Alcentra Capital Corp - FORM 10-Q

Attached files

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EX-31.2 - EXHIBIT 31.2 - Alcentra Capital Corp	v423427_ex31-2.htm
EX-31.1 - EXHIBIT 31.1 - Alcentra Capital Corp	v423427_ex31-1.htm
EX-32.1 - EXHIBIT 32.1 - Alcentra Capital Corp	v423427_ex32-1.htm
EX-32.2 - EXHIBIT 32.2 - Alcentra Capital Corp	v423427_ex32-2.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended September 30, 2015

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

COMMISSION FILE NUMBER: 1-36447

ALCENTRA CAPITAL CORPORATION

(Exact Name of Registrant as Specified in Its Charter)

Maryland

46-2961489

(State or other Jurisdiction of

Incorporation or Organization)

(I.R.S. Employer

Identification No.)

200 Park Avenue, 7 ^th Floor

New York, NY

(Address of Principal Executive Offices) (Zip Code)

(212) 922-8240

(Registrant’s Telephone Number, Including Area Code)

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

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

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

Large accelerated filer	¨	Accelerated filer	¨

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

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

There were 13,516,766 shares of the Registrant’s common stock outstanding as of November 9, 2015.

ALCENTRA CAPITAL CORPORATION

TABLE OF CONTENTS

	Page
PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

Consolidated Financial Statements of Alcentra Capital Corporation:

Consolidated Statement of Assets and Liabilities as of September 30, 2015 (unaudited) and December 31, 2014 (audited)	3

Consolidated Statement of Operations for the Three and Nine Months Ended September 30, 2015 and for the period from May 8,2014 (commencement of operations) to September 30, 2014 (unaudited)	4

Consolidated Statement of Changes in Net Assets for the Nine Months Ended September 30, 2015 and for the period from May 8, 2014 (commencement of operations) to September 30, 2014 (unaudited)	5

Consolidated Statement of Cash Flows for the Nine Months Ended September 30, 2015 and for the period from May 8, 2014 (commencement of operations) to September 30, 2014 (unaudited)	6

Consolidated Schedule of Investments as of September 30, 2015 (unaudited) and December 31, 2014 (audited)	7

Notes to Unaudited Consolidated Financial Statements	15

Financial Statements of BNY Mellon-Alcentra Mezzanine III, L.P.:

Statement of Operations for the period from January 1, 2014 to May 7, 2014 (unaudited)

Statement of Changes in Net Assets for the period from January 1, 2014 to May 7, 2014 (unaudited)

Statement of Cash Flows for the period from January 1, 2014 to May 7, 2014 (unaudited)

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	33

Item 3. Quantitative and Qualitative Disclosures About Market Risk	42

Item 4. Controls and Procedures	43

PART II. OTHER INFORMATION

Item 1. Legal Proceedings	44

Item 1A. Risk Factors	44

Item 2 Unregistered Sales of Equity Securities and Use of Proceeds	44

Item 3. Defaults Upon Senior Securities	44

Item 4. Mine Safety Disclosures	44

Item 5. Other Information	44

Item 6. Exhibits	44

SIGNATURES	45

PART I — FINANCIAL INFORMATION

On May 8, 2014, Alcentra Capital Corporation (the “Company”) acquired substantially all of the investment portfolio of BNY Mellon-Alcentra Mezzanine III, L.P. (the “Partnership”). Except for the $1,500 seed capital, the Company had no assets or operations prior to the acquisition of the investment portfolio of the Partnership and as a result, the Partnership is considered a predecessor entity of the Company for purposes of this Quarterly Report.

Item 1. Financial Statements

Alcentra Capital Corporation and Subsidiary

Consolidated Statements of Assets and Liabilities

	Alcentra Capital Corporation and Subsidiary		Alcentra Capital Corporation and Subsidiary
	As of September 30, 2015 (Unaudited)		As of December 31, 2014
Assets
Portfolio investments, at fair value
Non-controlled, non-affiliated investments, at fair value (cost of $194,158,069 and $165,921,535, respectively)	$	194,281,248	$	167,325,100
Non-controlled, affiliated investments, at fair value (cost of $63,745,820 and $61,564,299, respectively)		67,237,740		61,253,192
Controlled, affiliated investments, at fair value (cost $27,215,471 and $26,596,938, respectively)		27,417,562		30,055,562
Total of portfolio investments, at fair value (cost $285,119,360 and $254,082,772, respectively)		288,936,550		258,633,854
Cash		11,472,602		10,022,617
Dividends and interest receivable		2,184,610		1,417,500
Receivable for investments sold		—		4,753
Deferred financing costs		2,187,410		1,986,520
Deferred note offering costs		1,031,906		25,743
Prepaid expenses and other assets		189,274		128,388
Total Assets	$	306,002,352	$	272,219,375

Liabilities
Credit facility payable	$	52,654,738	$	62,499,154
Notes payable		40,000,000		—
Payable for investments purchased		—		8,717
Other accrued expenses and liabilities		362,462		539,417
Directors’ fees payable		36,500		85,692
Professional fees payable		330,927		409,628
Interest and credit facility expense payable		1,244,429		216,476
Management fee payable		1,273,705		615,668
Income-based incentive fees payable		1,749,155		—
Distributions payable		4,595,700		4,595,700
Unearned structuring fee revenue		856,612		517,339
Income tax liability		187,269		45,272
Deferred tax liability		977,183		1,697,004
Total Liabilities		104,268,680		71,230,067

Commitments and Contingencies (Note 13)

Net Assets
Common stock, par value $0.001 per share (100,000,000 shares authorized, 13,516,766 and 13,516,766 shares issued and outstanding, respectively)		13,517		13,517
Additional paid-in capital		197,709,624		197,838,155
Accumulated net realized gain		169,263		71,712
Undistributed net investment income		1,193,312		211,846
Net unrealized appreciation (depreciation) on investments, net of provision for taxes of $1,169,234 and $1,697,004 as of September 30, 2015 and December 31, 2014, respectively		2,647,956		2,854,078
Total Net Assets		201,733,672		200,989,308
Total Liabilities and Net Assets	$	306,002,352	$	272,219,375

Net Asset Value Per Share	$	14.92	$	14.87

See notes to unaudited consolidated financial statements

Alcentra Capital Corporation and Subsidiary

Consolidated Statements of Operations

	Alcentra Capital Corporation and Subsidiary			Alcentra Capital Corporation and Subsidiary			Alcentra Capital Corporation and Subsidiary			BNY Mellon-Alcentra Mezzanine III, L.P.		Alcentra Capital Corporation and Subsidiary
	For the three months ended September 30, 2015 (Unaudited)			For the three months ended September 30, 2014 (Unaudited)			For the nine months ended September 30, 2015 (Unaudited)			For the period from January 1, 2014 through May 7, 2014 (Unaudited)		For the period from May 8, 2014* through September 30, 2014 (Unaudited)
Investment Income:
From non-controlled, non-affiliated investments:
Interest income from portfolio investments	$	5,133,259		$	2,000,127		$	13,577,787		$	2,335,475	$	3,695,002
Paid-in-kind interest income from portfolio investments		439,608			142,614			2,341,772			569,637		611,686
Other income from portfolio investments		452,038			882,879			1,407,320			649,961		882,879
Dividend income from portfolio investments		—			374,660			302,874			251,752		374,660
From non-controlled, affiliated investments:
Interest income from portfolio investments		1,001,296			968,009			3,209,301			1,089,807		1,542,931
Paid in-kind income from portfolio investments		655,205			411,491			1,897,750			341,850		664,379
Other income from portfolio investments		23,435			947			72,320			788,083		947
From controlled, affiliated investments:
Interest income from portfolio investments		588,627			698,620			1,746,836			769,953		1,157,492
Paid in-kind income from portfolio investments		213,674			209,415			618,532			521,321		393,410
Other income from portfolio investments		—			172,425			64,843			444,055		172,425
Total investment income		8,507,142			5,861,187			25,239,335			7,761,894		9,495,811

Expenses:
Management fees		1,273,705			925,477			3,641,673			699,473		1,450,025
Income-based incentive fees		546,027			—			1,749,155			—		—
Capital gains incentive fees		(434,217	)		763,550			1,001,467			—		763,550
Professional fees		167,356			141,252			527,291			84,642		224,822
Valuation services		89,822			—			312,737			—		162,700
Interest and credit facility expense		1,197,553			376,569			2,870,559			50,214		595,924
Amortization of deferred financing costs		229,716			123,905			608,973			—		194,683
Directors’ fees		57,635			26,916			171,826			—		106,916
Insurance expense		67,449			—			204,990			—		—
Other expenses		170,052			281,937			383,564			7		320,983
Total expenses		3,365,098			2,639,606			11,472,235			834,336		3,819,603
Waiver of management fees by the Investment Advisor		—			(610,568	)		—			—		(610,568	)
Waiver of capital gains incentive fees		—			(763,550	)		(1,001,467	)		—		(763,550	)
Net expenses		3,365,098			1,265,488			10,470,768			834,336		2,445,485
Net investment income		5,142,044			4,595,699			14,768,567			6,927,558		7,050,326

Realized Gain (Loss) and Net Change in Unrealized Appreciation (Depreciation) From Portfolio Investments
Net realized gain (loss) on:
Non-controlled, non-affiliated investments		244,000			17,875			97,551			51,961		17,875
Non-controlled, affiliated investments		—			—			—			—		—
Controlled, affiliated investments		—			—			—			—		—
Net realized gain (loss) from portfolio investments		244,000			17,875			97,551			51,961		17,875
Net change in unrealized appreciation (depreciation) on:
Non-controlled, non-affiliated investments		(744,397	)		870,554			(1,280,386	)		2,974,591		818,361
Non-controlled, affiliated investments		390,429			1,118,082			3,803,027			—		968,571
Controlled, affiliated investments		(2,874,502	)		1,299,642			(3,256,533	)		—		2,833,819
Net change in unrealized appreciation (depreciation) from portfolio investments		(3,228,470	)		3,288,278			(733,892	)		2,974,591		4,620,751
Benefit/(Provision) for taxes on unrealized gain on investments		1,096,875			—			527,770			—		—
Net realized gain (loss) and net change in unrealized appreciation (depreciation) from portfolio investments		(1,887,595	)		3,306,153			(108,571	)		3,026,552		4,638,626
Net Increase in Net Assets Resulting from Operations	$	3,254,449		$	7,901,852		$	14,659,996		$	9,954,110	$	11,688,952

Basic and diluted:
Net investment income per share	$	0.38		$	0.34		$	1.09			N.A.	$	0.52
Earnings per share	$	0.24		$	0.58		$	1.08			N.A.	$	0.86
Weighted Average Shares of Common Stock Outstanding		13,516,766			13,516,766			13,516,766			N.A.		13,516,766
Dividends declared per common share	$	0.340		$	0.340		$	1.020			N.A.	$	0.518

Commencement of operations of the Company.

See notes to unaudited consolidated financial statements

Alcentra Capital Corporation and Subsidiary

Consolidated Statements of Changes in Net Assets

Alcentra Capital
Corporation
and Subsidiary

BNY Mellon-Alcentra
Mezzanine III, L.P.

Alcentra Capital
Corporation
and Subsidiary

For the nine months
ended
September 30, 2015
(unaudited)

For the period from
January 1, 2014
through May 7, 2014
(unaudited)

For the period from
May 8, 2014 through
September 30, 2014
(unaudited)

Beginning Balances

General Partner

N.A.

4,967,879

N.A.

Limited Partners

N.A.

105,671,548

N.A.

Total Beginning Balances

N.A.

110,639,427

N.A.

Capital contributions

General Partner

N.A.

Limited Partners

N.A.

58,915,014

N.A.

Total

N.A.

58,915,014

N.A.

Distributions

General Partner

N.A.

Limited Partners

N.A.

(3,941,341

)

N.A.

Total

N.A.

(3,941,341

)

N.A.

Net increase in net assets resulting from operations

General Partner

N.A.

Limited Partners

N.A.

9,954,110

N.A.

Total

N.A.

9,954,110

N.A.

Carried interest allocation

General Partner

N.A.

924,599

N.A.

Limited Partners

N.A.

(924,599

)

N.A.

Total

N.A.

Total - General Partner

N.A.

Total - Limited Partners

N.A.

