Debt
3.6%

5.8
%
10/15
 
 
14.7

 
14.7

 
14.3

 
 
Convertible Preferred Stock(4)
 
 
 
930,558

 
 
 
53.0

 
22.0

 
 
 
 
 
 
 
 
 
 
 
 
67.7

 
36.3

Financière Tarmac S.A.S.(7)
 
Commercial Services & Supplies
 
First Lien Senior Debt
4.0%

N/A

12/20
 
 
4.2

 
3.5

 
4.2

 
 
Mezzanine Debt
N/A

4.0
%
12/21
 
 
20.6

 
20.6

 
21.6

 
 
 
 
Mezzanine Debt(5)
N/A

4.0
%
12/21
 
 
26.8

 
15.4

 
10.7

 
 
 
 
Convertible Preferred Stock(4)
 
 
 
8,665,001

 
 
 
9.6

 

 
 
 
 
Redeemable Preferred Stock(4)
 
 
 
 
 
3.4

 
7.4

 

 
 
 
 
 
 
 
 
 
 
 
 
56.5

 
36.5

Holding Saint Augustine S.A.S.(7)
 
Air Freight & Logistics
 
First Lien Senior Debt
N/A

N/A

9/19
 
 
4.5

 
4.5

 
4.5

 
 
Convertible Preferred Stock(4)(5)
 
 
 
1,982,668

 
 
 
13.7

 

 
 
 
 
 
 
 
 
 
 
 
 
18.2

 
4.5

Miles 33 Limited(7)
 
Software
 
First Lien Senior Debt
4.0%

N/A

9/17
 
 
8.0

 
8.0

 
8.0

 
 
 
 
Mezzanine Debt(5)
5.0%

5.0
%
9/17
 
 
17.3

 
14.4

 
14.4

 
 
 
 
Redeemable Preferred Stock(4)
 
 
 
 
 
78.1

 
30.6

 

 
 
 
 
 
 
 
 
 
 
 
 
53.0

 
22.4

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
AMERICAN CAPITAL CONTROL CLO INVESTMENT
 
 
 
 
 
 
 
ACAS Wachovia Investments, L.P.(7)
 
Diversified Financial Services
 
Partnership Interest(4)
 
 
 
90
%
 
 

 
2.0

 
0.6

Subtotal Control Investments (42% of total investments at fair value)
 
 
 
 
$
2,601.9

 
$
3,025.5

Total Investment Assets
 
 
 
 
$
7,013.2

 
$
7,259.9


Counterparty
 
Instrument
 
Interest
Rate(2)
 
Expiration
Date(2)
 
# of
Contracts
 
Notional
 
Cost
 
Fair
Value
DERIVATIVE AGREEMENTS
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Citibank, N.A.
 
Interest Rate Swap - Pay Fixed/ Receive Floating(6)
 
5.6%/LIBOR
 
5/16-7/17
 
2

 
$
27.5

 
$

 
$
(3.0
)
BNP Paribas
 
Interest Rate Swap - Pay Fixed/ Receive Floating(6)
 
5.7%/LIBOR
 
7/17
 
1

 
22.3

 

 
(2.7
)
Wells Fargo Bank, N.A
 
Interest Rate Swap - Pay Fixed/ Receive Floating(6)
 
5.6%/LIBOR
 
8/16
 
1

 
11.9

 

 
(0.7
)
Total Derivative Agreements
 
 
 
 
 
 
 
 
 
$

 
$
(6.4
)

Funds
 
Cost
 
Fair
Value
MONEY MARKET FUNDS(3)
 
 
Deutsche Global Liquidity Managed Sterling Fund
 
$
70.3

 
$
70.3

Wells Fargo Advantage Heritage Money Market Fund(6)
 
2.5

 
2.5

JPMorgan Prime Money Market Fund(6)
 
2.5

 
2.5

Total Money Market Funds
 
$
75.3

 
$
75.3


(1)
Certain of the securities are issued by affiliate(s) of the listed portfolio company.
(2)
Interest rates represent the weighted average annual stated interest rate on loans and debt securities in effect on the date presented, which are presented by the nature of indebtedness by a single issuer. Some loans and debt securities bear interest at variable rates, primarily the three-month London Interbank Offered Rate (“LIBOR”), with interest rate floors. Payment-in-kind interest (“PIK”) represents contractually deferred interest that is typically compounded into the principal balance of the loan or debt security, if not paid on a current basis. PIK interest may be prepaid by the portfolio company’s election, but generally is paid upon a change of control transaction or maturity. The maturity date represents the latest date in which the loan or debt security is scheduled to terminate.
(3)
Included in cash and cash equivalents on our consolidated balance sheets.
(4)
Some or all of the securities are non-income producing.
(5)
Loan is on non-accrual status and therefore considered non-income producing.
(6)
All or a portion of the investments or instruments are pledged as collateral under various secured financing arrangements.
(7)
Investments that are not “qualifying assets” under Section 55(a) of the 1940 Act. Under the 1940 Act, we may not acquire any non-qualifying asset unless, at the time such acquisition is made, qualifying assets represent at least 70% of our total assets.









23


AMERICAN CAPITAL, LTD.
CONSOLIDATED SCHEDULE OF INVESTMENTS
December 31, 2014
(in millions, except share data)
Company(1)
 
Industry
 
Investments
Cash
Interest
Rate(2)
PIK
Interest
Rate(2)
Maturity
Date(2)
# of
Shares/
Units
Owned
 
Principal
 
Cost
 
Fair
Value
AMERICAN CAPITAL NON-CONTROL / NON-AFFILIATE INVESTMENTS
 
 
 
 
 
 
 
2 TransAm LLC
 
Real Estate
 
First Lien Senior Debt(6)
5.4
%
N/A

1/18
 
 
$
5.6

 
$
5.6

 
$
5.6

Aderant North America, Inc.
 
Software
 
Second Lien Senior Debt(6)
10.0
%
N/A

6/19
 
 
16.0

 
15.8

 
16.2

American Acquisition, LLC(7)
 
Capital Markets
 
First Lien Senior Debt(6)
19.3
%
N/A

3/15
 
 
2.7

 
2.7

 
2.7

AmWINS Group, LLC
 
Insurance
 
Second Lien Senior Debt
9.5
%
N/A

9/20
 
 
46.0

 
44.8

 
45.1

Bensussen Deutsch & Associates, LLC
 
Distributors
 
Second Lien Senior Debt(6)
12.0
%
2.0
%
9/19
 
 
45.3

 
42.9

 
42.8

 
 
 
Common Stock(4)
 
 
 
1,224,089

 
 
 
2.5

 
4.7

 
 
 
 
 
 
 
 
 
 
 
45.4

 
47.5

BeyondTrust Software, Inc.
 
Software
 
First Lien Senior Debt(6)
8.0
%
N/A

9/19
 
 
27.6

 
27.6

 
27.6

Blue Wolf Capital Fund II, L.P.(7)
 
Capital Markets
 
Limited Partnership Interest(4)
 
 
 
 
 
 
 
8.8

 
8.6

BRG Sports, Inc.
 
Leisure Products
 
Redeemable Preferred Stock(4)
 
 
 
1,171

 
 
 
1.2

 
1.8

 
 
 
 
Common Units(4)
 
 
 
3,830,068

 
 
 
0.7

 

 
 
 
 
 
 
 
 
 
 
 
 
1.9

 
1.8

CAMP International Holding Company
 
Transportation Infrastructure
 
Second Lien Senior Debt(6)
8.3
%
N/A

11/19
 
 
15.0

 
15.0

 
15.1

CGSC of Delaware Holdings Corporation(7)
 
Insurance
 
Second Lien Senior Debt(6)
8.3
%
N/A

10/20
 
 
2.0

 
2.0

 
1.8

Convergint Technologies, LLC
 
Commercial Services & Supplies
 
Second Lien Senior Debt(6)
9.0
%
N/A

12/17-12/20
 
 
75.0

 
75.0

 
75.0

CPI Buyer, LLC
 
Trading Companies & Distributors
 
Second Lien Senior Debt(6)
8.5
%
N/A

8/22
 
 
25.0

 
24.6

 
24.7

Datapipe, Inc.
 
IT Services
 
Second Lien Senior Debt(6)
8.5
%
N/A

9/19
 
 
29.5

 
29.1

 
28.5

Delsey Holding S.A.S.(7)
 
Textiles, Apparel & Luxury Goods
 
First Lien Senior Debt(6)
6.5
%
3.3
%
12/16
 
 
15.3

 
15.2

 
13.9

 
 
 
Mezzanine Debt(5)(6)
N/A

11.0
%
12/22
 
 
2.1

 
1.8

 
0.4

 
 
 
 
 
 
 
 
 
 
 
 
17.0

 
14.3

Exchange South Owner, LLC(7)
 
Real Estate
 
First Lien Senior Debt(6)
7.7
%
N/A

1/19
 
 
6.9

 
6.9

 
6.9

Flexera Software LLC
 
Software
 
Second Lien Senior Debt(6)
8.0
%
N/A

4/21
 
 
5.0

 
5.0

 
4.8

Foamex Innovations, Inc.
 
Household Durables
 
Common Stock(4)
 
 
 
2,708

 
 
 

 
0.6

 
 
 
 
Common Stock Warrants(4)(6)
 
 
 
7,067

 
 
 

 
0.2

 
 
 
 
 
 
 
 
 
 
 
 

 
0.8

Inmar, Inc.
 
Commercial Services & Supplies
 
Second Lien Senior Debt(6)
8.0
%
N/A

1/22
 
 
20.0

 
19.8

 
19.6

Iotum Global Holdings, Inc.(7)
 
Diversified Telecommunication Services
 
First Lien Senior Debt(6)
N/A

10.0
%
5/17
 
 
2.4

 
2.4

 
2.4

iParadigms, LLC
 
Internet Software & Services
 
Second Lien Senior Debt(6)
8.3
%
N/A

7/22
 
 
27.0

 
26.8

 
26.6

Jazz Acquisition, Inc.
 
Aerospace & Defense
 
Second Lien Senior Debt(6)
7.8
%
N/A

6/22
 
 
25.0

 
24.9

 
24.5

Landslide Holdings, Inc.
 
Software
 
Second Lien Senior Debt(6)
8.3
%
N/A

2/21
 
 
9.0

 
9.0

 
8.8

LTG Acquisition, Inc.
 
Communications Equipment
 
Second Lien Senior Debt(6)
9.0
%
N/A

10/20
 
 
46.0

 
46.0

 
45.6

 
 
 
Common Stock(4)(6)
 
 
 
5,000

 
 
 
5.0

 
7.3

 
 
 
 
 
 
 
 
 
 
 
 
51.0

 
52.9

Mitchell International, Inc.
 
Software
 
Second Lien Senior Debt(6)
8.5
%
N/A

10/21
 

 
7.0

 
6.9

 
7.0

M-IV Lake Center LLC(7)
 
Real Estate
 
First Lien Senior Debt(6)
5.4
%
N/A

12/17
 
 
6.1

 
6.1

 
6.1

Parkeon S.A.S.(7)
 
Electronic Equipment, Instruments & Components
 
First Lien Senior Debt(6)
2.4
%
N/A

12/17
 
 
4.3

 
4.0

 
3.6

 
Redeemable Preferred Stock(4)(6)
 
 
 
5,234,743

 
 
 
0.5

 
1.2

 
 
 
 
 
 
 
 
 
4.5

 
4.8

Parts Holding Coörperatief U.A(7)
 
Distributors
 
Membership Entitlements(4)
 
 
 
173,060

 
 
 
6.4

 
1.7

Qualium I(7)
 
Capital Markets
 
Common Stock(4)
 
 
 
247,939

 
 
 
6.9

 
6.9

Ranpak Corp.
 
Containers & Packaging
 
Second Lien Senior Debt(6)
8.3
%
N/A

10/22
 
 
25.0

 
25.0

 
25.0

Roark - Money Mailer, LLC
 
Media
 
Common Membership Units
 
 
 
3.5
%
 
 
 

 
0.8

Sage Products Holdings III, LLC
 
Health Care Equipment & Supplies
 
Second Lien Senior Debt(6)
9.3
%
N/A

6/20
 
 
22.8

 
22.9

 
22.6

Sparta Systems, Inc.
 
IT Services
 
First Lien Senior Debt(6)
6.3
%
1.5%

7/20
 
 
24.9

 
24.7

 
24.7

 
 
 
 
Convertible Preferred Stock(6)
 
 
 
743

 
 
 
0.8

 
0.8

 
 
 
 
 
 
 
 
 
 
 
 
25.5

 
25.5

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

24


AMERICAN CAPITAL, LTD.
CONSOLIDATED SCHEDULE OF INVESTMENTS—(Continued)
December 31, 2014
(in millions, except share data)
Company(1)
 
Industry
 
Investments
Cash
Interest
Rate(2)
PIK
Interest
Rate(2)
Maturity
Date(2)
# of
Shares/
Units
Owned
 
Principal
 
Cost
 
Fair
Value
Systems Maintenance Services Holding, Inc.
 
IT Services
 
Second Lien Senior Debt(6)
9.3
%
N/A

10/20
 
 
28.0

 
27.8

 
27.8

Teasdale Foods, Inc.
 
Food & Staples Retailing
 
Second Lien Senior Debt(6)
8.8
%
N/A

10/21
 
 
31.5

 
31.5

 
31.5

Tectum Holdings, Inc.
 
Auto Components
 
Second Lien Senior Debt(6)
9.8
%
N/A

1/21
 
 
41.5

 
40.9

 
40.9

 
 
 
 
Convertible Preferred Stock(4)(6)
 
 
 
25,000

 
 
 
2.5

 
2.5

 
 
 
 
 
 
 
 
 
 
 
 
43.4

 
43.4

Tyche Holdings, LLC
 
IT Services
 
Second Lien Senior Debt(6)
9.0
%
N/A

11/22
 
 
27.0

 
26.9

 
26.7

Tyden Cayman Holdings Corp.(7)
 
Electronic Equipment, Instruments & Components
 
Convertible Preferred Stock(4)(6)
 

 
 
26,977

 
 
 
0.1

 
0.1

 
 
Common Stock(4)(6)
 

 
 
3,218,667

 
 
 
3.8

 
2.3

 
 
 
 
 
 
 
 
 
 
 
3.9

 
2.4

W3 Co.
 
Health Care Equipment & Supplies
 
Second Lien Senior Debt(6)
9.3
%
N/A

9/20
 
 
17.0

 
16.8

 
16.4

WP CPP Holdings, LLC
 
Aerospace & Defense
 
Second Lien Senior Debt(6)
8.8
%
N/A

4/21
 
 
40.0

 
39.8

 
38.2

WRH, Inc.(8)
 
Life Sciences Tools & Services
 
Mezzanine Debt(6)
9.3
%
5.9
%
8/18
 
 
95.8

 
95.6

 
92.5

 
 
 
Convertible Preferred Stock(4)(6)
 
 
 
2,008,575

 
 
 
200.9

 
96.9

 
 
 
 
Common Stock(4)(6)
 
 
 
502,144

 
 
 
49.8

 

 
 
 
 
 
 

 
 
 
 
 
 
346.3

 
189.4

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
EUROPEAN CAPITAL NON-CONTROL / NON-AFFILIATE INVESTMENTS
 
 
 
 
 
 
 
Delsey Holding S.A.S.(7)
 
Textiles, Apparel & Luxury Goods
 
First Lien Senior Debt
6.5%

2.0
%
12/16
 
 
89.4

 
89.4

 
84.2

 
 
 
Mezzanine Debt(5)
N/A

11.0
%
12/22
 
 
12.2

 
10.5

 
2.4

 
 
 
 
 
 
 
 
 
 
 
 
99.9

 
86.6

Financière OFIC S.A.S.(7)
 
Building Products
 
Warrants(4)
 
 
 
1,574,600

 
 
 

 
2.8

Financière Poult S.A.S.(7)
 
Food Products
 
Mezzanine Debt
5.0%

5.3
%
6/22
 
 
16.2

 
16.2

 
15.9

Financière Riskeco S.A.S.(7)
 
Diversified Consumer Services
 
First Lien Senior Debt
6.5%

2.0
%
7/21
 
 
14.1

 
14.1

 
13.7

The Flexitallic Group S.A.S.(7)
 
Energy Equipment & Services
 
First Lien Senior Debt
4.5%

4.5
%
7/20
 
 
26.6

 
26.6

 
26.3

Groupe INSEEC(7)
 
Education Services
 
First Lien Senior Debt
6.0%

3.0
%
12/20
 
 
47.1

 
47.1

 
45.8

Hilding Anders AB(7)
 
Household Durables
 
Mezzanine Debt(5)
N/A

12.0
%
12/19
 
 
36.2

 
17.7

 

Legendre Holding 31 S.A.(7)
 
Leisure Products
 
First Lien Senior Debt
5.7%

N/A

1/21
 
 
68.4

 
68.4

 
65.0

 
 
 
Common Stock(4)
 
 
 
51,975,983

 
 
 
6.3

 
6.3

 
 
 
 
 
 
 
 
 
 
 
 
74.7

 
71.3

Modacin France S.A.S.(7)
 
Textiles, Apparel & Luxury Goods
 
Mezzanine Debt(5)
4.0%

4.5
%
5/17
 
 
23.2

 
12.6

 

Parts Holding Coörperatief U.A.(7)
 
Auto Components
 
Common Stock(4)
 
 
 
568,624

 
 
 

 
5.4

Skrubbe Vermogensverwaltungsgesellschaft mbH(7)
 
Hotels, Restaurants & Leisure
 
First Lien Senior Debt
4.5%

3.0
%
7/20
 
 
12.3

 
12.3

 
12.1

Tiama 2 S.A.S.(7)
 
Machinery
 
Mezzanine Debt(5)
4.5%

5.0
%
2/17
 
 
49.1

 
28.1

 

Unipex Neptune International SAS(7)
 
Chemicals
 
Mezzanine Debt
7.0%

5.0
%
9/20
 
 
5.3

 
5.3

 
5.3

Zodiac Marine and Pool S.A.(7)
 
Marine
 
Second Lien Senior Debt(5)
%
4.0
%
3/17
 
 
38.0

 
27.6

 

 
 
 
Mezzanine Debt(5)
%
8.0
%
9/17
 
 
69.9

 
38.8

 

 
 
 
 
 
 
 
 
 
 
 
 
66.4

 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
SENIOR FLOATING RATE LOANS
 
 
 
 
 
 
 
1011778 B.C. Unlimited Liability Company(7)
 
Hotels, Restaurants & Leisure
 
First Lien Senior Debt(6)
4.5
%
N/A

12/21
 
 
17.0

 
16.8

 
17.0

24 Hour Fitness Worldwide, Inc.
 
Hotels, Restaurants & Leisure
 
First Lien Senior Debt(6)
4.8
%
N/A

5/21
 
 
8.3

 
8.4

 
8.0

Accellent Inc.
 
Health Care Equipment & Supplies
 
First Lien Senior Debt(6)
4.5
%
N/A

3/21
 
 
7.4

 
7.4

 
7.3

Acosta Holdco, Inc.
 
Media
 
First Lien Senior Debt(6)
5.0
%
N/A

9/21
 
 
16.0

 
15.9

 
16.0

Advantage Sales & Marketing Inc.
 
Professional Services
 
First Lien Senior Debt(6)
4.3
%
N/A

7/21
 
 
16.0

 
16.0

 
15.8

 
 
 
Second Lien Senior Debt(6)
7.5
%
N/A

7/22
 
 
1.0

 
1.0

 
1.0

 
 
 
 
 
 
 
 
 
 
 
 
17.0

 
16.8

Aecom Technology Corp(7)
 
Construction & Engineering
 
First Lien Senior Debt(6)
3.8
%
N/A

10/21
 
 
4.2

 
4.2

 
4.2

Affinia Group Inc.
 
Auto Components
 
First Lien Senior Debt(6)
4.8
%
N/A

4/20
 
 
7.6

 
7.6

 
7.6

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

25


AMERICAN CAPITAL, LTD.
CONSOLIDATED SCHEDULE OF INVESTMENTS—(Continued)
December 31, 2014
(in millions, except share data)
Company(1)
 
Industry
 
Investments
Cash
Interest
Rate(2)
PIK
Interest
Rate(2)
Maturity
Date(2)
# of
Shares/
Units
Owned
 
Principal
 
Cost
 
Fair
Value
Akorn, Inc.(7)
 
Pharmaceuticals
 
First Lien Senior Debt(6)
4.5
%
N/A

4/21
 
 
5.0

 
5.0

 
5.0

Albertson's LLC
 
Food & Staples Retailing
 
First Lien Senior Debt(6)
4.6
%
N/A

3/19-8/21
 
 
2.0

 
2.0

 
2.0

AlixPartners, LLP
 
Diversified Financial Services
 
First Lien Senior Debt(6)
4.0
%
N/A

7/20
 
 
12.0

 
12.0

 
11.9

Alliance Laundry Systems LLC
 
Machinery
 
First Lien Senior Debt(6)
4.3
%
N/A

12/18
 
 
4.5

 
4.5

 
4.4

American Airlines, Inc.(7)
 
Airlines
 
First Lien Senior Debt(6)
3.8
%
N/A

6/19
 
 
9.9

 
9.9

 
9.9

American Renal Holdings Inc.
 
Health Care Providers & Services
 
First Lien Senior Debt(6)
4.5
%
N/A

8/19
 
 
7.7

 
7.7

 
7.7

American Tire Distributors, Inc.
 
Distributors
 
First Lien Senior Debt(6)
5.8
%
N/A

6/18
 
 
5.0

 
5.0

 
5.0

AmSurg Corp.(7)
 
Health Care Providers & Services
 
First Lien Senior Debt(6)
3.8
%
N/A

7/21
 
 
10.0

 
10.0

 
9.9

AmWINS Group, LLC
 
Insurance
 
First Lien Senior Debt(6)
5.3
%
N/A

9/19
 
 
8.8

 
8.8

 
8.8

Anchor Glass Container Corporation
 
Containers & Packaging
 
First Lien Senior Debt(6)
4.3
%
N/A

6/21
 
 
7.5

 
7.5

 
7.4

Aquilex LLC
 
Commercial Services & Supplies
 
First Lien Senior Debt(6)
5.0
%
N/A

12/20
 
 
3.0

 
3.0

 
2.9

Aramark Corporation(7)
 
Commercial Services & Supplies
 
First Lien Senior Debt(6)
3.3
%
N/A

2/21
 
 
14.8

 
14.6

 
14.6

Ardent Medical Services, Inc.
 
Health Care Providers & Services
 
First Lien Senior Debt(6)
6.8
%
N/A

7/18
 
 
0.3

 
0.3

 
0.3

ARG IH Corporation
 
Hotels, Restaurants & Leisure
 
First Lien Senior Debt(6)
4.8
%
N/A

11/20
 
 
5.5

 
5.5

 
5.5

Aristocrat Leisure Limited(7)
 
Hotels, Restaurants & Leisure
 
First Lien Senior Debt(6)
4.8
%
N/A

10/21
 
 
5.0

 
4.9

 
4.9

Ascend Learning, LLC
 
Diversified Consumer Services
 
First Lien Senior Debt(6)
5.0
%
N/A

7/19
 
 
2.4

 
2.4

 
2.4

Ascensus, Inc.
 
Commercial Services & Supplies
 
First Lien Senior Debt(6)
5.0
%
N/A

12/19
 
 
6.0

 
6.1

 
6.0

Asurion, LLC
 
Commercial Services & Supplies
 
First Lien Senior Debt(6)
5.0
%
N/A

5/19
 
 
7.4

 
7.4

 
7.3

Atlantic Power Limited Partnership(7)
 
Independent Power & Renewable Electricity Producers
 
First Lien Senior Debt(6)
4.8
%
N/A

2/21
 
 
4.5

 
4.5

 
4.5

AZ Chem US Inc.
 
Chemicals
 
First Lien Senior Debt(6)
4.5
%
N/A

6/21
 
 
9.6

 
9.7

 
9.4

BarBri, Inc.
 
Diversified Consumer Services
 
First Lien Senior Debt(6)
4.5
%
N/A

7/19
 
 
9.8

 
9.8

 
9.6

Berlin Packaging L.L.C.
 
Containers & Packaging
 
First Lien Senior Debt(6)
4.5
%
N/A

10/21
 
 
6.5

 
6.4

 
6.5

Biomet, Inc.
 
Health Care Equipment & Supplies
 
First Lien Senior Debt(6)
3.7
%
N/A

7/17
 
 
4.0

 
4.0

 
4.0

BJ’s Wholesale Club, Inc.
 
Food & Staples Retailing
 
First Lien Senior Debt(6)
4.5
%
N/A

9/19
 
 
4.9

 
4.9

 
4.9

Blackboard Inc.
 
Software
 
First Lien Senior Debt(6)
4.8
%
N/A

10/18
 
 
5.0

 
5.0

 
4.9

Boulder Brands, Inc.(7)
 
Food Products
 
First Lien Senior Debt(6)
4.5
%
N/A

7/20
 
 
7.1

 
7.1

 
7.1

Boyd Gaming Corporation(7)
 
Hotels, Restaurants & Leisure
 
First Lien Senior Debt(6)
4.0
%
N/A

8/20
 
 
6.4

 
6.4

 
6.3

The Brickman Group Ltd. LLC
 
Commercial Services & Supplies
 
First Lien Senior Debt(6)
4.0
%
N/A

12/20
 
 
5.0

 
5.0

 
4.8

Burlington Coat Factory Warehouse Corporation(7)
 
Specialty Retail
 
First Lien Senior Debt(6)
4.3
%
N/A

8/21
 
 
4.0

 
4.0

 
3.9

BWAY Intermediate Company, Inc.
 
Containers & Packaging
 
First Lien Senior Debt(6)
5.6
%
N/A

8/20
 
 
4.0

 
3.9

 
4.0

Camp International Holding Company
 
Transportation Infrastructure
 
First Lien Senior Debt(6)
4.8
%
N/A

5/19
 
 
7.7

 
7.7

 
7.7

Capital Automotive L.P.
 
Real Estate
 
First Lien Senior Debt(6)
4.0
%
N/A

4/19
 
 
12.3

 
12.3

 
12.1

Capital Safety North America Holdings Inc.
 
Commercial Services & Supplies
 
First Lien Senior Debt(6)
3.8
%
N/A

3/21
 
 
9.4

 
9.2

 
9.2

Capsugel Holdings US, Inc.
 
Pharmaceuticals
 
First Lien Senior Debt(6)
3.5
%
N/A

8/18
 
 
11.5

 
11.5

 
11.3

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

26


AMERICAN CAPITAL, LTD.
CONSOLIDATED SCHEDULE OF INVESTMENTS—(Continued)
December 31, 2014
(in millions, except share data)
Company(1)
 
Industry
 
Investments
Cash
Interest
Rate(2)
PIK
Interest
Rate(2)
Maturity
Date(2)
# of
Shares/
Units
Owned
 
Principal
 
Cost
 
Fair
Value
Carecore National, LLC
 
Health Care Providers & Services
 
First Lien Senior Debt(6)
5.5
%
N/A

3/21
 
 
5.0

 
5.0

 
4.9

Carros Finance Luxembourg S.A.R.L.(7)
 
Machinery
 
First Lien Senior Debt(6)
4.5
%
N/A

9/21
 
 
9.0

 
9.0

 
8.9

Catalent Pharma Solutions, Inc.(7)
 
Pharmaceuticals
 
First Lien Senior Debt(6)
4.3
%
N/A

5/21
 
 
12.4

 
12.5

 
12.4

CCM Merger Inc.
 
Hotels, Restaurants & Leisure
 
First Lien Senior Debt(6)
4.5
%
N/A

8/21
 
 
4.9

 
4.9

 
4.8

CEC Entertainment, Inc.
 
Hotels, Restaurants & Leisure
 
First Lien Senior Debt(6)
4.0
%
N/A

2/21
 
 
12.4

 
12.3

 
12.1

Cequel Communications, LLC
 
Media
 
First Lien Senior Debt(6)
3.5
%
N/A

2/19
 
 
15.1

 
14.9

 
15.0

Charter Communications Operating, LLC(7)
 
Media
 
First Lien Senior Debt(6)
4.3
%
N/A

9/21
 
 
1.3

 
1.2

 
1.3

Checkout Holding Corp.
 
Media
 
First Lien Senior Debt(6)
4.5
%
N/A

4/21
 
 
5.0

 
5.0

 
4.8

CityCenter Holdings, LLC
 
Hotels, Restaurants & Leisure
 
First Lien Senior Debt(6)
4.3
%
N/A

10/20
 
 
12.5

 
12.4

 
12.4

Connolly, LLC
 
Professional Services
 
First Lien Senior Debt(6)
5.0
%
N/A

5/21
 
 
8.8

 
8.8

 
8.8

 
 
 
 
Second Lien Senior Debt(6)
8.0
%
N/A

5/22
 
 
1.0

 
1.0

 
1.0

 
 
 
 
 
 
 
 
 
 
 
 
9.8

 
9.8

Consolidated Communications, Inc.(7)
 
Diversified Telecommunication Services
 
First Lien Senior Debt(6)
4.3
%
N/A

12/20
 
 
5.0

 
5.0

 
4.9

CPG International Inc.
 
Building Products
 
First Lien Senior Debt(6)
4.8
%
N/A

9/20
 
 
7.4

 
7.5

 
7.4

CPI Buyer, LLC
 
Trading Companies & Distributors
 
First Lien Senior Debt(6)
5.5
%
N/A

8/21
 
 
2.0

 
2.0

 
2.0

CPI International Inc.
 
Electronic Equipment, Instruments & Components
 
First Lien Senior Debt(6)
4.3
%
N/A

11/17
 
 
10.4

 
10.4

 
10.3

CT Technologies Intermediate Holdings, Inc.
 
Health Care Technology
 
First Lien Senior Debt(6)
6.0
%
N/A

12/21
 
 
3.0

 
3.0

 
3.0

DAE Aviation Holdings, Inc.
 
Aerospace & Defense
 
First Lien Senior Debt(6)
5.0
%
N/A

11/18
 
 
3.6

 
3.6

 
3.6

Dave & Buster's, Inc.
 
Hotels, Restaurants & Leisure
 
First Lien Senior Debt(6)
4.3
%
N/A

7/20
 
 
6.1

 
6.1

 
6.1

Del Monte Foods, Inc.(7)
 
Food Products
 
First Lien Senior Debt(6)
4.3
%
N/A

2/21
 
 
5.0

 
5.0

 
4.6

Dell International LLC
 
Technology Hardware, Storage & Peripherals
 
First Lien Senior Debt(6)
4.5
%
N/A

4/20
 
 
9.5

 
9.4

 
9.5

Deltek, Inc.
 
Software
 
First Lien Senior Debt(6)
4.5
%
N/A

10/18
 
 
5.0

 
4.9

 
4.9

Dialysis Newco, Inc.
 
Health Care Providers & Services
 
First Lien Senior Debt(6)
4.5
%
N/A

4/21
 
 
11.9

 
12.0

 
11.9

Dole Food Company, Inc.
 
Food Products
 
First Lien Senior Debt(6)
4.5
%
N/A

11/18
 
 
10.2

 
10.3

 
10.1

DPX Holdings B.V. (7)
 
Life Sciences Tools & Services
 
First Lien Senior Debt(6)
4.3
%
N/A

3/21
 
 
7.0

 
6.9

 
6.8

Drew Marine Group Inc.
 
Chemicals
 
First Lien Senior Debt(6)
4.5
%
N/A

11/20
 
 
5.0

 
5.0

 
4.9

DTZ U.S. Borrower, LLC(7)
 
Real Estate
 
First Lien Senior Debt(6)
5.5
%
N/A

11/21
 
 
2.0

 
2.0

 
2.0

Duff & Phelps Corporation
 
Capital Markets
 
First Lien Senior Debt(6)
4.5
%
N/A

4/20
 
 
10.4

 
10.5

 
10.3

Dunkin' Brands, Inc.(7)
 
Hotels, Restaurants & Leisure
 
First Lien Senior Debt(6)
3.3
%
N/A

2/21
 
 
7.5

 
7.4

 
7.3

DynCorp International Inc.
 
Aerospace & Defense
 
First Lien Senior Debt(6)
6.3
%
N/A

7/16
 
 
1.0

 
1.0

 
1.0

Eco Services Operations LLC
 
Chemicals
 
First Lien Senior Debt(6)
4.8
%
N/A

12/21
 
 
2.0

 
2.0

 
2.0

EFS Cogen Holdings I, LLC
 
Independent Power & Renewable Electricity Producers
 
First Lien Senior Debt(6)
3.8
%
N/A

12/20
 
 
11.3

 
11.3

 
11.2

Electrical Components International, Inc.
 
Electrical Equipment
 
First Lien Senior Debt(6)
5.8
%
N/A

5/21
 
 
3.0

 
3.0

 
3.0

Emdeon Inc.
 
Health Care Providers & Services
 
First Lien Senior Debt(6)
3.8
%
N/A

11/18
 
 
10.0

 
9.9

 
9.8

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

27


AMERICAN CAPITAL, LTD.
CONSOLIDATED SCHEDULE OF INVESTMENTS—(Continued)
December 31, 2014
(in millions, except share data)
Company(1)
 
Industry
 
Investments
Cash
Interest
Rate(2)
PIK
Interest
Rate(2)
Maturity
Date(2)
# of
Shares/
Units
Owned
 
Principal
 
Cost
 
Fair
Value
Emerald Expositions Holding, Inc.
 