Ending Balance

N.A.

175,567,210

N.A.

Increase (decrease) in net assets resulting from operations

Net investment income

14,768,567

N.A.

7,050,326

Net realized gain (loss) on investments

97,551

N.A.

17,875

Net change in unrealized appreciation (depreciation) on investments

(733,892

)

N.A.

4,620,751

Benefits/(Provision) for taxes on unrealized gain on investments

527,770

N.A.

—

Net increase (decrease) in net assets resulting from operations

14,659,996

N.A.

11,688,952

Capital transactions

Proceeds from issuance of common stock from initial public offering (net of sales load)

—

N.A.

107,912,490

Proceeds from issuance of common stock to Limited Partners

—

N.A.

91,500,000

Offering costs

(128,531

)

N.A.

(1,314,602

)

Net increase (decrease) in net assets resulting from capital transactions

(128,531

)

N.A.

198,097,888

Distributions to shareholders from:

Net investment income

(13,787,101

)

N.A.

(7,001,685

)

Realized gains

—

N.A.

—

Total distributions to shareholders

(13,787,101

)

N.A.

(7,001,685

)

Total increase (decrease) in net assets

744,364

N.A.

202,785,155

Net assets at beginning of period

200,989,308

N.A.

1,500

Net assets at end of period [including Accumulated net investment income of $1,193,312 and $48,641, respectively]

201,733,672

N.A.

202,786,655

See notes to unaudited consolidated financial statements

Alcentra Capital Corporation and Subsidiary

Consolidated Statements of Cash Flows

	Alcentra Capital Corporation and Subsidiary			BNY Mellon-Alcentra Mezzanine III, L.P.			Alcentra Capital Corporation and Subsidiary
	For the nine months ended September 30, 2015 (Unaudited)			For the period from January 1, 2014 through May 7, 2014 (Unaudited)			For the period from May 8, 2014* through September 30, 2014 (Unaudited)

Cash Flows from Operating Activities
Net increase in net assets resulting from operations	$	14,659,996		$	9,954,110		$	11,688,952

Adjustments to reconcile net increase in net assets resulting from operations to net cash provided by (used in) operating activities:
Net realized (gain) loss from portfolio investments		(97,551	)		(51,961	)		(17,875	)
Net change in unrealized (appreciation) depreciation of portfolio investments		733,892			(2,974,591	)		(4,620,751	)
Deferred tax liability		(719,821	)		—			—
Paid in-kind interest income from portfolio investments		(4,858,054	)		(1,432,808	)		(1,669,475	)
Accretion of discount on debt securities		(350,577	)		(2,122,109	)		(50,336	)
Purchases of portfolio investments		(73,781,836	)		(48,769,079	)		(143,466,845	)
Net proceeds from sales/return of capital of portfolio investments		48,051,430			15,780,666			27,109,542
Amortization of deferred financing costs		608,973			—			194,683

(Increase) decrease in operating assets:
Dividends and interest receivable		(767,110	)		87,770			(941,221	)
Receivable for investments sold		4,753			—			(263,373	)
Due from Limited Partners		—			(30,023	)		—
Prepaid expenses and other assets		(60,886	)		348,518			(169,202	)
Increase (decrease) in operating liabilities:
Payable for investments purchased		(8,717	)		—			39,753
Other accrued expenses and liabilities		(176,955	)		25,661			970,307
Accrued organization and offering costs		—			—			(1,271,134	)
Directors' fees payable		(49,192	)		—			60,245
Professional fees payable		(78,701	)		—			155,775
Interest and credit facility expense payable		1,027,953			(15,614	)		314,708
Management fee payable		658,037			(714,014	)		314,910
Income-based incentive fees payable		1,749,155			—			—
Unearned structuring fee revenue		339,273			—			—
Income tax		141,997			—			—
Net cash used in operating activities		(12,973,941	)		(29,919,414	)		(111,621,337	)

Cash Flows from Financing Activities
Proceeds from issuance of common stock from initial public offering		—			—			107,912,490
Proceeds from bridge facility		—			—			94,154,819
Payment of bridge facility		—			—			(94,154,819	)
Financing costs paid		(809,863	)		—			(1,629,074	)
Offering costs paid		(1,134,694	)		—			—
Proceeds from credit facility payable		147,652,027			15,000,000			76,265,808
Repayments of credit facility payable		(157,496,443	)		(30,000,000	)		(49,326,654	)
Proceeds from notes payable		40,000,000			—			—
Distributions paid to shareholders		(13,787,101	)		—			(2,405,985	)
Capital contributions received from Partners		—			58,834,796			—
Cash distributions paid to Partners		—			(3,941,341	)		—
Net cash provided by (used in) financing activities		14,423,926			39,893,455			130,816,585
Increase (decrease) in cash and cash equivalents		1,449,985			9,974,041			19,195,248
Cash at beginning of period		10,022,617			729,431			1,500
Cash and Cash Equivalents at End of Period	$	11,472,602		$	10,703,472		$	19,196,748

Supplemental and non-cash financing activities:
Cash paid during the period for interest	$	3,289,539		$	65,828		$	475,899
Accrued offering costs	$	2,485		$	—		$	43,468
Accrued distributions payable	$	4,595,700		$	168		$	4,595,700
Acquisition of investments via exchange of common shares of the Company	$	—		$	—		$	91,500,000

See notes to unaudited consolidated financial statements

Alcentra Capital Corporation and Subsidiary

Consolidated Schedule of Investments

As of September 30, 2015

(Unaudited)

Company***	Industry	Interest Rate	Base Rate Floor			Maturity Date	No. Shares/ Principal Amount		Cost⁽¹⁾		Fair Value		% of Net Assets

Investments in Non-Controlled, Non-Affiliated Portfolio Companies — 96.31%

Senior Secured - First Lien — 29.67%

A2Z Wireless Holdings, Inc. ^(2),(3)	Telecommunications	LIBOR + 11.75%				3/31/2018		10,013,550	$	9,848,070	$	10,514,000		5.21	%
Aphena Pharma Solutions ⁽⁴⁾	Packaging	8.50% Cash, 2.0% PIK				3/3/2019		3,773,371		3,773,371		3,773,371		1.87	%
Black Diamond Rentals	Oil & Gas Services	12% Cash, 2.0% PIK				7/8/2018		12,961,865		12,961,865		12,961,865		6.43	%
HealthFusion, Inc.	High Tech Industries	13% Cash				12/17/2018		5,750,000		5,750,000		5,923,000		2.94	%
IGT ^(2),(3)	Industrial Services	LIBOR + 8.50% Cash		1.00	%	12/10/2019		9,158,125		9,060,883		9,158,125		4.54	%
Response Team Holdings LLC ⁽³⁾	Restoration Services	LIBOR + 8.50% Cash, 1.00% PIK		2.00	%	3/28/2019		9,353,409		9,353,409		9,353,409		4.64	%
Stancor, Inc. ⁽³⁾	Wholesale/Distribution	LIBOR + 8.0%		0.75	%	8/19/2019		7,000,000		7,000,000		7,000,000		3.47	%
Triton Technologies ⁽⁴⁾	Call Center Services	8.50% Cash, 2.0% PIK				10/23/2018		1,200,000		1,187,941		1,200,000		0.59	%
Total Senior Secured - First Lien										58,935,539		59,883,770		29.69	%

Senior Secured - Second Lien — 24.04%

Alpine Waste ^(2),(3)	Waste Services	LIBOR + 9.0% Cash, 0.5% PIK		1.00	%	12/30/2020		9,034,419	$	9,034,419	$	9,034,419		4.48	%
Bioventus ⁽³⁾	Healthcare: Orthopedic Products	LIBOR + 10.0% Cash		1.00	%	4/10/2020		12,000,000		11,800,437		12,000,000		5.95	%
Conisus LLC ⁽³⁾	Media: Advertising, Printing & Publishing	LIBOR + 10.25% Cash		1.00	%	6/23/2021		11,750,000		11,750,000		11,750,000		5.82	%
Graco Supply Company	Aerospace	12% Cash				3/17/2021		4,000,000		4,000,000		4,000,000		1.98	%
Nation Safe Drivers (NSD) ⁽³⁾	Automotive Business Services	LIBOR + 8.0%		2.00	%	9/29/2020		11,721,154		11,721,154		11,721,154		5.81	%
Total Senior Secured - Second Lien										48,306,010		48,505,573		24.04	%

Senior Subordinated — 30.01%

Dentistry For Children, Inc. ⁽²⁾	Healthcare Services	11% Cash, 2.25% PIK				9/1/2017		14,753,344	$	14,753,344	$	14,753,344		7.31	%
GST Autoleather	Automotive	11% Cash, 2.0% PIK				1/11/2021		8,200,911		8,200,911		8,200,911		4.07	%
Media Storm, LLC	Media & Entertainment	10% Cash				8/28/2019		2,454,546		2,454,546		2,454,546		1.22	%
My Alarm Center, LLC	Security	13% Cash, 3.25% PIK				7/9/2018		9,632,518		9,632,518		9,632,518		4.77	%
Pharmalogic Holdings Corp.	Healthcare Services	12% Cash				9/1/2021		15,500,000		15,500,000		15,500,000		7.68	%
Radiant Logistics ⁽³⁾	Transportation Logistics	LIBOR + 11% Cash		1.00	%	4/2/2021		10,000,000		10,000,000		10,000,000		4.96	%
Total Senior Subordinated										60,541,319		60,541,319		30.04	%

Equity/Other — 12.57%

City Carting Holding Company, Inc., Series A Preferred Shares ⁽⁵⁾	Waste Services	22% PIK				1/31/2016		8,316,783	$	8,316,783	$	8,316,783		4.13	%

See notes to unaudited consolidated financial statements

Alcentra Capital Corporation and Subsidiary

Consolidated Schedule of Investments (continued)

As of September 30, 2015

(Unaudited)

Company***	Industry	Interest Rate	Base Rate Floor			Maturity Date	No. Shares/ Principal Amount		Cost⁽¹⁾		Fair Value		% of Net Assets

Series B Preferred Shares ⁽⁵⁾		18% PIK				1/31/2016		4,152,842	$	4,152,842	$	3,652,844		1.81	%
										12,469,625		11,969,627		5.93	%
Dentistry For Children, Inc., Class A-1 Units⁽⁶⁾	Healthcare Services							2,000,000		2,203,000		3,300,000		1.64	%
HealthFusion, Inc., Warrants⁽⁶⁾	High Tech Industries							418,000		418,000		1,552,000		0.77	%
IGT, Preferred Shares⁽⁶⁾	Industrial Services							1,048,961		1,048,961		1,048,961		0.52	%
Common Shares⁽⁶⁾								44,000		44,000		44,000		0.02	%
										1,092,961		1,092,961		0.54	%
Media Storm, LLC, Preferred Shares⁽⁶⁾	Media & Entertainment							1,216,204		2,346,964		1,038,999		0.52	%
Response Team Holdings LLC, Preferred Shares	Restoration Services	12% PIK				3/28/2019		2,844,651		2,844,651		2,132,999		1.06	%
Warrants⁽⁶⁾								5		—		—		—
										2,844,651		2,132,999		1.06	%
Wholesome Sweeteners, Inc., Common Shares⁽⁶⁾	Food & Beverage							5,000		5,000,000		4,264,000		2.11	%
Total Equity/Other										26,375,201		25,350,586		12.57	%
Total Investments in Non-Controlled, Non-Affiliated Portfolio Companies										194,158,069		194,281,248		96.31	%

Investments in Non-Controlled, Affiliated Portfolio Companies — 33.33%^*

Senior Secured - First Lien — 1.90%

Show Media, Inc.	Media & Entertainment	5.5% Cash, 5.5% PIK				8/10/2017		3,929,044	$	3,693,801	$	3,825,000		1.90	%
Total Senior Secured - First Lien										3,693,801		3,825,000		1.90	%

Senior Secured - Second Lien — 5.95%

Southern Technical Institute, Inc. ⁽³⁾	Education	LIBOR + 9.75%		1.00	%	12/2/2020		12,000,000	$	12,000,000	$	12,000,000		5.95	%
Total Senior Secured - Second Lien										12,000,000		12,000,000		5.95	%

Senior Subordinated — 14.36%

ACT Lighting	Wholesale	12% Cash, 2% PIK				7/24/2019		8,463,475	$	8,322,761	$	8,463,475		4.20	%
		8% PIK				7/24/2020		1,924,976		1,769,643		1,924,976		0.95	%
										10,092,404		10,388,451		5.15	%
Battery Solutions, Inc.	Environmental/Recycling Services	6% Cash, 8% PIK				12/20/2018		2,003,931		2,003,931		2,003,931		0.99	%
DBI Holding, LLC	Infrastructure Maintenance	12% Cash, 4% PIK				9/6/2019		8,941,380		8,941,380		8,941,380		4.43	%
		16% PIK				9/6/2019		8,112,633		7,708,218		7,642,000		3.79	%
										16,649,598		16,583,380		8.22	%
Total Senior Subordinated										28,745,933		28,975,762		14.36	%

Equity/Other — 11.12%

ACT Lighting, Warrants ⁽⁶⁾	Wholesale					7/24/2019		143,000	$	143,000	$	1,314,000		0.65	%

See notes to unaudited consolidated financial statements

Alcentra Capital Corporation and Subsidiary

Consolidated Schedule of Investments (continued)

As of September 30, 2015

(Unaudited)

Company***	Industry	Interest Rate	Base Rate Floor	Maturity Date	No. Shares/ Principal Amount		Cost⁽¹⁾		Fair Value			% of Net Assets

Battery Solutions, Inc., Class A Units⁽⁶⁾	Environmental/Recycling Services					5,000,000	$	1,058,000	$	—			—
Class E Units		8% PIK		12/20/2018		3,448,979		3,448,979		3,448,979			1.71	%
								4,506,979		3,448,979			1.71	%
DBI Holding, LLC, Warrants⁽⁶⁾	Infrastructure Maintenance			3/6/2024		519,412		519,412		2,979,000			1.48	%
Net Access Corporation, Class A Units⁽⁶⁾	Technology					3,000,000		8,112,000		11,124,000			5.51	%
Show Media, Inc., Units⁽⁶⁾	Media & Entertainment					4,092,210		3,747,428		—			—
Southern Technical Institute, Inc., Class A Units⁽⁶⁾	Education					3,164,063		2,167,000		3,428,999			1.70	%
Warrants⁽⁶⁾						110,267		110,267		142,000			0.07	%
								2,277,267		3,570,999			1.77	%
Total Equity/Other								19,306,086		22,436,978			11.12	%
Total Investments in Non-Controlled, Affiliated Portfolio Companies								63,745,820		67,237,740			33.33	%

Investments in Controlled, Affiliated Portfolio Companies — 13.59%^**

Senior Secured - First Lien — 9.08%

DRC Emergency Services	Disaster Recovery Services	10% Cash		1/11/2020		5,000,000	$	5,000,000	$	5,000,000			2.48	%
		8% Cash		6/30/2016		666,560		666,560		666,560			0.33	%
								5,666,560		5,666,560			2.81	%
FST Technical Services, LLC	Technology & Telecom	12% Cash, 2% PIK		11/18/2018		12,500,000		12,500,000		12,657,000			6.27	%
Total Senior Secured - First Lien								18,166,560		18,323,560			9.08	%

Equity/Other — 4.51%

DRC Emergency Services, Preferred Shares	Disaster Recovery Services	10% PIK				8,503,991	$	7,242,369	$	5,283,002			2.62	%
FST Technical Services, LLC, Common Shares	Technology & Telecom	9% PIK				1,750,000		1,806,542		3,811,000			1.89	%

Total Equity/Other								9,048,911		9,094,002			4.51	%
Total Investments in Controlled, Affiliated Portfolio Companies								27,215,471		27,417,562			13.59	%
Total Investments								285,119,360		288,936,550			143.23	%
Liabilities In Excess Of Other Assets										(87,202,878	)		(43.23	)%
Net Assets									$	201,733,672			100.00	%

Denotes investments in which the Partnership is an “Affiliated Person” but not exercising a controlling influence, as defined in the 1940 Act, due to beneficially owning, either directly or through one or more controlled companies, more than 5% but less than 25% of the outstanding voting securities of the investment. Transactions during the nine months ended September 30, 2015 in these affiliated investments are as follows:

	Fair Value at						Interest/		Fair Value at
	December 31,		Gross		Gross		Dividend/		September 30,
Name of Issuers	2014		Addition		Reductions		Other income		2015
ACT Lighting	$	10,849,399	$	239,289	$	-	$	1,035,846	$	11,702,451
Battery Solutions, Inc.		4,576,000		3,576,012		3,333,333		473,603		5,452,910
DBI Holding, LLC		16,102,785		1,254,627		-		2,139,750		19,562,380
Net Access Corporation		9,412,000		-		-		34,748		11,124,000
Show Media, Inc.		4,596,000		3,584,262		3,423,107		513,645		3,825,000
Southern Technical Institute, Inc.		15,717,008		-		-		981,779		15,570,999
	$	61,253,192	$	8,654,190	$	6,756,440	$	5,179,371	$	67,237,740

^**

Denotes investments in which the Partnership is an “Affiliate Person” and exceeding a controlling influence, as defined in the 1940 Act, due to beneficially owning, either directly or through one or more controlled companies, more than 25% of the outstanding voting securities of the investment. Transactions during the nine months ended September 30, 2015 in these affiliated and controlled investments are as follows:

	Fair value at						Interest/		Fair Value at
	December 31,		Gross		Gross		Dividend/		September 30,
Name of Issuers	2014		Addition		Reductions		Other income		2015
The DRC Group	$	12,596,562	$	618,532	$	-	$	1,038,284	$	10,949,562
FST Technical Services, LLC		17,459,000		-		-		1,391,926		16,468,000
	$	30,055,562	$	618,532	$	-	$	2,430,210	$	27,417,562

^***

Pledged as collateral under the Credit Facility with ING Capital LLC.

See notes to unaudited consolidated financial statements

Alcentra Capital Corporation and Subsidiary

Consolidated Schedule of Investments (continued)

As of September 30, 2015

(Unaudited)

⁽¹⁾

The cost of debt securities is adjusted for accretion of discount/amortization of premium and interest paid-in-kind on such securities.

⁽²⁾

The investment has an unfunded commitment as of September 30, 2015 which is excluded from the presentation (see Note 13).

⁽³⁾

The principal balance outstanding for all floating rate loans is indexed to LIBOR or an alternate base rate (e.g., prime rate), which typically resets semi-annually, quarterly, or monthly at the borrower's option. The borrower may also elect to have multiple interest reset periods for each loan. For each of these loans, the Company has provided the applicable margin over LIBOR based on each respective credit agreement.

⁽⁴⁾

The investments are portfolio companies of Enhanced Equity Fund, L.P. ("EEF"). EEF has guaranteed the portfolio company’s obligations to the company pursuant to this investment

⁽⁵⁾

City Carting Holding Company, Inc. is in the process of exploring strategic alternatives. As a result, the maturity dates of the Preferred Shares have been extended to January 31, 2016.

⁽⁶⁾

Non-income producing security.

Abbreviation Legend

PIK - Payment-In-Kind

See notes to unaudited consolidated financial statements

Alcentra Capital Corporation

Consolidated Schedule of Investments

As of December 31, 2014

Company***	Industry	Interest Rate	Base Rate Floor			Maturity Date	No. Shares/ Principal Amount		Cost⁽¹⁾		Fair Value		% of Net Assets

Investments in Non-Controlled, Non-Affiliated Portfolio Companies — 83.25%

Senior Secured - First Lien — 36.94%
Aphena Pharma Solutions ⁽⁸⁾	Packaging	8.50% Cash, 2.0% PIK				3/3/2019		3,716,716	$	3,716,716	$	3,716,716		1.85	%
Black Diamond Rentals	Oil & Gas Services	12% Cash, 2.0% PIK				7/8/2018		12,767,248		12,767,248		13,044,000		6.49	%
Datascan Holdings, Inc. ⁽⁷⁾	Business Services	LIBOR + 9.75%		1.00	%	12/17/2018		3,000,000		3,000,000		3,000,000		1.49	%
HealthFusion, Inc. ⁽²⁾	Healthcare Services	13% Cash				10/7/2018		5,750,000		5,750,000		5,980,000		2.97	%
IGT ⁽²⁾ ⁽⁷⁾	Industrial Services	LIBOR + 8.50% Cash		1.00	%	12/10/2019		9,000,000		8,893,250		9,000,000		4.48	%
North Atlantic Petroleum ⁽³⁾	Retail Distribution	10.75% Cash				11/13/2017		14,625,000		14,625,000		14,625,000		7.28	%
Response Team Holdings LLC ⁽⁷⁾	Restoration Services	LIBOR + 8.50% Cash, 1.00% PIK		2.00	%	3/28/2019		9,518,307		9,518,307		9,520,288		4.74	%
Stancor, Inc. ⁽⁷⁾	Wholesale/Distribution	LIBOR + 8.0%		0.75	%	8/19/2019		7,000,000		7,000,000		7,000,000		3.48	%
Triton Technologies ⁽⁸⁾	Call Center Services	8.50% Cash, 2.0% PIK				10/23/2018		1,200,000		1,185,145		1,201,000		0.60	%
Well Biz Brands ⁽⁸⁾	Consumer Services	8.50% Cash, 2.0% PIK				10/23/2018		7,167,144		7,167,144		7,167,144		3.56	%
Total Senior Secured - First Lien										73,622,810		74,254,148		36.94	%

Senior Secured - Second Lien — 17.29%

Alpine Waste ⁽²⁾ ⁽⁷⁾	Waste Services	LIBOR + 9.0% Cash, 0.5% PIK		1.00	%	12/30/2020		9,000,000	$	9,000,000	$	9,000,000		4.48	%
Bioventus ⁽⁷⁾	Healthcare: Orthopedic Products	LIBOR + 10.0% Cash		1.00	%	4/10/2020		12,000,000		11,760,000		12,000,000		5.97	%
Nation Safe Drivers (NSD) ⁽²⁾ ⁽⁷⁾	Automotive	LIBOR + 8.0%		2.00	%	9/29/2020		6,173,798		6,173,798		6,173,798		3.07	%
Puerto Rico Cable Acquisition Company d/b/a Choice Cable TV ⁽⁷⁾	Media: Broadcasting & Subscription	LIBOR + 8.50%		1.00	%	5/30/2019		7,500,000		7,397,404		7,575,000		3.77	%
Total Senior Secured - Second Lien										34,331,202		34,748,798		17.29	%

Senior Subordinated — 12.46%

Dentistry For Children, Inc. ⁽²⁾	Healthcare Services	11% Cash, 2.25% PIK				9/1/2017		14,506,700	$	14,506,700	$	14,506,700		7.22	%
GST Autoleather	Automotive	11% Cash, 2.0% PIK				1/11/2021		8,077,778		8,077,778		8,077,778		4.02	%
Media Storm, LLC	Media & Entertainment	10% Cash				8/28/2019		2,454,545		2,454,545		2,454,545		1.22	%
Total Senior Subordinated										25,039,023		25,039,023		12.46	%

Equity/Other — 16.56%

American Addiction Centers, Series A Redeemable Preferred Equity⁽⁴⁾	Healthcare & Pharmaceuticals	12% Cash				4/15/2017		8,000,000	$	8,000,000	$	8,160,000		4.06	%

See notes to consolidated financial statements

Alcentra Capital Corporation

Consolidated Schedule of Investments (continued)

As of December 31, 2014

Company***	Industry	Interest Rate	Base Rate Floor			Maturity Date	No. Shares/ Principal Amount		Cost⁽¹⁾		Fair Value		% of Net Assets

City Carting Holding Company, Inc., Series A Preferred Shares	Waste Management	7% Cash, 15% PIK				4/30/2015		7,478,639	$	7,478,639	$	7,478,639		3.72	%
Series B Preferred Shares		10% Cash, 8% PIK						3,876,840		3,876,840		3,876,840		1.93	%
										11,355,479		11,355,479		5.65	%