Media
 
First Lien Senior Debt(6)
4.8
%
N/A

6/20
 
 
4.8

 
4.8

 
4.7

Entravision Communications Corporation(7)
 
Media
 
First Lien Senior Debt(6)
3.5
%
N/A

5/20
 
 
1.9

 
1.9

 
1.8

EquiPower Resources Holdings, LLC
 
Independent Power & Renewable Electricity Producers
 
First Lien Senior Debt(6)
4.3
%
N/A

12/18-12/19
 
 
4.9

 
4.9

 
4.8

Evergreen Acqco 1 LP
 
Multiline Retail
 
First Lien Senior Debt(6)
5.0
%
N/A

7/19
 
 
12.4

 
12.5

 
12.0

EWT Holdings III Corp.
 
Machinery
 
First Lien Senior Debt(6)
4.8
%
N/A

1/21
 
 
5.0

 
5.0

 
4.9

Fairmount Minerals, Ltd.
 
Metals & Mining
 
First Lien Senior Debt(6)
4.5
%
N/A

9/19
 
 
5.0

 
5.0

 
4.5

FCA US LLC(7)
 
Automobiles
 
First Lien Senior Debt(6)
3.3
%
N/A

12/18
 
 
9.9

 
9.9

 
9.9

Ferro Corporation(7)
 
Chemicals
 
First Lien Senior Debt(6)
4.0
%
N/A

7/21
 
 
6.0

 
6.0

 
5.9

Filtration Group Corporation
 
Industrial Conglomerates
 
First Lien Senior Debt(6)
4.5
%
N/A

11/20
 
 
10.0

 
10.0

 
9.9

First Data Corporation
 
IT Services
 
First Lien Senior Debt(6)
4.0
%
N/A

3/18-3/21
 
 
17.4

 
17.4

 
17.2

Fitness International, LLC
 
Hotels, Restaurants & Leisure
 
First Lien Senior Debt(6)
5.5
%
N/A

7/20
 
 
3.6

 
3.6

 
3.5

Flexera Software LLC
 
Software
 
First Lien Senior Debt(6)
4.5
%
N/A

4/20
 
 
5.4

 
5.4

 
5.3

Fly Funding II S.à r.l.(7)
 
Trading Companies & Distributors
 
First Lien Senior Debt(6)
4.5
%
N/A

8/19
 
 
4.6

 
4.6

 
4.5

Flying Fortress Inc.(7)
 
Capital Markets
 
First Lien Senior Debt(6)
3.5
%
N/A

6/17
 
 
5.3

 
5.3

 
5.3

FMG Resources (August 2006) Pty LTD(7)
 
Metals & Mining
 
First Lien Senior Debt(6)
3.8
%
N/A

6/19
 
 
5.0

 
5.0

 
4.5

FullBeauty Brands, Inc.
 
Internet & Catalog Retail
 
First Lien Senior Debt(6)
4.5
%
N/A

3/21
 
 
11.5

 
11.5

 
11.4

Gates Global LLC
 
Machinery
 
First Lien Senior Debt(6)
4.3
%
N/A

7/21
 
 
18.1

 
18.0

 
17.7

Global Tel*Link Corporation
 
Diversified Telecommunication Services
 
First Lien Senior Debt(6)
5.0
%
N/A

5/20
 
 
4.3

 
4.3

 
4.2

The Goodyear Tire & Rubber Company(7)
 
Auto Components
 
Second Lien Senior Debt(6)
4.8
%
N/A

4/19
 
 
7.5

 
7.5

 
7.5

Great Wolf Resorts, Inc.
 
Hotels, Restaurants & Leisure
 
First Lien Senior Debt(6)
5.8
%
N/A

8/20
 
 
7.9

 
8.0

 
7.9

Greeneden U.S. Holdings II, LLC
 
Software
 
First Lien Senior Debt(6)
4.0
%
N/A

2/20
 
 
5.0

 
4.9

 
4.9

Grosvenor Capital Management Holdings, LLLP
 
Capital Markets
 
First Lien Senior Debt(6)
3.8
%
N/A

1/21
 
 
13.6

 
13.5

 
13.3

Guggenheim Partners Investment Management Holdings, LLC
 
Capital Markets
 
First Lien Senior Debt(6)
4.3
%
N/A

7/20
 
 
9.0

 
8.9

 
8.9

H. J. Heinz Company
 
Food Products
 
First Lien Senior Debt(6)
3.5
%
N/A

6/20
 
 
25.9

 
25.9

 
25.8

Hampton Rubber Company
 
Energy Equipment & Services
 
First Lien Senior Debt(6)
5.0
%
N/A

3/21
 
 
4.0

 
4.0

 
3.8

Harbor Freight Tools USA, Inc.
 
Specialty Retail
 
First Lien Senior Debt(6)
4.8
%
N/A

7/19
 
 
10.6

 
10.6

 
10.6

Hearthside Group Holdings, LLC
 
Food Products
 
First Lien Senior Debt(6)
4.5
%
N/A

6/21
 
 
10.4

 
10.5

 
10.4

Hemisphere Media Holdings, LLC(7)
 
Media
 
First Lien Senior Debt(6)
5.0
%
N/A

7/20
 
 
0.9

 
0.9

 
0.9

HFOTCO LLC
 
Oil, Gas & Consumable Fuels
 
First Lien Senior Debt(6)
4.3
%
N/A

8/21
 
 
1.0

 
1.0

 
1.0

The Hillman Group, Inc.
 
Machinery
 
First Lien Senior Debt(6)
4.5
%
N/A

6/21
 
 
9.0

 
9.0

 
8.9

Hub International Limited
 
Insurance
 
First Lien Senior Debt(6)
4.3
%
N/A

10/20
 
 
8.5

 
8.4

 
8.2

Hudson Products Holdings Inc.
 
Energy Equipment & Services
 
First Lien Senior Debt(6)
5.0
%
N/A

3/19
 
 
7.5

 
7.5

 
7.2

Hyland Software, Inc.
 
Software
 
First Lien Senior Debt(6)
4.8
%
N/A

2/21
 
 
4.0

 
4.0

 
4.0

Ikaria, Inc.
 
Health Care Providers & Services
 
First Lien Senior Debt(6)
5.0
%
N/A

2/21
 
 
8.2

 
8.3

 
8.2

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

28


AMERICAN CAPITAL, LTD.
CONSOLIDATED SCHEDULE OF INVESTMENTS—(Continued)
December 31, 2014
(in millions, except share data)
Company(1)
 
Industry
 
Investments
Cash
Interest
Rate(2)
PIK
Interest
Rate(2)
Maturity
Date(2)
# of
Shares/
Units
Owned
 
Principal
 
Cost
 
Fair
Value
Immucor, Inc.
 
Health Care Equipment & Supplies
 
First Lien Senior Debt(6)
5.0
%
N/A

8/18
 
 
7.9

 
8.0

 
7.8

IMS Health Incorporated(7)
 
Health Care Technology
 
First Lien Senior Debt(6)
3.5
%
N/A

3/21
 
 
5.4

 
5.3

 
5.3

Indra Holdings Corp.
 
Textiles, Apparel & Luxury Goods
 
First Lien Senior Debt(6)
5.3
%
N/A

4/21
 
 
4.1

 
4.2

 
4.1

Infinity Acquisition LLC
 
Software
 
First Lien Senior Debt(6)
4.3
%
N/A

8/21
 
 
5.0

 
5.0

 
4.9

Information Resources, Inc.
 
Professional Services
 
First Lien Senior Debt(6)
4.8
%
N/A

9/20
 
 
7.4

 
7.5

 
7.4

Inmar, Inc.
 
Commercial Services & Supplies
 
First Lien Senior Debt(6)
4.3
%
N/A

1/21
 
 
4.9

 
4.9

 
4.8

Intelsat Jackson Holdings S.A.(7)
 
Diversified Telecommunication Services
 
First Lien Senior Debt(6)
3.8
%
N/A

6/19
 
 
5.0

 
5.0

 
4.9

Interactive Data Corporation
 
Media
 
First Lien Senior Debt(6)
4.8
%
N/A

4/21
 
 
8.5

 
8.5

 
8.4

Ion Media Networks, Inc.
 
Media
 
First Lien Senior Debt(6)
4.8
%
N/A

12/20
 
 
5.0

 
5.0

 
4.9

J. Crew Group, Inc.
 
Specialty Retail
 
First Lien Senior Debt(6)
4.0
%
N/A

3/21
 
 
7.5

 
7.4

 
7.1

J.C. Penney Corporation, Inc.(7)
 
Multiline Retail
 
First Lien Senior Debt(6)
5.0
%
N/A

6/19
 
 
2.0

 
2.0

 
1.9

Jazz Acquisition, Inc.
 
Aerospace & Defense
 
First Lien Senior Debt(6)
4.5
%
N/A

6/21
 
 
5.0

 
5.0

 
4.9

The Kenan Advantage Group, Inc.
 
Road & Rail
 
First Lien Senior Debt(6)
3.8
%
N/A

6/16
 
 
4.9

 
5.0

 
4.9

Key Safety Systems, Inc.
 
Auto Components
 
First Lien Senior Debt(6)
4.8
%
N/A

8/21
 
 
5.2

 
5.2

 
5.2

Kindred Healthcare, Inc.(7)
 
Health Care Providers & Services
 
First Lien Senior Debt(6)
4.3
%
N/A

4/21
 
 
7.4

 
7.3

 
7.2

La Frontera Generation, LLC
 
Independent Power & Renewable Electricity Producers
 
First Lien Senior Debt(6)
4.5
%
N/A

9/20
 
 
8.7

 
8.7

 
8.6

La Quinta Intermediate Holdings L.L.C.(7)
 
Hotels, Restaurants & Leisure
 
First Lien Senior Debt(6)
4.0
%
N/A

4/21
 
 
6.8

 
6.8

 
6.7

Landmark Aviation FBO Canada, Inc.(7)
 
Aerospace & Defense
 
First Lien Senior Debt(6)
4.8
%
N/A

10/19
 
 
0.3

 
0.3

 
0.3

Landslide Holdings, Inc.
 
Software
 
First Lien Senior Debt(6)
5.0
%
N/A

2/20
 
 
7.4

 
7.4

 
7.2

Learning Care Group (US) No. 2 Inc.
 
Diversified Consumer Services
 
First Lien Senior Debt(6)
5.5
%
N/A

5/21
 
 
3.7

 
3.7

 
3.7

Leonardo Acquisition Corp.
 
Internet & Catalog Retail
 
First Lien Senior Debt(6)
4.3
%
N/A

1/21
 
 
10.4

 
10.4

 
10.2

Level 3 Financing, Inc.(7)
 
Diversified Telecommunication Services
 
First Lien Senior Debt(6)
4.5
%
N/A

1/22
 
 
4.0

 
4.0

 
4.0

Libbey Glass Inc.(7)
 
Household Durables
 
First Lien Senior Debt(6)
3.8
%
N/A

4/21
 
 
4.5

 
4.5

 
4.4

Liberty Cablevision of Puerto Rico LLC
 
Media
 
First Lien Senior Debt(6)
4.5
%
N/A

1/22
 
 
5.0

 
5.0

 
4.9

LM U.S. Member LLC
 
Aerospace & Defense
 
First Lien Senior Debt(6)
4.8
%
N/A

10/19
 
 
7.7

 
7.6

 
7.6

MCC Iowa LLC
 
Media
 
First Lien Senior Debt(6)
4.0
%
N/A

1/20-6/21
 
 
14.3

 
14.3

 
14.0

McJunkin Red Man Corporation(7)
 
Trading Companies & Distributors
 
First Lien Senior Debt(6)
5.0
%
N/A

11/19
 
 
5.0

 
5.0

 
4.6

Mediacom Illinois, LLC
 
Media
 
First Lien Senior Debt(6)
3.8
%
N/A

6/21
 
 
7.5

 
7.4

 
7.3

The Men’s Wearhouse, Inc.(7)
 
Specialty Retail
 
First Lien Senior Debt(6)
4.5
%
N/A

6/21
 
 
10.0

 
10.0

 
10.0

Michaels Stores, Inc.(7)
 
Specialty Retail
 
First Lien Senior Debt(6)
3.8
%
N/A

1/20
 
 
19.7

 
19.7

 
19.3

Midas Intermediate Holdco II, LLC
 
Diversified Consumer Services
 
First Lien Senior Debt(6)
4.8
%
N/A

8/21
 
 
2.0

 
2.0

 
2.0

Millennium Health, LLC
 
Health Care Providers & Services
 
First Lien Senior Debt(6)
5.3
%
N/A

4/21
 
 
7.3

 
7.4

 
7.3

Minerals Technologies Inc.(7)
 
Chemicals
 
First Lien Senior Debt(6)
4.0
%
N/A

5/21
 
 
2.8

 
2.8

 
2.8

Mirror Bidco Corp.(7)
 
Machinery
 
First Lien Senior Debt(6)
4.3
%
N/A

12/19
 
 
7.8

 
7.9

 
7.8

Mitchell International, Inc.
 
Software
 
First Lien Senior Debt(6)
4.5
%
N/A

10/20
 
 
9.4

 
9.5

 
9.3

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

29


AMERICAN CAPITAL, LTD.
CONSOLIDATED SCHEDULE OF INVESTMENTS—(Continued)
December 31, 2014
(in millions, except share data)
Company(1)
 
Industry
 
Investments
Cash
Interest
Rate(2)
PIK
Interest
Rate(2)
Maturity
Date(2)
# of
Shares/
Units
Owned
 
Principal
 
Cost
 
Fair
Value
Mitel US Holdings, Inc.(7)
 
Communications Equipment
 
First Lien Senior Debt(6)
5.3
%
N/A

1/20
 
 
2.3

 
2.3

 
2.3

Moneygram International, Inc.(7)
 
IT Services
 
First Lien Senior Debt(6)
4.3
%
N/A

3/20
 
 
5.0

 
4.9

 
4.6

MPG Holdco I Inc.
 
Auto Components
 
First Lien Senior Debt(6)
4.3
%
N/A

10/21
 
 
7.8

 
7.8

 
7.9

MPH Acquisition Holdings LLC
 
Health Care Providers & Services
 
First Lien Senior Debt(6)
3.8
%
N/A

3/21
 
 
16.5

 
16.4

 
16.1

Murray Energy Corporation
 
Oil, Gas & Consumable Fuels
 
First Lien Senior Debt(6)
5.3
%
N/A

12/19
 
 
4.5

 
4.5

 
4.3

National Financial Partners Corp.
 
Insurance
 
First Lien Senior Debt(6)
4.5
%
N/A

7/20
 
 
6.5

 
6.5

 
6.4

National Surgical Hospitals, Inc
 
Health Care Providers & Services
 
First Lien Senior Debt(6)
5.3
%
N/A

8/19
 
 
5.5

 
5.5

 
5.4

The Neiman Marcus Group Inc.
 
Multiline Retail
 
First Lien Senior Debt(6)
4.3
%
N/A

10/20
 
 
10.5

 
10.4

 
10.2

Numericable U.S. LLC(7)
 
Media
 
First Lien Senior Debt(6)
4.5
%
N/A

5/20
 
 
4.0

 
4.0

 
4.0

NVA Holdings, Inc.
 
Health Care Providers & Services
 
First Lien Senior Debt(6)
4.8
%
N/A

8/21
 
 
8.5

 
8.5

 
8.4

Onex Carestream Finance LP
 
Health Care Equipment & Supplies
 
First Lien Senior Debt(6)
5.0
%
N/A

6/19
 
 
14.1

 
14.2

 
14.1

Opal Acquisition, Inc.
 
Health Care Providers & Services
 
First Lien Senior Debt(6)
5.0
%
N/A

11/20
 
 
5.0

 
5.0

 
4.9

Ortho-Clinical Diagnostics S.A.(7)
 
Health Care Providers & Services
 
First Lien Senior Debt(6)
4.8
%
N/A

6/21
 
 
12.3

 
12.4

 
12.2

OSG Bulk Ships, Inc.(7)
 
Oil, Gas & Consumable Fuels
 
First Lien Senior Debt(6)
5.3
%
N/A

8/19
 
 
8.7

 
8.8

 
8.5

Oxbow Carbon LLC
 
Metals & Mining
 
First Lien Senior Debt(6)
4.3
%
N/A

7/19
 
 
4.9

 
4.9

 
4.5

P2 Lower Acquisition, LLC
 
Health Care Providers & Services
 
First Lien Senior Debt(6)
5.5
%
N/A

10/20
 
 
1.9

 
1.8

 
1.8

Party City Holdings Inc.
 
Specialty Retail
 
First Lien Senior Debt(6)
4.0
%
N/A

7/19
 
 
11.6

 
11.5

 
11.4

Peabody Energy Corporation(7)
 
Metals & Mining
 
First Lien Senior Debt(6)
4.3
%
N/A

9/20
 
 
7.5

 
7.5

 
6.8

Penn Engineering & Manufacturing Corp.
 
Building Products
 
First Lien Senior Debt(6)
4.5
%
N/A

8/21
 
 
6.5

 
6.5

 
6.5

Performance Food Group, Inc.
 
Food & Staples Retailing
 
Second Lien Senior Debt(6)
6.3
%
N/A

11/19
 
 
4.0

 
4.0

 
3.9

Petroleum GEO-Services ASA(7)
 
Energy Equipment & Services
 
First Lien Senior Debt(6)
3.3
%
N/A

3/21
 
 
5.0

 
4.9

 
4.2

Pharmaceutical Product Development, Inc.
 
Life Sciences Tools & Services
 
First Lien Senior Debt(6)
4.0
%
N/A

12/18
 
 
28.2

 
28.3

 
28.0

PharMEDium Healthcare Corporation
 
Pharmaceuticals
 
First Lien Senior Debt(6)
4.3
%
N/A

1/21
 
 
4.7

 
4.8

 
4.6

Phillips-Medisize Corporation
 
Health Care Equipment & Supplies
 
First Lien Senior Debt(6)
4.8
%
N/A

6/21
 
 
6.0

 
6.0

 
6.0

Pilot Travel Centers LLC
 
Specialty Retail
 
First Lien Senior Debt(6)
4.3
%
N/A

10/21
 
 
10.0

 
9.9

 
10.0

Pinnacle Foods Finance LLC(7)
 
Food Products
 
First Lien Senior Debt(6)
3.0
%
N/A

4/20
 
 
14.3

 
14.2

 
13.9

Planet Fitness Holdings, LLC
 
Hotels, Restaurants & Leisure
 
First Lien Senior Debt(6)
4.8
%
N/A

3/21
 
 
5.3

 
5.4

 
5.3

Post Holdings Inc.(7)
 
Food Products
 
First Lien Senior Debt(6)
3.8
%
N/A

6/21
 
 
8.0

 
8.0

 
7.9

PQ Corporation
 
Chemicals
 
First Lien Senior Debt(6)
4.0
%
N/A

8/17
 
 
5.0

 
5.0

 
4.9

Presidio, Inc.
 
IT Services
 
First Lien Senior Debt(6)
5.0
%
N/A

3/17
 
 
4.6

 
4.7

 
4.6

Quikrete Holdings, Inc.
 
Construction Materials
 
First Lien Senior Debt(6)
4.0
%
N/A

9/20
 
 
12.5

 
12.4

 
12.3

Quintiles Transnational Corp.(7)
 
Life Sciences Tools & Services
 
First Lien Senior Debt(6)
3.8
%
N/A

6/18
 
 
3.0

 
2.9

 
2.9

Renaissance Learning, Inc.
 
Software
 
First Lien Senior Debt(6)
4.5
%
N/A

4/21
 
 
9.9

 
9.9

 
9.7

Road Infrastructure Investment, LLC
 
Chemicals
 
First Lien Senior Debt(6)
4.3
%
N/A

3/21
 
 
12.4

 
12.4

 
11.9

RPI Finance Trust(7)
 
Pharmaceuticals
 
First Lien Senior Debt(6)
3.5
%
N/A

11/20
 
 
4.0

 
4.0

 
4.0

Sabre GLBL Inc.(7)
 
Software
 
First Lien Senior Debt(6)
4.5
%
N/A

2/19
 
 
7.4

 
7.5

 
7.3

Sage Products Holdings III, LLC
 
Health Care Equipment & Supplies
 
First Lien Senior Debt(6)
5.0
%
N/A

12/19
 
 
2.0

 
2.0

 
2.0

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

30


AMERICAN CAPITAL, LTD.
CONSOLIDATED SCHEDULE OF INVESTMENTS—(Continued)
December 31, 2014
(in millions, except share data)
Company(1)
 
Industry
 
Investments
Cash
Interest
Rate(2)
PIK
Interest
Rate(2)
Maturity
Date(2)
# of
Shares/
Units
Owned
 
Principal
 
Cost
 
Fair
Value
Schaeffler AG(7)
 
Auto Components
 
First Lien Senior Debt(6)
4.3
%
N/A

5/20
 
 
1.0

 
1.0

 
1.0

Scientific Games International Inc.(7)
 
Hotels, Restaurants & Leisure
 
First Lien Senior Debt(6)
6.0
%
N/A

10/21
 
 
4.0

 
4.0

 
4.0

Sears Roebuck Acceptance Corp.(7)
 
Multiline Retail
 
First Lien Senior Debt(6)
5.5
%
N/A

6/18
 
 
5.0

 
5.0

 
4.8

Securus Technologies Holdings, Inc.
 
Diversified Telecommunication Services
 
First Lien Senior Debt(6)
4.8
%
N/A

4/20
 
 
4.9

 
5.0

 
4.9

Sedgwick Claims Management Services, Inc.
 
Insurance
 
First Lien Senior Debt(6)
3.8
%
N/A

3/21
 
 
13.9

 
13.7

 
13.6

 
 
 
Second Lien Senior Debt(6)
6.8
%
N/A

2/22
 
 
5.0

 
5.0

 
4.7

 
 
 
 
 
 
 
 
 
 
 
18.7

 
18.3

Seminole Hard Rock Entertainment, Inc.
 
Hotels, Restaurants & Leisure
 
First Lien Senior Debt(6)
3.5
%
N/A

5/20
 
 
5.9

 
5.9

 
5.7

Serta Simmons Holdings, LLC
 
Household Durables
 
First Lien Senior Debt(6)
4.3
%
N/A

10/19
 
 
8.8

 
8.8

 
8.7

The Servicemaster Company, LLC(7)
 
Diversified Consumer Services
 
First Lien Senior Debt(6)
4.3
%
N/A

7/21
 
 
5.5

 
5.4

 
5.4

Ship Luxco 3 S.a.r.l(7)
 
IT Services
 
First Lien Senior Debt(6)
4.8
%
N/A

11/19
 
 
5.0

 
5.0

 
5.0

Sinclair Television Group, Inc.(7)
 
Media
 
First Lien Senior Debt(6)
3.5
%
N/A

7/21
 
 
4.0

 
4.0

 
4.0

Southcross Energy Partners, L.P.(7)
 
Oil, Gas & Consumable Fuels
 
First Lien Senior Debt(6)
5.3
%
N/A

8/21
 
 
1.0

 
1.0

 
0.9

Southwire Company, LLC
 
Electrical Equipment
 
First Lien Senior Debt(6)
3.3
%
N/A

2/21
 
 
20.3

 
20.2

 
19.6

Spectrum Brands, Inc(7)
 
Household Products
 
First Lien Senior Debt(6)
3.5
%
N/A

9/19
 
 
1.2

 
1.2

 
1.2

Spin Holdco Inc.
 
Diversified Consumer Services
 
First Lien Senior Debt(6)
4.3
%
N/A

11/19
 
 
7.4

 
7.5

 
7.3

Standard Aero Limited(7)
 
Aerospace & Defense
 
First Lien Senior Debt(6)
5.0
%
N/A

11/18
 
 
1.4

 
1.4

 
1.4

Star West Generation LLC
 
Independent Power & Renewable Electricity Producers
 
First Lien Senior Debt(6)
4.3
%
N/A

3/20
 
 
2.0

 
2.0

 
2.0

Station Casinos LLC
 
Hotels, Restaurants & Leisure
 
First Lien Senior Debt(6)
4.3
%
N/A

3/20
 
 
12.0

 
11.9

 
11.7

Steinway Musical Instruments, Inc.
 
Leisure Products
 
First Lien Senior Debt(6)
4.8
%
N/A

9/19
 
 
5.0

 
5.0

 
5.0

STHI Holding Corp.
 
Life Sciences Tools & Services
 
First Lien Senior Debt(6)
4.5
%
N/A

8/21
 
 
7.0

 
7.0

 
6.9

STS Operating, Inc.
 
Trading Companies & Distributors
 
First Lien Senior Debt(6)
4.8
%
N/A

2/21
 
 
2.0

 
2.0

 
2.0

Syniverse Holdings, Inc.
 
Wireless Telecommunication Services
 
First Lien Senior Debt(6)
4.0
%
N/A

4/19
 
 
15.0

 
14.9

 
14.6

Tallgrass Operations, LLC
 
Oil, Gas & Consumable Fuels
 
First Lien Senior Debt(6)
4.3
%
N/A

11/18
 
 
8.4

 
8.4

 
8.3

TI Group Automotive Systems, L.L.C.(7)
 
Auto Components
 
First Lien Senior Debt(6)
4.3
%
N/A

7/21
 
 
7.5

 
7.4

 
7.4

TMS International Corp.
 
Metals & Mining
 
First Lien Senior Debt(6)
4.5
%
N/A

10/20
 
 
12.8

 
12.9

 
12.8

TNS, Inc.
 
IT Services
 
First Lien Senior Debt(6)
5.0
%
N/A

2/20
 
 
4.0

 
4.0

 
3.9

TPF II LC, LLC
 
Independent Power & Renewable Electricity Producers
 
First Lien Senior Debt(6)
5.5
%
N/A

9/21
 
 
2.0

 
2.0

 
2.0

TransDigm Inc.(7)
 
Aerospace & Defense
 
First Lien Senior Debt(6)
3.8
%
N/A

6/21
 
 
7.5

 
7.4

 
7.4

Trans Union LLC
 
Professional Services
 
First Lien Senior Debt(6)
4.0
%
N/A

4/21
 
 
19.9

 
19.8

 
19.7

Travelport Finance (Luxembourg) S.à r.l.(7)
 
Internet Software & Services
 
First Lien Senior Debt(6)
6.0
%
N/A

9/21
 
 
4.0

 
3.9

 
4.0

TWCC Holding Corp.
 
Media
 
First Lien Senior Debt(6)
3.5
%
N/A

2/17
 
 
5.0

 
4.9

 
4.9

 
 
 
 
Second Lien Senior Debt(6)
7.0
%
N/A

6/20
 
 
5.0

 
5.0

 
4.8

 
 
 
 
 
 
 
 
 
 
 
 
9.9

 
9.7

Tyche Holdings, LLC
 
IT Services
 
First Lien Senior Debt(6)
5.5
%
N/A

11/21
 
 
5.4

 
5.4

 
5.4

U.S. Renal Care, Inc.
 
Health Care Providers & Services
 
First Lien Senior Debt(6)
4.3
%
N/A

7/19
 
 
13.3

 
13.4

 
13.2

United Air Lines, Inc.(7)
 
Airlines
 
First Lien Senior Debt(6)
3.8
%
N/A

9/21
 
 
8.0

 
7.9

 
7.9

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

31


AMERICAN CAPITAL, LTD.
CONSOLIDATED SCHEDULE OF INVESTMENTS—(Continued)
December 31, 2014
(in millions, except share data)
Company(1)
 
Industry
 
Investments
Cash
Interest
Rate(2)
PIK
Interest
Rate(2)
Maturity
Date(2)
# of
Shares/
Units
Owned
 
Principal
 
Cost
 
Fair
Value
Univision Communications Inc.
 
Media
 
First Lien Senior Debt(6)
4.0
%
N/A

2/20-3/20
 
 
12.5

 
12.4

 
12.2

USIC Holdings, Inc.
 
Construction & Engineering
 
First Lien Senior Debt(6)
4.0
%
N/A

7/20
 
 
14.9

 
14.8

 
14.6

USI, Inc.
 
Insurance
 
First Lien Senior Debt(6)
4.3
%
N/A

12/19
 
 
8.4

 
8.5

 
8.3

Valeant Pharmaceuticals International, Inc.(7)
 
Pharmaceuticals
 
First Lien Senior Debt(6)
3.5
%
N/A

2/19
 
 
8.7

 
8.7

 
8.6

Vencore, Inc.
 
Aerospace & Defense
 
First Lien Senior Debt(6)
5.8
%
N/A

11/19
 
 
4.2

 
4.2

 
4.2

Veyance Technologies, Inc.
 
Machinery
 
First Lien Senior Debt(6)
5.3
%
N/A

9/17
 
 
1.9

 
1.9

 
1.9

VWR Funding, Inc.(7)
 
Distributors
 
First Lien Senior Debt(6)
3.4
%
N/A

4/17
 
 
9.9

 
9.9

 
9.9

Wall Street Systems Delaware, Inc.(7)
 
Software
 
First Lien Senior Debt(6)
4.5
%
N/A

4/21
 
 
4.9

 
4.8

 
4.9

Wastequip, LLC
 
Machinery
 
First Lien Senior Debt(6)
5.5
%
N/A

8/19
 
 
5.0

 
5.0

 
4.9

WaveDivision Holdings, LLC
 
Media
 
First Lien Senior Debt(6)
4.0
%
N/A

10/19
 
 
8.4

 
8.5

 
8.3

WideOpenWest Finance, LLC
 
Media
 
First Lien Senior Debt(6)
4.8
%
N/A

4/19
 
 
5.0

 
5.0

 
4.9

Wilsonart LLC
 
Building Products
 
First Lien Senior Debt(6)
4.0
%
N/A

10/19
 
 
8.4

 
8.4

 
8.2

WP CPP Holdings, LLC
 
Aerospace & Defense
 
First Lien Senior Debt(6)
4.8
%
N/A

12/19
 
 
7.1

 
7.1

 
7.1

XO Communications, LLC
 
Diversified Telecommunication Services
 
First Lien Senior Debt(6)
4.3
%
N/A

3/21
 
 
10.4

 
10.4

 
10.3

Yankee Cable Acquisition, LLC
 
Media
 
First Lien Senior Debt(6)
4.5
%
N/A

2/20-3/20
 
 
13.3

 
13.3

 
13.3

Yonkers Racing Corporation
 
Hotels, Restaurants & Leisure
 
First Lien Senior Debt(6)
4.3
%
N/A

8/19
 
 
4.8

 
4.8

 
4.3

York Risk Services Holding Corp.(7)
 
Insurance
 
First Lien Senior Debt(6)
4.8
%
N/A

10/21
 
 
1.0

 
1.0

 
1.0

Zayo Group LLC
 
Diversified Telecommunication Services
 
First Lien Senior Debt(6)
4.0
%
N/A

7/19
 
 
5.0

 
5.0

 
4.9

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
AMERICAN CAPITAL CMBS INVESTMENTS
 
 
 
 
 
 
 
CD 2007-CD4 Commercial Mortgage Trust(7)
 
Real Estate
 
Commercial Mortgage Pass-Through Certificates(4)(6)
5.7
%
N/A

12/49
 
 
16.0

 
1.1

 
2.5

CD 2007-CD5 Mortgage Trust(7)
 
Real Estate
 
Commercial Mortgage Pass-Through Certificates(4)(6)
6.1
%
N/A

12/17
 
 
14.8

 
7.3

 
1.8

Citigroup Commercial Mortgage Securities Trust 2007-C6(7)
 
Real Estate
 
Commercial Mortgage Pass-Through Certificates(4)(6)
5.7
%
N/A

7/17
 
 
30.9

 
17.5

 
7.4

Credit Suisse Commercial Mortgage Trust Series 2007-C4(7)
 
Real Estate
 
Commercial Mortgage Pass-Through Certificates(4)(6)
5.9
%
N/A

8/17
 
 
20.8

 
7.8

 
1.4

J.P. Morgan Chase Commercial Mortgage Securities Trust 2007-LDP11(7)
 
Real Estate
 
Commercial Mortgage Pass-Through Certificates(4)(6)
5.8
%
N/A

7/17
 
 
25.2

 

 
2.6

LB-UBS Commercial Mortgage Trust 2007-C6(7)
 
Real Estate
 
Commercial Mortgage Pass-Through Certificates(4)(6)
6.2
%
N/A

8/17
 
 
12.0

 
3.0

 
1.4

Wachovia Bank Commercial Mortgage Trust 2005-C22(7)
 
Real Estate
 
Commercial Mortgage Pass-Through Certificates(4)(6)
5.4
%
N/A

3/16
 
 
15.0

 
1.1

 
4.0

Wachovia Bank Commercial Mortgage Trust 2006-C24(7)
 
Real Estate
 
Commercial Mortgage Pass-Through Certificates(4)(6)
5.7
%
N/A

3/16
 
 
15.0

 
1.0

 
2.1

Wachovia Bank Commercial Mortgage Trust 2007-C31(7)
 
Real Estate
 
Commercial Mortgage Pass-Through Certificates(4)(6)
5.8
%
N/A

5/17
 
 
20.0

 
10.6

 
1.1

Wachovia Bank Commercial Mortgage Trust, Series 2007-C32(7)
 
Real Estate
 
Commercial Mortgage Pass-Through Certificates(4)(6)
5.7
%
N/A

10/17
 
 
60.9

 
12.3

 
6.9

Wachovia Bank Commercial Mortgage Trust, Series 2007-C34(7)
 
Real Estate
 
Commercial Mortgage Pass-Through Certificates(4)(6)
5.9
%
N/A

10/17-12/20
 
 
5.6

 
5.6

 
3.9

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

32


AMERICAN CAPITAL, LTD.
CONSOLIDATED SCHEDULE OF INVESTMENTS—(Continued)
December 31, 2014
(in millions, except share data)
Company(1)
 