Dentistry For Children, Inc., Class A-1 Units⁽⁵⁾	Healthcare Services							1,500,000		2,203,000		2,262,000		1.13	%
HealthFusion, Inc., Warrants⁽⁵⁾	Healthcare Services							418,000		418,000		754,000		0.38	%
IGT, Preferred Shares⁽⁵⁾	Industrial Services							962,651		962,651		962,651		0.48	%
Common Shares⁽⁵⁾								44,000		44,000		44,000		0.02	%
										1,006,651		1,006,651		0.50	%
Media Storm, LLC, Preferred Shares⁽⁵⁾	Media & Entertainment							1,216,204		2,346,964		2,555,000		1.27	%
Response Team Holdings LLC, Preferred Shares	Restoration Services	12% PIK				3/28/2019		2,598,406		2,598,406		2,599,001		1.29	%
Response Team Holdings LLC, Warrants ⁽⁵⁾								5		—		—		—
Wholesome Sweeteners, Inc., Common Shares⁽⁵⁾	Food & Beverage							5,000		5,000,000		4,591,000		2.28	%
Total Equity/Other										32,928,500		33,283,131		16.56	%
Total Investments in Non-Controlled, Non-Affiliated Portfolio Companies										165,921,535		167,325,100		83.25	%

Investments in Non-Controlled, Affiliated Portfolio Companies — 30.48%^*

Senior Secured - First Lien— 2.29%

Show Media, Inc.	Media & Entertainment	11.0% PIK				8/10/2017		7,535,778	$	6,761,028	$	4,596,000		2.29	%
Total Senior Secured - First Lien										6,761,028		4,596,000		2.29	%

Senior Secured - Second Lien — 5.97%

Southern Technical Institute, Inc. ⁽⁷⁾	Education	LIBOR + 9.75%		1.00	%	12/2/2020		12,000,000	$	12,000,000	$	12,000,000		5.97	%
Total Senior Secured - Second Lien										12,000,000		12,000,000		5.97	%
Senior Subordinated — 14.90%

ACT Lighting	Wholesale	12% Cash, 2% PIK				7/24/2019		8,336,399	$	8,177,158	$	8,336,399		4.15	%
		8% PIK				7/24/2020		1,812,763		1,640,216		1,680,000		0.84	%
										9,817,374		10,016,399		4.99	%

Battery Solutions, Inc.	Environmental/Recycling Services	12% Cash, 2% PIK				12/20/2018		5,210,232		5,210,232		4,576,000		2.28	%
DBI Holding, LLC	Infrastructure Maintenance	12% Cash, 1% PIK				9/6/2019		8,631,785		8,631,785		8,631,785		4.29	%

		13% PIK				9/6/2019		7,167,600		6,709,880		6,723,000		3.34	%
										15,341,665		15,354,785		7.63	%
Total Senior Subordinated										30,369,271		29,947,184		14.90	%

See notes to consolidated financial statements

Alcentra Capital Corporation

Consolidated Schedule of Investments (continued)

As of December 31, 2014

Company***	Industry	Interest Rate	Base Rate Floor	Maturity Date	No. Shares/ Principal Amount		Cost⁽¹⁾		Fair Value			% of Net Assets

Equity/Other — 7.32%
ACT Lighting, Warrants ⁽⁵⁾	Wholesale			7/24/2019		143,000	$	143,000	$	833,000			0.41	%
Battery Solutions, Inc., Class A Units⁽⁵⁾	Environmental/Recycling Services					5,000,000		1,058,000		—			—
DBI Holding, LLC, Warrants⁽⁵⁾	Infrastructure Maintenance			3/6/2024		519,412		519,412		748,000			0.37	%
Net Access Corporation, Class A Units⁽⁵⁾	Technology					3,000,000		8,112,000		9,412,000			4.68	%
Show Media, Inc., Units^(5),(6)	Media & Entertainment					324,321		324,321		—			—
Southern Technical Institute, Inc., Class A Units⁽⁵⁾	Education					3,164,063		2,167,000		3,606,741			1.80	%
Warrants⁽⁵⁾						110,267		110,267		110,267			0.06	%
								2,277,267		3,717,008			1.86	%
Total Equity/Other								12,434,000		14,710,008			7.32	%
Total Investments in Non-Controlled, Affiliated Portfolio Companies								61,564,299		61,253,192			30.48	%

Investments in Controlled, Affiliated Portfolio Companies — 14.95%^**

Senior Secured - First Lien — 9.23%

DRC Emergency Services	Disaster Recovery Services	10% Cash		1/11/2020		5,000,000	$	5,000,000	$	5,000,000			2.49	%
		8% Cash		6/30/2016		666,560		666,560		666,560			0.33	%
								5,666,560		5,666,560			2.82	%

FST Technical Services, LLC	Technology & Telecom	12% Cash, 2% PIK		11/18/2018		12,500,000		12,500,000		12,879,000			6.41	%
Total Senior Secured - First Lien								18,166,560		18,545,560			9.23	%

Equity/Other — 5.72%

DRC Emergency Services, Preferred Shares	Disaster Recovery Services	10% PIK				7,885,459	$	6,623,838	$	6,930,002			3.44	%
FST Technical Services, LLC, Common Shares	Technology & Telecom	9% PIK				1,750,000		1,806,540		4,580,000			2.28	%

Total Equity/Other								8,430,378		11,510,002			5.72	%
Total Investments in Controlled, Affiliated Portfolio Companies								26,596,938		30,055,562			14.95	%
Total Investments								254,082,772		258,633,854			128.68	%
Liabilities In Excess Of Other Assets										(57,644,546	)		(28.68	%)
Net Assets									$	200,989,308			100.00	%

⁽¹⁾	The cost of debt securities is adjusted for accretion of discount/amortization of premium and interest paid-in-kind on such securities.

⁽²⁾

The investment has an unfunded commitment as of December 31, 2014 which is excluded from the presentation (see Note 12).

⁽³⁾

Investment is not a qualifying investment as defined under section 55 (a) of the investment Company act of 1940. Qualifying assets must represent at least 70% of total assets at the time of acquisition.

⁽⁴⁾

The Company provided financing to Behavioral Healthcare Realty, a wholly owned subsidiary of American Addiction Centers.

⁽⁵⁾

Non-income producing security.

⁽⁶⁾	As part of the December 2013 amendment, the senior secured notes of Show Media, Inc., contain a provision that, under certain circumstances, allow the holder to convert a portion of the notes into equity, subject to a maximum ownership of 49% of the Common Stock of the business. On December 31, 2014, we entered into an amendment whereby we elected to convert 50% of our Notes into Redeemable Convertible Preferred Stock (the "Preferred"). The Preferred has an 11% accrued dividend. The remaining note has an 11% coupon that is payable at 5.5% cash and 5.5% PIK commencing June 30, 2015.
⁽⁷⁾	The principal balance outstanding for all floating rate loans is indexed to LIBOR or an alternate base rate (e.g., prime rate), which typically resets semi-annually, quarterly, or monthly at the borrower's option. The borrower may also elect to have multiple interest reset periods for each loan. For each of these loans, the Company has provided the applicable margin over LIBOR based on each respective credit agreement.
⁽⁸⁾	The investments are guaranteed by Enhanced Equity Fund, L.P. (“EEF”).

Abbreviation Legend

PIK -Payment-In-Kind

Denotes investments in which the Partnership is an “Affiliated Person” but not exercising a controlling influence, as defined in the 1940 Act, due to beneficially owning, either directly or through one or more controlled companies, more than 5% but less than 25% of the outstanding voting securities of the investment. Transactions during the year ended December 31, 2014 in these affiliated investments are as follows:

See notes to consolidated financial statements

Alcentra Capital Corporation

Consolidated Schedule of Investments (continued)

As of December 31, 2014

	Fair Value at						Interest/		Fair Value at
	December 31,		Gross		Gross		Dividend/		December 31,
Name of Issuers	2013		Addition		Reductions		Other income		2014
ACT Lighting	$	-	$	11,419,162	$	1,500,000	$	685,229	$	10,849,399
Battery Solutions, Inc.		6,075,969		68,663		-		819,578		4,576,000
DBI Holding, LLC		-		15,637,081		-		2,240,640		16,102,785
Net Access Corporation		11,964,457		-		3,920,230		359,709		9,855,000
Show Media, Inc.		6,294,000		643,862		-		818,199		4,596,000
Southern Technical Institute, Inc.		10,702,958		787,500		9,520,833		1,177,952		15,717,008
	$	35,037,384	$	28,556,269	$	14,941,063	$	6,101,307	$	61,696,192

^**

Denotes investments in which the Partnership is an “Affiliate Person” and exceeding a controlling influence, as defined in the 1940 Act, due to beneficially owning, either directly or through one or more controlled companies, more than 25% of the outstanding voting securities of the investment. Transactions during the year ended December 31, 2014 in these affiliated and controlled investments are as follows:

	Fair value at						Interest/		Fair Value at
	December 31,		Gross		Gross		Dividend/		December 31,
Name of Issuers	2013		Addition		Reductions		Other income		2014
The DRC Group	$	11,906,520	$	8,690,664	$	8,774,638	$	1,928,028	$	12,596,562
FST Technical Services, LLC		14,034,723		37,779		156,873		2,306,535		17,459,000
	$	25,941,243	$	8,728,443	$	8,931,511	$	4,234,563	$	30,055,562

^***

Pledged as collateral under the Credit Facility with ING Capital LLC.

See notes to consolidated financial statements

ALCENTRA CAPITAL CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2015 (Unaudited)

Organization and Purpose

Alcentra Capital Corporation (the “Company”, “Alcentra”, “we”, “us” or “our”) was formed as a Maryland corporation on June 6, 2013 as an externally managed, non-diversified closed-end management investment company that has elected to be regulated as a business development company under the Investment Company Act of 1940, as amended (the “1940 Act”) and is applying the guidance of Accounting Standards Codification (“ASC”) Topic 946, Financial Services Investment Companies. Alcentra is managed by Alcentra NY, LLC (the “Adviser” or “Alcentra NY”), a registered investment adviser under the Investment Advisers Act of 1940, as amended (the “Advisers Act”). In addition, for U.S. federal income tax purposes, Alcentra has elected to be treated as a regulated investment company (“RIC”) under Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”), commencing with its tax year ending December 31, 2014.

The Company was formed for the purpose of acquiring certain assets held by BNY Mellon-Alcentra Mezzanine III, L.P. (the “Partnership”). The Partnership is a Delaware limited partnership, which commenced operations on May 14, 2010 (the “Commencement Date”). BNY Mellon-Alcentra Mezzanine III (GP), L.P. (the “General Partner”), a Delaware limited liability company, is the General Partner of the Partnership. BNY Mellon-Alcentra Mezzanine Partners (the “Manager”), a division of Alcentra NY, LLC and an affiliate of the General Partner, manages the investment activities of the Partnership. Alcentra NY is wholly-owned by BNY Alcentra Group Holdings, Inc. (“Alcentra Group”), which is wholly-owned by The Bank of New York Mellon Corporation.

On May 8, 2014 (commencement of operations), the Company acquired all of the assets of the Partnership other than its investment in the shares of common stock and warrants to purchase common stock of GTT Communications (the “Fund III Acquired Assets”) for $64.4 million in cash and $91.5 million in shares of Alcentra’s common stock. Concurrent with Alcentra’s acquisition of the Fund III Acquired Assets from the Partnership, Alcentra also purchased for $29 million in cash certain debt investments (the “Warehouse Portfolio”) from Alcentra Group. The Warehouse Portfolio debt investments were originated by the investment professionals of the Adviser and purchased by Alcentra Group using funds under a warehouse credit facility provided by The Bank of New York Mellon Corporation in anticipation of the initial public offering of Alcentra’s shares of common stock. Except for the $1,500 seed capital, the Company had no assets or operations prior to the acquisition of the investment portfolios of the Partnership and as a result, the Partnership is considered a predecessor entity of the Company.

On May 14, 2014, Alcentra completed its initial public offering (the “Offering”), at a price of $15.00 per share. Through its initial public offering the Company sold 6,666,666 shares for gross proceeds of approximately $100 million. Alcentra used $94.2 million of the proceeds from the Offering to fund the purchase of the warehouse portfolio, and the cash portion of the consideration paid to Fund III. On June 6, 2014, Alcentra sold 750,000 shares through the underwriters’ exercise of the overallotment option for gross proceeds of $11,250,000.

On April 8, 2014, the Company formed Alcentra BDC Equity Holdings, LLC, a wholly-owned subsidiary for tax purposes. This subsidiary allows us to hold equity securities of portfolio companies organized as pass-through entities while continuing to satisfy the requirements of a RIC under the Code. The financial statements of this entity are consolidated into the financial statements of Alcentra. All intercompany balances and transactions have been eliminated.

The Company’s investment objective is to maximize the total return to its stockholders in the form of current income and capital appreciation through debt and related equity investments in middle-market companies. The Company seeks to achieve its investment objective by originating and investing primarily in private U.S. middle-market companies (typically those with $5.0 million to $15.0 million of EBITDA (earnings before interest, taxes, depreciation and amortization) through first lien, second lien, unitranche and mezzanine debt financing, with corresponding equity co-investments. It sources investments primarily through the network of relationships that the principals of its investment adviser have developed with financial sponsor firms, financial institutions, middle-market companies, management teams and other professional intermediaries.

Upon commencement of operations, the Company also entered into an administration and custodian agreement (the “Agreement”) with State Street Bank and Trust Company (the “Administrator”).

Capitalized terms used but not defined here in, shall have the meaning assigned to them in the amended and restated Limited Partnership Agreement dated as of April 5, 2012, as amended.

Summary of Significant Accounting Policies

Basis of Presentation – The accompanying financial statements of the Partnership and the Company have been prepared on the accrual basis of accounting in accordance with U.S. generally accepted accounting principles (“GAAP”) and pursuant to the requirements for reporting on Form 10-K and Article 10 of Regulation S-X. Accordingly, certain financial information that is normally included in annual financial statements, including certain financial statement notes, prepared in accordance with GAAP, is not required for interim reporting purposes and have been omitted. In the opinion of management, the unaudited financial results included herein contain all adjustments considered necessary for the fair presentation of financial statements for the interim periods included herein. The current period’s results of operations will not necessarily be indicative of results that ultimately may be achieved for the fiscal year ending December 31, 2015.

The accounting records of the Company and the Partnership are maintained in United States dollars.

Alcentra NY purchased the initial 100 shares for $1,500 on March 12, 2014.

Use of Estimates – The preparation of financial statements in accordance with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of income and expenses during the reporting period. Actual results could differ from those estimates and such differences could be material. The most significant estimates relate to the valuation of the Company’s portfolio investments.

Consolidation – In accordance with Regulation S-X Article 6.03 and ASC Topic 810 - Consolidation, the Company generally will not consolidate its interest in any operating company other than in investment company subsidiaries, certain financing subsidiaries, and controlled operating companies substantially all of whose business consists of providing services to the Company.

Portfolio Investment Classification – The Company classifies its investments in accordance with the requirements of the 1940 Act. Under the 1940 Act, “Control Investments” are defined as investments in which the Company owns more than 25% of the voting securities or has rights to maintain greater than 50% of the board representation. Under the 1940 Act, “Affiliate Investments” are defined as investments in which the Company owns between 5% and 25% of the voting securities and does not have rights to maintain greater than 50% of the board representation. “Non-controlled, non-affiliate investments” are defined as investments that are neither Control Investments or Affiliate Investments.

Cash – At September 30, 2015, cash balances totaling $11.5 million exceeded FDIC insurance protection levels, subjecting the Company to risk related to the uninsured balance. All of the Company’s cash deposits are held by the Administrator and management believes that the risk of loss associated with any uninsured balance is remote.

Deferred Financing Costs – Deferred financing costs consist of fees and expenses paid in connection with the credit facility (as defined in Note 11) and are capitalized at the time of payment. These costs are amortized using the straight line method, which approximate the effective interest method over the term of the credit facility.

Deferred Note Offering Costs – Deferred Note Offering costs consist of fees and expenses paid in connection with the series of Senior Securities issued (as defined in Note 10) and are capitalized at this time as these fees and expenses were incurred before the issuance commenced. These costs are amortized using the straight line method, which approximate the effective interest method over the term of the Notes.

Valuation of Portfolio Investments – Portfolio investments are carried at fair value as determined by the General Partner of the Partnership and, in case of the fair value as of September 30, 2015, by the Board of Directors (the “Board”) of Alcentra.

The methodologies used in determining these valuations include:

(1) Preferred shares/membership units and common shares/membership units

In determining estimated fair value for common shares/membership units and preferred shares, the Company or the Partnership makes assessments of the methodologies and value measurements which market participants would use in pricing comparable investments, based on market data obtained from independent sources as well as from the Partnership’s or Company’s own assumptions and taking into account all material events and circumstance which would affect the estimated fair value of such investments. Several types of factors, circumstances and events could affect the estimated fair value of the investments. These include but are not limited to the following:

(i) Any material changes in the (a) competitive position of the portfolio investment, (b) legal and regulatory environment within which the portfolio investment operates, (c) management or key managers of the portfolio investment, (d) terms and/or cost of financing available to the portfolio investment, and (e) financial position or operating results of the investment; (ii) pending disposition by the Company or Partnership of all or a major portfolio investments; and (iii) sales prices of recent public or private transactions in identical or comparable investments.

One or a combination of the following valuation techniques are used to fair value these investments: Market Approach and Income Approach. The Market Approach uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities. The Income Approach uses valuation techniques to convert future amounts to a present amount (i.e., discounting estimated future cash flows to a net present value amount).

(2) Debt

The yield to maturity analysis is used to estimate the fair value of debt, including the unitranche facilities, which are a combination of senior and subordinated debt in one debt instrument. The calculation of yield to maturity takes into account the current market price, par value, coupon interest rate and time to maturity.

(3) Warrants

Where warrants are considered to be in the money, their incremental value is included within the valuation of the investments.

Valuation techniques are applied consistently from period to period, except when circumstances warrant a change to a different valuation technique that will provide a better estimate of fair value. The valuation process begins with each investment being initially valued by the investment professionals of the General Partner or for the Company, its Adviser. Preliminary valuation conclusions are then documented and discussed with senior investment professionals of the General Partner of the Partnership or for the Company, its Adviser. The Investment Committee reviews the valuation of the investment professionals and then determines the fair value of each investment in good faith based on the input of the investment professionals.

With respect to the Company’s valuation process, the Board undertakes a similar multi-step valuation process each quarter, as described below:

•

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

•

preliminary valuation conclusions will then be documented and discussed with Alcentra’s senior management and the Adviser;

•

the audit committee of the Board then reviews these preliminary valuations;

•

at least once quarterly, independent valuation firms engaged by the Board prepare preliminary valuations on a selected basis and submit the reports to the Board; and

•

the Board then discusses valuations and determine the fair value of each investment in Alcentra’s portfolio in good faith, based on the input of the Adviser, the independent valuation firms and the audit committee.

The Board has authorized the engagement of independent valuation firms to provide Alcentra with valuation assistance. Alcentra intends to have independent valuation firms provide it with valuation assistance on a portion of its portfolio on a quarterly basis and its entire portfolio will be reviewed at least annually by independent valuation firms; however, the Board is ultimately and solely responsible for the valuation of its portfolio investments at fair value as determined in good faith pursuant to its valuation policy and a consistently applied valuation process.

Because of the inherent uncertainty of valuation, those estimated values may differ significantly from the values that would have been used had a readily available market for the securities existed or from those which will ultimately be realized.

Organizational and Offering Costs – Organization expenses, including reimbursement payments to the Adviser, are expensed on the Company’s consolidated statement of operations. These expenses consist principally of legal and accounting fees incurred in connection with the organization of the Company and have been expensed as incurred. Offering expenses consist principally of underwriter’s fee, legal, accounting, printing fees and other related expenses associated with the filing of a registration statement. Offering costs are offset against proceeds of the offering in paid-in capital in excess of par in the consolidated statement of changes in net assets. $1.56 million of offering costs were incurred with the initial public offering.

The Partnership is obligated to reimburse the General Partner for 100% of the placement fee and for organizational costs of the Partnership in an amount not to exceed $1,250,000 on a cumulative basis. Organizational costs paid by the Partnership in excess of $1,250,000 (“Excess Organizational Expenses”) and all placement fees paid by the Partnership will reduce the management fee as described in Note 7. No costs were charged for the Partnership for the nine months ended September 30, 2015 or September 30, 2014.

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

Earnings and Net Asset Value Per Share – Earnings per share is calculated based upon the weighted average number of shares of common stock outstanding during the reported period. Net Asset Value per share is calculated using the number of shares outstanding as of the end of the period.

Investments – Investment security transactions are accounted for on a trade date basis. Cost of portfolio investments represents the actual purchase price of the securities acquired including capitalized legal, brokerage and other fees as well as the value of interest and dividends received in-kind and the accretion of original issue discounts. Fees may be charged to the issuer by the Company and Partnership in connection with the origination of a debt security financing. Such fees are reflected as a discount to the cost of the portfolio security and the discount is accreted into income over the life of the related debt security.

Original Issue Discount – When the Company and Partnership receive warrants with a nominal or discounted exercise price upon origination of a debt or preferred stock investment, a portion of the cost basis is allocated to the warrants. When the investment is made concurrently with the sale of a substantial amount of equity, the value of the warrants is based on the sales price. The value of the warrants is recorded as original issue discount (“OID”) to the value of the debt or preferred stock investment and the OID is amortized over the life of the investment.

Interest and Dividend Income – Interest is recorded on the accrual basis to the extent that the Company and Partnership expect to collect such amounts. The Company and Partnership accrue paid in-kind interest (“PIK”) by recording income and an increase to the cost basis of the related investments. Dividend income is recorded on ex-dividend date. Dividends in-kind are recorded as an increase in cost basis of investments and as income.

Investments that are expected to pay regularly scheduled interest in cash are generally placed on non-accrual status when principal or interest cash payments are past due 30 days or more and/or when it is no longer probable that principal or interest cash payments will be collected. Such non-accrual investments are restored to accrual status if past due principal and interest are paid in cash, and in management’s judgment, are likely to continue timely payment of their remaining principal and interest obligations. Cash interest payments received on non-accrual designated investments may be recognized as income or applied to principal depending on management’s judgment. There were no non-accrual investments as of September 30, 2015 and December 31, 2014.

Other Income – The Company may also receive structuring or closing fees in connection with its investments. Such upfront fees are accreted into income over the life of the investment.

Prepayment penalties received by the Company for debt instruments paid back to the Company prior to the maturity date are recorded as income upon receipt.

Income Taxes – The Company has elected to be treated for U.S. federal income tax purposes as a RIC under Subchapter M of the Code, and to operate in a manner so as to qualify for the tax treatment applicable to RIC’s. To obtain and maintain our qualification as a RIC, the Company must, among other things, meet certain source-of-income and asset diversification requirements. In addition, the Company must distribute to our stockholders, for each taxable year, at least 90% of ‘‘investment company taxable income,’’ which is generally net ordinary taxable income plus the excess of realized net short-term capital gains over realized net long-term capital losses, or the Annual Distribution Requirement. As a RIC, the Company generally will not pay corporate-level U.S. federal income taxes on any ordinary income or capital gains that are timely distributed to stockholders as dividends.

The Partnership is structured as a partnership for U.S. Federal income tax purposes, and as such, is not subject to income taxes; each Partner (depending on its structure for tax purposes) may be individually liable for income taxes, if any, on its share of the Partnership’s taxable income.

Alcentra BDC Equity Holdings LLC has elected to be a taxable entity (the “Taxable Subsidiary”). The Taxable Subsidiary permits the Company to hold equity investments in portfolio companies which are “pass through” entities for tax purposes and continue to comply with the “source income” requirements contained in RIC tax provisions of the Code. The Taxable Subsidiary is not consolidated with the Company for income tax purposes and may generate income tax expense, benefit, and the related tax assets and liabilities, as a result of its ownership of certain portfolio investments. The income tax expense, or benefit, if any, and related tax assets and liabilities are reflected in the Company’s consolidated financial statements. For the three and nine months ended September 30, 2015, we recognized a provision for income tax on unrealized gain on investments of $0.5 million and $(0.1) million for the Taxable Subsidiaries, respectively. For the period ended September 30, 2014 we recognized no income tax or benefit related to the taxable subsidiaries. As of September 30, 2015 and December 31, 2014, $1.6 million and $1.7 million was included in the deferred tax liability on the Consolidated Statement of Assets and Liabilities, respectively.

The following is the major tax jurisdiction for the Partnership and the earliest tax year subject to examination: United States – 2010.