Industry
 
Investments
Cash
Interest
Rate(2)
PIK
Interest
Rate(2)
Maturity
Date(2)
# of
Shares/
Units
Owned
 
Principal
 
Cost
 
Fair
Value
AMERICAN CAPITAL CLO INVESTMENTS
 
 
 
 
 
 
 
ACAS CLO 2007-1, Ltd.(7)
 
 
 
Secured Notes(6)
 
 
4/21
 
 
8.5

 
8.4

 
8.3

 
 
 
Subordinated Notes(6)
 
 
4/21
 
 
25.9

 
9.8

 
14.4

 
 
 
 
 
 
 
 
 
 
 
 
18.2

 
22.7

ACAS CLO 2013-2, Ltd.(7)
 
 
 
Subordinated Notes(6)
 
 
10/25
 
 
8.0

 
7.0

 
6.6

Apidos CLO XIV(7)
 
 
 
Income Notes(6)
 
 
4/25
 
 
8.1

 
7.3

 
7.3

Apidos CLO XIX(7)
 
 
 
Income Notes(6)
 
 
10/26
 
 
10.5

 
9.4

 
9.4

Apidos CLO XVIII, Ltd.(7)
 
 
 
Subordinated Notes(6)
 
 
7/26
 
 
34.0

 
33.9

 
32.2

Ares IIIR/IVR CLO Ltd.(7)
 
 
 
Subordinated Notes(6)
 
 
4/21
 
 
20.0

 
10.8

 
7.8

Ares XXIX CLO Ltd.(7)
 
 
 
Subordinated Notes(6)
 
 
4/26
 
 
7.3

 
6.6

 
6.6

Avery Point II CLO, Limited(7)
 
 
 
Income Notes(6)
 
 
7/25
 
 
2.6

 
2.2

 
2.2

Babson CLO Ltd. 2006-II(7)
 
 
 
Income Notes(6)
 
 
10/20
 
 
15.0

 
7.9

 
9.5

Babson CLO Ltd. 2014-II(7)
 
 
 
Subordinated Notes(6)
 
 
9/26
 
 
25.0

 
23.6

 
23.6

Babson CLO Ltd. 2014-III(7)
 
 
 
Subordinated Notes(6)
 
 
1/26
 
 
3.8

 
3.4

 
3.4

Blue Hill CLO, Ltd.(7)
 
 
 
Subordinated Notes(6)
 
 
1/26
 
 
10.7

 
9.2

 
9.1

Carlyle Global Market Strategies CLO 2013-3, Ltd.(7)
 
 
 
Subordinated Notes(6)
 
 
7/25
 
 
2.3

 
1.8

 
1.8

Carlyle Global Market Strategies CLO 2014-4, Ltd.(7)
 
 
 
Subordinated Notes(6)
 
 
10/26
 
 
14.6

 
13.4

 
12.9

Cent CDO 12 Limited(7)
 
 
 
Income Notes(6)
 
 
11/20
 
 
26.4

 
9.3

 
28.0

Cent CLO 18 Limited(7)
 
 
 
Subordinated Notes(6)
 
 
7/25
 
 
3.8

 
3.0

 
3.4

Cent CLO 19 Limited(7)
 
 
 
Subordinated Notes(6)
 
 
10/25
 
 
5.3

 
4.6

 
4.6

Cent CLO 22 Limited(7)
 
 
 
Subordinated Notes(6)
 
 
11/26
 
 
35.0

 
33.7

 
33.7

Centurion CDO 8 Limited(7)
 
 
 
Subordinated Notes(4)(6)
 
 
3/17
 
 
5.0

 
0.2

 

CoLTs 2005-1 Ltd.(7)
 
 
 
Preference Shares(4)(6)
 
 
3/15
360

 
 
 
1.9

 
0.3

CoLTs 2005-2 Ltd.(7)
 
 
 
Preference Shares(4)(6)
 
 
12/18
34,170,000

 
 
 
12.5

 
1.8

CREST Exeter Street Solar 2004-1(7)
 
 
 
Preferred Securities(4)(6)
 
 
6/39
3,500,000

 
 
 
3.2

 

Dryden 31 Senior Loan Fund(7)
 
 
 
Subordinated Notes(6)
 
 
3/26
 
 
2.3

 
2.0

 
2.0

Eaton Vance CDO X plc(7)
 
 
 
Secured Subordinated Notes(6)
 
 
2/27
 
 
15.0

 
11.4

 
9.1

Flagship CLO V(7)
 
 
 
Deferrable Notes(6)
 
 
9/19
 
 
1.7

 
1.5

 
1.6

 
 
 
 
Subordinated Securities(6)
 
 
9/19
15,000

 
 
 
7.0

 
2.3

 
 
 
 
 
 
 
 
 
 
 
 
8.5

 
3.9

Galaxy III CLO, Ltd(7)
 
 
 
Subordinated Notes(4)
 
 
8/16
 
 
4.0

 
0.2

 

Galaxy XVI CLO, Ltd.(7)
 
 
 
Subordinated Notes(6)
 
 
11/25
 
 
2.3

 
2.1

 
2.1

GoldenTree Loan Opportunities IX, Limited(7)
 
 
 
Subordinated Notes(6)
 
 
10/26
 
 
40.8

 
37.7

 
37.7

Halcyon Loan Advisors Funding 2014-1 Ltd.(7)
 
 
 
Subordinated Notes(6)
 
 
2/26
 
 
1.3

 
1.1

 
1.1

Halcyon Loan Advisors Funding 2015-2, Ltd.(7)
 
 
 
Subordinated Notes(4)(6)
 
 
12/17
 
 
15.0

 
15.0

 
15.0

Herbert Park B.V.(7)
 
 
 
Subordinated Notes(6)
 
 
10/26
 
 
26.7

 
27.7

 
22.4

Highbridge Loan Management 2013-2, Ltd.(7)
 
 
 
Subordinated Notes(6)
 
 
10/24
 
 
27.0

 
22.9

 
22.9

LightPoint CLO IV, LTD(7)
 
 
 
Income Notes(6)
 
 
4/18
 
 
6.7

 
9.1

 
5.5

LightPoint CLO VII, Ltd.(7)
 
 
 
Subordinated Notes(6)
 
 
5/21
 
 
9.0

 
3.0

 
2.5

Limerock CLO III, Ltd.(7)
 
 
 
Subordinated Notes(6)
 
 
10/26
 
 
12.5

 
11.4

 
11.4

Magnetite VIII, Limited(7)
 
 
 
Subordinated Notes(6)
 
 
5/26
 
 
6.7

 
6.5

 
6.2

Magnetite XIV, Limited(7)
 
 
 
Subordinated Notes(4)(6)
 
 
6/16
 
 
20.0

 
20.0

 
20.0

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

33


AMERICAN CAPITAL, LTD.
CONSOLIDATED SCHEDULE OF INVESTMENTS—(Continued)
December 31, 2014
(in millions, except share data)
Company(1)
 
Industry
 
Investments
Cash
Interest
Rate(2)
PIK
Interest
Rate(2)
Maturity
Date(2)
# of
Shares/
Units
Owned
 
Principal
 
Cost
 
Fair
Value
Mayport CLO Ltd.(7)
 
 
 
Income Notes
 
 
2/20
 
 
14.0

 
8.6

 
3.2

Neuberger Berman CLO XV, Ltd.(7)
 
 
 
Subordinated Notes(6)
 
 
10/25
 
 
2.8

 
2.3

 
2.3

NYLIM Flatiron CLO 2006-1 LTD.(7)
 
 
 
Subordinated Securities(6)
 
 
8/20
10,000

 
 
 
3.5

 
4.3

Och-Ziff VIII, Ltd.(7)
 
 
 
Subordinated Notes(6)
 
 
9/26
 
 
16.0

 
15.1

 
15.1

Octagon Investment Partners VII, Ltd.(7)
 
 
 
Preferred Securities(4)(6)
 
 
12/16
5,000,000

 
 
 
1.1

 

Octagon Investment Partners XIV, Ltd.(7)
 
 
 
Income Notes(6)
 
 
1/24
 
 
4.5

 
3.3

 
3.4

Octagon Investment Partners XIX, Ltd.(7)
 
 
 
Subordinated Notes(6)
 
 
4/26
 
 
25.0

 
21.5

 
22.8

Octagon Investment Partners XX, Ltd.(7)
 
 
 
Subordinated Notes(6)
 
 
8/26
 
 
2.5

 
2.5

 
2.5

Octagon Investment Partners XXII, Ltd.(7)
 
 
 
Subordinated Notes(6)
 
 
11/25
 
 
8.4

 
7.7

 
7.7

Octagon Loan Funding, Ltd.(7)
 
 
 
Subordinated Notes(6)
 
 
9/26
 
 
4.0

 
3.6

 
3.6

OHA Credit Partners VIII, Ltd.(7)
 
 
 
Subordinated Notes(6)
 
 
4/25
 
 
5.0

 
4.5

 
4.5

Sapphire Valley CDO I, Ltd.(7)
 
 
 
Subordinated Notes(6)
 
 
12/22
 
 
14.0

 
14.5

 
11.1

THL Credit Wind River 2014-1 CLO Ltd.(7)
 
 
 
Subordinated Notes(6)
 
 
4/26
 
 
16.0

 
14.4

 
13.9

Vitesse CLO, Ltd.(7)
 
 
 
Preferred Securities(6)
 
 
8/20
20,000,000

 
 
 
12.9

 
7.2

Voya CLO 2014-2, Ltd.(7)
 
 
 
Subordinated Notes(6)
 
 
7/26
 
 
10.0

 
10.0

 
9.1

Voya CLO 2014-4, Ltd.(7)
 
 
 
Subordinated Notes(6)
 
 
10/26
 
 
26.7

 
25.0

 
25.0

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
EUROPEAN CAPITAL CLO INVESTMENTS
 
 
 
 
 
 
 
Ares European III B.V.(7)
 
Diversified Financial Services
 
Subordinated Notes
 
 
8/24
 
 
6.1

 
3.4

 
3.5

Cordatus CLO II plc(7)
 
Diversified Financial Services
 
Subordinated Notes
 
 
7/24
 
 
6.1

 
2.2

 
6.1

Eaton Vance CDO X plc(7)
 
Diversified Financial Services
 
Secured Subordinated Notes
 
 
2/27
 
 
8.5

 
1.4

 
5.2

Euro-Galaxy II CLO B.V.(7)
 
Diversified Financial Services
 
Income Notes
 
 
10/22
 
 
3.0

 
2.7

 
2.8

 
 
Subordinated Notes
 
 
10/22
 
 
6.7

 
3.3

 
5.0

 
 
 
 
 
 
 
 
 
 
 
 
6.0

 
7.8

Subtotal Non-Control / Non-Affiliate Investments (55% of total investments at fair value)
 
 
 
$
3,846.1

 
$
3,472.1

 
 
 
 
 
 
 
 
AMERICAN CAPITAL AFFILIATE INVESTMENTS
 
 
 
 
 
 
 
IS Holdings I, Inc.
 
Software
 
Common Stock(4)(6)
 
 
 
1,165,930

 
 
 
$

 
$
7.9

Primrose Holding Corporation
 
Diversified Consumer Services
 
Common Stock(4)(6)
 
 
 
4,213

 
 
 

 
4.6

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
EUROPEAN CAPITAL AFFILIATE INVESTMENTS
 
 
 
 
 
 
 
Blue Topco GmbH(7)
 
Commercial Services & Supplies
 
First Lien Senior Debt
2.3
%
N/A

6/16-6/18
 
 
$
2.7

 
2.1

 
2.1

 
 
Mezzanine Debt(5)
N/A

3.1%

12/18
 
 
8.6

 
7.6

 
2.6

 
 
 
 
 
 
 
 
 
 
 
 
9.7

 
4.7

Mobipark S.A.S.(7)
 
Machinery
 
First Lien Senior Debt
1.3
%
N/A

10/17-12/17
 
 
1.7

 
1.7

 
1.6

 
 
 
Second Lien Senior Debt
%
N/A

11/17
 
 
0.7

 
0.7

 
0.6

 
 
 
 
Convertible Preferred Stock(4)
 
 
 
23,082,525

 
 
 
9.3

 
1.7

 
 
 
 
Redeemable Preferred Stock(4)
 
 
 
25,751,312

 
 
 
7.9

 
4.4

 
 
 
 
 
 
 
 
 
 
 
 
19.6

 
8.3

Subtotal Affiliate Investments (1% of total investments at fair value)
 
 
 
$
29.3

 
$
25.5

 
 
 
 
 
 
 
 
AMERICAN CAPITAL CONTROL INVESTMENTS
 
 
 
 
 
 
 
ACAS Real Estate Holdings Corporation
 
Real Estate
 
Mezzanine Debt(5)(6)
N/A

15.0
%
5/16
 
 
$
8.7

 
$
4.7

 
$
5.0

 
 
 
Common Stock(6)
 
 
 
100
%
 
 
 
13.8

 
25.7

 
 
 
 
 
 

 
 
 
 
 
 
18.5

 
30.7

American Capital Asset Management, LLC
 
Capital Markets
 
Mezzanine Debt(6)
5.0
%
N/A

9/16
 
 
33.0

 
33.0

 
33.0

 
 
 
Common Membership Interest(6)
 
 
 
100
%
 
 
 
395.5

 
1,131.4

 
 
 
 
 
 
 
 
 
 
 
 
428.5

 
1,164.4

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

34


AMERICAN CAPITAL, LTD.
CONSOLIDATED SCHEDULE OF INVESTMENTS—(Continued)
December 31, 2014
(in millions, except share data)
Company(1)
 
Industry
 
Investments
Cash
Interest
Rate(2)
PIK
Interest
Rate(2)
Maturity
Date(2)
# of
Shares/
Units
Owned
 
Principal
 
Cost
 
Fair
Value
American Driveline Systems, Inc.
 
Diversified Consumer Services
 
Redeemable Preferred Stock(4)(6)
 
 
 
6,818,008

 
 
 
81.9

 
20.6

 
 
Common Stock(4)(6)
 
 
 
197,161

 
 
 
18.2

 

 
 
 
 
Common Stock Warrants(4)(6)
 
 
 
136,183

 
 
 
9.9

 

 
 
 
 
 
 

 
 
 
 
 
 
110.0

 
20.6

ASAP Industries Holdings, LLC
 
Energy Equipment & Services
 
Mezzanine Debt(6)
12.0
%
2.0
%
12/18
 
 
20.5

 
20.3

 
20.5

 
 
Membership Units(4)(6)
 
 
 
106,911

 
 
 
30.3

 
15.0

 
 
 
 
 
 
 
 
 
 
 
 
50.6

 
35.5

BMR Energy LLC
 
Independent Power & Renewable Electricity Producers
 
Preferred Units(6)
 
 
 
11,620

 
 
 
11.9

 
11.9

Capital.com, Inc.
 
Diversified Financial Services
 
Common Stock(4)(6)
 

 
 
8,500,100

 
 
 
0.9

 

CML Pharmaceuticals, Inc.
 
Life Sciences Tools & Services
 
First Lien Senior Debt(6)
8.0
%
N/A

12/15-10/20
 
 
315.7

 
313.1

 
289.8

 
 
Convertible Preferred Stock(4)(6)
 
 
 
243,642

 
 
 
144.6

 

 
 
 
 
 
 
 
 
 
 
 
 
457.7

 
289.8

Contour Semiconductor, Inc.
 
Semiconductors & Semiconductor Equipment
 
First Lien Senior Debt(6)
N/A

8.0
%
3/15-4/15
 
 
9.3

 
9.3

 
9.3

 
 
Convertible Preferred Stock(4)(6)
 
 
 
143,896,948

 
 
 
13.5

 

 
 
 
 
 
 
 
 
 
 
 
22.8

 
9.3

Core Financial Holdings, LLC(7)
 
Diversified Financial Services
 
Common Units(4)(6)
 
 
 
57,940,360

 
 
 
43.8

 
0.2

Dyno Holding Corp.
 
Auto Components
 
First Lien Senior Debt(6)
8.9
%
2.2
%
11/15
 
 
35.2

 
35.1

 
35.2

 
 
 
Mezzanine Debt(5)(6)
N/A

4.3
%
11/16
 
 
34.7

 
28.1

 
16.7

 
 
 
 
Convertible Preferred Stock(4)(6)
 
 
 
389,759

 
 
 
40.5

 

 
 
 
 
Common Stock(4)(6)
 
 
 
97,440

 
 
 
10.1

 

 
 
 
 
 
 

 
 
 
 
 
 
113.8

 
51.9

ECA Medical Instruments
 
Health Care Equipment & Supplies
 
First Lien Senior Debt(6)
10.0
%
N/A

3/16
 
 
6.8

 
6.8

 
6.8

 
 
Mezzanine Debt(6)
13.0
%
3.5
%
7/16
 
 
18.1

 
18.1

 
18.1

 
 
 
 
Common Stock(4)(6)
 
 
 
583

 
 
 
13.4

 
4.7

 
 
 
 
 
 

 
 
 
 
 
 
38.3

 
29.6

eLynx Holdings, Inc.
 
IT Services
 
Convertible Preferred Stock(4)(6)
 
 
 
11,728

 
 
 
20.6

 
16.0

 
 
 
 
Redeemable Preferred Stock(4)(6)
 
 
 
21,113

 
 
 
9.0

 

 
 
 
 
Common Stock(4)(6)
 
 
 
11,261

 
 
 
1.1

 

 
 
 
 
Common Stock Warrants(4)(6)
 
 
 
1,002,678

 
 
 
5.5

 

 
 
 
 
 
 

 
 
 
 
 
 
36.2

 
16.0

EXPL Pipeline Holdings LLC(7)
 
Oil, Gas & Consumable Fuels
 
First Lien Senior Debt(6)
8.1
%
N/A

1/17
 
 
46.0

 
45.7

 
46.8

 
 
Common Membership Units(4)(6)
 
 
 
58,297

 
 
 
44.5

 
20.1

 
 
 
 
 
 

 
 
 
 
 
 
90.2

 
66.9

FAMS Acquisition, Inc.
 
Diversified Financial Services
 
Mezzanine Debt(6)
12.3
%
2.6
%
1/16
 
 
42.8

 
42.8

 
40.7

Fosbel Holding, Inc.
 
Commercial Services & Supplies
 
Mezzanine Debt(6)
N/A

17.0
%
10/18
 
 
9.8

 
9.8

 
9.8

 
 
 
Mezzanine Debt(5)(6)
N/A

17.0
%
10/18
 
 
45.6

 
19.1

 
3.7

 
 
 
 
 
 

 
 
 
 
 
 
28.9

 
13.5

FPI Holding Corporation
 
Food Products
 
First Lien Senior Debt(5)(6)
N/A

5.2
%
1/19
 
 
32.6

 
11.6

 
11.6

Group Montana, Inc.
 
Textiles, Apparel & Luxury Goods
 
First Lien Senior Debt(6)
6.3
%
N/A

1/17
 
 
6.4

 
6.4

 
6.4

 
 
 
Convertible Preferred Stock(6)
 
 
 
4,000

 
 
 
4.7

 
6.7

 
 
 
 
Common Stock(4)(6)
 
 
 
100
%
 
 
 
12.5

 
1.6

 
 
 
 
 
 

 
 
 
 
 
 
23.6

 
14.7

Halex Holdings, Inc.
 
Construction Materials
 
Second Lien Senior Debt(5)(6)
%
12.0
%
3/15
 
 
18.3

 
18.3

 
18.8

 
 
 
 
Redeemable Preferred Stock(4)(6)
 
 
 
6,482,972

 
 
 
6.6

 

 
 
 
 
 
 

 
 
 
 
 
 
24.9

 
18.8

HALT Medical, Inc.
 
Health Care Equipment & Supplies
 
First Lien Senior Debt(5)(6)
N/A

22.0
%
3/15
 
 
45.2

 
36.5

 
35.6

 
 
 
Convertible Preferred Stock(4)(6)
 
 
 
12,811,818

 
 
 
2.6

 

 
 
 
 
Common Stock(4)(6)
 
 
 
22,416,432

 
 
 
6.4

 

 
 
 
 
 
 
 
 
 
 
 
 
45.5

 
35.6

Hard 8 Games, LLC
 
Hotels, Restaurants & Leisure
 
First Lien Convertible Senior Debt(6)
N/A

6.0
%
2/15
 
 
8.2

 
8.2

 
8.2

 
 
 
Membership Unit(4)(6)
 
 
 
1

 
 
 
19.0

 
28.8

 
 
 
 
 
 
 
 
 
 
 
 
27.2

 
37.0

Hollyhock Limited(7)
 
Independent Power & Renewable Electricity Producers
 
Common Stock(4)(6)
 
 
 
22,000,000

 
 
 
22.0

 
21.2

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

35


AMERICAN CAPITAL, LTD.
CONSOLIDATED SCHEDULE OF INVESTMENTS—(Continued)
December 31, 2014
(in millions, except share data)
Company(1)
 
Industry
 
Investments
Cash
Interest
Rate(2)
PIK
Interest
Rate(2)
Maturity
Date(2)
# of
Shares/
Units
Owned
 
Principal
 
Cost
 
Fair
Value
LLSC Holdings Corporation
 
Personal Products
 
Convertible Preferred Stock(4)(6)
 
 
 
7,496

 
 
 
8.1

 
13.8

Montgomery Lane, LLC(7)
 
Diversified Financial Services
 
Common Membership Units(4)(6)
 
 
 
100

 
 
 

 
6.9

MW Acquisition Corporation
 
Health Care Providers & Services
 
Mezzanine Debt(6)
14.4
%
1.0
%
2/19
 
 
24.0

 
23.9

 
24.0

 
 
Redeemable Preferred Stock(6)
 
 
 
2,485

 
 
 
2.3

 
2.3

 
 
 
 
Convertible Preferred Stock(4)(6)
 
 
 
51,351

 
 
 
23.0

 
17.9

 
 
 
 
 
 

 
 
 
 
 
 
49.2

 
44.2

NECCO Holdings, Inc.
 
Food Products
 
First Lien Senior Debt(5)(6)
6.5
%
N/A

12/15
 
 
13.9

 
11.8

 
8.9

 
 
 
 
Second Lien Senior Debt(5)(6)
N/A

18.0
%
11/15
 
 
6.4

 
3.2

 

 
 
 
 
Common Stock(4)(6)
 
 
 
860,189

 
 
 
0.1

 

 
 
 
 
 
 

 
 
 
 
 
 
15.1

 
8.9

NECCO Realty Investments, LLC
 
Real Estate
 
First Lien Senior Debt(5)(6)
2.9
%
11.1
%
12/17
 
 
67.0

 
32.8

 
19.9

 
 
 
Common Membership Units(4)(6)
 
 
 
7,450

 
 
 
4.9

 

 
 
 
 
 
 

 
 
 
 
 
 
37.7

 
19.9

Orchard Brands Corporation
 
Internet & Catalog Retail
 
Common Stock(4)(6)
 
 
 
87,838

 
 
 
55.1

 
87.9

PHC Sharp Holdings, Inc.
 
Commercial Services & Supplies
 
First Lien Senior Debt(6)
12.5
%
N/A

12/15
 
 
1.4

 
1.4

 
1.4

 
 
 
Mezzanine Debt(6)
N/A

17.0
%
12/16
 
 
13.6

 
13.6

 
13.6

 
 
 
 
Mezzanine Debt(5)(6)
N/A

19.0
%
12/16
 
 
25.0

 
11.0

 
12.0

 
 
 
 
Common Stock(4)(6)
 
 
 
367,881

 
 
 
4.2

 

 
 
 
 
 
 

 
 
 
 
 
 
30.2

 
27.0

RD Holdco Inc.
 
Household Durables
 
Second Lien Senior Debt(6)
11.3
%
N/A

6/17
 
 
16.9

 
14.6

 
17.1

 
 
 
 
Common Stock(4)(6)
 
 
 
458,596

 
 
 
23.6

 
18.6

 
 
 
 
Common Stock Warrants(4)(6)
 
 
 
56,372

 
 
 
2.9

 
2.3

 
 
 
 
 
 
 
 
 
 
 
 
41.1

 
38.0

Rebellion Media Group Corp.(7)
 
Internet Software & Services
 
First Lien Senior Debt(6)
N/A

12.0
%
3/15
 
 
4.3

 
4.3

 
3.5

 
 
First Lien Senior Debt(5)(6)
N/A

12.0
%
12/15
 
 
10.8

 
8.1

 

 
 
 
 
 
 
 
 
 
 
 
 
12.4

 
3.5

Scanner Holdings Corporation
 
Technology Hardware, Storage & Peripherals
 
Mezzanine Debt(6)
14.8
%
N/A

10/16-7/17
 
 
20.5

 
20.5

 
20.5

 
 
Convertible Preferred Stock(6)
 
 
 
38,723,509

 
 
 
5.4

 
5.4

 
 
 
Common Stock(4)(6)
 
 
 
97,540

 
 
 
0.1

 

 
 
 
 
 
 

 
 
 
 
 

 
26.0

 
25.9

SEHAC Holding Corporation
 
Diversified Consumer Services
 
Convertible Preferred Stock(6)
 
 
 
14,850

 
 
 
14.8

 
103.6

 
 
Common Stock(6)
 
 
 
150

 
 
 
0.2

 
1.0

 
 
 
 
 
 
 
 
 
 
 
 
15.0

 
104.6

Soil Safe Acquisition Corp.
 
Professional Services
 
First Lien Senior Debt(6)
8.0
%
N/A

1/18-12/18
 
 
23.5

 
23.4

 
23.5

 
 
 
 
Second Lien Senior Debt(6)
10.8
%
N/A

7/19
 
 
12.7

 
12.7

 
12.7

 
 
 
 
Mezzanine Debt(6)
8.9
%
7.2
%
12/19
 
 
67.1

 
66.3

 
67.1

 
 
 
 
Common Stock
 
 
 
810

 
 
 
9.5

 
9.2

 
 
 
 
 
 
 
 
 
 
 
 
111.9

 
112.5

TestAmerica Environmental Services, LLC
 
Commercial Services & Supplies
 
Mezzanine Debt(5)(6)
10.0
%
2.5
%
6/18
 
 
35.2

 
26.5

 

 
 
Common Units(4)(6)
 
 
 
490,000

 
 
 
2.0

 

 
 
 
 
 
 
 
 
 
 
 
 
28.5

 

Warner Power, LLC
 
Electrical Equipment
 
Mezzanine Debt(5)(6)
N/A

14.6
%
3/15
 
 
9.7

 
5.7

 
2.6

 
 
 
 
Redeemable Preferred Membership Units(4)(6)
 
 
 
3,796,269

 
 
 
3.0

 

 
 
 
 
Common Membership Units(4)(6)
 
 
 
27,400

 
 
 
1.9

 

 
 
 
 
 
 

 
 
 
 
 
 
10.6

 
2.6

WIS Holding Company, Inc.
 
Commercial Services & Supplies
 
Convertible Preferred Stock(6)
 
 
 
703,406

 
 
 
57.9

 
82.9

 
 
Common Stock(4)(6)
 
 
 
175,853

 
 
 
11.4

 
16.9

 
 
 
 
 
 

 
 
 
 
 
 
69.3

 
99.8

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
EUROPEAN CAPITAL CONTROL INVESTMENTS
 
 
 
 
 
 
 
Bellotto Holdings Limited(7)
 
Household Durables
 
Redeemable Preferred Stock
 
 
 
7,300,610

 
2.0

 
34.6

 
36.5

 
 
 
Common Stock(4)
 
 
 
2,697,010

 
 
 
100.0

 
103.6

 
 
 
 
 
 
 
 
 
 
 
 
134.6

 
140.1

European Capital UK SME Debt LP(7)
 
 
 
Partnership Interest
 
 
 
500

 
 
 
0.6

 
0.6

Financière H S.A.S.(7)
 
Health Care Equipment & Supplies
 
Mezzanine Debt(5)
3.0%

5.8
%
10/15
 
 
15.0

 
9.7

 
9.5

 
 
Convertible Preferred Stock(4)
 
 
 
930,558

 
 
 
58.1

 

 
 
 
 
 
 
 
 
 
 
 
 
67.8

 
9.5

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

36


AMERICAN CAPITAL, LTD.
CONSOLIDATED SCHEDULE OF INVESTMENTS—(Continued)
December 31, 2014
(in millions, except share data)
Company(1)
 
Industry
 
Investments
Cash
Interest
Rate(2)
PIK
Interest
Rate(2)
Maturity
Date(2)
# of
Shares/
Units
Owned
 
Principal
 
Cost
 
Fair
Value
Financière Newglass S.A.S.(7)
 
Building Products
 
Convertible Preferred Stock(4)
 
 
 
1

 
 
 
26.1

 
26.1

 
 
 
Common Stock(4)
 
 
 
8,000,000

 
 
 
9.7

 
6.2

 
 
 
 
 
 
 
 
 
 
 
 
35.8

 
32.3

Financière Tarmac S.A.S.(7)
 
Commercial Services & Supplies
 
First Lien Senior Debt
4.0%

N/A

12/20
 
 
5.0

 
4.1

 
5.1

 
 
Mezzanine Debt
N/A

4.0
%
12/21
 
 
22.1

 
22.1

 
22.1

 
 
 
 
Mezzanine Debt(5)
N/A

4.0
%
12/21
 
 
28.8

 
17.2

 
17.2

 
 
 
 
Convertible Preferred Stock(4)
 
 
 
8,665,001

 
 
 
10.5

 

 
 
 
 
Redeemable Preferred Stock(4)
 
 
 
 
 
3.7

 
8.1

 

 
 
 
 
 
 
 
 
 
 
 
 
62.0

 
44.4

Holding Saint Augustine S.A.S.(7)
 
Air Freight & Logistics
 
First Lien Senior Debt
N/A

N/A

9/19
 
 
4.9

 
4.9

 
4.9

 
 
Convertible Preferred Stock(4)
 
 
 
1,982,668

 
 
 
15.0

 

 
 
 
 
Redeemable Preferred Stock(4)
 
 
 
1

 
 
 

 
1.0

 
 
 
 
 
 
 
 
 
 
 
 
19.9

 
5.9

Miles 33 Limited(7)
 
Media
 
First Lien Senior Debt
3.5%

N/A

9/17
 
 
8.3

 
8.3

 
8.3

 
 
 
 
Mezzanine Debt
4.5%

5.0
%
9/17
 
 
16.7

 
16.7

 
16.7

 
 
 
 
Redeemable Preferred Stock(4)
 
 
 
 
 
71.9

 
30.3

 
8.6

 
 
 
 
Common Stock(4)
 
 
 
600,000

 
 
 
0.9

 

 
 
 
 
 
 
 
 
 
 
 
 
56.2

 
33.6

MP Equity S.A.S.(7)
 
Food Products
 
Redeemable Preferred Stock(4)
 
 
 
 
 
2.7

 
2.5

 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
AMERICAN CAPITAL CONTROL CLO INVESTMENT
 
 
 
 
 
 
 
ACAS Wachovia Investments, L.P.(7)
 
Diversified Financial Services
 
Partnership Interest(4)
 
 
 
90
%
 
 

 
2.2

 
0.6

Subtotal Control Investments (44% of total investments at fair value)
 
 
 
 
$
2,541.5

 
$
2,782.4

Total Investment Assets
 
 
 
 
$
6,416.9

 
$
6,280.0


Counterparty
 
Instrument
 
Interest
Rate(2)
 
Expiration
Date(2)
 
# of
Contracts
 
Notional
 
Cost
 
Fair
Value
DERIVATIVE AGREEMENTS
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Citibank, N.A.
 
Interest Rate Swap - Pay Fixed/ Receive Floating(6)
 
5.6%/LIBOR
 
5/16-7/17
 
2

 
$
27.5

 
$

 
$
(3.4
)
BNP Paribas
 
Interest Rate Swap - Pay Fixed/ Receive Floating(6)
 
5.7%/LIBOR
 
7/17
 
1

 
22.3

 

 
(3.1
)
Wells Fargo Bank, N.A
 
Interest Rate Swap - Pay Fixed/ Receive Floating(6)
 
5.6%/LIBOR
 
8/16
 
1

 
11.9

 

 
(1.0
)
Citibank, N.A.
 
Total Return Swaps
 
 
 
12/14
 
2

 
27.1

 

 
(3.0
)
American Capital Equity III, LP(8)
 
WRH, Inc. Equity Option
 
 
 
4/15
 
1

 
 
 

 
(73.6
)
Total Derivative Agreements
 
 
 
 
 
 
 
 
 
$

 
$
(84.1
)

Funds
 
Cost
 
Fair
Value
MONEY MARKET FUNDS(3)
 
 
Deutsche Global Liquidity Managed Sterling Fund
 
$
264.9

 
$
264.9

Wells Fargo Advantage Heritage Money Market Fund(6)
 
10.0

 
10.0

Fidelity Institutional Money Market Fund(6)
 
10.0

 
10.0

BofA Funds Series Trust - BofA Money Market Reserves(6)
 
10.0

 
10.0

Dreyfus Institutional Cash Advantage-I Fund(6)
 
10.0

 
10.0

STIT - Liquid Assets Portfolio(6)
 
5.0

 
5.0

JPMorgan Prime Money Market Fund(6)
 
5.0

 
5.0

Fidelity Institutional Money Market Funds - Prime Money Market Portfolio(6)
 
5.0

 
5.0

Total Money Market Funds
 
$
319.9

 
$
319.9


(1)
Certain of the securities are issued by affiliate(s) of the listed portfolio company.
(2)
Interest rates represent the weighted average annual stated interest rate on loans and debt securities in effect on the date presented, which are presented by the nature of indebtedness by a single issuer. Some loans and debt securities bear interest at variable rates, primarily three-month LIBOR, with interest rate floors. PIK represents contractually deferred interest that is typically compounded into the principal balance of the loan or debt security, if not paid on a current basis. PIK interest may be prepaid by the portfolio company’s election, but generally is paid upon a change of control transaction or maturity. The maturity date represents the latest date in which the loan or debt security is scheduled to terminate.
(3)
Included in cash and cash equivalents on our consolidated balance sheets.
(4)
Some or all of the securities are non-income producing.
(5)
Loan is on non-accrual status and therefore considered non-income producing.
(6)
All or a portion of the investments or instruments are pledged as collateral under various secured financing arrangements.
(7)
Investments that are not “qualifying assets” under Section 55(a) of the 1940 Act. Under the 1940 Act, we may not acquire any non-qualifying asset unless, at the time such acquisition is made, qualifying assets represent at least 70% of our total assets.
(8)
For further discussion on the WRH, Inc. Equity Option, see Note 14 to our interim consolidated financial statements in this Form 10-Q.