As of September 30, 2015, Wholesome Sweeteners and Dentistry for Children were sold from Alcentra BDC Equity Holdings LLC to Alcentra Capital Corporation. This sale resulted in a tax liability which is reflected in our financial statements.

Indemnification – In the normal course of business, the Company enters into contractual agreements that provide general indemnifications against losses, costs, claims and liabilities arising from the performance of individual obligations under such agreements. The Company has had no prior claims or payments pursuant to such agreements. The Company’s individual maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Company that have not yet occurred. However, based on management’s experience, the Company expects the risk of loss to be remote.

Recent Accounting Pronouncements - In April 2015, the Financial Accounting Standards Board issued Accounting Standards Update 2015-03, Interest – Imputation of Interest (Subtopic 835-30) – Simplifying the Presentation of Debt Issuance Costs. The update requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. Public companies are required to apply ASU 2015-03 retrospectively for interim and annual reporting periods beginning after December 15, 2015. Accordingly, the Company is currently evaluating the impact of the adoption of ASU 2015-03 on its consolidated financial statements and disclosures.

Fair Value of Portfolio Investments

The Company and Partnership account for its investments in accordance with FASB Accounting Standards Codification Topic 820 (“ASC Topic 820”), Fair Value Measurements and Disclosures, which defines fair value, establishes a framework for measuring fair value. ASC Topic 820 established a fair value hierarchy which prioritizes and ranks the level of market price observability used in measuring investments at fair value.

Market price observability is impacted by a number of factors, including the type of investment, the characteristics specific to the investment, and the state of the marketplace (including the existence and transparency of transactions between market participants). Investments with readily-available actively quoted prices or for which fair value can be measured from actively-quoted prices in an orderly market will generally have a higher degree of market price observability and a lesser degree of judgment used in measuring fair value.

Investments measured and reported at fair value are classified and disclosed in one of the following categories (from highest to lowest) based on inputs:

Level 1 – Quoted prices (unadjusted) are available in active markets for identical investments that the Company and Partnership has the ability to access as of the reporting date. The type of investments which would generally be included in Level 1 includes listed equity securities and listed derivatives. As required by ASC Topic 820, the Company and Partnership, to the extent that it holds such investments, does not adjust the quoted price for these investments, even in situations where the Company and Partnership holds a large position and a sale could reasonably impact the quoted price.

Level 2 – Pricing inputs are observable for the investments, either directly or indirectly, as of the reporting date, but are not the same as those used in Level 1. Fair value is determined through the use of models or other valuation methodologies.

Level 3 – Pricing inputs are unobservable for the investment and include situations where there is little, if any, market activity for the investment. The inputs into the determination of fair value require significant judgment or estimation by the Company and Partnership. The types of investments which would generally be included in this category include debt and equity securities issued by private entities.

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

The following tables summarize the levels in the fair value hierarchy into which the Company and Partnership’s financial instruments are categorized as of September 30, 2015 and December 31, 2014:

As of September 30, 2015:

	Level 1		Level 2		Level 3		Total
Senior Secured – First Lien	$	-	$	-	$	82,032,330	$	82,032,330
Senior Secured – Second Lien		-		-		60,505,573		60,505,573
Subordinated Debt		-		-		89,517,081		89,517,081
Equity/Other		-		-		56,881,566		56,881,566
Total investments	$	-	$	-	$	288,936,550	$	288,936,550

As of December 31, 2014:

	Level 1		Level 2		Level 3		Total
Senior Secured – First Lien	$	-	$	-	$	97,395,708	$	97,395,708
Senior Secured – Second Lien		-		-		46,748,798		46,748,798
Subordinated Debt		-		-		54,986,207		54,986,207
Equity/Other		-		8,160,000		51,343,141		59,503,141
Total investments	$	-	$	8,160,000	$	250,473,854	$	258,633,854

During the period from May 8, 2014 to December 31, 2014, our ability to observe valuation inputs has resulted in a reclassification of $8,160,000 investment from Level 3 to Level 2 with no other reclassifications of assets between levels. This transfer was reported at the end of the reporting period in which it occurred. There were no transfers between levels for the nine months ended September 30, 2015.

Transfers between levels of the fair value hierarchy are reported at the end of the reporting period in which they occur.

The changes in investments classified as Level 3 are as follows for the nine months ended September 30, 2015 and September 30, 2014.

	Senior			Senior
	Secured -			Secured -			Senior			Equity/
	First Lien			Second Lien			Subordinated			Other			Total
Balance as of January 1, 2015	$	97,395,708		$	46,748,798		$	54,986,207		$	51,343,141		$	250,473,854
Amortized discounts/premiums		213,171			48,358			89,048			-			350,577
Paid in-kind interest		519,512			34,419			2,123,245			2,180,878			4,858,054
Net realized gain (loss)		2,876			94,675			-			-			97,551
Net change in unrealized appreciation (depreciation)		2,391,120			(218,033	)		651,914			(3,398,893	)		(573,892	)
Purchases		10,728,040			21,297,356			35,000,000			6,756,440			73,781,836
Sales/Return of capital		(29,218,097	)		(7,500,000	)		(3,333,333	)		-			(40,051,430	)
Balance as of September 30, 2015	$	82,032,330		$	60,505,573		$	89,517,081		$	56,881,566		$	288,936,550

Net change in unrealized appreciation(depreciation) from investments still held as of September 30, 2015	$	2,289,884		$	(40,437	)	$	246,154		$	(3,947,892	)	$	(1,452,291	)

	Senior			Senior
	Secured -			Secured -		Senior			Equity/
	First Lien			Second Lien		Subordinated			Other			Total
Balance as of May 8, 2014*	$	68,848,668		$	-	$	61,151,338		$	54,590,510		$	184,590,516
Amortized discounts/premiums		-			5,299		45,037			-			50,336
Paid in-kind interest		521,740			-		655,228			492,507			1,669,475
Net realized gain (loss)		-			-		17,875			-			17,875
Net change in unrealized appreciation (depreciation)		249,662			-		(233,944	)		4,605,033			4,620,751
Purchases		14,545,032			13,561,298		22,127,000			142,999			50,376,329
Sales/Return of capital		(7,716,362	)		-		(19,388,527	)		(4,653	)		(27,109,542	)
Balance as of September 30, 2014	$	76,448,740		$	13,566,597	$	64,374,007		$	59,826,396		$	214,215,740

Net change in unrealized appreciation (depreciation) from investments still held as of September 30, 2014	$	249,662		$	-	$	(233,944	)	$	4,929,354		$	4,945,072

*Investment portfolios acquired from the Partnership and the Warehouse Portfolios

The following is a summary of the quantitative inputs and assumptions used for items categorized in Level 3 of the fair value hierarchy as of September 30, 2015 and December 31, 2014, respectively.

As of September 30, 2015:

	Fair Value at				Range
Assets at Fair Value	September 30, 2015		Valuation Technique	Unobservable Input	of Inputs		Weighted Average

Senior Secured - First Lien	$	82,032,330	Yield to Maturity	Comparable Market Rate		8.75% - 14.0%		11.52	%

Senior Secured - Second Lien	$	60,505,573	Yield to Maturity	Comparable Market Rate		10.0% - 12.0%		10.80	%

Senior Subordinated	$	89,517,081	Yield to Maturity	Comparable Market Rate		8.0% - 23.0%		14.02	%

Preferred Ownership	$	24,922,567	Market Approach	Enterprise Value/ LTM EBITDA Multiple		7.41x - 8.87x		8.14	x

Common Ownership/ Common Warrants	$	31,958,999	Market Approach	Enterprise Value/ LTM EBITDA Multiple		10.38x - 10.44x		10.41	x

Total	$	288,936,550

As of December 31, 2014:

	Fair Value at				Range
Assets at Fair Value	December 31, 2014		Valuation Technique	Unobservable Input	of Inputs		Weighted Average

Senior Secured - First Lien	$	97,395,708	Yield to Maturity	Comparable Market Rate		8.75%-36.3%		11.82	%

Senior Secured - Second Lien	$	46,748,798	Yield to Maturity	Comparable Market Rate		9.5%-11.0%		10.27	%

Senior Subordinated	$	54,986,207	Yield to Maturity	Comparable Market Rate		13.0%-20.0%		11.23	%

Preferred Ownership	$	24,402,133	Market Approach	Enterprise Value/ LTM EBITDA Multiple		7.56x-8.35x		7.95	x

Common Ownership/ Common Warrants	$	26,941,008	Market Approach	Enterprise Value/ LTM EBITDA Multiple		10.19x-10.99x		10.59	x

Total	$	250,473,854

Share Transactions/Partners’ Capital

For the nine months ended September 30, 2015, there were no shares issued or proceeds received by the Company.

The following table summarizes the total shares issued and proceeds received in connection with the Company’s Offering for the period ended June 30, 2014 (May 8, 2014 – September 30, 2014).

	Shares		Amount
Issuance of shares to Limited Partners of the Partnership		6,100,000	$	91,500,000
Issuance of shares in the Offering		6,666,666		99,999,990
Overallotment		750,000		11,250,000
Total shares issued		13,516,666		202,749,990
Less:
Underwriting costs (sales load)		—		3,337,500
Offering costs		—		1,314,602
Total shares outstanding/net proceeds to Company		13,516,666	$	198,097,888

The Partnership held its initial closing on May 14, 2010, accepting capital commitments amounting to $105,850,000 from Limited Partners. Seven additional closings were held subsequent to May 14, 2010. The most recent of which being the final closing, took place on August 10, 2012, bringing total commitments to $210,200,000. As of May 7, 2014, Limited Partners have contributed $226,397,552 or 107.71% of their total capital commitments to the Partnership, respectively. As of May 7, 2014, the capital balances of Class A Limited Partners and Class B Limited Partners amounted to 70.02% and 30.02% of total partners’ capital, respectively.

Distributions

Alcentra Capital Corporation

The Company intends to make quarterly distributions of available net investment income determined on a tax basis to its stockholders. Distributions to stockholders are recorded on the record date. The amount, if any, to be distributed to stockholders is determined by the Board each quarter and is generally based upon the earnings estimated by management. Net realized capital gains, if any, will be distributed at least annually, although the Company may decide to retain such capital gains for investment and pay a 4% excise tax on such excess.

The following table reflects the Company’s dividends declared and paid or to be paid on its common stock for the nine months ended September 30, 2015:

Date Declared	Record Date	Payment Date	Amount Per Share
March 10, 2015	March 31, 2015	April 6, 2015	$	0.340
May 11, 2015	June 30, 2015	July 6, 2015	$	0.340
August 10, 2015	September 30, 2015	October 6, 2015	$	0.340

The following table reflects the Company’s dividends declared and paid or to be paid on its common stock for the nine months ended September 30, 2014:

Date Declared	Record Date	Payment Date	Amount Per Share
June 24, 2014	June 30, 2014	July 7, 2014	$	0.178
August 12, 2014	September 30, 2014	October 6, 2014	$	0.340

The Company has adopted a dividend reinvestment plan (“DRIP”) that provides for the reinvestment of dividends on behalf of its stockholders, unless a stockholder has elected to receive dividends in cash. As a result, if the Company declares a cash dividend, the stockholders who have not “opted out” of the DRIP no later than the record date will have their cash dividend automatically reinvested into additional shares of the Company’s common stock. The Company has the option to satisfy the share requirements of the DRIP through the issuance of new shares of common stock or through open market purchases of common stock by the DRIP plan administrator. Newly issued shares are valued based upon the final closing price of the common stock on the NASDAQ Global Select Market on the dividend payment date. Shares purchased in the open market to satisfy the DRIP requirements will be valued upon the average price of the applicable shares purchased by the Plan Administrator, before any associated brokerage or other costs.

BNY Mellon-Alcentra Mezzanine III, L.P.

Proceeds from portfolio investments will be distributed to the partners in proportion to their contributions to such investment until the partners have received a) first, 100% to all Limited Partners until the Limited Partners have received an amount equal to their aggregate capital contributions made to the Partnership (including, capital contributions made to the Partnership to fund the Partnership’s organizational expenses, management fees and other ongoing costs); b) second, 100% to all Limited Partners until the Limited Partners have received preferred returns of 8% and 5%, for Class A Limited Partners and Class B Limited Partners, respectively, per annum on the aggregate capital contributions made to the Partnership (including, capital contributions made to the Partnership to fund the Partnership’s organizational expenses, management fees and other ongoing costs); c) third, for Class A Limited Partners only, 100% to the General Partner as a carried interest distribution until the General Partner has received an amount equal to 20% of the aggregate amount of distributions; and d) thereafter (a) 80% to such Partner and (b) 20% to the General Partner. Income from short-term investments is distributed to all partners in proportion to such partners’ contributions to such investments.