37



AMERICAN CAPITAL, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(in millions, except per share data)
 
Note 1. Unaudited Interim Consolidated Financial Statements
Interim consolidated financial statements of American Capital, Ltd. (which is referred to throughout this report as “American Capital”, “we”, “us” and “our”) are prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) for interim financial information 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 U.S. GAAP are omitted. In the opinion of management, all adjustments, consisting solely of normal recurring accruals, necessary for the fair presentation of financial statements for the interim periods have been included. The current period’s consolidated results of operations are not necessarily indicative of results that ultimately may be achieved for the year. The unaudited interim consolidated financial statements and notes thereto should be read in conjunction with the consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2014, and our Quarterly Report on Form 10-Q for the quarter ended March 31, 2015, as filed with the Securities and Exchange Commission (“SEC”).
Reclassifications
We have reclassified certain prior period amounts in our interim consolidated financial statements to conform to our current period presentation. These reclassifications had no impact on prior periods’ net earnings or shareholders’ equity.
Consolidation
Under the investment company rules and regulations pursuant to Article 6 of Regulation S-X, the SEC’s Division of Investment Management’s consolidation guidance in IM Guidance Update No. 2014-11 issued in October 2014 and Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 946, Financial Services-Investment Companies (“ASC 946”), we are precluded from consolidating any entity other than another investment company that acts as an extension of our investment operations and facilitates the execution of our investment strategy. An exception to this guidance occurs if we have an investment in a controlled operating company that provides substantially all of its services to us.
We currently consolidate ACAS Funding I, LLC and ACAS Funding II, LLC, which are wholly-owned special purpose financing vehicles that were formed for the purpose of purchasing first and second lien floating rate loans to large-market U.S. based companies (“Senior Floating Rate Loans”) under a $1.25 billion secured revolving credit facility and $500 million secured revolving credit facility, respectively. As of June 30, 2015, ACAS Funding I, LLC and ACAS Funding II, LLC did not have any other operations or activities. We also consolidate American Capital TRS, LLC (“ACTRS”), which is a wholly-owned entity that has entered into non-recourse total return swaps (“TRS”) with Citibank, N.A. As of June 30, 2015, ACTRS did not have any other operations or activities. The TRS is accounted for as a derivative pursuant to FASB ASC Topic 815, Derivatives and Hedging.
Our consolidated financial statements also include the accounts of European Capital, which is a wholly-owned investment company entity that, effective October 1, 2014, acts as an extension of our investment operations and facilitates the execution of our investment strategy. Our consolidated financial statements also include the accounts of AC Corporate Holdings, Inc. (“ACCH”), which is a wholly-owned entity that has purchased and holds numerous investment securities on behalf of American Capital. As of June 30, 2015, European Capital and ACCH did not have any other operations or activities and were considered to be investment companies under ASC 946, as amended by Accounting Standards Update No. 2013-08, Financial Services-Investment Companies (Topic 946): Amendments to the Scope, Measurement and Disclosure Requirements. 
Note 2. Organization
We are a non-diversified closed end investment company that has elected to be regulated as a business development company (“BDC”) under the Investment Company Act of 1940, as amended (“1940 Act”). As a BDC, we primarily invest in senior and mezzanine debt and equity in buyouts of private companies sponsored by us (“American Capital One Stop Buyouts®”) or sponsored by other private equity funds and provide capital directly to early stage and mature private and small public companies (“Sponsor Finance and Other Investments”). We also invest in Senior Floating Rate Loans and structured finance investments (“Structured Products”), including collateralized loan obligation (“CLO”) securities and commercial mortgages and commercial mortgage backed securities (“CMBS”). Our primary business objectives are to increase our net earnings and net asset value (“NAV”) by making investments with attractive current yields and/or potential for equity appreciation and realized gains.
Through our tax years ended September 30, 1998 through September 30, 2010, we qualified to be taxed as a regulated investment company (“RIC”) under Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”). Effective with our tax year ended September 30, 2011, we did not qualify to be taxed as a RIC and became subject to taxation as a corporation

38


AMERICAN CAPITAL, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(unaudited)
(in millions, except per share data)


under Subchapter C of the Code (a “Subchapter C corporation”). This change in tax status does not affect our status as a BDC under the 1940 Act or our compliance with the portfolio composition requirements of that statute.
Note 3. New Accounting Pronouncements
    
In April 2015, the FASB issued ASU No. 2015-03, Interest-Imputation of Interest (Subtopic 835-30) Simplifying the Presentation of Debt Issuance Costs (“ASU 2015-03”), which requires debt issuance costs related to a recognized debt liability to be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. An entity is required to apply the guidance in ASU 2015-03 on a retrospective basis such that the balance sheet of each individual period presented is adjusted to reflect the period-specific effects of applying the new guidance. Upon transition, an entity is required to comply with the applicable disclosures for a change in accounting principle including the nature and reason for the change in accounting principle, the transition method, a description of the prior-period information that has been retrospectively adjusted and the effect of the change on the financial statement line items (that is, debt issuance cost asset and the debt liability). ASU 2015-03 is effective for public business entities for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. Early adoption is permitted for financial statements that have not been previously issued. We are currently evaluating the impact of ASU 2015-03 and do not believe its adoption will have a material impact on our consolidated financial statements.
In May 2015, the FASB issued ASU No. 2015-07, Fair Value Measurement (Topic 820) - Disclosures for Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent) (“ASU 2015-07”), which removes the requirement to include, as well as provide certain disclosure for, investments in the fair value hierarchy for which the fair value is measured at net asset value using the practical expedient. Disclosures are limited to investments for which the entity has elected to measure the fair value using that practical expedient. ASU 2015-07 is effective for annual reporting periods beginning after December 15, 2015, including interim periods within that reporting period. Early adoption is permitted. We are currently evaluating the impact of ASU 2015-07 and do not believe its adoption will have a material impact on our consolidated financial statements.
Note 4. Investments

Our investments consist of loans and securities issued by public and privately-held companies, including senior debt, mezzanine debt, equity warrants and preferred and common equity securities. We also invest in Structured Products, which includes CLO securities and CMBS.
We fair value our investments in accordance with the 1940 Act and FASB ASC Topic 820, Fair Value Measurements and Disclosures (“ASC 820”) as determined in good faith by our Board of Directors. We undertake a multi-step valuation process each quarter to determine the fair value of our investments in accordance with ASC 820. The quarterly valuation process begins with the development of a preliminary valuation recommendation for each investment by our Financial Advisory and Consulting Team (“FACT”), which is composed of valuation and audit professionals responsible for monitoring portfolio compliance and valuations. In preparing the preliminary valuation recommendations, FACT receives assistance from our investment professionals that both originated and monitor the investment as well as assistance from other departments including operations, accounting and legal. The preliminary valuation recommendations are reviewed by senior management and then presented to our Audit, Compliance and Valuation Committee for review and approval. Subsequent to the approval from our Audit, Compliance and Valuation Committee, the valuation recommendations are sent to our Board of Directors for final approval.
When available, we base the fair value of our investments that trade in active markets on directly observable market prices or on market data derived for comparable assets. For restricted securities of companies that are publicly traded, the value is based on the closing market quote on the valuation date less a discount for the restriction. For all other investments, inputs used to measure fair value reflect management’s best estimate of assumptions that would be used by market participants in pricing the investment in a hypothetical transaction. For these investments, we estimate the fair value of our senior debt, mezzanine debt, redeemable and convertible preferred equity, common equity and equity warrants using either an enterprise value waterfall methodology, which generally combines market and income approaches, or a market yield valuation methodology, which utilizes the income approach. We estimate the fair value of our Structured Products using the market and income approaches, third-party broker quotes and counterparty marks.
ASC 820 provides a framework for measuring the fair value of assets and liabilities and provides guidance regarding a fair value hierarchy, which prioritizes information used to measure fair value and the effect of fair value measurements on earnings. Due to the uncertainty inherent in the valuation process, estimates of fair value may differ significantly from the values that would have been used had a ready market for our investments existed, and the differences could be material. Additionally, changes in the

39


AMERICAN CAPITAL, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(unaudited)
(in millions, except per share data)


market environment and other events that may occur over the life of the investments may cause the gains or losses ultimately realized on these investments to be different than the valuations currently assigned.
 ASC 820 defines fair value in terms of the price that would be received upon the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date under current market conditions. The price used to measure the fair value is not adjusted for transaction costs while the cost basis of our investments may include initial transaction costs. Under ASC 820, the fair value measurement also assumes that the transaction to sell an asset occurs in the principal market for the asset or, in the absence of a principal market, the most advantageous market for the asset. The principal market for an asset is the market in which the reporting entity would sell or transfer the asset with the greatest volume and level of activity for the asset. In determining the principal market for an asset under ASC 820, it is assumed that the reporting entity has access to the market as of the measurement date. If no market for the asset exists or if the reporting entity does not have access to the principal market, the reporting entity should use a hypothetical market.
 The principal market in which we would sell our Senior Floating Rate Loans and certain of our non-controlled Sponsor Finance debt investments is an active over-the-counter secondary market. For our other debt and equity investments, there is no active market and we are generally repaid our debt investment or sell our equity investment upon a change of control transaction such as through the mergers and acquisition (“M&A”) market. Accordingly, the market in which we would sell certain of our non-controlled debt and all of our equity investments is the M&A market. However, under ASC 820, we have identified the M&A market as the principal market for our investments in these portfolio companies only if we have the ability to control the decision to sell the portfolio company as of the measurement date. We determine whether we have the ability to control the decision to sell a portfolio company based on our ability to control or gain control of the board of directors of the portfolio company as of the measurement date and rights within the shareholders agreement. In evaluating if we can control or gain control of a portfolio company as of the measurement date, we include our equity securities and those securities held by entities managed by our wholly-owned portfolio company, American Capital Asset Management, LLC (“ACAM”), on a fully diluted basis. For investments in portfolio companies for which we do not have the ability to control or gain control as of the measurement date and for which there is no active market, the principal market under ASC 820 is a hypothetical secondary market.
 Accordingly, we use the M&A market as the principal market for our investments in portfolio companies that we control or can gain control as of the measurement date, and we use a hypothetical secondary market for our investments in portfolio companies that we do not control or cannot gain control as of the measurement date. However, to the extent that an active market exists for such investments, we will consider that as the principal market. Our valuation policy considers the fact that no ready active market exists for a significant amount of our investments and that the fair value for our investments must typically be determined using unobservable inputs.
 Enterprise Value Waterfall Methodology 
For investments in portfolio companies that we have identified the M&A market as the principal market, we estimate the fair value based on the enterprise value waterfall (“Enterprise Value Waterfall”) valuation methodology. For minority equity securities in which the principal market is the hypothetical secondary market, we also estimate the fair value using the Enterprise Value Waterfall valuation methodology.  
Under the Enterprise Value Waterfall valuation methodology, we estimate the enterprise value of a portfolio company and then waterfall the enterprise value over the portfolio company’s securities in order of their preference relative to one another. In applying the Enterprise Value Waterfall valuation methodology, we consider that in a change of control transaction, our loans are generally required to be repaid at par and that a buyer cannot assume the loan.
To estimate the enterprise value of the portfolio company, we prepare an analysis of traditional valuation methodologies including valuations of comparable public companies, recent sales of private and public comparable companies, discounting the forecasted cash flows of the portfolio company, estimating the liquidation or collateral value of the portfolio company’s assets, third-party valuations of the portfolio company, offers from third-parties to buy the portfolio company and considering the value of recent third-party investments in the equity securities of the portfolio company. Significant inputs in these valuation methodologies to estimate enterprise value include the historical or projected operating results of the portfolio company, selection of comparable companies, discounts or premiums to the prices of comparable companies and discount rates applied to the forecasted cash flows. The operating results of a portfolio company may be unaudited, projected or pro forma financial information and may require adjustments for non-recurring items or to normalize the operating results that may require significant judgment in its determination. In addition, projecting future financial results requires significant judgment regarding future growth assumptions. In evaluating the operating results, we also analyze the impact of exposure to litigation, loss of customers or other contingencies.

40


AMERICAN CAPITAL, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(unaudited)
(in millions, except per share data)


The selection of a population of comparable companies requires significant judgment, including a qualitative and quantitative analysis of the comparability of the companies. In determining a discount or premium, if any, to prices of comparable companies, we use significant judgment for factors such as size, marketability, relative performance, and for portfolio companies in which we control, a control premium to the market price of comparable public companies. In determining a discount rate to apply to forecasted cash flows, we use significant judgment in the development of an appropriate discount rate including the evaluation of an appropriate risk premium. 
In valuing convertible debt, equity or other similar securities, we value our investment based on its priority in the waterfall and based on our pro rata share of the residual equity value available after deducting all outstanding debt from the estimated enterprise value. We value non-convertible debt at the face amount of the debt to the extent that the estimated enterprise value of the portfolio company exceeds the outstanding debt of the portfolio company. If the estimated enterprise value is less than the outstanding debt of the portfolio company, we reduce the fair value of our debt investment beginning with the junior most debt such that the enterprise value less the fair value of the outstanding debt is zero.
Market Yield Valuation Methodology 
For debt and redeemable preferred equity investments in portfolio companies for which we are required to identify a hypothetical secondary market as the principal market, we estimate the fair value based on the assumptions that we believe hypothetical market participants would use to value the investment in a current hypothetical sale using a market yield (“Market Yield”) valuation methodology. 
For debt and redeemable preferred equity investments of our investment portfolio for which we do not control or cannot gain control as of the measurement date and no active market exists, we estimate the fair value based on such factors as third-party broker quotes and our own assumptions in the absence of market observable data, including estimated remaining life, current market yield and interest rate spreads of similar loans and securities as of the measurement date. We weight the use of third-party broker quotes, if any, in determining fair value based on our understanding of the level of actual transactions used by the broker to develop the quote and whether the quote was an indicative price or binding offer. We estimate the remaining life based on market data of the average life of similar loans. However, if we have information available to us that the loan is expected to be repaid in the near term, we would use an estimated remaining life based on the expected repayment date, including considering the current maturity date of the loan. The average life used to estimate the fair value of our loans may be shorter than the legal maturity of the loans since our loans have historically been prepaid prior to the maturity date. The current interest rate spreads used to estimate the fair value of our loans is based on the current interest rate spreads on similar loans. We use significant judgment in determining the estimated remaining life as well as the current market yield and interest rate spreads. If there is a significant deterioration of the credit quality of a loan, we may consider other factors that a hypothetical market participant would use to estimate fair value, including the proceeds that would be received in a liquidation analysis.  
We fair value our investments in Structured Products based on such factors as third-party broker quotes, counterparty marks, purchases or sales of the same or similar securities, and our cash flow forecasts. Cash flow forecasts are subject to assumptions a market participant would use regarding the investments’ underlying collateral including, but not limited to, assumptions of default and recovery rates, reinvestment spreads and prepayment rates. Cash flow forecasts are discounted using a market participant’s market yield assumptions that are derived from multiple sources including, but not limited to, third-party broker quotes, industry research reports and transactions of securities and indices with similar structure and risk characteristics. We weight the use of third-party broker quotes or counterparty marks, if any, in determining fair value based on the correlation of changes in third-party broker quotes with underlying performance and other market indices.
 Third-party Vendor Pricing
For debt investments that trade in an active market or that have similar assets that trade in an active market, we estimate the fair value based on evaluated prices from a nationally recognized, independent pricing service or from third-party brokers who make markets in such debt instruments. When possible, we make inquiries of third-party pricing sources to understand their use of significant inputs and assumptions. We review the price provided by the third-party pricing service and perform procedures to validate their reasonableness, including a review and analysis of executable broker quote(s), range and dispersion of third-party estimates, frequency of pricing updates, yields of similar securities or other qualitative and quantitative information. If the prices provided by the pricing service are consistent with such information, we will generally use the price provided by the pricing service as fair value.

41


AMERICAN CAPITAL, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(unaudited)
(in millions, except per share data)


Investments in Investment Funds
For an investment in an investment fund that does not have a readily determinable fair value, we measure the fair value of our investment predominately based on the NAV per share of the investment fund if the NAV of the investment fund is calculated in a manner consistent with the measurement principles of ASC 946 as of the measurement date, including measurement of all or substantially all of the underlying investments of the investee in accordance with ASC 820. However, in determining the fair value of our investment, we may make adjustments to the NAV per share in certain circumstances, based on our analysis of any restrictions on redemption of our shares of our investment as of the measurement date, any restrictions on the ability to receive dividends, comparisons of market price to NAV per share of comparable publicly traded funds and trades or sales of comparable private and publicly traded funds, recent actual sales or redemptions of shares of the investment fund, public to private liquidity discounts, expected future cash flows available to equity holders including the rate of return on those cash flows compared to an implied market return on equity required by market participants, or other uncertainties surrounding our ability to realize the full NAV of the investment fund.
The levels of fair value inputs used to measure our investments are characterized in accordance with the fair value hierarchy established by ASC 820. Where inputs for an asset or liability fall in more than one level in the fair value hierarchy, the investment is classified in its entirety based on the lowest level input that is significant to that investment’s fair value measurement. We use judgment and consider factors specific to the investment in determining the significance of an input to a fair value measurement. Our policy is to recognize transfers in and out of levels as of the beginning of each reporting period. The three levels of the fair value hierarchy and investments that fall into each of the levels are described below:
Level 1: Level 1 inputs are unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.
Level 2: Level 2 inputs are inputs, other than quoted prices included within Level 1, which are observable for the asset or liability, either directly or indirectly.
Level 3: Level 3 inputs are unobservable and cannot be corroborated by observable market data.
 

42


AMERICAN CAPITAL, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(unaudited)
(in millions, except per share data)


The following fair value hierarchy tables set forth our assets and liabilities that are measured at fair value on a recurring basis by level as of June 30, 2015 and December 31, 2014:
 
June 30, 2015
 
 Level 1
 
 Level 2
 
 Level 3
 
 Total
First Lien Senior Debt
$

 
$
2,268

 
$
595

 
$
2,863

Second Lien Senior Debt

 
352

 
434

 
786

Mezzanine Debt

 

 
625

 
625

Preferred Equity

 

 
644

 
644

Common Equity

 

 
1,616

 
1,616

Structured Products

 

 
726

 
726

Investments at Fair Value

 
2,620

 
4,640

 
7,260

Other Assets

 

 
32

 
32

Derivative Agreements

 
(6
)
 

 
(6
)
Long Term Incentive Plan Liability

 

 
(29
)
 
(29
)
Other Assets and Liabilities at Fair Value

 
(6
)
 
3

 
(3
)
Total
$

 
$
2,614

 
$
4,643

 
$
7,257

 
 
 
 
 
 
 
 
 
December 31, 2014
 
 Level 1
 
 Level 2
 
 Level 3
 
 Total
First Lien Senior Debt
$

 
$
1,644

 
$
870

 
$
2,514

Second Lien Senior Debt

 
340

 
347

 
687

Mezzanine Debt

 

 
472

 
472

Preferred Equity

 

 
462

 
462

Common Equity

 

 
1,562

 
1,562

Structured Products

 

 
583

 
583

Investments at Fair Value

 
1,984

 
4,296

 
6,280

Other Assets

 

 
51

 
51

Derivative Agreements

 
(10
)
 
(74
)
 
(84
)
Long Term Incentive Plan Liability

 

 
(82
)
 
(82
)
Other Assets and Liabilities at Fair Value

 
(10
)
 
(105
)
 
(115
)
Total
$

 
$
1,974

 
$
4,191

 
$
6,165



43


AMERICAN CAPITAL, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(unaudited)
(in millions, except per share data)


The following tables set forth the summary of changes in the fair value of investment assets and liabilities measured using Level 3 inputs for the three months ended June 30, 2015 and 2014:
 
Senior Debt
 
Mezzanine Debt
 
Preferred Equity
 
Common Equity
 
Structured Products
 
Other Assets
 
Long Term Incentive Plan Liability
 
Derivative Agreement
 
Total
Balances, April 1, 2015
$
1,061

 
$
652

 
$
658

 
$
1,522

 
$
641

 
$
42

 
$
(30
)
 
$
(111
)
 
$
4,435

Net realized (loss) gain(1)
(6
)
 
(31
)
 
(191
)
 
(56
)
 
1

 

 

 
45

 
(238
)
Reversal of prior period net depreciation (appreciation) on realization(2)
10

 
31

 
82

 
57

 
(1
)
 

 

 
65

 
244

Net unrealized (depreciation) appreciation(2)(3)
(11
)
 
(8
)
 
13

 
(5
)
 
(10
)
 
1

 
1

 

 
(19
)
Purchases(4)
151

 
7

 
106

 
151

 
194

 

 

 

 
609

Sales(5)
(147
)
 
(27
)
 
(27
)
 
(56
)
 

 

 

 

 
(257
)
Settlements, net(6)
(31
)
 
(1
)
 

 

 
(99
)
 
(11
)
 

 
1

 
(141
)
Effects of exchange rate changes
5

 
2

 
3

 
3

 

 

 

 

 
13

Transfers in(7)

 

 

 

 

 

 

 

 

Transfers out(7)
(3
)
 

 

 

 

 

 

 

 
(3
)
Balances, June 30, 2015
$
1,029

 
$
625

 
$
644

 
$
1,616

 
$
726

 
$
32

 
$
(29
)
 
$

 
$
4,643


 
Senior Debt
 
Mezzanine Debt
 
Preferred Equity
 
Common Equity
 
Structured Products
 
Other Assets
 
Total
Balances, April 1, 2014
$
1,125

 
$
497

 
$
900

 
$
2,027

 
$
303

 
$
33

 
$
4,885

Net realized (loss) gain(1)
(11
)
 
(2
)
 
(20
)
 
21

 
(1
)
 

 
(13
)
Reversal of prior period net depreciation (appreciation) on realization(2)
11

 
2

 
37

 
(40
)
 

 

 
10

Net unrealized (depreciation) appreciation(2)(3)
(4
)
 
9

 
(23
)
 
179

 

 
(3
)
 
158

Purchases(4)
62

 
2

 
(3
)
 
36

 
78

 
44

 
219

Sales(5)

 
(1
)
 
(115
)
 
(115
)
 

 
(1
)
 
(232
)
Settlements, net(6)
(84
)
 
(91
)
 

 

 
(42
)
 

 
(217
)
Transfers out of Level 3(7)
(129
)
 

 

 

 

 

 
(129
)
Balances, June 30, 2014
$
970

 
$
416

 
$
776

 
$
2,108

 
$
338

 
$
73

 
$
4,681


(1)
Included in net realized (loss) gain in the consolidated statements of operations. Excludes (loss) gain on realized foreign currency transactions on American Capital other assets and liabilities that are denominated in a foreign currency and any tax benefit (provision). Also, excludes realized gain (loss) from other assets and liabilities not measured at fair value.
(2)
Included in net unrealized appreciation in the consolidated statements of operations.
(3)
Excludes unrealized appreciation (depreciation) related to foreign currency translation for American Capital other assets and liabilities not measured at fair value that are denominated in a foreign currency.
(4)
Includes increases in the cost basis of investments resulting from new and add-on portfolio investments, the accrual or allowance of PIK interest or cumulative dividends and the amortization of discounts, premiums and closing fees.
(5)
Includes the sale of equity investments, collection of cumulative dividends, loan syndications and loan sales.
(6)
Includes principal repayments on debt investments, collection of PIK interest, collection of accreted loan discounts, the exchange of one or more existing securities for one or more new securities and net interest rate derivative periodic interest and termination payments.
(7)
Investments were transferred into and out of Level 3 and Level 2 due to changes in the quantity and quality of inputs obtained to support the fair value of each investment. Our policy is to recognize transfers as of the first day of a reporting period for investments existing as of the end of the period.


44


AMERICAN CAPITAL, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(unaudited)
(in millions, except per share data)


The following tables set forth the summary of changes in the fair value of investment assets and liabilities measured using Level 3 inputs for the six months ended June 30, 2015 and 2014:
 
Senior Debt
 
Mezzanine Debt
 
Preferred Equity
 
Common Equity
 
Structured Products
 
Other Assets
 
Long Term Incentive Plan Liability
 
Derivative Agreement
 
Total
Balances, January 1, 2015
$
1,217

 
$
472

 
$
462

 
$
1,562

 
$
583

 
$
51

 
$
(82
)
 
$
(74
)
 
$
4,191

Net realized (loss) gain(1)
(30
)
 
(58
)
 
(335
)
 
(59
)
 
(7
)
 

 
(46
)
 
45

 
(490
)
Reversal of prior period net depreciation on realization(2)
34

 
58

 
227

 
62

 
7

 

 
46

 
65

 
499

Net unrealized (depreciation) appreciation(2)(3)
(25
)
 
(16
)
 
87

 
(46
)
 
(15
)
 
(2
)
 
(2
)
 
(37
)
 
(56
)
Purchases(4)
248

 
77

 
204

 
171

 
269

 

 

 

 
969

Sales(5)
(157
)
 
(27
)
 
(56
)
 
(67
)
 
(2
)
 

 

 

 
(309
)
Settlements, net(6)
(232
)
 
127

 
59

 
3

 
(106
)
 
(17
)
 
46

 
1

 
(119
)
Effects of exchange rate changes
(24
)
 
(8
)
 
(4
)
 
(10
)
 
(3
)
 

 
9

 

 
(40
)
Transfers in(7)
3

 

 

 

 

 

 

 

 
3

Transfers out(7)
(5
)
 

 

 

 

 

 

 

 
(5
)
Balances, June 30, 2015
$
1,029

 
$
625

 
$
644

 
$
1,616

 
$
726

 
$
32

 
$
(29
)
 
$

 
$
4,643


 
Senior Debt
 
Mezzanine Debt
 
Preferred Equity
 
Common Equity
 
Structured Products
 
Other Assets
 
Total
Balances, January 1, 2014
$
1,060

 
$
520

 
$
1,125

 
$
2,091

 
$
276

 
$
29

 
$
5,101

Net realized (loss) gain(1)
(8
)
 
(2
)
 
(20
)
 
44

 
(3
)
 

 
11

Reversal of prior period net depreciation (appreciation) on realization(2)
11

 
2

 
37

 
(48
)
 
6

 

 
8

Net unrealized (depreciation) appreciation(2)(3)
(8
)
 
(8
)
 
(134
)
 
347

 
(2
)
 
(4
)
 
191

Purchases(4)
177

 
(4
)
 
9

 
54

 
120

 
49

 
405

Sales(5)
(20
)
 
(1
)
 
(178
)
 
(442
)
 

 
(1
)
 
(642
)
Settlements, net(6)
(113
)
 
(91
)
 
(63
)
 
62

 
(59
)
 

 
(264
)
Transfers out of Level 3(7)
(129
)
 

 

 

 

 

 
(129
)
Balances, June 30, 2014
$
970

 
$
416

 
$
776

 
$
2,108

 
$
338

 
$
73

 
$
4,681


(1)
Included in net realized (loss) gain in the consolidated statements of operations. Excludes (loss) gain on realized foreign currency transactions on American Capital other assets and liabilities that are denominated in a foreign currency and any tax benefit (provision). Also, excludes realized gain (loss) from other assets and liabilities not measured at fair value.
(2)
Included in net unrealized appreciation in the consolidated statements of operations.
(3)
Excludes unrealized appreciation (depreciation) related to foreign currency translation for American Capital other assets and liabilities not measured at fair value that are denominated in a foreign currency.
(4)
Includes increases in the cost basis of investments resulting from new and add-on portfolio investments, the accrual or allowance of PIK interest or cumulative dividends and the amortization of discounts, premiums and closing fees.
(5)
Includes the sale of equity investments, collection of cumulative dividends, loan syndications and loan sales.
(6)
Includes principal repayments on debt investments, collection of PIK interest, collection of accreted loan discounts, the exchange of one or more existing securities for one or more new securities and net interest rate derivative periodic interest and termination payments.
(7)
Investments were transferred into and out of Level 3 and Level 2 due to changes in the quantity and quality of inputs obtained to support the fair value of each investment. Our policy is to recognize transfers as of the first day of a reporting period for investments existing as of the end of the period.