For the period from January 1, 2014 to May 7, 2014, the Partnership made distributions to the General Partner and the Limited Partners totaling $3,941,341. For the period from January 1, 2014 to May 7, 2014, distributions made to Class A Limited Partners and Class B Limited Partners amounted to 70.48% and 29.52% of total distributions, respectively.

Upon the termination of the Partnership, if it is determined that the General Partner has received carried interest distributions in excess of the amount it would have received had such distributions been determined on a cumulative basis, a clawback payment of such excess is required of the General Partner.

Distributions to Limited Partners during the period from January 1, 2014 to May 7, 2014 are broken down as follows:

Return on capital	$	3,191,341
Return of capital		750,000
Total	$	3,941,341

Allocation of Profits and Losses

Allocations of Partnership profits are made in a manner which is consistent with, and gives effect to, the distribution procedures outlined in Note 5 above. Partnership losses are allocated to all partners in proportion to such partners’ capital commitments or to such partners’ percentage ownership in such investment from which the losses arose, or if there is no such investment, in proportion to their capital commitment. For the period from January 1, 2014 to May 7, 2014, the General Partner was allocated carried interest distributions of $924,600. As a result of the completion of Alcentra’s initial public offering, the General Partner’s allocated carried interest as of May 7, 2014 was reallocated to the Limited Partners in accordance with the provisions of the Partnership’s Limited Partnership Agreement (December 31, 2013, as revised). Accordingly, the carried interest allocated to the General Partner through May 7, 2014 of approximately $6 million was reallocated to the Limited Partners.

Related Party Transactions

Management Fee

Alcentra Capital Corporation

Under the Investment Advisory Agreement, we have agreed to pay Alcentra NY an annual base management fee based on our gross assets as well as an incentive fee based on our performance. The base management fee is calculated at an annual rate as follows: 1.75% of our gross assets (i.e., total assets held before deduction of any liabilities), including assets purchased with borrowed funds or other forms of leverage and excluding cash and cash equivalents (such as investments in U.S. Treasury Bills), if our gross assets are below $625 million; 1.625% if our gross assets are between $625 million and $750 million; and 1.5% if our gross assets are greater than $750 million. The various management fee percentages (i.e. 1.75%, 1.625% and 1.5%) would apply to our entire gross assets in the event our gross assets exceed the various gross asset thresholds. The base management fee will be payable quarterly in arrears and shall be calculated based on the average value of the Company’s gross assets, excluding cash and cash equivalents, at the end of the two most recently completed calendar quarter.

The incentive fee consists of two parts. The first part, which is calculated and payable quarterly in arrears, equals 20% of our ‘‘pre-incentive fee net investment income’’ for the immediately preceding quarter, subject to a hurdle rate of 2% per quarter (8% annualized), and is subject to a ‘‘catch-up’’ feature. The second part is calculated and payable in arrears as of the end of each calendar year (or, upon termination of the Investment Advisory Agreement, as of the termination date) and equals 20% of our aggregate cumulative realized capital gains from inception through the end of each calendar year, computed net of aggregate cumulative realized capital losses and aggregate cumulative unrealized capital depreciation through the end of such year, less the aggregate amount of any previously paid capital gain incentive fees. Pre-incentive fee net investment income means interest income, dividend income and any other income (including any other fees, such as commitment, origination, structuring, diligence, managerial assistance and consulting fees or other fees that we receive from portfolio companies) accrued during the calendar quarter, minus our operating expenses for the quarter (including the base management fee, expenses payable for administrative services under the Investment Advisory Agreement, and any interest expense and any distributions paid on any issued and outstanding preferred stock, but excluding the incentive fee and any offering expenses and other expenses not charged to operations but excluding certain reversals to the extent such reversals have the effect of reducing previously accrued incentive fees based on the deferral of non-cash interest). Pre-incentive fee net investment income excludes, in the case of investments with a deferred interest feature (such as original issue discount, debt instruments with PIK interest and zero coupon securities), accrued income until we have received such income in cash.

Capital Gains and Income Incentive Accrual – We accrue payment of the Capital Gains and Income Incentive distribution (the “Incentive Distribution”) to the Investment Manager based on the fair market value of the portfolio at the end of each quarter, which includes the net increase in value in the investment securities, accrued dividends and payment-in-kind interest under the assumption that those assets will be realized in full at the stated values carried on our balance sheet. As the capital gain incentive accrual is estimated quarterly, the current quarter accrual can be positive or negative. Please note however, that the actual payment of those Incentive Accruals is based on the cash proceeds collected on those investment securities. The Investment Management Agreement states that we are required to pay these Incentive Distributions based upon the receipt of cash collection in full. Incentive Distributions will be paid based on the cash collected on our investment securities, and therefore may differ in size and timing from when the accrual is reflected on the balance sheet.

For the three and nine months ended September 30, 2015, the Company recorded expenses for base management fees of $1,273,705 and $3,641,673, respectively, of which none was waived by the Adviser and $1,273,705 was payable at September 30, 2015. For the three months ended September 30, 2014 and for the period from May 8, 2014 to September 30, 2014, the Company recorded an expense for base management fee of $925,477 and $1,450,025, respectively of which $314,910 was payable at September 30, 2014. For the period from April 1, 2014 through May 7, 2014 and for the period from January 1, 2014 to May 7, 2014 the Partnership recorded $0 and $699,473 in management fees, respectively.

Our Adviser may waive its fees (base management and incentive fee), without recourse against or reimbursement by us, for the remainder of the quarter in which the initial public offering is completed and the subsequent four quarters to the extent required in order for the Company to earn a quarterly net investment income to maintain a targeted dividend payment on shares of common stock outstanding on the relevant dividend payment dates of 9.0% (to be paid on a quarterly basis). For the three and nine months ended September 30, 2015, the Company incurred income-based incentive fees of $546,027 and $1,749,155, respectively, of which none was waived by the Adviser. For the three months ended September 30, 2014 and for the period from May 8, 2014 to September 30, 2014 the Company incurred incentive fees of $763,550, of which $0 was payable at September 30, 2014. For the three and nine months ended September 30, 2015, the Company incurred capital gains incentive fees of $(434,217) and $1,001,467, respectively, of which $0 and $1,001,467, respectively, was waived by the Adviser. For the three months ended September 30, 2014 and for the period from May 8, 2014 to September 30, 2014, the Company recorded a waiver of management and incentive fees of $1,374,118.

BNY Mellon-Alcentra Mezzanine III, L.P.

For the period from the Commencement Date to the fifth anniversary of the Final Closing Date, the Partnership will pay to the Manager a management fee at an annual rate equal to the product of 1.50% for each Class A Limited Partner and 1.00% - 1.25% for each Class B Limited Partner, in each case multiplied by such Limited Partner’s capital commitment. After the fifth anniversary of the Final Closing Date, the management fee will be paid at annual rates of 1.50% and 1.00% - 1.25% for Class A Limited Partners and Class B Limited Partners, respectively, in each case multiplied by the aggregate amount of such Limited Partner’s capital contributions used to fund the cost of investments that have not been the subject of a disposition less the aggregate amount of such Limited Partner’s capital contributions with respect to all investments which have not been disposed of prior to the date of such distribution and which have been permanently written off. The management fee is payable quarterly in advance. For the period from January 1, 2014 to May 7, 2014, Class A Limited Partners were charged $751,956, and Class B Limited Partners were charged $242,850 in management fees.

The management fee is reduced by the placement fees and Excess Organization Expenses paid by the Partnership. The management fee is further reduced by 100% of all transaction fees, investment fees, monitoring fees, management fees and directors’ fees received by the General Partner or any affiliate thereof, net of unreimbursed out-of-pocket expenses. For the period from January 1, 2014 to May 7, 2014, there were no placement fees, Excess Organizational Expenses, or fees received by the Manager that reduced management fee expense in the reporting period.

Certain employees of the Manager are Limited Partners of the Partnership. As of May 7, 2014, an affiliate of the Partnership also had a $50.0 million commitment to the Partnership as a Limited Partner. As of May 7, 2014, this Limited Partner has contributed $56,602,997, or 113.21%, of its total capital commitments to the Partnership.

Directors Fees

The independent directors of the Company each receive an annual fee of $40,000. They also receive $2,500 plus reimbursement of reasonable out-of-pocket expenses incurred in connection with attending in person each board of directors meeting and $1,000 plus reimbursement of reasonable out-of-pocket expenses incurred in connection with attending each board meeting telephonically. They also receive $1,000 plus reimbursement of reasonable out-of-pocket expenses incurred in connection with each committee meeting attended in person and each telephonic committee meeting. The chairman of the audit committee, the nominating and corporate governance committee and the compensation committee will receive an annual fee of $10,000, $5,000 and $5,000, respectively. We have obtained directors’ and officers’ liability insurance on behalf of our directors and officers.

For the three and nine months ended September 30, 2015 the Company recorded directors' fee expense of $57,635 and $171,826, respectively, of which $36,500 was payable at September 30, 2015. For the three months ended September 30, 2014 and for the period from May 8, 2014 to September 30, 2014 the Company recorded directors' fee expense of $26,916 and $106,916, respectively, of which $60,245 was payable at September 30, 2014. For the period from January 1, 2014 to May 7, 2014 the Partnership did not record any directors' fees expense.

Purchases and Sales (Investment Transactions)

Investment purchases, sales and principal payments/paydowns are summarized below for the nine months ended September 30, 2015, the period from May 8, 2014 through September 30, 2014, and the period from January 1, 2014 through May 7, 2014.

	For the nine months ended September 30, 2015		For the period from May 8, 2014* through September 30, 2014			For the period from January 1, 2014 through May 7, 2014
Investment purchases, at cost (including PIK interest)	$	78,639,890	$	52,045,804	**	$	50,201,887
Investment sales, proceeds (including Principal payments/paydown proceeds)		48,051,430		27,109,542			15,780,666

*Commencement of operations of the Company

** Excludes $185 million of investment portfolios acquired by the Company from the Partnership and the Warehouse Portfolios (see Note 1)

10.

Alcentra Capital InterNotes®

On January 30, 2015, we entered into a Selling Agent Agreement (the “Selling Agent Agreement”) with Incapital LLC, as purchasing agent for our issuance of $40 million of Alcentra Capital InterNotes® (the “InterNotes® Offering”).

These notes are direct unsecured obligations and each series of notes will be issued by a separate trust (administered by U.S. Bank). These notes bear interest at fixed interest rates and offer a variety of maturities no less than twelve months from the original date of issuance.

During the nine months ended September 30, 2015, we issued $40.0 million in aggregate principal amount of our Alcentra Capital InterNotes for net proceeds of $39.2 million. These notes were issued with stated interest rates of 6.25%, 6.375%, 6.5%, and 6.75%. These notes mature between February 15, 2020 and April 15, 2022. For the three and nine months ended September 30, 2015, the Company borrowed an average of $40.0 million and $26.1 million with a weighted average interest rate of 6.47% and 6.43%, respectively.

The following table summarizes the Alcentra Capital InterNotes® issued and outstanding during the nine months ended September 30, 2015.

Tenor at		Principal		Interest
Origination		Amount		Rate
(in years)		(000’s omitted)		Range			Maturity Date Range
	7	$	1,331		6.500	%	January 15, 2022
	5		2,055		6.375	%	February 15, 2020
	5		1,000		6.375	%	February 15, 2020
	5		1,050		6.375	%	February 15, 2020
	5		500		6.375	%	March 15, 2020
	5		124		6.375	%	April 15, 2020
	7		87		6.750	%	April 15, 2020
	5		17,000		6.250	%	April 15, 2020
	5		16,853		6.500	%	April 15, 2020
		$	40,000

During the nine months ended September 30, 2015, we redeemed $0 aggregate principal amount of our Alcentra Capital InterNotes®. The net proceeds of this offering were used to repay outstanding indebtedness under the Credit Facility.