45


AMERICAN CAPITAL, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(unaudited)
(in millions, except per share data)


Significant Unobservable Inputs

The following table summarizes the significant unobservable inputs in the fair value measurements of our Level 3 investments by category of investment and valuation technique as of June 30, 2015:
 
 
 
 
 
 
 
Range
 
 
Fair Value
 
Valuation Techniques
 
Unobservable Inputs
 
Minimum
Maximum
Weighted Average
 
 
 
 
Enterprise Value Waterfall Methodology
 
 
 
 
 
 
Senior Debt
$
345

 
Enterprise discounted cash flow
 
Discount rate
 
11%
55%
18%
 
 
 
 
 
Terminal value growth rate
 
2%
10%
4%
 
 
 
Public comparable companies
 
Premium or (discount) to multiples of comparable companies
 
(50)%
(25)%
(44)%
 
 
 
 
 
Control premium
 
—%
15%
9%
 
 
 
Sales of comparable companies
 
Premium or (discount) to multiples of comparable companies
 
(45)%
5%
(32)%
Mezzanine Debt
$
482

 
Enterprise discounted cash flow
 
Discount rate
 
12%
42%
15%
 
 
 
 
 
Terminal value growth rate
 
2%
4%
3%
 
 
 
Public comparable companies
 
Premium or (discount) to multiples of comparable companies
 
(50)%
(10)%
(38)%
 
 
 
 
 
Control premium
 
8%
19%
12%
 
 
 
Sales of comparable companies
 
Premium or (discount) to multiples of comparable companies
 
(50)%
5%
(24)%
Preferred Equity
$
614

 
Enterprise discounted cash flow
 
Discount rate
 
11%
47%
17%
 
 
 
 
 
Terminal value growth rate
 
2%
4%
3%
 
 
 
Public comparable companies
 
Premium or (discount) to multiples of comparable companies
 
(50)%
25%
(38)%
 
 
 
 
 
Control premium
 
7%
19%
12%
 
 
 
Sales of comparable companies
 
Premium or (discount) to multiples of comparable companies
 
(50)%
5%
(32)%
Common Equity
$
1,616

 
Enterprise discounted cash flow
 
Discount rate
 
4%
55%
14%
 
 
 
 
 
Terminal value growth rate
 
2%
10%
3%
 
 
 
Public comparable companies
 
Premium or (discount) to multiples of comparable companies
 
(50)%
10%
(13)%
 
 
 
 
 
Control premium
 
—%
19%
14%
 
 
 
Sales of comparable companies
 
Premium or (discount) to multiples of comparable companies
 
(50)%
5%
(16)%
Long Term Incentive Plan Liability
$
(29
)
 
Discounted cash flow
 
Discount rate
 
11%
11%
11%
 
 
 
 
 
(Discount) due to lack of control and marketability
 
(30)%
(5)%
(28)%
 
 
 
 
 
 
 
 
 
 
Market Yield Valuation Methodology
 
 
 
 
 
 
Senior Debt
$
675

 
Discounted cash flow
 
Market yield
 
5%
16%
9%
 
 
 
 
 
Estimated remaining life
 
1 yr
4 yrs
3 yrs
Mezzanine Debt
$
143

 
Discounted cash flow
 
Market yield
 
14%
22%
15%
 
 
 
 
 
Estimated remaining life
 
1 yr
4 yrs
1 yr
Preferred Equity
$
30

 
Discounted cash flow
 
Market yield
 
9%
30%
19%
 
 
 
 
 
Estimated remaining life
 
3 yrs
4 yrs
3 yrs
Structured Products
$
726

 
Discounted cash flow
 
Discount rate
 
5%
28%
14%
 
 
 
 
 
Constant prepayment rate
 
30%
35%
30%
 
 
 
 
 
Constant default rate
 
—%
2%
1%
 
 
 
 
 
 
 
 
 
 
Third-Party Vendor Pricing Service
 
 
 
 
 
 
Senior Debt
$
9

 
Third-party vendor pricing
 
Bid/Ask
 
80
82
81
 
 
 
 
 
 
 
 
 
 
Total
$
4,611

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

46


AMERICAN CAPITAL, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(unaudited)
(in millions, except per share data)


The following table summarizes the significant unobservable inputs in the fair value measurements of our Level 3 investments by category of investment and valuation technique as of December 31, 2014:
 
 
 
 
 
 
 
 
Range
 
 
 
Fair Value
 
Valuation Techniques
 
Unobservable Inputs
 
Minimum
Maximum
Weighted Average
 
 
Enterprise Value Waterfall Methodology
 
 
 
 
 
 
 
Senior Debt
$
558

 
Enterprise discounted cash flow
 
Discount rate
 
10%
53%
16%
 
 
 
 
 
 
Terminal value growth rate
 
2%
5%
4%
 
 
 
 
Public comparable companies
 
Premium or (discount) to multiples of comparable companies
 
(55)%
(30)%
(44)%
 
 
 
 
 
 
Control premium
 
—%
21%
15%
 
 
 
 
Sales of comparable companies
 
Premium or (discount) to multiples of comparable companies
 
(45)%
5%
(36)%
 
Mezzanine Debt
$
308

 
Enterprise discounted cash flow
 
Discount rate
 
11%
34%
15%
 
 
 
 
 
 
Terminal value growth rate
 
2%
4%
3%
 
 
 
 
Public comparable companies
 
Premium or (discount) to multiples of comparable companies
 
(55%)
—%
(38%)
 
 
 
 
 
 
Control premium
 
7%
21%
13%
 
 
 
 
Sales of comparable companies
 
Premium or (discount) to multiples of comparable companies
 
(50%)
5%
(12%)
 
Preferred Equity
$
459

 
Enterprise discounted cash flow
 
Discount rate
 
7%
38%
16%
 
 
 
 
 
 
Terminal value growth rate
 
2%
5%
3%
 
 
 
 
Public comparable companies
 
Premium or (discount) to multiples of comparable companies
 
(55%)
35%
(34%)
 
 
 
 
 
 
Control premium
 
4%
19%
12%
 
 
 
 
Sales of comparable companies
 
Premium or (discount) to multiples of comparable companies
 
(50%)
5%
(27%)
 
Common Equity
$
1,562

 
Enterprise discounted cash flow
 
Discount rate
 
4%
53%
14%
 
 
 
 
 
 
Terminal value growth rate
 
2%
5%
3%
 
 
 
 
Public comparable companies
 
Premium or (discount) to multiples of comparable companies
 
(55%)
35%
(23%)
 
 
 
 
 
 
Control premium
 
—%
21%
13%
 
 
 
 
Sales of comparable companies
 
Premium or (discount) to multiples of comparable companies
 
(50%)
15%
(17%)
 
Long Term Incentive Plan Liability
$
(82
)
 
Discounted cash flow
 
Discount rate
 
11%
11%
11%
 
 
 
 
 
 
(Discount) due to lack of control and marketability
 
(30%)
(10%)
(30%)
 
 
 
 
 
 
 
 
 
 
 
 
Market Yield Valuation Methodology
 
 
 
 
 
 
 
Senior Debt
$
641

 
Discounted cash flow
 
Market yield
 
5%
18%
10%
 
 
 
 
 
 
Estimated remaining life
 
0 yrs
4 yrs
4 yrs
 
Mezzanine Debt
$
164

 
Discounted cash flow
 
Market yield
 
13%
22%
15%
 
 
 
 
 
 
Estimated remaining life
 
1 yr
4 yrs
2 yrs
 
Preferred Equity
$
3

 
Discounted cash flow
 
Market yield
 
16%
27%
23%
 
 
 
 
 
 
Estimated remaining life
 
3 yrs
4 yrs
4 yrs
 
Structured Products
$
583

 
Discounted cash flow
 
Discount rate
 
5%
57%
13%
 
 
 
 
 
 
Constant prepayment rate
 
30%
35%
31%
 
 
 
 
 
 
Constant default rate
 
—%
2%
1%
 
 
 
 
 
 
 
 
 
 
 
 
Third-Party Vendor Pricing Service
 
 
 
 
 
 
 
Senior Debt
$
18

 
Third-party vendor pricing
 
Bid/Ask
 
95
97
96
 
 
 
 
 
 
 
 
 
 
 
 
Black-Scholes Option Pricing Methodology
 
 
 
 
 
 
 
Derivative Agreement
$
(74
)
 
Black-Scholes model
 
Volatility
 
117%
117%
117%
 
 
 
 
 
 
Estimated remaining life
 
0.3 yrs
0.3 yrs
0.3 yrs
 
 
 
 
 
 
 
 
 
 
 
 
 
$
4,140

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


47


AMERICAN CAPITAL, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(unaudited)
(in millions, except per share data)


The following tables show the composition summaries of our investment portfolio at cost basis and fair value, excluding derivative agreements, as a percentage of total investments as of June 30, 2015 and December 31, 2014:
 
June 30, 2015
 
December 31, 2014
Cost
 
 
 
First Lien Senior Debt
41.8
%
 
40.5
%
Second Lien Senior Debt
11.5
%
 
11.2
%
Mezzanine Debt
10.7
%
 
10.0
%
Preferred Equity
9.7
%
 
13.4
%
Common Equity
15.1
%
 
15.0
%
Structured Products
11.2
%
 
9.9
%
Total
100.0
%
 
100.0
%
 
 
 
 
Fair Value
 
 
 
First Lien Senior Debt
39.4
%
 
40.0
%
Second Lien Senior Debt
10.8
%
 
10.9
%
Mezzanine Debt
8.6
%
 
7.5
%
Preferred Equity
8.9
%
 
7.4
%
Common Equity
22.3
%
 
24.9
%
Structured Products
10.0
%
 
9.3
%
Total
100.0
%
 
100.0
%
 

48


AMERICAN CAPITAL, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(unaudited)
(in millions, except per share data)


We use the Global Industry Classification Standards (“GICS®”) for classifying the industry groupings of our portfolio companies. The GICS® was developed by MSCI, an independent provider of global indexes and benchmark-related products and services, and Standard & Poor’s, an independent international financial data and investment services company and provider of global equity indexes. The following tables show the portfolio composition by industry grouping at cost and at fair value as a percentage of total investments as of June 30, 2015 and December 31, 2014. Our investments in CLO securities and derivative agreements are excluded from the table below. Our investments in CMBS are classified in the Real Estate and Real Estate Investment Trusts category.
 
June 30, 2015
 
December 31, 2014
Cost
 
 
 
Commercial Services and Supplies
8.2
%
 
6.4
%
Capital Markets
7.5
%
 
8.3
%
Life Sciences Tools and Services
7.0
%
 
14.5
%
Software
5.0
%
 
3.2
%
IT Services
4.1
%
 
3.2
%
Diversified Consumer Services
3.8
%
 
3.7
%
Health Care Providers and Services
3.8
%
 
2.9
%
Household Durables
3.5
%
 
3.5
%
Media
3.3
%
 
2.4
%
Diversified Financial Services
3.2
%
 
1.7
%
Auto Components
3.1
%
 
3.3
%
Professional Services
3.0
%
 
2.8
%
Hotels, Restaurants and Leisure
2.9
%
 
3.0
%
Real Estate and Real Estate Investment Trusts
2.9
%
 
2.7
%
Health Care Equipment and Supplies
2.7
%
 
4.0
%
Specialty Retail
2.3
%
 
1.5
%
Textiles, Apparel and Luxury Goods
2.2
%
 
2.5
%
Insurance
2.1
%
 
1.7
%
Oil, Gas and Consumable Fuels
2.0
%
 
2.0
%
Aerospace and Defense
2.0
%
 
1.7
%
Food Products
1.9
%
 
2.2
%
Machinery
1.7
%
 
1.8
%
Pharmaceuticals
1.6
%
 
0.8
%
Energy Equipment and Services
1.0
%
 
1.6
%
Other
19.2
%
 
18.6
%
Total
100.0
%
 
100.0
%

 

49


AMERICAN CAPITAL, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(unaudited)
(in millions, except per share data)


 
June 30, 2015
 
December 31, 2014
Fair Value
 
 
 
Capital Markets
18.1
%
 
21.3
%
Commercial Services and Supplies
7.0
%
 
5.8
%
Life Sciences Tools and Services
6.6
%
 
9.2
%
Software
4.5
%
 
3.0
%
Diversified Consumer Services
4.1
%
 
3.8
%
Health Care Providers and Services
3.6
%
 
2.9
%
IT Services
3.6
%
 
2.9
%
Media
3.1
%
 
2.5
%
Professional Services
3.1
%
 
2.9
%
Household Durables
2.9
%
 
3.3
%
Hotels, Restaurants and Leisure
2.7
%
 
3.2
%
Diversified Financial Services
2.5
%
 
1.1
%
Real Estate and Real Estate Investment Trusts
2.5
%
 
2.1
%
Auto Components
2.2
%
 
2.3
%
Specialty Retail
2.1
%
 
1.3
%
Insurance
2.0
%
 
1.7
%
Aerospace and Defense
2.0
%
 
1.7
%
Health Care Equipment and Supplies
1.9
%
 
2.7
%
Textiles, Apparel and Luxury Goods
1.8
%
 
2.1
%
Internet and Catalog Retail
1.7
%
 
1.9
%
Food Products
1.6
%
 
2.0
%
Oil, Gas and Consumable Fuels
1.5
%
 
1.6
%
Pharmaceuticals
1.5
%
 
0.8
%
Other
17.4
%
 
17.9
%
Total
100.0
%
 
100.0
%

Note 5. Borrowings
Our debt obligations consisted of the following as of June 30, 2015 and December 31, 2014:
 
June 30, 2015
 
December 31, 2014
Secured revolving credit facility due August 2016, $250 million commitment
$

 
$

Secured revolving credit facility due March 2017, $1,250 million commitment
820

 
726

Secured revolving credit facility due October 2016, $500 million commitment
422

 
51

Secured term loan due August 2017, net of discount
444

 
444

Unsecured Private Notes due September 2018, net of discount
345

 
344

European Capital unsecured senior notes, Series 2006-I due January 2022, €52 million

 
64

European Capital unsecured senior notes, Series 2007-I due July 2022, $37.5 million
38

 
37

European Capital unsecured senior notes, Series 2007-II due July 2022, $37.5 million
38

 
37

Total
$
2,107

 
$
1,703

The daily weighted average debt balance, excluding discounts, for the three and six months ended June 30, 2015 was $2,197 and $2,025, respectively, compared to $800 million for each of the comparable periods in 2014. The weighted average interest rate on all of our borrowings, including amortization of deferred financing costs, for the three and six months ended June 30, 2015 was 3.7% and 3.6%, respectively, compared to 5.7% and 5.8%, respectively, for the comparable periods in 2014. The weighted average interest rate on all of our borrowings, excluding amortization of deferred financing costs, for the three and six months ended June 30, 2015 was 3.1% and 3.1%, respectively, compared to 5.0% and 5.1%, respectively, for the comparable periods in

50


AMERICAN CAPITAL, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(unaudited)
(in millions, except per share data)


2014. The weighted average interest rate on all of our borrowings, excluding deferred financing costs, as of June 30, 2015 and December 31, 2014 was 3.0% and 3.3%, respectively.
As of June 30, 2015 and December 31, 2014, the aggregate fair value of the above borrowings was $2,126 million and $1,729 million, respectively. The fair values of our debt obligations 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, and are measured using Level 3 inputs for our debt as of June 30, 2015 and December 31, 2014. It assumes that the liability is transferred to a market participant at the measurement date and that the nonperformance risk relating to that liability is the same before and after the transfer. Nonperformance risk refers to the risk that the obligation will not be fulfilled and affects the value at which the liability is transferred. The fair value of our debt obligations is valued at the closing market quotes as of the measurement date or estimated based upon market interest rates for our own borrowings or entities with similar credit risk, adjusted for nonperformance risk, if any, based on a quantitative and/or qualitative evaluation of our credit risk.
Unsecured Private Notes
On September 20, 2013, we entered into an indenture with U.S. Bank National Association, as trustee, relating to the issuance and sale by us of $350 million in aggregate principal amount of senior unsecured five-year notes (“Private Notes”), for proceeds of $342 million, net of underwriters’ discounts. The Private Notes were sold in a private offering to qualified institutional buyers under Rule 144A and outside of the United States pursuant to Regulation S of the Securities Act of 1933, as amended. The Private Notes have a fixed interest rate of 6.50% and mature in September 2018. Interest payments are due semi-annually on March 15 and September 15 and all principal is due on maturity. The Private Notes were rated B3, B+ and BB- by Moody’s Investor Services, Standard & Poor’s Ratings Services and Fitch Ratings, respectively. The indenture contains restrictive covenants that, among other things, limit our ability to: (i) pay dividends or distributions, repurchase equity, prepay junior debt and make certain investments; (ii) incur additional debt and issue certain disqualified stock and preferred stock; (iii) incur certain liens; (iv) merge or consolidate with another company or sell substantially all of our assets; (v) enter into certain transactions with affiliates; and (vi) allow to exist certain restrictions on the ability of our subsidiaries to pay dividends or make other payments to us. The indenture also contains certain customary events of default. As of June 30, 2015, we were in compliance with all of the covenants under the Private Notes.
European Capital Unsecured Senior Notes
In December 2006, European Capital entered into a note purchase agreement to issue €52 million of senior unsecured 15-year notes due January 2022 to accredited investors in a private placement offering (“Series 2006-I Notes”). The Series 2006-I Notes had a floating rate of EURIBOR plus 2.75%. On June 17, 2015, the Series 2006-I Notes were repaid in full. European Capital entered into a note purchase agreement to issue $37.5 million of senior unsecured notes due July 2022 to accredited investors in a private placement offering (“Series 2007-I Notes”). The Series 2007-I Notes have a floating rate of LIBOR plus 2.75%. In March 2007, European Capital entered into a note purchase agreement to issue $37.5 million of senior unsecured notes due July 2022 to accredited investors in a private placement offering (“Series 2007-II Notes”). The Series 2007-II Notes have a floating rate of LIBOR plus 2.75%. As of June 30, 2015, the interest rate on the Series 2007-I Notes and Series 2007-II Notes was 3.02%. In July 2015, European Capital issued prepayment notices to the holders of the Series 2007-I Notes and Series 2007-II Notes and will repay these notes in August 2015.
The above unsecured senior notes contain covenants that, among other things, require that European Capital maintain a minimum consolidated tangible net worth of €225 million, plus 50% of any equity issued by European Capital after the issuance of the applicable notes, require the interest charge cover meet a minimum threshold depending on the ratio of earnings before interest and taxes to interest expense and a maximum debt to equity ratio of 4:1. The unsecured senior notes also contain cross-default provisions to debt of European Capital of $15 million or more. As of June 30, 2015, European Capital was in compliance with all covenants for these notes.
Secured Term Loan Facility
On February 26, 2014, we entered into an amendment (the “Amendment”) to the amended secured term loan facility under our Senior Secured Term Loan Credit Agreement, dated as of August 23, 2013, with the lenders party thereto and JPMorgan Chase Bank, N.A., as Administrative Agent (the “Secured Term Loan Facility”).
The Amendment reduced the interest rate on the Secured Term Loan Facility, which had an outstanding principal balance of $450 million as of the closing date, from LIBOR plus 3.00%, with a LIBOR floor of 1.00%, to LIBOR plus 2.75%, with a LIBOR floor of 0.75%. The Amendment also extended the Secured Term Loan Facility’s maturity date by one year to August

51


AMERICAN CAPITAL, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(unaudited)
(in millions, except per share data)


2017.
In accordance with FASB ASC Subtopic No. 470-50, Modifications and Extinguishments, $447 million of debt exchanged with the same lenders met the criterion for and was accounted as a modification of debt. Existing unamortized deferred financing costs and discount attributable to the modification of the Secured Term Loan Facility of $9 million will be amortized into interest expense over the life of the Secured Term Loan Facility using the effective interest method, while fees paid to other third-party advisors of $1 million were expensed and included in general and administrative expenses in the consolidated statements of operations.
As of June 30, 2015, the interest rate on our Secured Term Loan Facility was 3.50% and the borrowing base coverage was 267%. As of June 30, 2015, we were in compliance with all of the covenants under the Secured Term Loan Facility.
The following table sets forth the scheduled amortization on the secured term loans, unsecured private notes and unsecured senior notes:
August 2015
$4.5 million
August 2016
$4.5 million
Secured Term Loans due August 2017
Outstanding Balance
Unsecured Private Notes due September 2018
Outstanding Balance
Unsecured senior notes (Series 2007-I Notes) due July 2022
Outstanding Balance
Unsecured senior notes (Series 2007-II Notes) due July 2022
Outstanding Balance
$250 Million Revolving Credit Facility
On August 22, 2012, we obtained a four-year $250 million secured revolving credit facility (the “$250 Million Revolving Credit Facility”), which may be expanded to a maximum $375 million through additional commitments in accordance with the terms and conditions of the $250 Million Revolving Credit Facility and Secured Term Loan Facility. The $250 Million Revolving Credit Facility bears interest at a rate per annum equal to LIBOR plus 3.75%.
We may borrow, prepay and reborrow loans under the $250 Million Revolving Credit Facility at any time prior to August 22, 2015, the commitment termination date, subject to certain terms and conditions, including maintaining a borrowing base coverage of 150%, or 110% so long as our borrowing base coverage does not decrease following an advance. The $250 Million Revolving Credit Facility matures on August 22, 2016. Any outstanding balance on the $250 Million Revolving Credit Facility as of the commitment termination date is repayable ratably over the final 12 months until the maturity date.
We are required to pay a fee in an amount equal to 0.50% on the average daily unused amount of the lender commitments under our $250 Million Revolving Credit Facility from the closing date to but excluding the earlier of the date on which a lender’s commitment terminates and the commitment termination date, payable quarterly. As of June 30, 2015, the total commitments under our $250 Million Revolving Credit Facility were $250 million. As of June 30, 2015, we were in compliance with all of the covenants under the $250 Million Revolving Credit Facility.
$1.25 Billion Revolving Credit Facility
On June 27, 2014, ACAS Funding I, LLC, a wholly-owned financing subsidiary, obtained a $750 million secured revolving credit facility provided by Bank of America, N.A. On March 6, 2015, the commitments to the existing $750 million secured revolving credit facility were increased by $500 million to $1.25 billion (the “$1.25 Billion Revolving Credit Facility”). In addition to the increase, the maturity date of the facility was extended to March 6, 2017. The facility bears interest at a rate per annum equal to LIBOR plus 1.60%. As of June 30, 2015, the interest rate on the $1.25 Billion Revolving Credit Facility was 1.78%.
We may borrow, prepay and reborrow loans under the $1.25 Billion Revolving Credit Facility at any time prior to February 6, 2017, subject to certain terms and conditions. Any outstanding balance on the $1.25 Billion Revolving Credit Facility as of the commitment termination date is repayable on the maturity date.
We are required to pay a fee in an amount equal to 1.60% on the average daily unused amount of lender commitments up to $375 million and 0.75% on undrawn amounts up to $750 million. Beginning on September 6, 2015, we are required to pay a fee in an amount equal to 1.60% on the average daily unused amount of lender commitments up to $750 million and 0.75% on the lesser of $500 million and the average unused daily unused amount during the period. All fees are payable quarterly. As of June 30, 2015, the total debt outstanding under our $1.25 Billion Revolving Credit Facility was $820 million, which was secured

52


AMERICAN CAPITAL, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(unaudited)
(in millions, except per share data)


by portfolio investments with fair values of $1,636 million. As of June 30, 2015, we were in compliance with all of the covenants under the $1.25 Billion Revolving Credit Facility.
$500 Million Revolving Credit Facility
On October 30, 2014, ACAS Funding II, LLC, a wholly-owned financing subsidiary, obtained a $500 million secured revolving credit facility (the “$500 Million Revolving Credit Facility”), provided by Deutsche Bank AG. The $500 Million Revolving Credit Facility, which matures in October 2016, bears interest at a rate per annum equal to LIBOR plus 1.60%. As of June 30, 2015, the interest rate on the $500 Million Revolving Credit Facility was 1.88%.
We may borrow, prepay and reborrow loans under the $500 Million Revolving Credit Facility at any time prior to October 30, 2016, the commitment termination date, subject to certain terms and conditions. Any outstanding balance on the $500 Million Revolving Credit Facility as of the commitment termination date is repayable on the maturity date.
As of June 30, 2015, the total debt outstanding under our $500 Million Revolving Credit Facility was $422 million, which was secured by portfolio investments with fair values of $654 million. As of June 30, 2015, we were in compliance with all of the covenants under the $500 Million Revolving Credit Facility.
Note 6. Stock Options
We have stock option plans which provide for the granting of options to employees and non-employee directors to purchase shares of common stock at a price of not less than the fair market value of the common stock on the date of grant. Stock options granted under the employee stock option plans vest over either a three or five year period and may be exercised for a period of no more than ten years from the date of grant. Options granted under these plans may be either incentive stock options within the meaning of Section 422 of the Code or non-qualified stock options. As required by the 1940 Act, we are restricted from issuing awards to our employees and non-employee directors to the extent that the amount of voting securities that would result from the exercise of all such awards at the time of issuance exceeds 20% of our outstanding voting securities. As of June 30, 2015, there were 3.7 million shares available to be granted under the employee stock option plans and in accordance with the 1940 Act restrictions.
Our shareholders approved non-employee director stock option plans in 1998, 2000, 2006, 2007, 2008, 2009 and 2010 and we subsequently received orders from the SEC authorizing such plans. Stock options granted under the non-employee director stock option plans are non-qualified stock options that vest over a three year period and may be exercised for a period of no more than ten years from the date of grant. As of June 30, 2015, there were no shares available to be granted under the non-employee director stock option plans. No employee or non-employee director stock options were granted during the three and six months ended June 30, 2015 and 2014.
During the first quarter of 2014, we concluded that our Chief Executive Officer had been granted stock options in excess of the individual employee limits established in certain of our stock option plans. These stock option grants were made during fiscal years 2010, 2011 and 2012. As a result, the stock option grants in excess of the individual limits in any stock option plan have been considered null and void. Therefore, stock based-compensation expense associated with the null and void options of $3.5 million was reversed in the first quarter of 2014.
In addition, the communication of the voided stock option grants to our Chief Executive Officer resulted in a financial obligation under U.S. GAAP to provide equity compensation commensurate with the terms of the voided stock option grants in return for services to be performed by our Chief Executive Officer during the option vesting periods. This financial obligation has been accounted for as a liability award and stock-based compensation expense of $4.2 million associated with prior periods was recorded in the second quarter of 2014. The net impact of these adjustments was additional stock-based compensation expense of $2.3 million during the first quarter of 2014. An additional $1.4 million of income tax expense was recorded during the first quarter of 2014 as a result of these adjustments. These errors were immaterial to the individual prior periods impacted. During the second quarter of 2014, pursuant to the Deferred Plan, an award of $10 million was granted to our Chief Executive Officer that partially settled this financial obligation. During the first quarter of 2015, an award of $7 million was granted to our Chief Executive Officer that settled the remainder of this financial obligation. These grants were funded with shares from the Trust which had previously been forfeited by former employees prior to being fully vested in their shares.
As discussed in Note 9, due to changes in the composition of our investment portfolio and market conditions, we conducted strategic reviews of our business which resulted in a workforce reduction of our employees in the fourth quarter of 2014. In conjunction with the restructuring, the vesting of any unvested stock options held by impacted employees as of the date of their separation was accelerated, and the employees were given a period of up to one year from their separation date, or less if the

53


AMERICAN CAPITAL, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(unaudited)
(in millions, except per share data)


expiration of the option was within one year from their separation date, to exercise all outstanding options. During the six months ended June 30, 2015, in accordance with FASB ASC Topic 718, Compensation-Stock Compensation, the acceleration of 1.0 million unvested stock options was accounted for as a modification and resulted in additional stock-based compensation expense of approximately $4 million related to additional workforce reductions.
During the three and six months ended June 30, 2015, we recorded stock-based compensation expense attributable to our stock options of $5.2 million and $9.8 million, respectively. During the three and six months ended June 30, 2014, we recorded stock-based compensation expense attributable to our stock options of $4.4 million and $14.9 million, respectively. Stock-based compensation expense was recognized only for options expected to vest, using an estimated forfeiture rate based on historical experience.
Note 7. Deferred Compensation Plan
We have a non-qualified deferred compensation plan (the “Deferred Plan”) for the purpose of granting cash bonus awards to our employees. The Compensation, Corporate Governance and Nominating Committee is the administrator of the Deferred Plan. The Deferred Plan is funded through a trust (the “Trust”) which is administered by a third-party trustee. The Compensation, Corporate Governance and Nominating Committee determines cash bonus awards to be granted under the Deferred Plan and the terms of such awards, including vesting schedules. The cash bonus awards are invested by the Trust in our common stock by purchasing shares in the open market. Awards vest contingent on the employee’s continued employment or the achievement of performance goals, if any, as determined by the Compensation, Corporate Governance and Nominating Committee. The Trust provides certain protections of its assets from events other than claims against our assets in the case of bankruptcy. The assets and liabilities of the Trust are consolidated in the accompanying consolidated financial statements. Shares of our common stock held by the Trust are accounted for as treasury stock in the accompanying consolidated balance sheets.
The Deferred Plan does not permit diversification and the cash bonus awards must be settled by the delivery of a fixed number of shares of our common stock. The awards under the Deferred Plan are accounted for as grants of unvested stock. We record stock-based compensation expense based on the fair market value of our stock on the date of grant. The compensation cost for awards with service conditions is recognized using the straight-line attribution method over the requisite service period. The compensation cost for bonus awards with performance and service conditions is recognized using the accelerated attribution method over the requisite service period. During the six months ended June 30, 2015, cash bonus awards of $7 million were granted under the Deferred Plan. During the three and six months ended June 30, 2014, cash bonus awards of $10 million were granted under the Deferred Plan.
As discussed in Note 6, during the first quarter of 2014, we concluded that our Chief Executive Officer had been granted $2.6 million of cash bonus awards in fiscal year 2007 in excess of the annual individual employee limit established in the Deferred Plan. As a result, the $2.6 million of cash bonus awards have been considered null and void. Stock-based compensation expense associated with the null and void cash bonus awards of $2.6 million was reversed in the first quarter of 2014.
In addition, the communication of the $2.6 million of excess cash bonus awards to our Chief Executive Officer resulted in a financial obligation under U.S. GAAP to provide equity compensation commensurate with the terms of the cash bonus awards in return for services to be performed by our Chief Executive Officer during the award vesting period. The financial obligation has been accounted for as a liability award and stock-based compensation expense of $1.5 million associated with prior periods was recorded in the first quarter of 2014. The net impact of these adjustments was a $1.1 million reduction to stock-based compensation expense in the first quarter of 2014. An additional $0.3 million of income tax expense was recorded during the first quarter of 2014 as a result of these adjustments. These errors were immaterial to the individual prior periods impacted. During the second quarter of 2014, pursuant to the Deferred Plan, an award of $10 million was granted to our Chief Executive Officer that partially settled this financial obligation. During the first quarter of 2015, an award of $7 million was granted to our Chief Executive Officer that settled the remainder of this financial obligation. These grants were funded with shares from the Trust which had previously been forfeited by former employees prior to being fully vested in their shares.
During the three and six months ended June 30, 2015, we recorded stock-based compensation expense of $1.9 and $4.8 million, respectively, attributable to the Deferred Plan. During the three and six months ended June 30, 2014, we recorded stock-based compensation expense of $4.5 and $3.6 million, respectively, attributable to the Deferred Plan.
Long Term Incentive Plan Liability
European Capital has issued restricted mandatorily redeemable preferred shares (“Redeemable Preferred Shares”) to participating employees of subsidiary companies of its manager, European Capital Asset Management Limited (“ECAM”), a

54


AMERICAN CAPITAL, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(unaudited)
(in millions, except per share data)


wholly owned subsidiary of ACAM, under Long Term Incentive Plans (the “Plans”) for an issue price determined at the time of issuance. The Plans have a 5-year vesting period. The Redeemable Preferred Shares are subdivided into subclasses of shares. The redemption value of each sub-class of Redeemable Preferred Shares is calculated using a predetermined formula and is based on the net liquidity proceeds, as defined in the Plans, on the exit of specifically referenced investments of European Capital in excess of certain hurdle rates. The Plans have annual calculation and redemption dates through December 31, 2018 and March 1, 2019, respectively, for sub-classes A, B and C and December 31, 2023 and March 1, 2024, respectively, for sub-classes D, E and F. Redeemable Preferred Shares related to specifically referenced investments not exited at the final annual calculation dates will be redeemed after the receipt of subsequent net liquidity proceeds or, if specifically referenced investments that remain outstanding on January 1, 2020 for sub-classes A, B and C and January 1, 2025 for sub-classes D, E and F, will be redeemed based on the realizable value of the remaining referenced investments. European Capital elected to recognize the Redeemable Preferred Shares at fair value in accordance with FASB ASC Topic 825, Financial Instruments.
The holders of the Redeemable Preferred Shares have no rights to participate in or receive notice of any general meeting of European Capital and the shares are generally not transferable. The Redeemable Preferred Shares have no rights to receive dividends. During the three months ended March 31, 2015, a portion of Redeemable Preferred Shares were redeemed and European Capital realized a loss of $46 million, offset by a reversal of unrealized depreciation of $46 million, which is included in net realized (loss) gain and net unrealized appreciation in our consolidated statements of operations.
The fair value of the Redeemable Preferred Shares is calculated as of June 30, 2015 and December 31, 2014 using the net present value of the estimated future cash flows of the underlying European Capital investments with discounts applied for equity risk, liquidity risk, credit risk, minority interests, lack of marketability and a forfeiture rate. The fair value of the Redeemable Preferred Shares as of June 30, 2015 and December 31, 2014 was $29 million and $82 million, respectively, which is included in other liabilities in our consolidated balance sheets. The fair value of the underlying European Capital investments as of June 30, 2015 and December 31, 2014 was $516 million and $608 million, respectively.
There were no shares issued or redeemed for the three months ended June 30, 2015. The following table summarizes the number of shares issued and redeemed for the three months ended March 31, 2015:
 
Class A
 
Class B
 
Class C
 
Class D
 
Class E
 
Class F
 
Total
Balance, December 31, 2014
412

 
413

 
589

 
100

 
100

 
100

 
1,714

Shares Issued

 

 

 

 

 

 

Shares Redeemed
(68
)
 
(68
)
 
(98
)
 

 

 

 
(234
)
Balance, March 31, 2015
344

 
345

 
491

 
100

 
100

 
100

 
1,480

Note 8. Net Operating Income and Net Earnings Per Common Share
The following table sets forth the computation of basic and diluted net operating income and net earnings per common share 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
Numerator for basic and diluted net operating income per common share
$
67

 
$
26

 
$
117

 
$
31

Numerator for basic and diluted net earnings per common share
$
62

 
$
212

 
$
77

 
$
282

Denominator for basic weighted average common shares
272.4

 
266.2

 
271.8

 
268.4

Employee stock options and awards
11.0

 
12.3

 
11.4

 
12.5

Denominator for diluted weighted average common shares
283.4

 
278.5

 
283.2

 
280.9

Basic net operating income per common share
$
0.25

 
$
0.10

 
$
0.43

 
$
0.12

Diluted net operating income per common share
$
0.24

 
$
0.09

 
$
0.41

 
$
0.11

Basic net earnings per common share
$
0.23

 
$
0.80

 
$
0.28

 
$
1.05

Diluted net earnings per common share
$
0.22

 
$
0.76

 
$
0.27

 
$
1.00

In accordance with the provisions of FASB ASC Topic 260, Earnings per Share, basic earnings per share (“EPS”) is computed by dividing earnings available to common shareholders by the weighted average number of shares outstanding during the period.

55


AMERICAN CAPITAL, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(unaudited)
(in millions, except per share data)


Other potentially dilutive common shares, and the related impact to earnings, are considered when calculating EPS on a diluted basis.
In computing diluted EPS, only potential common shares that are dilutive, those that reduce earnings per share or increase loss per share, are included. The effect of stock options, unvested employee stock awards and contingently issuable shares are not included if the result would be anti-dilutive, such as when a net loss is reported.
Stock options and unvested shares under our deferred compensation plan of 5.3 million and 6.0 million for the three and six months ended June 30, 2015, respectively, and 7.8 million and 8.0 million for the three and six months ended June 30, 2014, respectively, were not included in the computation of diluted EPS either because the respective exercise or grant prices are greater than the average market value of the underlying stock or their inclusion would have been anti-dilutive, as determined using the treasury stock method.
Note 9. Restructuring Costs
Due to changes in the composition of our investment portfolio and market conditions, we conducted strategic reviews of our business in the fourth quarter of 2014, which resulted in a workforce reduction of approximately 13% of our employees and the closing of one of our offices as well as the elimination of certain functions at other offices. In conjunction with the restructuring, the vesting of any unvested stock options held by impacted employees as of the date of their separation was accelerated, and they were given a period of up to one year from their separation date, or less if the expiration of the option was within one year from their separation date, to exercise all outstanding options. We recorded charges for both severance and related employee costs and excess office facilities costs of $24 million for the year ended December 31, 2014, including $11 million from the modification of stock options. In addition, during the six months ended June 30, 2015, we recorded charges for both severance and related employee costs of $10 million, including $4 million from the modification of stock options related to additional workforce reductions. The severance and related employee costs and the additional stock-based compensation expense resulting from the modification are included in salaries, benefits and stock-based compensation and the excess facilities costs are included in general and administrative in our consolidated statements of operations. The liability for employee severance costs and excess facilities is included in other liabilities in our consolidated balance sheets as of June 30, 2015.
In determining our liability related to excess office facilities, we are required to estimate such factors as future vacancy rates, the time required to sublet properties and sublease rates. These estimates are reviewed quarterly based on known real estate market conditions and the credit-worthiness of subtenants, and may result in revisions to the liability. Our remaining liability of $4 million as of June 30, 2015 related to these excess office facilities represents gross lease commitments with agreements expiring at various dates through 2023 of approximately $21 million, net of committed and estimated sublease income of approximately $16 million and a present value factor of $1 million. We have entered into signed sublease arrangements for approximately $1 million, with the remaining $15 million based on estimated future sublease income.
The following table summarizes the restructuring accrual activity during the six months ended June 30, 2015:
 
Severance
 
Excess Office Facilities
 
Total
Balance, December 31, 2014
$
8

 
$
5

 
$
13

Restructuring charges
6

 

 
6

Cash payments
(7
)
 
(1
)
 
(8
)
Balance, March 31, 2015
7

 
4

 
11

Restructuring charges

 

 

Cash payments
(4
)
 

 
(4
)
Balance, June 30, 2015
$
3

 
$
4

 
$
7


56


AMERICAN CAPITAL, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(unaudited)
(in millions, except per share data)


Note 10. Shareholders’ Equity
Our common stock activity for the six months ended June 30, 2015 and 2014 was as follows:
 
Six Months Ended
June 30,
 
2015
 
2014
Common stock outstanding at beginning of period
266.9

 
270.2

Issuance of common stock under stock option plans
7.7

 
2.4

Repurchase of common stock
(6.5
)
 
(8.9
)
Common stock outstanding at end of period
268.1

 
263.7

Share Repurchase Program
During 2011, our Board of Directors adopted a program pursuant to which it will consider quarterly setting an amount to be utilized for share repurchases or dividends (the “Program”). Generally, the amount may be utilized for repurchases if the price of our common stock represents a discount to its NAV per share, and the amount may be utilized for the payment of cash dividends if the price of our common stock represents a premium to its NAV per share.
Repurchases under the Program were suspended in March 2014 as we undertook a process to evaluate potential capital requirements that could result from our previously announced plan to consider organizational changes to enhance shareholder value. We later announced that our Board had unanimously approved a plan to proceed with the spin-off of most of its investments in new a business development company to our shareholders, with American Capital continuing as a public asset manager. During the first quarter of 2015, our Board of Directors determined that it is appropriate to reinstate authorization for share repurchases while we seek to accomplish the announced spin-off. We included the written notice to stockholders required by Section 23(c) of the Investment Company Act of 1940 regarding the possibility of share repurchases over the next six months in the Proxy Statement for our 2015 Annual Meeting of Stockholders.
In determining the quarterly amount, the Board of Directors will be guided by our net cash provided by operating activities in preceding quarters, our capital requirements associated with completion of the spin-off transaction, our cash position, operational issues, economic conditions and the current trading price of our common stock and other factors. During the three months ended June 30, 2015, we repurchased a total of 6.5 million shares of our common stock in the open market for an aggregate price of $93 million at an average price of $14.32 per share. During the three months ended March 31, 2014, we repurchased a total of 8.9 million of our common stock in the open market for an aggregate price of $137 million at an average price of $15.38 per share.
Our Board of Directors recently modified the Program shortly after the second quarter of 2015 to authorize the purchase of $300 million to $600 million of common stock at prices per share below 85% of our most recent quarterly net asset value per share, subject to certain conditions.
The Program may be further suspended, terminated or modified at any time for any reason. The Program does not obligate us to acquire any specific number of shares of our common stock, and all repurchases will be made in accordance with SEC Rule 10b-18, which sets certain restrictions on the method, timing, price and volume of share repurchases.
Note 11. Income Taxes
As a taxable corporation under Subchapter C of the Code, we are subject to federal and applicable state corporate income taxes on our taxable ordinary income and capital gains. However, we estimate that for income tax purposes, we had both net operating loss carryforwards and net long-term capital loss carryforwards as of June 30, 2015. Our tax fiscal year ends on September 30.
During the quarter ended December 31, 2014, we consolidated our wholly owned portfolio company, European Capital, in our consolidated financial statements. European Capital and its wholly owned subsidiary, European Capital S.A. SICAR (collectively, “ECAS”) are both controlled foreign corporations (“CFCs”) for U.S. tax purposes. Each entity pays an immaterial rate of non-U.S. income taxes. ECAS may produce subpart F income that must be reported on the U.S. tax return of American Capital.
We file a consolidated federal income tax return with eligible corporate subsidiaries, including portfolio companies in which we hold 80% or more of the outstanding equity interest measured by both vote and fair value. As a result, we have entered into a

57


AMERICAN CAPITAL, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(unaudited)
(in millions, except per share data)


tax sharing agreement under which members of the consolidated tax group are compensated for losses and other tax benefits by members that are able to use those losses and tax benefits on their pro forma stand-alone federal income tax return.
As of June 30, 2015, our deferred tax asset was $730 million, our deferred tax liability was $336 million, our valuation allowance was $130 million and our net deferred tax asset was $264 million.
We estimate the expected tax character of recognition of the reversal of the timing differences that give rise to the deferred tax assets and liabilities as either ordinary or capital income. However, the ultimate tax character of the deferred tax asset or liability may change from our estimated classification based on the ultimate form of recognition of the timing difference. As of June 30, 2015, we believe that it is more likely than not that we will have future ordinary income to realize the majority of our ordinary deferred tax assets and therefore did not record a valuation allowance against these ordinary deferred tax assets. On April 1, 2015, the New York State Legislature passed legislation that enacted several tax law changes that impact American Capital. As a result of the tax law changes, it is more likely than not that a portion of our net operating losses (“NOL”) generated in New York City will expire unutilized. Therefore, during the second quarter of 2015, we recorded a $7 million valuation allowance against an $8 million deferred tax asset related to $94 million of NOLs generated in New York City. We believe that it is more likely than not that we will be able to utilize $44 million of our capital deferred tax assets as of June 30, 2015 and we have established a partial valuation allowance of $123 million against certain capital deferred tax assets.
Assessing the recoverability of a deferred tax asset requires management to make estimates related to expectations of future taxable income. Estimates of future taxable income are based on forecasted cash flows from investments and operations, the character of expected income or loss as either capital or ordinary, and the application of existing tax laws in each jurisdiction. To the extent that future cash flows or the amount or character of taxable income differ significantly from these estimates, our ability to realize the deferred tax assets could be impacted.
A reconciliation of the provision for income taxes computed at the U.S. federal statutory corporate income tax rate and our effective tax rate for the three and six months ended June 30, 2015 and 2014 were as follows:
 
Three Months Ended June 30,
 
Six Months Ended
June 30,
 
2015
 
2014
 
2015
 
2014
Tax on net earnings computed at federal statutory tax rate
$
28

 
$
70

 
$
55

 
$
95

State taxes, net of federal tax benefit
3

 
12

 
6

 
15

Valuation allowance
(17
)
 
(173
)
 
(38
)
 
(205
)
Change in state tax rate
8

 

 
8

 
10

Earnings of European Capital
(8
)
 

 
10

 

Consolidation of subsidiary

 
69

 

 
69

Capital gain on tax deconsolidation of subsidiary

 

 
35

 

Other
4

 
9

 
3

 
5

Total provision (benefit) for income taxes
$
18

 
$
(13
)
 
$
79

 
$
(11
)
During the first quarter of 2015, we restructured our investment in CML Pharmaceuticals, Inc. (“CML”) which resulted in a recognized capital loss. We recognized a $136 million capital loss on our equity investment in CML, which was $9 million less than the book realized loss of $145 million, due to consolidated basis adjustments in prior years as a result of CML filing with American Capital’s consolidated tax return. In addition, CML recognized an $83 million capital gain on an operating subsidiary that was offset by capital loss carryforwards at American Capital. We will not be reimbursed through the tax sharing agreement for the utilization of the capital loss carryforward and this was a permanent difference in income recognition. The net impact was a decrease of our gross deferred tax assets of $35 million, offset by a reduction in the valuation allowance of $35 million, resulting in no net tax impact to the provision.
During the first quarter of 2015, we recognized subpart F income on our U.S. tax return from our investment in European Capital that, net of related changes in European Capital’s deferred tax assets, resulted in an $18 million tax provision.

58


AMERICAN CAPITAL, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(unaudited)
(in millions, except per share data)


We recognize tax benefits of uncertain tax positions only when the position is more likely than not to be sustained assuming examination by tax authorities. The following is a reconciliation of our unrecognized tax benefits:
Unrecognized tax benefits - January 1, 2015
$
48

Increase related to positions taken during the current year

Unrecognized tax benefits - June 30, 2015
$
48


The unrecognized tax benefits have been presented as a reduction of a deferred tax asset for a net operating loss.
Note 12. Commitments and Contingencies
In the normal course of business, we enter into contractual agreements that provide general indemnifications against losses, costs, claims and liabilities arising from the performance of our obligations under such agreements. We have not had any claims nor made any payments pursuant to such agreements. We cannot estimate the maximum potential exposure under these arrangements as this would involve future claims that may be made against us that have not yet occurred. However, based on our experience, we expect the risk of any material loss to us to be remote.
We are a party to certain legal proceedings incidental to the normal course of our business, including the enforcement of our rights under contracts with our portfolio companies. While the outcome of these legal proceedings cannot at this time be predicted with certainty, we do not expect that these proceedings will have a material effect on our financial condition or results of operations.
Loan and Financing Agreements
As of June 30, 2015, we had commitments under loan and financing agreements to fund up to $152 million to 27 portfolio companies. These commitments are primarily composed of working capital credit facilities, acquisition credit facilities and subscription agreements. The commitments are generally subject to the borrowers meeting certain criteria such as compliance with covenants and availability under borrowing base thresholds. The terms of the borrowings and financings subject to commitment are comparable to the terms of other loan and equity securities in our portfolio. As of June 30, 2015, European Capital and
its affiliates had a commitment of $65 million to fund European Capital UK SME Debt LP and $91 million to fund a European Capital debt fund. In addition, as of
June 30, 2015, ACAM had a commitment of $172 million to American Capital Equity III, LP, which would be funded by an equity investment from American Capital. See Note 14 to our interim consolidated financial statements included in this Form 10-Q for further discussion of ACAM’s American Capital Equity III, LP’s commitment.
Note 13. Significant Subsidiaries
We have determined that for the six months ended June 30, 2015, certain of our unconsolidated portfolio companies have met the conditions of a significant subsidiary under Rule 1-02(w) of Regulation S-X. Accordingly, pursuant to Rule 10-01(b)(1) of Regulation S-X, aggregate summarized income statement information for the six months ended June 30, 2015 and 2014 has been included as follows:
 
Six Months Ended
June 30,
 
2015
 
2014
Total revenue
$
264

 
$
201

Total operating expenses
$
202

 
$
182

Net operating income
$
62

 
$
19

Net income
$
38

 
$
14

Note 14. Asset Sales
The European Capital debt fund (“ECAS debt fund”) is a private debt fund that closed during the second quarter of 2015 with €318 million of capital commitments, of which €165 million was committed by European Capital and its affiliates. The ECAS debt fund provides debt financing to mid-market companies in Europe, primarily through unitranche, second lien and mezzanine financing, with secondary purchases of senior loans on an opportunistic basis. We anticipate a final closing by March 2016 to increase the investment capacity of the fund. The fund will have a three year investment period and a subsidiary of ACAM manages

59


AMERICAN CAPITAL, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(unaudited)
(in millions, except per share data)


the ECAS debt fund for an annual management fee of 1.50% on deployed capital and up to a 15% carried interest, subject to certain hurdles. The ECAS debt fund will be dissolved on March 19, 2025, unless extended.
In April 2015, European Capital sold $175 million (€162 million) of investments at fair value in 9 portfolio companies to the ECAS debt fund. European Capital received $170 million (€158 million) for the sale of these assets and recognized a realized loss of $5 million (€4 million). As of June 30, 2015, European Capital’s investment in the ECAS debt fund had a cost basis and fair value of $92 million and $95 million, respectively. As of June 30, 2015, European Capital had an unfunded commitment of $91 million (€82 million) to the ECAS debt fund.
On April 28, 2014, we completed a $1.1 billion private placement of partnership interests in American Capital Equity III, LP (“ACE III” or “the Fund”), a new private equity fund focused on investing in U.S. companies in the lower middle market. Concurrent with the private placement, we entered into a Contribution and Redemption Agreement with the Fund pursuant to which we agreed to contribute 100% of our equity and equity-related investments in seven portfolio companies (Affordable Care Holding Corp., Avalon Laboratories Holding Corp., CIBT Investment Holdings, LLC, FAMS Acquisition, Inc., Mirion Technologies, Inc., PHI Acquisitions, Inc. and SMG Holdings, Inc.) to the Fund and to provide the Fund with an option to acquire our equity investment in WRH, Inc. (the “Equity Option”), in exchange for partnership interests in the Fund. Collectively, the eight portfolio companies (including WRH, Inc., assuming the Equity Option is exercised) comprise the Secondary Portfolio for ACE III. On April 1, 2015, the Equity Option was exercised by the Fund for the exercise price of $24 million. For the three months ended June 30, 2015, we recognized a realized loss of $225 million on our WRH, Inc. equity investment offset by a (i) $115 million reversal of unrealized depreciation on the investment, (ii) $65 million reversal of unrealized depreciation on the Equity Option derivative and (iii) $45 million realized gain on the Equity Option.
The Fund’s aggregate $1.1 billion capital commitment includes a commitment of $200 million from ACAM for Primary Investments, of which $172 million was undrawn as of June 30, 2015.
Note 15.
Related Party Transactions
As a BDC, we are required by law to make available significant managerial assistance to our eligible portfolio companies. Such assistance typically involves providing guidance and counsel concerning the management, operations and business objectives and policies of the portfolio company to its management and board of directors, including participating on the company’s board of directors. We have an operations team with significant turnaround and bankruptcy experience that assists our investment professionals in providing intensive operational and managerial assistance to our portfolio companies that require such assistance. As of June 30, 2015, we had board seats at 36 companies in our investment portfolio. Providing assistance to the companies in our investment portfolio serves as an opportunity for us to maximize their value.
The following table shows the operating revenue from our control investments, as defined under the 1940 Act, 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
Operating Revenue - Control Investments
 
 
 
 
 
 
 
Interest and dividend income - control investments
$
66

 
$
60

 
$
126

 
$
118

Fee income - control investments
$
14

 
$
12

 
$
28

 
$
24

American Capital Asset Management
Our fund management business is conducted through ACAM. In general, ACAM provides investment management services through consolidated subsidiaries that enter into management agreements with each of its managed funds. In addition, American Capital or ACAM may invest directly into these funds and earn investment income from its investments in those funds. Under the management agreements, ACAM’s responsibilities include, but are not limited to, sourcing, analyzing and executing investments and asset sales, delivering financial and compliance reports to investors in the funds under management, administering the daily business and affairs of the funds under management and performing other asset management duties. We have entered into service agreements with ACAM to provide it with additional asset management and administrative services support. Through these agreements, we provide investment advisory and oversight services to ACAM, as well as access to our employees, infrastructure, business relationships, management expertise and capital raising capabilities. During the three and six months ended June 30,

60


AMERICAN CAPITAL, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(unaudited)
(in millions, except per share data)


2015, we recognized operating revenues from our investment in ACAM of $36 million and $69 million, respectively, and $26 million and $49 million for the three and six months ended June 30, 2014, respectively.
European Capital
As discussed in Note 1 to these consolidated financial statements, we consolidated our investment in European Capital effective October 1, 2014. ACAM, through its subsidiary, ECAM, acts as the investment manager to European Capital. Under ACAM’s investment management agreement with European Capital, ACAM is entitled to receive an annual management fee of 2% of the weighted average monthly consolidated gross asset value of all the investments at fair value of European Capital, an incentive fee equal to 100% of the net earnings in excess of a return of 8% but less than a return of 10%, and 20% of the net earnings thereafter. The investment management agreement with European Capital was amended to waive the incentive fee for 2011, 2012, 2013 and 2014. During the first quarter of 2015, the investment management agreement with European Capital was amended to cancel the incentive fee for 2015 and going forward. The management fee charged by ACAM was $4 million and $8 million for the three and six months ended June 30, 2015, respectively, and is included in our consolidated statements of operations.
As discussed in Note 7 to these consolidated financial statements, European Capital has issued Redeemable Preferred Shares to employees of ECAM as part of long-term employee incentive plans. These shares are redeemable by European Capital based on the aggregate returns on investments made after January 1, 2012 and are treated as mandatorily redeemable preferred stock in our consolidated balance sheets in accordance with FASB ASC Topic 480, Distinguishing Liabilities from Equity. The fair value of the Redeemable Preferred Shares as of June 30, 2015 and December 31, 2014 was $29 million and $82 million, respectively, which is included in other liabilities in our consolidated balance sheets. For the three months ended March 31, 2015, Redeemable Preferred Shares were redeemed and European Capital realized a loss of $46 million offset by a reversal of unrealized depreciation of $46 million, which is included in net realized (loss) gain and net unrealized appreciation in our consolidated statements of operations. There were no shares issued or redeemed for the three months ended June 30, 2015.
American Capital Equity I, LLC and American Capital Equity II, LP
On June 30, 2015, we entered into stock purchase agreements with American Capital Equity I, LLC (“ACE I”) and American Capital Equity II, LP (“ACE II”) under which we acquired secondary and add-on investments in 24 portfolio companies for an aggregate purchase price of $145 million. The initial purchase price for such investments was based on the fair value of the securities as of March 31, 2015, but is potentially subject to increase on June 30, 2016 as a result of certain post-closing adjustments. For the three months ended June 30, 2015, we recorded $13 million of unrealized depreciation on these securities, which is included in net unrealized appreciation in our consolidated statements of operations.


61


ITEM 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations (in millions, except per share data)
Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is designed to provide a reader of American Capital’s financial statements with a narrative from the perspective of management. Our MD&A is presented in four sections:
Executive Overview
Results of Operations
Financial Condition, Liquidity and Capital Resources
Forward-Looking Statements
EXECUTIVE OVERVIEW
American Capital, Ltd. (which is referred to throughout this report as “American Capital”, “we”, “our” and “us”) is a publicly traded global asset manager and private equity firm. American Capital, both directly and through its asset management business, originates, underwrites and manages investments in middle market private equity, leveraged finance, real estate, energy and structured products. It is our practice to sell some of the assets that we originate as an investor into funds that we manage. On August 29, 1997, we completed an initial public offering (“IPO”) and became a non-diversified closed end investment company that has elected to be regulated as a business development company (“BDC”) under the Investment Company Act of 1940, as amended (“1940 Act”). As a BDC, we primarily invest in senior and mezzanine debt and equity in buyouts of private companies sponsored by us (“American Capital One Stop Buyouts®”) or sponsored by other private equity funds and provide capital directly to early stage and mature private and small public companies (“Sponsor Finance and Other Investments”). We also invest in first and second lien floating rate loans to large-market U.S. based companies (“Senior Floating Rate Loans” or “SFRL”) and structured finance investments (“Structured Products”), including collateralized loan obligation (“CLO”) securities and commercial mortgages and commercial mortgage backed securities (“CMBS”). Our primary business objectives are to increase our net earnings and net asset value (“NAV”) by making investments with attractive current yields and/ or potential for equity appreciation and realized gains and by growing our fee earning assets under management.
As of June 30, 2015, we managed $23 billion of assets, including assets on our balance sheet and fee earning assets under management by affiliated managers, with $81 billion of total assets under management (including levered assets). Our asset management business is conducted through our wholly-owned portfolio company, American Capital Asset Management, LLC (“ACAM”), a registered investment adviser under the Investment Advisers Act of 1940. As of June 30, 2015, ACAM managed the following funds:
American Capital Agency Corp. (“AGNC”)
American Capital Mortgage Investment Corp. (“MTGE”)
American Capital Senior Floating, Ltd. (“ACSF”)
American Capital Equity I, LLC (“ACE I”)
American Capital Equity II, LP (“ACE II”)
American Capital Equity III, LP (“ACE III”)
European Capital UK SME Debt LP (“ECAS UK SME Debt”)
European Capital debt fund (“ECAS debt fund”)
ACAS CLO 2007-1, Ltd. (“ACAS CLO 2007-1”)
ACAS CLO 2012-1, Ltd. (“ACAS CLO 2012-1”)
ACAS CLO 2013-1, Ltd. (“ACAS CLO 2013-1”)
ACAS CLO 2013-2, Ltd. (“ACAS CLO 2013-2”)
ACAS CLO 2014-1, Ltd. (“ACAS CLO 2014-1”)
ACAS CLO 2014-2, Ltd. (“ACAS CLO 2014-2”)
ACAS CLO 2015-1, Ltd. (“ACAS CLO 2015-1”)


62


We are taxed as a corporation and pay federal and applicable state corporate taxes on our taxable income. From 1997 through the tax year ended September 30, 2010, we were taxed as a regulated investment company (“RIC”), as defined in Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”). As a RIC, we were not subject to federal income tax on the portion of our taxable income and capital gains we distributed to our shareholders, but we were also not able to carry forward net operating losses (“NOL”) from year to year. Beginning with our tax year ended September 30, 2011, our status changed from a RIC subject to taxation under Subchapter M to a corporation subject to taxation under Subchapter C. Under Subchapter C, we are able to carry forward any NOLs historically incurred to succeeding years, which we would not be able to do if we were subject to taxation as a RIC under Subchapter M. This change in tax status does not affect our status as a BDC under the 1940 Act or our compliance with the portfolio composition requirements of that statute.
In October 2014, the Securities and Exchange Commission (“SEC”) Division of Investment Management issued SEC IM Guidance Update No. 2014-11, Investment Company Consolidation (“IM Update 2014-11”), which recommends that BDCs consolidate wholly-owned subsidiaries when the intent of the subsidiary is to act as an extension of the BDC’s investment operations and to facilitate the execution of the BDC’s investment strategy. In October 2014, our Board of Directors approved the spin-off of two new publicly traded BDCs to our shareholders, separating the majority of our investment assets from our asset management business. The approval also marked a change in our intent with respect to European Capital Limited (“European Capital”), which we no longer consider a vehicle for third-party capital but rather is viewed as an extension of our investment operations. In accordance with IM Update 2014-11, effective October 1, 2014, European Capital's financial results have been consolidated with the financial results of American Capital.
Recent Developments
On May 7, 2015 we announced a revision to our previously announced plans to spin-off to our shareholders two newly established BDCs, with American Capital continuing primarily in the asset management business. We now plan to spin-off only one new BDC, which will be known as American Capital Income, Ltd. (“American Capital Income” or “ACIN”). American Capital Income will expand its Sponsor Finance business into leading and syndicating large middle market transactions. This will include unitranche, second lien and mezzanine lending up to $400 million with American Capital retaining up to $150 million.
We expect that the spin-off of American Capital Income will be through a tax free dividend to our shareholders. The spin-off transaction is subject to certain conditions, including the approval of American Capital shareholders who, among other matters, must approve American Capital's de-election to be regulated as a BDC under the Investment Company Act of 1940, as amended. We expect to file proxy and registration statements regarding the transaction with the SEC in the third calendar quarter of 2015. These documents will be subject to review and comment by the SEC, which may affect the time frame in which the transaction can be completed. No assurance can be given as to if or when the transaction will be completed.
Investment Portfolio
As an investor, we primarily invest in senior and mezzanine debt and equity of middle and large market companies. We and ACAM also invest in assets that can be sold or contributed to public or private funds that ACAM could manage, as a means of “incubating” such funds. We also have investments in Structured Products and in funds managed by us.
Portfolio Composition
Our investments can be divided into the following six business lines: (i) American Capital One Stop Buyouts®, (ii) Sponsor Finance and Other Investments, (iii) European Capital, (iv) American Capital Asset Management, (v) Structured Products and (vi) Senior Floating Rate Loans.

63


As of June 30, 2015, we had investments totaling $7.0 billion and $7.3 billion at cost basis and fair value, respectively. As of June 30, 2015, our ten largest investments had a cost basis and fair value of $1.5 billion and $2.4 billion, respectively, or 32% of total investments at fair value, and are as follows (in millions):
Company 
 
Business Line
 
Industry
 
Cost Basis
 
Fair Value
American Capital Asset Management, LLC
 
American Capital Asset Management
 
Capital Markets
 
$
419

 
$
1,141

CML Pharmaceuticals, LLC
 
American Capital One Stop Buyouts®
 
Life Sciences Tools & Services
 
292

 
293

Bellotto Holdings Limited
 
European Capital
 
Household Durables
 
140

 
141

WIS Holding Company, Inc.
 
American Capital One Stop Buyouts®
 
Commercial Services & Supplies
 
138

 
136

SEHAC Holding Corporation
 
American Capital One Stop Buyouts®
 
Diversified Consumer Services
 
15

 
134

Soil Safe Acquisition Corp.
 
Sponsor Finance and Other Investments
 
Professional Services
 
113

 
128

Delsey Holdings S.A.S.
 
Sponsor Finance and Other Investments and European Capital
 
Textiles, Apparel & Luxury Goods
 
110

 
102

WRH, Inc.
 
American Capital One Stop Buyouts®
 
Life Sciences Tools & Services
 
100

 
95

 European Capital Private Debt LP
 
European Capital
 
Diversified Financial Services
 
92

 
95

Convergint Technologies, LLC
 
Sponsor Finance and Other Investments
 
Commercial Services & Supplies
 
94

 
94

Total
$
1,513

 
$
2,359

The following tables show the composition of our investment portfolio by business line at cost basis and fair value, as a percentage of total investments:
 
June 30, 2015
 
December 31, 2014
Cost
 
 
 
American Capital One Stop Buyouts®
20.7
%
 
26.9
%
Sponsor Finance and Other Investments
18.1
%
 
17.2
%
European Capital
11.3
%
 
13.1
%
American Capital Asset Management
6.0
%
 
6.7
%
Structured Products
11.1
%
 
9.7
%
Senior Floating Rate Loans
32.8
%
 
26.4
%
Total
100.0
%
 
100.0
%
 
 
 
 
Fair Value
 
 
 
American Capital One Stop Buyouts®
17.1
%
 
19.3
%
Sponsor Finance and Other Investments
18.0
%
 
17.3
%
European Capital
7.9
%
 
9.4
%
American Capital Asset Management
15.7
%
 
18.5
%
Structured Products
9.7
%
 
8.9
%
Senior Floating Rate Loans
31.6
%
 
26.6
%
Total
100.0
%
 
100.0
%


64


The following tables show the composition summaries of our investment portfolio by security type at cost basis and fair value, excluding derivative agreements, as a percentage of total investments:

 
June 30, 2015
 
December 31, 2014
Cost
 
 
 
First Lien Senior Debt
41.8
%
 
40.5
%
Second Lien Senior Debt
11.5
%
 
11.2
%
Mezzanine Debt
10.7
%
 
10.0
%
Preferred Equity
9.7
%
 
13.4
%
Common Equity
15.1
%
 
15.0
%
Structured Products
11.2
%
 
9.9
%
Total
100.0
%
 
100.0
%
 
 
 
 
Fair Value
 
 
 
First Lien Senior Debt
39.4
%
 
40.0
%
Second Lien Senior Debt
10.8
%
 
10.9
%
Mezzanine Debt
8.6
%
 
7.5
%
Preferred Equity
8.9
%
 
7.4
%
Common Equity
22.3
%
 
24.9
%
Structured Products
10.0
%
 
9.3
%
Total
100.0
%
 
100.0
%



65


The amounts of our new investments are based on committed amounts as of the investment date. The aggregate dollar amount of new investments by type, use and business line were as follows (in millions):
 
Three Months Ended June 30,
 
Six Months Ended
June 30,
Type
2015
 
2014
 
2015
 
2014
First Lien Senior Debt
$
393

 
$
571

 
$
1,140

 
$
768

Second Lien Senior Debt
94

 
103

 
106

 
170

Mezzanine Debt
4

 
2

 
58

 
6

Preferred Equity
89

 
1

 
179

 
2

Common Equity
241

 
63

 
243

 
76

Structured Products
155

 
73

 
202

 
112

Total by type
$
976

 
$
813

 
$
1,928

 
$
1,134

 
Three Months Ended June 30,
 
Six Months Ended
June 30,
Use
2015
 
2014
 
2015
 
2014
Senior Floating Rate Loans
$
300

 
$
579

 
$
903

 
$
778

Structured Products
155

 
73

 
202

 
92

European Capital(1)
179

 

 
348

 

Sponsor Finance and Other Investments
90

 
99

 
131

 
161

Investments in ACAM and Fund Development
69

 
50

 
88

 
84

Add-on financing for ACE buybacks
145

 

 
145

 

Add-on financing for growth and working capital
34

 
3

 
55

 
7

Add-on financing for working capital in distressed situations
4

 
9

 
10

 
12

Add-on financing for recapitalizations, not including distressed investments

 

 
46

 

Total by use
$
976

 
$
813

 
$
1,928

 
$
1,134

 
Three Months Ended June 30,
 
Six Months Ended
June 30,
Business Line
2015
 
2014
 
2015
 
2014
Senior Floating Rate Loans
$
300

 
$
579

 
$
903

 
$
778

Sponsor Finance and Other Investments
145

 
108

 
208

 
172

Structured Products
155

 
73

 
202

 
92

American Capital One Stop Buyouts®
128

 
3

 
179

 
8

European Capital(1)
179

 

 
348

 

Investments in ACAM and Fund Development
69

 
50

 
88

 
84

Total by business line
$
976

 
$
813

 
$
1,928

 
$
1,134


(1)
Effective October 1, 2014, European Capital’s financial results have been consolidated with the financial results of American Capital.

66


We received cash proceeds from realizations and repayments of portfolio investments by source and business line as follows (in millions):
 
Three Months Ended June 30,
 
Six Months Ended
June 30,
Source
2015
 
2014
 
2015
 
2014
Loan syndications and sales
$
206

 
$
1

 
$
260

 
$
21

Equity investments
90

 
142

 
183

 
466

Principal prepayments
147

 
185

 
176

 
201

Scheduled principal amortization
139

 
19

 
171

 
38

Payment of accrued PIK notes and dividends and accreted OID
12

 
61

 
29

 
124

Total by source
$
594

 
$
408

 
$
819

 
$
850


 
Three Months Ended June 30,
 
Six Months Ended
June 30,
Business Line
2015
 
2014
 
2015
 
2014
European Capital(1)
$
175

 
$
34

 
$
285

 
$
138

Senior Floating Rate Loans
186

 
8

 
277

 
8

American Capital One Stop Buyouts®
98

 
282

 
112

 
348

Structured Products
99

 
42

 
104

 
59

American Capital Asset Management
3

 
1

 
6

 
199

Sponsor Finance and Other Investments
33

 
41

 
35

 
98

Total by business line
$
594

 
$
408

 
$
819

 
$
850


(1)
Effective October 1, 2014, European Capital’s financial results have been consolidated with the financial results of American Capital. Prior to October 1, 2014, European Capital business line cash proceeds were comprised of dividend distributions on our equity investment in European Capital. Effective October 1, 2014, European Capital business line cash proceeds are comprised of cash proceeds from realizations and repayments on European Capital’s portfolio investments.
American Capital One Stop Buyouts® 
In an American Capital One Stop Buyout®, we lend senior and mezzanine debt and make majority equity investments to finance our acquisition of an operating company through a change in control. A change in control transaction could be the result of a corporate divestiture, a sale by a private equity firm, a sale by a family-owned closely held business, going private transactions or ownership transitions. In addition, we may make additional add-on investments in our American Capital One Stop Buyouts® to finance strategic acquisitions, growth or for working capital.
Our ability to fund the entire capital structure is a competitive advantage in completing many middle market transactions. We sponsor American Capital One Stop Buyouts® in which we provide most, if not all, of the senior and mezzanine debt and equity financing in the transaction. For our American Capital One Stop Buyouts®, we typically fund all of the senior debt at closing and syndicate the senior debt at or subsequent to closing, but only to the extent the senior lender will allow for the payment of cash dividends. If the senior lender is unwilling, we will hold the senior debt of these controlled portfolio companies, which will allow these controlled portfolio companies to pay cash dividends to their shareholders, including us. We will generally invest, directly or through our managed funds, up to $600 million in a single American Capital One Stop Buyout®.
As of June 30, 2015, there were 26 companies in our American Capital One Stop Buyouts® portfolio with a cost basis and fair value of $1,452 million and $1,244 million, respectively, with an average investment size of $48 million at fair value. As of June 30, 2015, our American Capital One Stop Buyouts® portfolio consisted of $716 million and $528 million of debt and equity investments at fair value, respectively. As of June 30, 2015, the weighted average effective interest rate on the debt investments in this portfolio was 10.3%, which includes the impact of non-accruing loans, and our fully-diluted weighted average ownership interest in the equity investments in this portfolio was 90%. During the three and six months ended June 30, 2015, we recognized operating revenues from our American Capital One Stop Buyouts® portfolio totaling $39 million and $67 million, respectively.
As a BDC, we are required by law to make significant managerial assistance available to most of our portfolio companies. Such assistance typically involves providing guidance and counsel concerning the management, operations and business objectives and policies of the portfolio company to its management and board of directors, including participating on the company’s board of directors. We have an operations team with significant turnaround and bankruptcy experience that assists our investment

67


professionals in providing intensive operational and managerial assistance to our portfolio companies. As of June 30, 2015, we had board seats at 24 companies in our American Capital One Stop Buyouts® and had board observation rights at certain other companies. Providing assistance to the companies in our investment portfolio serves as an opportunity for us to maximize their value.
Sponsor Finance and Other Investments
The majority of the investments in our Sponsor Finance and Other Investment portfolio were originated either to assist in the funding of change of control buyouts of privately-held middle and large market companies sponsored by other private equity firms or to support the growth or recapitalization of an existing portfolio company. In these transactions, we generally lend senior, mezzanine and unitranche debt and make minority equity co-investments. We will generally invest between $10 million and $150 million in a single Sponsor Finance transaction. Generally, we make investments in companies that have a minimum earnings before interest, taxes, depreciation and amortization (“EBITDA”) of $10 million.
Our senior loans may consist of first lien secured revolving credit facilities, first and second lien secured term loans and unitranche loans. Our mezzanine loans may consist of secured and unsecured loans. Our loans typically mature in five to ten years and require monthly or quarterly interest payments at fixed rates or variable rates generally based on London Interbank Offered Rate (“LIBOR”), plus a margin. Certain of our loans permit the interest to be paid-in-kind by adding it to the outstanding loan balance and paid at maturity.
As of June 30, 2015, there were 58 companies in our Sponsor Finance and Other Investment portfolio with a cost basis and fair value of $1,274 million and $1,309 million, respectively, with an average investment size of $23 million at fair value. As of June 30, 2015, our Sponsor Finance and Other Investment portfolio consisted of $1,053 million and $256 million of debt and equity investments at fair value, respectively. As of June 30, 2015, the weighted average effective interest rate on the debt investments in this portfolio was 9.2%, which includes the impact of non-accruing loans, and our fully-diluted weighted average ownership interest in the equity investments in this portfolio was 57%. During the three and six months ended June 30, 2015, we recognized operating revenues from our Sponsor Finance and Other Investment portfolio totaling $29 million and $56 million, respectively. As of June 30, 2015, the cost basis and fair value of our Sponsor Finance investments was $1,012 million and $1,051 million, respectively. As of June 30, 2015, the cost basis and fair value of our Other investments was $262 million and $258 million, respectively.
American Capital Asset Management Investment
Our fund management business is conducted through our wholly-owned portfolio company, ACAM, and its consolidated subsidiaries. In general, subsidiaries of ACAM enter into management agreements with each of its managed funds. As of June 30, 2015, the cost basis and fair value of our investment in ACAM was $419 million and $1,141 million, respectively, or 15.7% of our total investments at fair value. ACAM, through a wholly-owned subsidiary, also holds direct investments in ACAS CLO 2012-1, ACAS CLO 2013-1, ACAS CLO 2014-1, ACAS CLO 2014-2 and ACAS CLO 2015-1 consisting of 60% to 70% of the non-rated equity tranche of subordinated notes with an aggregate cost basis and fair value of $135 million and $116 million, respectively, as of June 30, 2015. ACAM, through a wholly-owned subsidiary, is also a subordinated lender to ACAS CLO 2015-2, Ltd. (“ACAS CLO 2015-2”), which recently priced a securitization. ACAM’s subordinated investment had a cost basis and fair value of $40 million, as of June 30, 2015. As of June 30, 2015, ACAM holds a co-investment in ACE III with a cost basis and fair value of $28 million and $24 million, respectively. ACAM also holds a co-investment in ACSF with a cost basis and fair value of $4 million as of June 30, 2015.
As of June 30, 2015, ACAM’s earning assets under management totaled $15 billion. As of June 30, 2015, ACAM had $73 billion of total assets under management (including levered assets), including $63 billion of total assets under management for American Capital Agency Corp. (NASDAQ: AGNC) and $6 billion of total assets under management for American Capital Mortgage Investment Corp. (NASDAQ: MTGE), which are publicly traded mortgage real estate investment trusts (“REITs”) and $280 million of total assets under management for American Capital Senior Floating, Ltd. (NASDAQ: ACSF), a publicly traded BDC.
ACAM had over 140 employees as of June 30, 2015, including ten Investment Teams with over 80 investment professionals located in Bethesda (Maryland), New York, Annapolis (Maryland), London and Paris. We have entered into service agreements with ACAM to provide it with additional asset management and administrative services support. Through these agreements, we provide investment advisory and oversight services to ACAM, as well as access to our employees, infrastructure, business relationships, management expertise and capital raising capabilities. During the three and six months ended June 30, 2015, American Capital earned $8 million and $15 million, respectively, from ACAM for these services. ACAM generally earns base management fees based on the shareholders’ equity or the net cost basis of the assets of the funds under management and may earn incentive income, or a carried interest, based on the performance of the funds. In addition, American Capital or ACAM may invest directly into these funds and earn investment income from its investments in those funds.

68



The following table sets forth certain information with respect to ACAM’s funds under management as of June 30, 2015:
Fund
 
Fund type
 
Established
 
Assets under management
 
Investment types
 
Capital type
AGNC
 
Publicly Traded REIT - NASDAQ (AGNC)
 
2008
 
$62.9 Billion
 
Agency Securities
 
Permanent
MTGE
 
Publicly Traded REIT - NASDAQ (MTGE)
 
2011
 
$6.2 Billion
 
Mortgage Investments
 
Permanent
ACSF
 
Publicly Traded BDC - NASDAQ (ACSF)
 
2014
 
$280 Million
 
Senior Floating
Rate Loans
 
Permanent
ACE I
 
Private Equity Fund
 
2006
 
$323 Million
 
Equity
 
Finite Life
ACE II
 
Private Equity Fund
 
2007
 
$161 Million
 
Equity
 
Finite Life
ACE III
 
Private Equity Fund
 
2014
 
$626 Million
 
Equity
 
Finite Life
ECAS UK SME Debt
 
Private Debt Fund
 
2014
 
$10 Million(1)
 
Senior and Mezzanine Debt
 
Finite Life
ECAS debt fund
 
Private Debt Fund
 
2015
 
$177 Million
 
Senior and Mezzanine Debt
 
Finite Life
ACAS CLO 2007-1
 
CLO
 
2006
 
$280 Million
 
Senior Debt
 
Finite Life
ACAS CLO 2012-1
 
CLO
 
2012
 
$348 Million
 
Senior Debt
 
Finite Life
ACAS CLO 2013-1
 
CLO
 
2013
 
$398 Million
 
Senior Debt
 
Finite Life
ACAS CLO 2013-2
 
CLO
 
2013
 
$395 Million
 
Senior Debt
 
Finite Life
ACAS CLO 2014-1
 
CLO
 
2014
 
$594 Million
 
Senior Debt
 
Finite Life
ACAS CLO 2014-2
 
CLO
 
2014
 
$397 Million
 
Senior Debt
 
Finite Life
ACAS CLO 2015-1
 
CLO
 
2015
 
$538 Million
 
Senior Debt
 
Finite Life
 ——————————
(1)
$165 million in committed capital in ECAS UK SME Debt fund, which remained largely unfunded as of June 30, 2015.    

Recent Fund Development
The ECAS debt fund is a private debt fund that closed during the second quarter of 2015 with €318 million of capital commitments, of which €165 million was committed by European Capital and its affiliates. The ECAS debt fund provides debt financing to mid-market companies in Europe, primarily through unitranche, second lien and mezzanine financing, with secondary purchases of senior loans on an opportunistic basis. We anticipate a final closing by March 2016 to increase the investment capacity of the fund. The fund will have a three year investment period and a subsidiary of ACAM manages the ECAS debt fund for an annual management fee of 1.50% on deployed capital and up to a 15% carried interest, subject to certain hurdles. The ECAS debt fund will be dissolved on March 19, 2025, unless extended. In April 2015, European Capital sold $175 million (€162 million) of investments at fair value in 9 portfolio companies to the ECAS debt fund. European Capital received $170 million (€158 million) for the sale of these assets. As of June 30, 2015, European Capital’s investment in the ECAS debt fund had a cost basis and fair value of $92 million and $95 million, respectively. As of June 30, 2015, European Capital had an unfunded commitment of $91 million (€82 million) to the ECAS debt fund.
ACAS CLO 2015-1 completed a $552 million securitization in May 2015 that invests primarily in broadly syndicated senior secured floating rate loans purchased in the primary and secondary markets. ACAM manages ACAS CLO 2015-1 in exchange for an annual base management fee of 0.50% of ACAS CLO 2015-1’s assets and a 20% carried interest, subject to certain hurdles. A subsidiary of ACAM also purchased 65% of the non-rated subordinated notes in ACAS CLO 2015-1 for $30 million.
ACAS CLO 2015-2, priced in July 2015 and expected to close in August 2015, subject to certain customary conditions, is a $510 million securitization that will invest primarily in broadly syndicated senior secured floating rate loans purchased in the primary and secondary markets. ACAM will manage ACAS CLO 2015-2 in exchange for an annual base management fee of 0.50% of ACAS CLO 2015-2’s assets and a 20% carried interest, subject to certain hurdles. A subsidiary of ACAM will also purchase 10% of the non-rated subordinated notes in ACAS CLO 2015-2 for $30 million.
On August 5, 2015, we entered into a definitive agreement to establish American Capital CLO Fund I, LP (“ACAS CLO Fund I”) a new $450 million fund focused on investing in equity tranches of CLOs. Closing of the ACAS CLO Fund I is expected to occur within 90 days and is subject to standard conditions. ACAS CLO Fund I, which will be comprised entirely of third-party investors, will purchase $300 million of our existing CLO equity portfolio at its fair value as of June 30, 2015, subject to standard

69


adjustments. ACAS CLO Fund I will have $150 million of investment capacity and an affiliate of ACAM will manage the fund for customary management and incentive fees.
Third-Party Funds Under Development
We expect to continue to expand our asset management business and currently have several funds under development. For each of the funds under development, we have existing investment professionals on staff or have recently hired investment professionals to support each fund. During the second quarter of 2015, we closed on the European Capital debt fund, raised ACAS CLO 2015-1, invested $38 million in commercial real estate assets for a potential fund and announced a plan to invest an additional $84 million in energy-related assets for another fund. After quarter end, we raised American Capital CLO Fund I and priced ACAS CLO 2015-2. We also have a European buyout fund and multiple CLO funds currently under development. These funds would be managed by a consolidated subsidiary of ACAM.
Structured Products Investments
Our Structured Products investments consist of investments in CLO, CDO and CMBS securities. Our Structured Products investments are generally in non-investment grade securities. We invest in Structured Products with the intention of holding them until maturity.
As of June 30, 2015, our investments in CLO and CDO securities had a cost basis and fair value of $720 million and $670 million, respectively, or 9% of our total investments at fair value. This includes our investment in ACAS CLO 2007-1 and ACAS CLO 2013-2, which represents $22 million and $6 million at fair value, respectively. As of June 30, 2015, our total investment in CMBS bonds had a cost basis and fair value of $56 million and $36 million, respectively, or less than 1% of our total investments at fair value. Our investments in CMBS bonds are secured by diverse pools of commercial mortgage loans.
Senior Floating Rate Loans
Our Senior Floating Rate Loans portfolio is composed primarily of diversified investments in first lien floating rate loans to large-market U.S. based companies (defined as issuers with EBITDA greater than $50 million). Our Senior Floating Rate Loans portfolio may also include second lien floating rate loans. Senior Floating Rate Loans are typically collateralized by a company’s assets and structured with first lien or second lien priority on collateral, providing for greater security and potential recovery in the event of default compared to other subordinated fixed-income products. Senior Floating Rate Loans generally have a stated term of three to seven years and typically pay interest based on a floating rate calculated as a spread over a market index, primarily LIBOR, and generally have a minimum market index floor. Our Senior Floating Rate Loans are also typically traded among investors in an active secondary market with no investor owning a significant percentage of the issue. We generally own less than 2% of any single loan issue.
As of June 30, 2015, there were debt investments in 255 companies in our Senior Floating Rate Loans portfolio with a cost basis and fair value of $2,303 million and $2,290 million, respectively. As of June 30, 2015, approximately 95% of our Senior Floating Rate Loans portfolio, at fair value, was composed of loans with a facility rating by the S&P of at least “B” or higher. None of our investments in our Senior Floating Rate Loan portfolio were in default or on non-accrual as of June 30, 2015.

70


Our Senior Floating Rate Loan portfolio was diversified across both issuers and industries with the average exposure to an individual obligor of $9 million at fair value, or 0.4% of the Senior Floating Rate Loan portfolio, as of June 30, 2015. The following chart shows the Senior Floating Rate Loan portfolio composition by industry grouping at fair value as a percentage of total Senior Floating Rate Loans as of June 30, 2015:
Our Senior Floating Rate Loans portfolio was comprised of 100% floating rate loans with 98% having LIBOR floors ranging between 0.75% and 1.75%. As of June 30, 2015, our Senior Floating Rate Loans portfolio yield at cost was 4.2% and cost of funds was 2.2%, which represents the weighted average interest rate on our $1,250 million and $500 million secured revolving credit facilities as of June 30, 2015 along with an estimate for unfunded commitment fees plus amortization of debt financing costs. During the three months ended June 30, 2015, we recognized operating revenues and interest expense from our Senior Floating Rate Loans portfolio totaling $24 million and $6 million, respectively. During the six months ended June 30, 2015, we recognized operating revenues and interest expense from our Senior Floating Rate Loans portfolio totaling $43 million and $10 million, respectively.
European Capital
European Capital primarily invests in senior and mezzanine debt and equity in buyouts of private companies sponsored by European Capital (“European Capital One Stop Buyouts®”), or sponsored by other private equity funds and provides capital directly to early stage and mature private and small public companies (“European Capital Sponsor and Other Finance Investments”).
 As of June 30, 2015, European Capital had investments in 23 portfolio companies totaling $570 million at fair value, with an average investment size of $25 million at fair value. As of June 30, 2015, European Capital’s five largest investments at fair value were $424 million, or 74% of its total investments at fair value. 

71


The following table shows the composition of European Capital’s investment portfolio by security type at cost basis and fair value, as a percentage of total investments:
 
June 30, 2015
 
December 31, 2014
Cost
 
 
 
First Lien Senior Debt
13.9
%
 
33.1
%
Second Lien Senior Debt
3.2
%
 
3.3
%
Mezzanine Debt
22.3
%
 
24.1
%
Preferred Equity
33.8
%
 
24.0
%
Common Equity
25.4
%
 
14.0
%
Structured Products
1.4
%
 
1.5
%
Total
100.0
%
 
100.0
%
 
 
 
 
Fair Value
 
 
 
First Lien Senior Debt
19.1
%
 
46.0
%
Second Lien Senior Debt
%
 
%
Mezzanine Debt
12.6
%
 
15.7
%
Preferred Equity
28.6
%
 
13.3
%
Common Equity
36.2
%
 
21.3
%
Structured Products
3.5
%
 
3.7
%
Total
100.0
%
 
100.0
%

Summary of Critical Accounting Policies
The preparation of our financial condition and results of operations requires us to make judgments and estimates that may have a significant impact upon our financial results. We believe that of our significant accounting policies, the following require estimates and assumptions that require complex, subjective judgments by management, which can materially impact reported results: valuation of investments; income taxes; interest and dividend income recognition; and stock-based compensation. All of our critical accounting policies are fully described in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2014.
See Note 4 to our interim consolidated financial statements included in this Form 10-Q for further information regarding the classification of our investment portfolio by levels of fair value inputs used to measure our investments as of June 30, 2015.


72


RESULTS OF OPERATIONS

The following analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and the notes thereto.
Our consolidated financial performance, as reflected in our consolidated statements of operations, is composed of the following three primary elements:
The first element is “Net operating income” (“NOI”), which is primarily the interest, dividends, prepayment fees, finance and transaction fees and portfolio company management fees earned from investing in debt and equity securities and the fees we earn from fund asset management, less our operating expenses and provision or benefit for income taxes.
The second element is “Net realized gain (loss),” which reflects the difference between the proceeds from an exit of an investment and the cost at which the investment was carried on our consolidated balance sheets and periodic interest settlements and termination receipts or payments on derivatives, foreign currency transaction gains or losses and taxes on realized gains or losses.
The third element is “Net unrealized appreciation (depreciation),” which is the net change in the estimated fair value of our portfolio investments and of our interest rate derivatives at the end of the period compared with their estimated fair values at the beginning of the period or their stated costs, as appropriate, and taxes on unrealized gains or losses. In addition, our net unrealized depreciation includes the foreign currency translation from converting the cost basis of our assets and liabilities denominated in a foreign currency to the U.S. dollar.
The consolidated operating results were as follows (in millions):
 
Three Months Ended June 30,
 
Six Months Ended
June 30,
 
2015
 
2014
 
2015
 
2014
Operating revenue
$
168

 
$
100

 
$
322

 
$
184

Operating expenses
71

 
59

 
147

 
127

NOI before income taxes
97

 
41

 
175

 
57

Tax provision
(30
)
 
(15
)
 
(58
)
 
(26
)
NOI
67

 
26

 
117

 
31

Net realized (loss) gain, net of tax
(223
)
 
(7
)
 
(436
)
 
14

Net realized (loss) earnings
(156
)
 
19

 
(319
)
 
45

Net unrealized appreciation, net of tax
218

 
193

 
396

 
237

Net earnings
$
62

 
$
212

 
$
77

 
$
282



73


Operating Revenue
We derive the majority of our operating revenue from our investments in senior and mezzanine debt and equity of middle market companies and our investments in Structured Products as well as dividend income from our fund management business which is conducted through ACAM.
Operating Revenue by Business Line
Operating revenue by business line was as follows (in millions):
 
Three Months Ended June 30,
 
Six Months Ended
June 30,
Business Line
2015
 
2014
 
2015
 
2014
American Capital Asset Management
$
36

 
$
26

 
$
69

 
$
49

American Capital One Stop Buyouts®
39

 
51

 
67

 
101

Structured Products
33

 
20

 
57

 
32

Sponsor Finance and Other Investments
29

 
(1
)
 
56

 
(2
)
European Capital(1)
7

 

 
30

 

Senior Floating Rate Loans
24

 
4

 
43

 
4

Total by business line
$
168

 
$
100

 
$
322

 
$
184

——————————
(1)
Effective October 1, 2014, European Capital’s financial results have been consolidated with the financial results of American Capital.

American Capital Asset Management
Dividend and fee income from ACAM increased by $10 million, or 38%, and by $20 million, or 41%, for the three and six months ended June 30, 2015, respectively, over the comparable periods in 2014, primarily due to an increase in the funds under management of ACAM, primarily ACAS CLO 2014-1, ACAS CLO 2014-2 and ACAS CLO 2015-1.
American Capital One Stop Buyouts® 
Interest, dividend and fee income from our American Capital One Stop Buyouts® decreased by $12 million, or 24%, and by $34 million, or 34%, for the three and six months ended June 30, 2015, respectively, over the comparable periods in 2014, primarily due to the sale of our equity and equity-related investments to ACE III on April 28, 2014, as well as exits of other American Capital One Stop Buyouts®.
Sponsor Finance and Other Investments
Interest, dividend and fee income from our Sponsor Finance and Other Investments improved by $30 million and by $58 million for the three and six months ended June 30, 2015, respectively, over the comparable periods in 2014, primarily due to reserves on accrued payment-in-kind (“PIK”) interest and dividend income as a result of the addition of certain securities to non-accrual status due to decreased portfolio company performance during the three and six months ended June 30, 2014.
Structured Products
Interest income on Structured Products investments increased by $13 million, or 65%, and by $25 million, or 78%, for the three and six months ended June 30, 2015, respectively, over the comparable periods in 2014, primarily due to higher actual and projected payments on our CLO investments as well as an increase in our weighted average Structured Products investments at cost. During three and six months ended June 30, 2015, we realized cash proceeds of $99 million and $104 million, respectively, from our Structured Products investments.
In accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 325-40, Investments-Other, Beneficial Interests in Securitized Financial Assets, in the event that the estimated cash flows of an investment decrease below the current amortized cost used to determine the yield, we may be required to write down the current amortized cost by projected credit losses or to fair value (“Reference Amount”). We are precluded from reversing the write down for any subsequent increase in the estimated cash flows of an investment with the effect of increasing total interest income over the life of the investment and increasing the realized loss recorded at the exit of the investment by the amount of the write down. As of June 30, 2015, in aggregate, the amortized cost basis of our Structured Products investment portfolio exceeded the Reference Amount by approximately $90 million.
See Note 2—Interest and Dividend Income Recognition policy in our Annual Report on Form 10-K for the year ended December 31, 2014 for a description of how projected cash flows affect revenue recognition on our Structured Products investments.

74


Senior Floating Rate Loans
We initiated our Senior Floating Rate Loan portfolio in 2014 and have purchased approximately $2.8 billion of investments through June 30, 2015. Interest income on these loans was $24 million and $43 million, for the three and six months ended June 30, 2015, respectively. The monthly weighted average effective interest rate on our Senior Floating Rate Loans portfolio was 4.3% for the three months ended June 30, 2015, on a monthly weighted average balance of $2,206 million. The monthly weighted average effective interest rate on our Senior Floating Rate Loans portfolio was 4.2% for the six months ended June 30, 2015, on a monthly weighted average balance of $2,047 million.
European Capital
European Capital’s operating revenue for the three months ended June 30, 2015 was $7 million, comprised of $2 million of interest income on European Capital debt investments, $4 million of dividend income on European Capital equity investments and $1 million of income on European Capital CLO investments. European Capital’s operating revenue for the six months ended June 30, 2015 was $30 million, comprised of $16 million of interest income on European Capital debt investments, $12 million of dividend income on European Capital equity investments and $2 million of income on European Capital CLO investments.
For the three months ended June 30, 2015, European Capital recorded a net reserve on uncollected PIK interest income recorded in prior periods of $3 million as a result of debt investments being placed on non-accrual. For the six months ended June 30, 2015, European Capital recorded additional interest income on uncollected PIK interest income recorded in prior periods of $4 million as a result of debt investments being removed from non-accrual.
American Capital Operating Revenue (excluding the financial results related to the consolidation of European Capital)
 
Three Months Ended June 30,
 
Six Months Ended
June 30,
 
2015
 
2014
 
2015
 
2014
Interest income on debt investments
$
66

 
$
38

 
$
127

 
$
67

Interest income on Structured Products investments
33

 
20

 
57

 
32

Dividend income from equity investments, excluding ACAM
17

 
6

 
21

 
22

Dividend income from ACAM
28

 
19

 
54

 
33

Interest and dividend income
144

 
83

 
259

 
154

Portfolio company advisory and administrative fees
3

 
3

 
8

 
6

Advisory and administrative services - ACAM
8

 
6

 
15

 
15

Other fees
6

 
8

 
10

 
9

Fee income
17

 
17

 
33

 
30

Total operating revenue
$
161

 
$
100

 
$
292

 
$
184


75


Interest and Dividend Income
The following table summarizes selected data for our debt, (excluding SFRLs), Structured Products and equity investments outstanding, at cost (dollars in millions):
 
Three Months Ended June 30,
 
Six Months Ended
June 30,
 
2015
 
2014
 
2015
 
2014
Debt investments at cost(1)
$
1,861

 
$
1,621

 
$
1,826

 
$
1,665

Average non-accrual debt investments at cost(2)
$
182

 
$
307

 
$
188

 
$
300

Effective interest rate on debt investments
9.1
%
 
8.3
%
 
9.3
%
 
7.5
%
Effective interest rate on debt investments, excluding non-accrual prior period adjustments
9.3
%
 
9.8
%
 
9.1
%
 
9.9
%
Structured Products investments at cost(1)
$
733

 
$
393

 
$
689

 
$
377

Effective interest rate on Structured Products investments
18.1
%
 
20.9
%
 
16.4
%
 
17.1
%
Debt and Structured Products investments at cost(1)
$
2,594

 
$
2,014

 
$
2,515

 
$
2,042

Effective interest rate on debt and Structured Products investments
11.6
%
 
10.7
%
 
11.2
%
 
9.3
%
Average daily one-month LIBOR
0.2
%
 
0.2
%
 
0.2
%
 
0.2
%
Equity investments at cost(1)(3)
$
800

 
$
1,659

 
$
945

 
$
1,798

Effective dividend yield on equity investments(3)
8.4
%
 
1.4
%
 
4.5
%
 
2.4
%
Effective dividend yield on equity investments, excluding non-accrual prior period adjustments(3)
3.2
%
 
4.8
%
 
2.7
%
 
4.2
%
Debt, Structured Products and equity investments at cost(1)(3)
$
3,394

 
$
3,673

 
$
3,460

 
$
3,840

Effective yield on debt, Structured Products and equity investments(3)
10.9
%
 
6.5
%
 
9.4
%
 
6.1
%
Effective yield on debt, Structured Products and equity investments, excluding non-accrual prior period adjustments(3)
9.8
%
 
8.7
%
 
8.8
%
 
7.9
%
 ——————————
(1)
Monthly weighted average of investments at cost.
(2)
Quarterly average of investments at cost.
(3)
Excludes our equity investment in ACAM and our investment in European Capital for the three and six months ended June 30, 2014.

Debt Investments

Interest income on debt investments increased by $28 million, or 74%, and by $60 million, or 90%, for the three and six months ended June 30, 2015, respectively, over the comparable periods in 2014, primarily due to an increase in interest income on our Senior Floating Rate Loan portfolio as well as a net positive impact from non-accrual investments for the three and six months ended June 30, 2015 over the comparable periods in 2014. Our weighted average debt investments outstanding increased by $240 million and $161 million, for the three and six months ended June 30, 2015, respectively, over the comparable periods in 2014. The average non-accrual debt investments outstanding decreased from $307 million and $300 million during the three and six months ended June 30, 2014, respectively, to $182 million and $188 million during the three and six months ended June 30, 2015, respectively.
When a debt investment is placed on non-accrual, we may record reserves on uncollected PIK interest income recorded in prior periods as a reduction of interest income in the current period. Conversely, when a debt investment is removed from non-accrual, we may record interest income in the current period on prior period uncollected PIK interest income which was reserved in prior periods. For the three months ended June 30, 2015, we recorded a net reserve on uncollected PIK interest income recorded in prior periods of $1 million as a result of debt investments being placed on non-accrual, which had an approximate 20 basis point negative impact on the effective interest rate on debt investments. For the six months ended June 30, 2015, we recorded additional interest income on uncollected PIK interest income recorded in prior periods of $1 million as a result of debt investments being removed from non-accrual, which had an approximate 20 basis point positive impact on the effective interest rate on debt investments. For the three and six months ended June 30, 2014, we recorded a net reserve on uncollected PIK interest income recorded in prior periods of $6 million and $20 million, respectively, as a result of debt investments being placed on non-accrual, which had an approximate 150 basis point and 240 basis point negative impact, respectively, on the effective interest rate on debt investments.


76


Equity Investments, Excluding ACAM
Dividend income from equity investments, excluding ACAM, increased by $11 million, or 183%, for the three months ended June 30, 2015 over the comparable period in 2014 primarily due to a net positive impact from non-accrual investments partially offset by a decrease in our equity investments at cost related to the sale of predominantly yielding equity assets to ACE III in the fourth quarter of 2014. Dividend income from equity investments, excluding ACAM, decreased by $1 million, or 5%, for the six months ended June 30, 2015, over the comparable period in 2014 primarily due to a decrease in our equity investments at cost related to the sale of predominantly yielding equity assets to ACE III in the fourth quarter of 2014, partially offset by a net positive impact from non-accrual investments. The monthly weighted average effective dividend yield on equity investments was 8.4% and 4.5% for the three and six months ended June 30, 2015, respectively, a 700 basis point and 210 basis point increase over the comparable periods in 2014.
When a preferred equity investment is placed on non-accrual, we may record net reserves on uncollected accrued dividend income recorded in prior periods as a reduction of dividend income in the current period. Conversely, when a preferred equity investment is removed from non-accrual, we may record dividend income in the current period for prior period uncollected accrued dividend income which was reserved in prior periods. For the three and six months ended June 30, 2015, we recorded dividend income for the reversal of reserves of accrued PIK dividend income attributable to prior periods from preferred stock investments of $10 million and $8 million, respectively, which had an approximate 520 basis point and 180 basis point positive impact, respectively, on the effective dividend yield on equity investments. For the three and six months ended June 30, 2014, we recorded reserves on uncollected accrued PIK dividend income recorded in prior periods from preferred stock investments of $14 million and $16 million, respectively, which had an approximate 340 basis point and 180 basis point negative impact on the effective dividend yield on equity investments.
For the three and six months ended June 30, 2015, we recorded $3 million and $6 million of dividend income for non-recurring dividends on common equity investments, respectively, and $9 million and $15 million for the comparable periods in 2014.
Equity Investments - ACAM

Dividend income from ACAM increased by $9 million, or 47%, and by $21 million, or 64%, for the three and six months ended June 30, 2015, respectively, over the comparable periods in 2014, primarily due to an increase in the funds under management of ACAM, primarily ACAS CLO 2014-1, ACAS CLO 2014-2 and ACAS CLO 2015-1.
For the three and six months ended June 30, 2015, we received an additional $3 million and $6 million of dividends from ACAM, respectively, which were recorded as a reduction to the cost basis of our investment in ACAM, and $1 million and $4 million, respectively, for the comparable periods in 2014.
Fee Income

Portfolio Company Advisory and Administrative Fees

As a BDC, we are required by law to make significant managerial assistance available to most of our portfolio companies. This generally includes providing guidance and counsel concerning the management, operations and business objectives and policies of the portfolio company to its management and board of directors, including participating on the company’s board of directors. Our portfolio company advisory and administrative fees for the three and six months ended June 30, 2015 were $3 million and $8 million, respectively, and $3 million and $6 million, respectively, for the comparable periods in 2014.

Advisory and Administrative Services - ACAM

We have entered into service agreements with ACAM to provide additional asset management and administrative service support so that ACAM can fulfill its responsibilities under its management agreements. The fees generated from these service agreements for the three and six months ended June 30, 2015 were $8 million and $15 million, respectively, and $6 million and $15 million, respectively, for the comparable periods in 2014.

Other Fees

Other fees are primarily composed of transaction fees for structuring, financing and executing portfolio transactions, which may not be recurring in nature. These fees amounted to $6 million and $10 million for the three and six months ended June 30, 2015, respectively, and $8 million and $9 million for the comparable periods in 2014.


77


Operating Expenses
Operating expenses increased by $12 million, or 20%, and by $20 million, or 16%, for the three and six months ended June 30, 2015, respectively, over the comparable periods in 2014. Operating expenses consisted of the following (in millions):
 
Three Months Ended June 30,
 
Six Months Ended
June 30,
 
2015
 
2014
 
2015
 
2014
Interest
$
20

 
$
11

 
$
37

 
$
23

Salaries, benefits and stock-based compensation
32

 
35

 
72

 
77

European Capital management fees
4

 

 
8

 

General and administrative
15

 
13

 
30

 
27

Total operating expenses
$
71

 
$
59

 
$
147

 
$
127

Interest
Interest expense increased by $9 million, or 82%, and by $14 million, or 61%, for the three and six months ended June 30, 2015 over the comparable periods in 2014, primarily due to an increase in the daily weighted average debt balance partially offset by a decrease in the weighted average interest rate on our borrowings. The weighted average interest rate on all of our borrowings, including amortization of deferred financing costs, for the three and six months ended June 30, 2015 was 3.7% and 3.6%, respectively, compared to 5.7% and 5.8%, respectively, for the comparable periods in 2014. The weighted average interest rate on all of our borrowings, excluding amortization of deferred financing costs, for the three and six months ended June 30, 2015 was 3.1% and 3.1%, respectively, compared to 5.0% and 5.1%, respectively, for the comparable periods in 2014.
As discussed in Note 1 to our interim consolidated financial statements included in this Form 10-Q, we consolidated our investment in European Capital effective October 1, 2014. For the three and six months ended June 30, 2015, we recorded $2 million and $3 million, respectively, of interest expense related to European Capital’s debt.
Salaries, Benefits and Stock-based Compensation
Salaries, benefits and stock-based compensation consisted of the following (in millions):
 
Three Months Ended June 30,
 
Six Months Ended
June 30,
 
2015
 
2014
 
2015
 
2014
Base salaries
$
12

 
$
15

 
$
24

 
$
30

Incentive compensation
10

 
10

 
21

 
22

Benefits
3

 
2

 
7

 
7

Stock-based compensation
7

 
8

 
10

 
18

Severance related costs

 

 
10

 

Total salaries, benefits and stock-based compensation
$
32

 
$
35

 
$
72

 
$
77

Due to changes in the composition of our investment portfolio and market conditions, we conducted strategic reviews of our business in the fourth quarter of 2014, which resulted in a workforce reduction of approximately 13% of our employees and the closing of one of our offices as well as the elimination of certain functions at other offices. In conjunction with the restructuring, the vesting of any unvested stock options held by impacted employees as of the date of their separation was accelerated, and they were given a period of up to one year from their separation date, or less if the expiration of the option was within one year from their separation date, to exercise all outstanding options. During the six months ended June 30, 2015, we recorded charges for severance and related employee costs of $10 million, including $4 million from the modification of stock options and $6 million for severance costs for additional workforce reductions during 2015.
Salaries, benefits and stock-based compensation for the three and six months ended June 30, 2015 decreased $3 million, or 9%, and $5 million, or 6%, respectively, from the comparable periods in 2014 primarily due to a reduction in base salaries and stock-based compensation due to the workforce reductions in the fourth quarter of 2014 partially offset by $4 million in compensation expense due to the acceleration of stock options and $6 million in severance costs associated with additional workforce reductions in 2015.
As of June 30, 2015, we employed 369 full-time employees, which included 145 employees at ACAM, compared to 397 full-time employees as of June 30, 2014.

78


European Capital Management Fees
Management fees represent fees charged by European Capital Asset Management Limited (“ECAM”), a wholly-owned subsidiary of ACAM, to European Capital for management and other services during the quarter. These fees are recorded as operating revenue in ACAM’s statement of operations and are a component of the dividend income we receive from ACAM.
Tax (Provision) Benefit
Our tax provision consisted of the following (in millions):
 
Three Months Ended June 30,
 
Six Months Ended
June 30,
 
2015
 
2014
 
2015
 
2014
Tax provision - net operating income
$
(30
)
 
$
(15
)
 
$
(58
)
 
$
(26
)
Tax benefit - net realized (loss) gain
12

 
5

 
55

 
2

Tax benefit (provision) - net unrealized appreciation

 
23

 
(76
)
 
35

Total tax (provision) benefit
$
(18
)
 
$
13

 
$
(79
)
 
$
11

The tax provision - net operating income for the three and six months ended June 30, 2015 increased by $15 million and $32 million, respectively, from the comparable periods in 2014, respectively, primarily due to an increase in net operating income.
The tax benefit - net realized (loss) gain for the three and six months ended June 30, 2015 increased by $7 million and $53 million, respectively, from the comparable periods in 2014, respectively, primarily due to an increase in the amount of realizations that resulted in ordinary losses for tax purposes. Ordinary losses have an effective tax rate of approximately 39%. Realized gains and losses that result in capital gains or losses for tax purposes have an effective tax rate of 0% due to our valuation allowance against capital losses and so generally do not result in a tax benefit or provision.
The tax benefit (provision) - net unrealized appreciation for the three months ended June 30, 2015 decreased by $23 million from the comparable period in 2014 primarily due to the recognition of a $30 million tax benefit related to the consolidation of AC Corporate Holdings, Inc. (“ACCH”) for accounting purposes during the three months ended June 30, 2014. The tax benefit (provision) - net unrealized appreciation for the six months ended June 30, 2015 decreased by $110 million from the comparable period in 2014 due to the consolidation of ACCH as well as an increase in the amount of net unrealized appreciation, including the reversal of prior period depreciation upon exit, that would result in an ordinary loss for tax purposes when realized.
We have concluded that we are more likely than not to realize deferred tax assets on our investment in European Capital. However, realization is subject to risk, including our continued investment in and earnings from European assets, our repatriation policy and the amount, timing, and character of European Capital’s earnings.

79


Net Realized Gain (Loss)
Our net realized gain (loss) consisted of the following individual portfolio company realized gains (losses) greater than $15 million (in millions):
 
Three Months Ended June 30,
 
Six Months Ended
June 30,
 
2015
 
2014
 
2015
 
2014
Specialty Brands Holdings, Inc.
$

 
$
35

 
$

 
$
35

SPL Acquisition Corp.
1

 
33

 
2

 
33

Anchor Drilling Fluids USA, Inc.

 

 

 
19

Other, net
7

 
1

 
11

 
7

Total gross realized portfolio gain
8

 
69

 
13

 
94

 
 
 
 
 
 
 
 
WRH, Inc.
(225
)
 

 
(225
)
 

CML Pharmaceuticals, LLC

 

 
(168
)
 

TestAmerica Environmental Services, LLC

 

 
(28
)
 

Fosbel Holding, Inc.
(19
)
 

 
(19
)
 

Contour Semiconductor, Inc.
(18
)
 

 
(18
)
 

CH Holding Corp.

 
(50
)
 

 
(50
)
Egenera, Inc.

 
(28
)
 

 
(28
)
Other, net
(30
)
 
(5
)
 
(45
)
 
(9
)
Total gross realized portfolio loss
(292
)
 
(83
)
 
(503
)
 
(87
)
Total net realized portfolio (loss) gain
(284
)
 
(14
)
 
(490
)
 
7

Foreign currency transactions
3

 
1

 
1

 
3

Derivative agreements
1

 
1

 
(1
)
 
2

WRH, Inc. Equity Option
45

 

 
45

 

Long term incentive plan liability

 

 
(46
)
 

Tax benefit
12

 
5

 
55

 
2

Total net realized (loss) gain
$
(223
)
 
$
(7
)
 
$
(436
)
 
$
14

 
The following are summary descriptions of portfolio companies with realized gains or losses equal to or greater than $30 million.
As discussed in Note 14 to our interim consolidated financial statements in this Form 10-Q, on April 28, 2014, we completed a $1.1 billion private placement of partnership interests in American Capital Equity III, LP (“ACE III” or “the Fund”), a new private equity fund focused on investing in U.S. companies in the lower middle market. Concurrent with the private placement, we entered into a Contribution and Redemption Agreement with the Fund pursuant to which we agreed to contribute 100% of our equity and equity-related investments in seven portfolio companies (Affordable Care Holding Corp., Avalon Laboratories Holding Corp., CIBT Investment Holdings, LLC, FAMS Acquisition, Inc., Mirion Technologies, Inc., PHI Acquisitions, Inc. and SMG Holdings, Inc.) to the Fund and to provide the Fund with an option to acquire our equity investment in WRH, Inc. (the “Equity Option”), in exchange for partnership interests in the Fund. Collectively, the eight portfolio companies (including WRH, Inc., assuming the Equity Option is exercised) comprise the Secondary Portfolio for ACE III. On April 1, 2015, the Equity Option was exercised by the Fund for the exercise price of $24 million. We recognized a realized loss of $225 million on our WRH, Inc. equity investment offset by a (i) reversal of unrealized depreciation on the investment of $115 million, (ii) reversal of unrealized depreciation on the Equity Option of $65 million and (iii) realized gain on the Equity Option of $45 million.
In the first quarter of 2015, as a result of a restructuring transaction and the conversion of certain of our debt investments to equity investments, we wrote off a portion of our equity investments in CML Pharmaceuticals, LLC (“CML”) and realized a loss of $168 million, which was fully offset by a reversal of unrealized depreciation of $168 million.
As discussed in Note 7 to our interim consolidated financial statements included in this Form 10-Q, European Capital has issued restricted mandatorily redeemable preferred shares (“Redeemable Preferred Shares”) to participating employees of subsidiary companies of its manager, ECAM, a wholly owned subsidiary of ACAM, under Long Term Incentive Plans. In the first quarter of 2015, a portion of the Redeemable Preferred Shares were redeemed and European Capital realized a loss of $46 million, offset by a reversal of unrealized depreciation of $46 million.

80


In the second quarter of 2014, our portfolio company, Specialty Brands Holdings, Inc., was sold. As part of the sale, we received $51 million in cash proceeds, realizing a gain of $35 million offset by a reversal of unrealized appreciation of $38 million. We also expect to receive $4 million of additional cash proceeds from this sale that remain held in a sale escrow as of June 30, 2015.
In the second quarter of 2014, our portfolio company, SPL Acquisition Corp., was sold. As part of the sale, we received $192 million in cash proceeds, realizing a gain of $34 million offset by a reversal of unrealized appreciation of $33 million. We also expect to receive $9 million of additional cash proceeds from this sale that remain held in a sale escrow as of June 30, 2015.
In the second quarter of 2014, our portfolio company, CH Holding Corp., was sold. As part of the sale, we received $6 million in cash proceeds, realizing a loss of $49 million offset by a reversal of unrealized depreciation of $49 million.
Net Unrealized Appreciation (Depreciation)
The following table itemizes the change in net unrealized appreciation (depreciation) (in millions):
 
Three Months Ended June 30,
 
Six Months Ended
June 30,
 
2015
 
2014
 
2015
 
2014
Gross unrealized appreciation of American Capital One Stop Buyouts®
$
28

 
$
47

 
$
97

 
$
70

Gross unrealized depreciation of American Capital One Stop Buyouts®
(37
)
 
(62
)
 
(102
)
 
(198
)
Gross unrealized appreciation of Sponsor Finance and Other Investments
22

 
22

 
45

 
26

Gross unrealized depreciation of Sponsor Finance and Other Investments
(27
)
 
(4
)
 
(50
)
 
(41
)
Gross unrealized appreciation of European Capital investments
21

 

 
51

 

Gross unrealized depreciation of European Capital investments
(15
)
 

 
(43
)
 

Net unrealized appreciation of investment in European Capital

 
66

 

 
130

Net unrealized appreciation of investment in European Capital's foreign currency translation

 
2

 

 
2

Net unrealized (depreciation) appreciation of ACAM
(10
)
 
101

 
(14
)
 
222

Net unrealized (depreciation) appreciation of Senior Floating Rate Loans
(11
)
 

 
10

 

Net unrealized (depreciation) appreciation of Structured Products investments
(11
)
 
3

 
(14
)
 
1

Reversal of prior period net unrealized depreciation upon realization
180

 
10

 
389

 
8

Net unrealized appreciation of portfolio investments
140

 
185

 
369

 
220

Foreign currency translation - investment in European Capital

 
(8
)
 

 
(12
)
Foreign currency translation - European Capital investments
11

 

 
39

 

Foreign currency translation - other
2

 
(4
)
 
(7
)
 
(4
)
Derivative agreements and other

 
(3
)
 
43

 
(2
)
WRH, Inc. Equity Option
65

 

 
28

 

Tax benefit (provision)

 
23

 
(76
)
 
35

Net unrealized appreciation
$
218

 
$
193

 
$
396

 
$
237

See Note 4 to our interim consolidated financial statements included in this Form 10-Q for a description of our valuation methodologies.
American Capital One Stop Buyouts® 
For the three and six months ended June 30, 2015, American Capital One Stop Buyouts® experienced $9 million and $5 million, respectively, of net unrealized depreciation driven by specific company performance. For the three and six months ended June 30, 2014, American Capital One Stop Buyouts® experienced $15 million and $128 million, respectively, of net unrealized depreciation driven by the ACE III transaction and specific company performance.
Sponsor Finance and Other Investments
For each of the three and six months ended June 30, 2015, Sponsor Finance and Other Investments experienced $5 million of net unrealized depreciation primarily driven by specific company performance. For the three and six months ended June 30, 2014, Sponsor Finance and Other Investments experienced $18 million of net unrealized appreciation and $15 million of net unrealized depreciation, respectively, primarily driven by specific company performance.

81


European Capital
As discussed in Note 1 to our interim consolidated financial statements included in this Form 10-Q, we consolidated our investment in European Capital effective October 1, 2014. For the three and six months ended June 30, 2015, we recorded $6 million and $8 million, respectively, of net unrealized appreciation on the consolidated European Capital investment portfolio and unrealized appreciation of $11 million and $39 million, respectively, for foreign currency translation on the European Capital investment portfolio.
For the three months ended June 30, 2014, we recognized net unrealized appreciation of $68 million on our investment in European Capital comprised of $66 million of unrealized appreciation on our investment and $2 million of unrealized appreciation from foreign currency translation of the cumulative unrealized appreciation of European Capital. For the six months ended June 30, 2014, we recognized net unrealized appreciation of $132 million on our investment in European Capital comprised of $130 million unrealized appreciation on our investment and $2 million of unrealized appreciation from foreign currency translation of the cumulative unrealized appreciation of European Capital.
For foreign currency denominated investments recorded at fair value, such as our European Capital portfolio investments, the net unrealized appreciation or depreciation from foreign currency translation on the accompanying consolidated statements of operations represents the economic impact of translating the cost basis of the investment from a foreign currency, such as the Euro, to the U.S. dollar. However, the economic impact of translating the cumulative unrealized appreciation or depreciation from a foreign currency to the U.S. dollar is not recorded as net unrealized depreciation or appreciation from foreign currency translation but rather is included as net unrealized appreciation or depreciation of portfolio company investments on the accompanying consolidated statements of operations.
For the three and six months ended June 30, 2014, we recorded unrealized depreciation of $8 million and $12 million, respectively, for foreign currency translation on the cost basis in our investment in European Capital.
During the three and six months ended June 30, 2014, the unrealized appreciation on our investment in European Capital of $66 million and $130 million, respectively, excluding unrealized appreciation on foreign currency translation, was due primarily to an increase in the NAV of European Capital primarily due to net unrealized appreciation of its investment portfolio. In addition, for the three and six months ended June 30, 2014, we received dividends from European Capital of $34 million and $138 million, respectively, which was treated as a return of capital.
The following is a summary composition of European Capital’s NAV at fair value and our equity investment’s implied discount to European Capital’s NAV at fair value (€ and $ in millions) as of June 30, 2014:
Debt investments at fair value
341

Equity investments at fair value
419

Other assets and liabilities, net
41

Third-party unsecured debt at cost
(108
)
NAV (Euros)
693

Exchange rate
1.37

NAV (U.S. dollars)
$
949

Fair value of American Capital equity investment
$
827

Implied discount to NAV
12.9
%
American Capital Asset Management, LLC
ACAM had a cost basis and fair value of $419 million and $1,141 million, respectively, as of June 30, 2015. During the three and six months ended June 30, 2015, we recognized $10 million and $14 million, respectively, of unrealized depreciation on our investment in ACAM. During the three and six months ended June 30, 2014, we recognized $101 million and $222 million, respectively, of unrealized appreciation on our investment in ACAM. The unrealized appreciation on our investment in ACAM for the three and six months ended June 30, 2014 was primarily due to increases in actual and forecasted growth for AGNC and MTGE, multiple expansion and projected fees for managing ACE III.

82


Structured Products Investments
American Capital has investments in Structured Products (which includes investment and non-investment grade tranches of CLO, CDO and CMBS securities) with a cost basis and fair value of $787 million and $726 million, respectively, as of June 30, 2015. During the three and six months ended June 30, 2015, we recorded $11 million and $14 million, respectively, of net unrealized depreciation on our Structured Products investments primarily due to unrealized depreciation on our investments in CLO and CDO portfolios of commercial loans due to decreasing spreads on underlying collateral as investments are nearing the end of their life. During the three and six months ended June 30, 2014, we recorded $3 million and $1 million, respectively, of net unrealized appreciation on our Structured Products investments.
Derivative Agreements and Other and WRH, Inc. Equity Option
For interest rate agreements, we estimate the fair value based on the estimated net present value of the future cash flows using a forward interest rate yield curve in effect as of the end of the measurement period, adjusted for nonperformance risk, if any, including an evaluation of our credit risk and our counterparty’s credit risk. A negative fair value would represent an amount we would have to pay a third-party and a positive fair value would represent an amount we would receive from a third-party to assume our obligation under an interest rate agreement. The derivative agreements generally appreciate or depreciate primarily based on relative market interest rates and their remaining term to maturity as well as changes in our and our counterparty’s credit risk.
During the six months ended June 30, 2015, we recorded $43 million unrealized appreciation, respectively, from derivative agreements and other, primarily due to the reversal of unrealized depreciation on the redemption of Redeemable Preferred Shares. During the three months ended June 30, 2015, we recorded $65 million of unrealized appreciation on the WRH, Inc. Equity Option due to the reversal of unrealized depreciation from ACE III’s exercising of the Equity Option on April 1, 2015.
Financial Condition, Liquidity and Capital Resources
Our primary sources of liquidity are our investment portfolio, cash and cash equivalents and the available capacity under our various revolving credit facilities.
As of June 30, 2015, we had $274 million of cash and cash equivalents, $78 million of restricted cash and cash equivalents and $758 million of available capacity under our various revolving credit facilities. During the six months ended June 30, 2015 and 2014, we principally funded our operations from (i) cash receipts from interest, dividend and fee income from our investment portfolio, (ii) cash proceeds from the realization of portfolio investments and (iii) draws under our various revolving credit facilities.
As of June 30, 2015, our required principal amortization for the next twelve months consists of $4.5 million scheduled amortization on our secured term loans. We believe that we will continue to generate sufficient cash flow through the receipt of interest, dividend and fee payments from our investment portfolio, as well as cash proceeds from the realization of select portfolio investments, to allow us to continue to service our debt, pay our operating costs and expenses, fund capital to our current portfolio companies and originate new investments. However, there is no certainty that we will be able to generate sufficient liquidity.
Operating, Investing and Financing Cash Flows
For the six months ended June 30, 2015 and 2014, net cash provided by operations was $72 million and $47 million, respectively. Our cash flow from operations for the six months ended June 30, 2015 and 2014 was primarily from the collection of interest, dividends and fees on our investment portfolio, less operating expenses and the redemption of Redeemable Preferred Shares.
For the six months ended June 30, 2015 and 2014, net cash used in investing activities was $820 million and $111 million, respectively. Our cash flow from investing activities included cash proceeds from the realization of portfolio investments totaling $819 million and $850 million for the six months ended June 30, 2015 and 2014, respectively. As of June 30, 2015, we had portfolio investments totaling $7.3 billion at fair value, including $4.3 billion in debt investments, $2.3 billion in equity investments and $0.7 billion in Structured Products investments. However, a majority of our investments are generally illiquid and no active primary or secondary market exists for the trading of these investments and our estimates of fair value may differ significantly from the values that may be ultimately realized. We are generally repaid or exit our investments upon a change of control event of the portfolio company, such as a sale or recapitalization of the portfolio company.
For the six months ended June 30, 2015, net cash provided by financing activities was $358 million. For the six months ended June 30, 2014, net cash used in financing activities was $116 million. Our cash flow from financing activities during the six months ended June 30, 2015 was primarily due to $465 million in net proceeds received from our revolving credit facilities partially offset by $93 million for repurchases of our common stock. The primary use of cash from financing activities during the six months ended June 30, 2014 was repurchases of our common stock of $137 million.

83


Debt Capital
As a BDC, we are permitted to issue senior debt securities and preferred stock (collectively, “Senior Securities”) in any amounts as long as immediately after such issuance our asset coverage is at least 200%, or equal to or greater than our asset coverage prior to such issuance, after taking into account the payment of debt with proceeds from such issuance. Asset coverage is defined as the ratio of the value of the total assets, less all liabilities and indebtedness not represented by Senior Securities, bears to the aggregate amount of Senior Securities representing indebtedness. However, if our asset coverage is below 200%, we may also borrow amounts up to 5% of our total assets for temporary purposes even if that would cause our asset coverage ratio to further decline. As of June 30, 2015, our debt obligations, excluding discounts, were $2,114 million and our asset coverage was 358%. See Note 5 to our interim consolidated financial statements included in this Form 10-Q for further discussion of our debt obligations.
The following table sets forth the scheduled amortization on the secured term loans, unsecured private notes and unsecured senior notes:
August 2015
$4.5 million
August 2016
$4.5 million
Secured Term Loans due August 2017
Outstanding Balance
Unsecured Private Notes due September 2018
Outstanding Balance
Unsecured senior notes (Series 2007-I Notes) due July 2022
Outstanding Balance
Unsecured senior notes (Series 2007-II Notes) due July 2022
Outstanding Balance
In July 2015, European Capital issued prepayment notices to the holders of the Series 2007-I Notes and Series 2007-II Notes and will repay these notes in August 2015.
The following table sets forth the outstanding balances on our revolving credit facilities:
 
June 30, 2015
Secured revolving credit facility due August 2016, $250 million commitment
$

Secured revolving credit facility due March 2017, $1,250 million commitment
820

Secured revolving credit facility due October 2016, $500 million commitment
422

Total
$
1,242

Equity Capital
As a BDC, we are generally not able to issue or sell our common stock at a price below our NAV per share, exclusive of any distributing commission or discount, except (i) with the prior approval of a majority of our shareholders, (ii) in connection with a rights offering to our existing shareholders, or (iii) under such other circumstances as the SEC may permit. As of June 30, 2015, our NAV was $20.35 per share and our closing market price was $13.55 per share.
During 2011, our Board of Directors adopted a program that may provide for share repurchases or dividend payments (the “Program”) but suspended repurchases in March 2014. During the first quarter of 2015, our Board of Directors reinstated authorization for share repurchases. During the three months ended June 30, 2015, we repurchased a total of 6.5 million shares of our common stock in the open market for an aggregate price of $93 million at an average price of $14.32 per share. During the three months ended March 31, 2014, we repurchased a total of 8.9 million of our common stock in the open market for an aggregate price of $137 million at an average price of $15.38 per share. Our Board of Directors recently modified the Program shortly after the second quarter of 2015 to authorize the purchase of $300 million to $600 million of common stock at prices per share below 85% of our most recent quarterly net asset value per share, subject to certain conditions. See Note 10 to our interim consolidated financial statements included in this Form 10-Q for further discussion of the Program.

84


Commitments
 As of June 30, 2015, we had commitments under loan and financing agreements to fund up to $152 million to 27 portfolio companies. These commitments are primarily composed of working capital credit facilities, acquisition credit facilities and subscription agreements. The commitments are generally subject to the borrowers meeting certain criteria such as compliance with covenants and availability under borrowing base thresholds. The terms of the borrowings and financings subject to commitment are comparable to the terms of other loan and equity securities in our portfolio. As of June 30, 2015, European Capital and
its affiliates had a commitment of $65 million to fund European Capital UK SME Debt LP and $91 million to fund a European Capital debt fund. In addition, as of
June 30, 2015, ACAM had a commitment of $172 million to American Capital Equity III, LP, which would be funded by an equity investment from American Capital. See Note 14 to our interim consolidated financial statements included in this Form 10-Q for further discussion of ACAM’s American Capital Equity III, LP’s commitment.
Non-Performing Loans Analysis
We stop accruing interest on our debt investments when it is determined that interest is no longer collectible. Our valuation analysis serves as a critical piece of data in this determination. A significant change in the portfolio company valuation assigned by us could have an effect on the amount of our loans on non-accrual status.
American Capital Non-Performing Loans
As of June 30, 2015, American Capital loans on non-accrual status for 11 portfolio companies had a cost basis and fair value of $178 million and $109 million, respectively. As of June 30, 2015 and December 31, 2014, current loans, past due accruing loans and loans on non-accrual status were as follows (dollars in millions): 
 
June 30, 2015
 
December 31, 2014
Current
$
4,000

 
$
3,248

0 - 30 days past due

 

31 - 60 days past due

 

61 - 90 days past due

 

Greater than 90 days past due

 

Total past due accruing loans at cost

 

Non-accruing loans at cost
178

 
201

Total loans at cost
$
4,178

 
$
3,449

Non-accruing loans at fair value
$
109

 
$
116

Total loans at fair value
$
4,093

 
$
3,311

Non-accruing loans at cost as a percent of total loans at cost
4.3
%
 
5.8
%
Non-accruing loans at fair value as a percent of total loans at fair value
2.7
%
 
3.5
%
Non-accruing loans at fair value as a percent of non-accruing loans at cost
61.2
%
 
57.7
%
Non-accruing loans at cost decreased by $23 million from December 31, 2014 to June 30, 2015 primarily due to $73 million of exits and write-offs partially offset by $34 million of loans placed on non-accrual status due to weaker portfolio company performance and $22 million of fundings on prior period unfunded commitments. In addition, the cost basis of existing non-accrual loans decreased by $3 million.
During the first quarter of 2015, we recapitalized one portfolio company by exchanging a loan for preferred equity securities that had a cost basis and fair value of $59 million.

85


European Capital Non-Performing Loans
As of June 30, 2015, European Capital loans on non-accrual status for 7 portfolio companies had a cost basis and fair value of $154 million and $28 million, respectively. As of June 30, 2015 and December 31, 2014, current loans, past due accruing loans and loans on non-accrual status were as follows (dollars in millions): 
 
June 30, 2015
 
December 31, 2014
Current
$
157

 
$
340

0 - 30 days past due

 

31 - 60 days past due

 

61 - 90 days past due

 

Greater than 90 days past due

 

Total past due accruing loans at cost

 

Non-accruing loans at cost
154

 
170

Total loans at cost
$
311

 
$
510

Non-accruing loans at fair value
$
28

 
$
32

Total loans at fair value
$
181

 
$
361

Non-accruing loans at cost as a percent of total loans at cost
49.5
%
 
33.3
%
Non-accruing loans at fair value as a percent of total loans at fair value
15.5
%
 
8.9
%
Non-accruing loans at fair value as a percent of non-accruing loans at cost
18.2
%
 
18.8
%
Non-accruing loans at cost decreased $16 million from December 31, 2014 to June 30, 2015 primarily due to $18 million of loans removed from non-accrual status due to improved portfolio company performance and an $11 million decrease due to foreign currency translation partially offset by $14 million of loans placed on non-accrual status due to weaker portfolio performance.


86


FORWARD-LOOKING STATEMENTS 
All statements contained herein that are not historical facts including, but not limited to, statements regarding anticipated activity are forward looking in nature and involve a number of risks and uncertainties. Actual results may differ materially. Among the factors that could cause actual results to differ materially are the following: (i) changes in the economic conditions in which we operate negatively impacting our financial resources; (ii) certain of our competitors have greater financial resources than us, reducing the number of suitable investment opportunities offered to us or reducing the yield necessary to consummate the investment; (iii) there is uncertainty regarding the value of our privately-held securities that require our good faith estimate of fair value, and a change in estimate could affect our NAV; (iv) our investments in securities of privately-held companies may be illiquid, which could affect our ability to realize the investment; (v) our portfolio companies could default on their loans or provide no returns on our investments, which could affect our operating results; (vi) we use external financing to fund our business, which may not always be available; (vii) our ability to retain key management personnel; (viii) an economic downturn or recession could impair our portfolio companies and therefore harm our operating results; (ix) our borrowing arrangements impose certain restrictions; (x) changes in interest rates may affect our cost of capital and NOI; (xi) we cannot incur additional indebtedness unless immediately after a debt issuance we maintain an asset coverage of at least 200%, or equal to or greater than our asset coverage prior to such issuance, which may affect returns to our shareholder; (xii) our common stock price may be volatile; and (xiii) general business and economic conditions and other risk factors described in our reports filed from time to time with the SEC. We caution readers not to place undue reliance on any such forward-looking statements, which statements are made pursuant to the Private Securities Litigation Reform Act of 1995 and, as such, speak only as of the date made.
ITEM 3.
Quantitative and Qualitative Disclosure About Market Risk
We are subject to financial market risks, including changes in interest rates and the valuations of our investment portfolio.
Interest Rate Risk 
Interest rate sensitivity refers to the change in NOI and net earnings that may result from changes in the level of interest rates. Because we fund a portion of our investments with borrowings, our NOI and net earnings are affected by the difference between the interest rate at which we invest and the interest rate at which we borrow. As a result, there can be no assurance that a significant change in market interest rates will not have a material adverse effect on our NOI and net earnings. 
As of June 30, 2015, approximately 12% of the principal balance of the debt investments in our portfolio were at fixed rates, approximately 72% were at variable rates with interest rate floors, primarily three-month LIBOR, 4% were at variable rates with no interest rate floors and 12% were on non-accrual status (2% of loans on non-accrual status were at variable rates). Additionally, as of June 30, 2015, approximately 21% of our borrowings bear interest at variable rates with a 0.75% interest rate floor, 62% of our borrowings bear interest at variable rates with no interest rate floors and 17% of our borrowings bear interest at fixed rates. The three-month LIBOR rate was 0.3% as of June 30, 2015. 
We maintain an interest rate risk management strategy under which we use derivative financial instruments to primarily manage the adverse impact of interest rate changes on our cash flows by locking in the spread between our asset yield and the cost of our borrowings, and to fulfill our obligation under the terms of our asset securitizations. While our interest rate risk management strategy may mitigate our exposure to adverse fluctuations in interest rates, certain derivative transactions that we may enter into in the future, such as interest rate derivative agreements, may also limit our ability to participate in the benefits of lower interest rates with respect to our portfolio investments. 
Our derivatives are considered economic hedges that do not qualify for hedge accounting under FASB ASC Topic 815, Derivative and Hedging. We record the accrual of the periodic interest settlements of interest rate derivatives in net unrealized appreciation or depreciation and subsequently record the cash payments as a realized gain or loss on the interest settlement date.


87


Based on our June 30, 2015 consolidated balance sheets, the following table shows the annual impact on NOI and net earnings of base rate changes in the applicable interest rate indexes, primarily three-month LIBOR, (considering interest rate floors for variable rate instruments and excluding changes in the fair value of our investments and derivative instruments and loans on non-accrual status) assuming no changes in our investment, hedging and borrowing structure (in millions):

Basis Point Change
 
Interest
Income
 
Interest
Expense
 
Net
Operating Income (Loss)
 
Net Earnings (Loss)
Up 400 basis points
 
$
119

 
$
68

 
$
51

 
$
51

Up 300 basis points
 
$
83

 
$
51

 
$
32

 
$
32

Up 200 basis points
 
$
47

 
$
33

 
$
14

 
$
14

Up 100 basis points
 
$
12

 
$
16

 
$
(4
)
 
$
(4
)
Down 100 basis points
 
$

 
$
(3
)
 
$
3

 
$
3

Foreign Currency Risks
We have a number of investments in portfolio companies, primarily the European Capital investment portfolio, for which the investment is denominated in a foreign currency, primarily the Euro. We also have other assets and liabilities denominated in foreign currencies. Fluctuations in exchange rates therefore impact our financial condition and results of operations, as reported in U.S. dollars. As of June 30, 2015, the cumulative translation adjustment, net of tax, recorded in our consolidated balance sheet was $116 million, due to the translation of European Capital’s balance sheet as of June 30, 2015.
As of June 30, 2015, our exposure to foreign currency exchange risk was estimated using a sensitivity analysis, which illustrates a hypothetical change in the foreign currency exchange rate as of June 30, 2015. As stated above, the Euro is the functional currency for the majority of our investments denominated in a foreign currency, and as such, the sensitivity analysis excludes any changes in other foreign currencies. Actual changes in foreign currency exchange rates may differ from this hypothetical change. Based on a hypothetical increase or decrease of 5% in the Euro to U.S. dollar exchange rate, assuming no hedging, the fair value of our investments would have increased or decreased by approximately $32 million.
Portfolio Valuation
Our investments are carried at fair value in accordance with the 1940 Act and FASB ASC Topic 820, Fair Value Measurements and Disclosures. Due to the uncertainty inherent in the valuation process, such estimates of fair value controls may differ significantly from the values that would have been used had a ready market for the securities existed, and the differences could be material. Additionally, changes in the market environment and other events that may occur over the life of the investments may cause the gains or losses ultimately realized on these investments to be different than the valuations currently assigned. As of June 30, 2015, the fair value of 64% of our investments were estimated using Level 3 inputs determined in good faith by our Board of Directors because there was no active market for such investments.
Item 4.
Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure based on the definition of “disclosure controls and procedures” as promulgated under the Exchange Act. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
American Capital, including our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures. Based on the foregoing, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of June 30, 2015.
Changes in Internal Controls over Financial Reporting
There have been no significant changes in our internal control over financial reporting (as defined in Rule 13a-15(f) of the Securities Exchange Act of 1934, as amended) that occurred during the second quarter of 2015 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

88


PART II. OTHER INFORMATION

Item 1.
Legal Proceedings
Neither we, nor any of our consolidated subsidiaries, are currently subject to any material litigation nor, to our knowledge, is any material litigation threatened against us or any consolidated subsidiary, other than routine litigation and administrative proceedings arising in the ordinary course of business. Such proceedings are not expected to have a material adverse effect on the business, financial conditions, or results of our operations.
Item 1A.
Risk Factors 
The risk factors in our Annual Report on Form 10-K for the fiscal year ended December 31, 2014 have not materially changed.
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds

Share Repurchase Program 
In September 2011, our Board of Directors adopted a program that may provide for share repurchases or dividend payments but suspended repurchases in March 2014. During the first quarter of 2015, our Board of Directors reinstated authorization for share repurchases. Our Board of Directors also modified the Program shortly after the second quarter of 2015 to authorize the purchase of $300 million to $600 million of common stock at prices per share below 85% of our most recent quarterly net asset value per share, subject to certain conditions. The following table provides information for the three months ended June 30, 2015, regarding shares of our common stock that we repurchased in the open market and were subsequently retired (in millions, except per share amounts):
 
Total Number of Shares Purchased(1)
 
Average Price Paid Per Share
 
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs(2)
 
Maximum Number of Shares That May Yet Be Purchased Under the Publicly Announced Plans or Programs
May 8, 2015 through May 29, 2015
4.5

 
$
14.42

 
4.5

 
N/A
June 1, 2015 through June 12, 2015
2.0

 
$
14.09

 
2.0

 
N/A
Second Quarter 2015
6.5

 
$
14.32

 
6.5

 
N/A

(1)
All shares were purchased by us pursuant to the share repurchase program described in footnote 2 below.
(2)
Under the program, we will consider quarterly setting an amount to be utilized for stock repurchases.

Item 3.
Defaults Upon Senior Securities
None.
Item 4.
Mine Safety Disclosures
Not applicable.
Item 5.
Other Information
None.

89


Item 6.
Exhibits 
*3.1.
American Capital, Ltd. (f/k/a American Capital Strategies, Ltd.) Third Amended and Restated Certificate of Incorporation, as amended, incorporated herein by reference to Exhibit 3.1 to Form 10-Q for the quarter ended March 31, 2012 (File No. 814-00149), filed May 7, 2012.
 
 
*3.2.
American Capital, Ltd. (f/k/a American Capital Strategies, Ltd.) Second Amended and Restated Bylaws, as amended, incorporated herein by reference to Exhibit 3.2 to Form 10-Q for the quarter ended June 30, 2008 (File No. 814-00149), filed August 11, 2008.
 
 
*4.1.
Instruments defining the rights of holders of securities: See Article IV of our Third Amended and Restated Certificate of Incorporation, as amended, incorporated herein by reference to Exhibit 3.1 to Form 10-Q for the quarter ended March 31, 2012 (File No. 814-00149), filed May 7, 2012.
 
 
*4.2.
Instruments defining the rights of holders of securities: See Section I of our Second Amended and Restated Bylaws, as amended, incorporated herein by reference to Exhibit 3.2 to Form 10-Q for the quarter ended June 30, 2008 (File No. 814-00149), filed August 11, 2008.
 
 
*10.1.
Form of American Capital, Ltd. Employee Cash Incentive Plan, incorporated herein by reference to Appendix A to the Definitive Proxy Statement for the 2015 Annual Meeting (File No. 814-00149), filed March 11, 2015.
 
 
10.2.
First Amended and Restated Custody Agreement, dated as of April 15, 2015, between American Capital, Ltd. and U.S. Bank National Association, filed herewith.
 
 
31.1.
Certification of CEO Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 
 
31.2.
Certification of CFO Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 
 
32.
Certification of CEO and CFO Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
________________ 
*
Previously filed

90


SIGNATURES
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
AMERICAN CAPITAL, LTD.
 
 
 
 
By:
/s/    JOHN R. ERICKSON
 
 
John R. Erickson
Chief Financial Officer
(Principal Financial Officer)

Date: August 10, 2015


91