In connection with the issuance of the Alcentra Capital InterNotes®, we incurred $0.78 million of fees which are being amortized over the term of the notes and are included within deferred financing costs on the Consolidated Statement of Assets and Liabilities as of September 30, 2015. During the nine months ended September 30, 2015 we recorded $1.3 million of interest costs and amortization of financing costs on the Alcentra Capital InterNotes® as interest expense.

11.

Credit Facility/Line of Credit

On May 8, 2014, the Company entered into a senior secured revolving credit agreement (the “Credit Facility”) with ING Capital LLC (“ING”), as administrative agent, collateral agent and lender to provide liquidity in support of its investment and operational activities. The Credit Facility has an initial commitment of $80 million with an accordion feature that allows for an increase in the total commitments up to $160 million, subject to certain conditions and the satisfaction of specified financial covenants. The Credit Facility was amended on August 11, 2015 to increase the accordion feature to allow for a future increase of the total commitments up to $250,000,000, subject to satisfaction of certain conditions at the time of any such future increase. As amended, the Credit Facility has a maturity date of August 11, 2020 and bears interest, at our election, at a rate per annum equal to (i) 2.25% plus the highest of a prime rate, the Federal Funds rate plus 0.5%, three month LIBOR plus 1%, and zero or (ii) 3.25% plus the one, three or six month LIBOR rate, as applicable. The Credit Facility is secured primarily by the Company’s assets. Costs of $2,313,355 were incurred in connection with obtaining and amending the Credit Facility, which have been recorded as deferred financing costs on the Statements of Assets and Liabilities and are being amortized over the life of the Credit Facility.

Amounts available to borrow under the Credit Facility are subject to a minimum borrowing /collateral base that applies an advance rate to certain investments held by the Company. The Company is subject to limitations with respect to the investments securing the Credit Facility, including, but not limited to, restrictions on sector concentrations, loan size, portfolio company leverage which may affect the borrowing base and therefore amounts available to borrow.

The Company pays a commitment fee between 0.5% and 1.0% per annum based on the size of the unused portion of the Credit Facility. This fee is included in interest expense on the Company’s consolidated statements of operations.

The Company has made customary representations and warranties and is required to comply with various covenants and reporting requirements. These covenants are subject to important limitations and exceptions that are described in the documents governing the Credit Facility. As of September 30, 2015, the Company was in compliance in all material respects with the terms of the Credit Facility.

As of September 30, 2015 and December 31, 2014 the Company had United States dollar borrowings of $52.7 million and $62.5 million outstanding under the Credit Facility, respectively. For the three and nine months ended September 30, 2015, the Company borrowed an average of $37.5 million and $45.5 million with a weighted average interest rate of 3.56% and 3.52%, respectively.

The Partnership entered into a credit agreement with the Administrator under which the Partnership can borrow an aggregate principal amount of $15 million for the financing of portfolio investments. Interest is charged at the LIBOR Rate plus 1.00%. The credit agreement terminated on April 24, 2014. For the nine months ended September 30, 2014, Alcentra and the Partnership borrowed an average of $21,953,080.

12.

Market and Other Risk Factors

At September 30, 2015, the Company’s portfolio investments are comprised of non-publicly-traded securities. The non-publicly-traded securities trade in an illiquid marketplace. The portfolio is concentrated in the twenty-four industries listed in Note 14. Risks affecting these industries include, but are not limited to, increasing competition, rapid changes in technology, government actions and changes in economic conditions. These risk factors could have a material effect on the ultimate realizable value of the Company’s investments.

Economic conditions in 2015 continued to impact revenues and operating cash flows for most businesses and continued to impact the lending markets, leaving many businesses unable to borrow or refinance debt obligations. These restrictions on obtaining available financing, coupled with the continuing economic slowdown, have resulted in a low volume of purchase and sale transactions across all industries, which have limited the amount of observable inputs available to the Company in estimating the fair value of the Company’s investments. The Company estimates the fair value of investments for which observable market prices in active markets do not exist based on the best information available, which may differ significantly from values that would have otherwise been used had a ready market for the investments existed and the differences could be material.

Market conditions may deteriorate, which may negatively impact the estimated fair value of the Company’s investments or the amounts which are ultimately realized for such investments.

The above events are beyond the control of the Company and cannot be predicted. Furthermore, the ability to liquidate investments and realize value is subject to significant limitations and uncertainties. There may also be risk associated with the concentration of investments in one geographic region or in certain industries.

13.

Commitments and Contingencies

In the normal course of business, the Company and the Partnership enter into contracts that contain a variety of representations and warranties and which provide general indemnifications. In addition, the Company has agreed to indemnify its officers, directors, employees, agents or any person who serves on behalf of the Company from any loss, claim, damage, or liability which such person incurs by reason of his performance of activities of the Company, provided they acted in good faith. The Company expects the risk of loss related to its indemnifications to be remote.

On October 13, 2015, Cahaba Disaster Recovery, LLC (“Cahaba”) filed a lawsuit in state court in Jefferson County, Alabama, against DRC Emergency Services, LLC (“DRC”) and Alcentra Capital Corporation (“ACC”), relating to disaster recovery services allegedly provided in the wake of the tornado that struck Joplin, MO in 2011. The complaint alleges that DRC was retained as a first-tier subcontractor on two disaster recovery engagements, and that DRC in turn brought in Cahaba as a second-tier subcontractor for those jobs. The complaint alleges that Cahaba has received only partial payment from DRC and is owed a total of $2,471,680. The complaint alleges that ACC is also liable to Cahaba for those amounts because it was the “alter ego” of DRC, due to what the complaint alleges to be ACC’s “indicia of control” of DRC by Alcentra. Cahaba has agreed to dismiss the case without prejudice (by agreement of parties), subject to its being reinstituted at a later date.

The Company’s investment portfolio may contain debt investments that are in the form of lines of credit and unfunded delayed draw commitments, which require the Company to provide funding when requested by portfolio companies in accordance with the terms of the underlying loan agreements. As of September 30, 2015, the Company had $9.8 million in unfunded commitments under loan and financing agreements. As of September 30, 2015 and December 31, 2014, the Company’s unfunded commitment under loan and financing agreements are presented below.

	As of
	September 30, 2015		December 31, 2014

A2Z Wireless Holdings, Inc.	$	1,004,270	$	-
Alpine Waste		5,000,000		5,000,000
Dentistry For Children, Inc.		3,500,000		3,500,000
HealthFusion, Inc.		-		2,500,000
IGT		250,000		500,000
Nation Safe Drivers (NSD)		-		826,202
Total	$	9,754,270	$	12,326,202

14.

Classification of Portfolio Investments

As of September 30, 2015, the Company’s portfolio investments were categorized as follows:

Industry	Cost		Fair Value		% of Net Assets*
Healthcare Services	$	33,027,344	$	33,553,344		16.63	%
Waste Services		21,504,044		21,004,046		10.41	%
Automotive Business Services		19,922,065		19,922,065		9.88	%
Infrastructure Maintenance		17,169,010		19,562,379		9.70	%
Technology & Telecom		14,306,542		16,468,000		8.16	%
Education		14,277,267		15,570,999		7.72	%
Oil & Gas Services		12,961,865		12,961,865		6.43	%
Healthcare Products		11,800,437		12,000,000		5.95	%
Media: Advertising, Printing & Publishing		11,750,000		11,750,000		5.82	%
Wholesale		10,235,404		11,702,451		5.80	%
Restoration Services		12,198,059		11,486,407		5.69	%
Technology		8,112,000		11,124,000		5.51	%
Disaster Recovery Services		12,908,929		10,949,562		5.43	%
Telecommunications		9,848,070		10,514,000		5.21	%
Industrial Services		10,166,970		10,251,086		5.08	%
Transportation Logistics		10,000,000		10,000,000		4.96	%
Security		9,632,518		9,632,518		4.77	%
High Tech Industries		6,168,000		7,475,000		3.71	%
Media & Entertainment		12,242,738		7,318,545		3.63	%
Wholesale/Distribution		7,000,000		7,000,000		3.47	%
Environmental/Recycling Solutions		6,510,910		5,452,910		2.70	%
Food & Beverage		4,185,000		4,264,000		2.11	%
Aerospace		4,000,000		4,000,000		1.98	%
Packaging		3,773,371		3,773,371		1.87	%
Call Center Services		1,187,941		1,200,000		0.59	%
Total	$	284,888,484	$	288,936,550		143.23	%
Geographic Region
South East	$	71,978,212	$	72,563,123		35.97	%
South		67,023,059		65,718,666		32.58	%
Eastern		60,372,604		63,982,070		31.72	%
West		32,879,052		32,036,870		15.88	%
Mid West		24,559,891		24,167,821		11.98	%
South West		18,306,542		20,468,000		10.15	%
North West		10,000,000		10,000,000		4.96	%
Total	$	285,119,360	$	288,936,550		143.23	%
Investment Type
Senior Subordinated	$	89,287,252	$	89,517,081		44.37	%
Senior Secured - First Lien		80,795,900		82,032,330		40.66	%
Senior Secured - Second Lien		60,306,010		60,505,573		29.99	%
Equity/Other		54,730,198		56,881,566		28.20	%
Total	$	285,119,360	$	288,936,550		143.23	%

*Fair value as a percentage of Net Assets

As of December 31, 2014, the Company’s portfolio investments were categorized as follows:

					% of
					Net
Industry	Cost		Fair Value		Assets*
Healthcare Services	$	22,877,700	$	23,502,700		11.69	%
Technology & Telecom		14,306,541		17,459,000		8.69	%
Infrastructure Maintenance		15,861,076		16,102,785		8.01	%
Education		14,277,267		15,717,008		7.82	%
Retail Distribution		14,625,000		14,625,000		7.28	%
Automotive		14,251,576		14,251,576		7.09	%
Oil & Gas Services		12,767,248		13,044,000		6.49	%
Disaster Recovery Services		12,290,398		12,596,562		6.26	%
Restoration Services		12,116,713		12,119,289		6.03	%
Healthcare: Orthopedic Products		11,760,000		12,000,000		5.97	%
Waste Management		11,355,479		11,355,479		5.65	%
Wholesale		9,960,374		10,849,399		5.40	%
Industrial Services		9,899,901		10,006,651		4.98	%
Media & Entertainment		11,886,858		9,605,545		4.78	%
Technology		8,112,000		9,412,000		4.68	%
Waste Services		9,000,000		9,000,000		4.48	%
Healthcare & Pharmaceuticals		8,000,000		8,160,000		4.06	%
Media: Broadcasting & Subscription		7,397,404		7,575,000		3.77	%
Consumer Services		7,167,144		7,167,144		3.57	%
Wholesale/Distribution		7,000,000		7,000,000		3.48	%
Food & Beverage		5,000,000		4,591,000		2.28	%
Environmental/Recycling Services		6,268,232		4,576,000		2.28	%
Packaging		3,716,716		3,716,716		1.85	%
Business Services		3,000,000		3,000,000		1.49	%
Call Center Services		1,185,145		1,201,000		0.60	%
Total	$	254,082,772	$	258,633,854		128.68	%
Geographic Region
South	$	63,408,612	$	65,129,019		32.39	%
South East		52,303,129		52,764,705		26.25	%
Eastern		48,315,209		50,080,809		24.92	%
West		39,380,867		38,346,543		19.08	%
South West		14,306,541		17,459,000		8.69	%
Canada		14,625,000		14,625,000		7.28	%
Mid West		14,346,010		12,653,778		6.30	%
Puerto Rico		7,397,404		7,575,000		3.77	%
Total	$	254,082,772	$	258,633,854		128.68	%
Investment Type
Senior Secured - First Lien	$	98,550,397	$	97,395,708		48.46	%
Equity/Other		53,792,879		59,503,141		29.60	%
Senior Subordinated		55,408,294		54,986,207		27.36	%
Senior Secured - Second Lien		46,331,202		46,748,798		23.26	%
Total	$	254,082,772	$	258,633,854		128.68	%

^*Fair value as a percentage of Net Assets

15.

Financial Highlights

The following per share data and financial ratios have been derived from information provided in the consolidated financial statements of the Company. The following is a schedule of financial highlights for one share of common stock for the nine months ended September 30, 2015 and for the period from May 8, 2014 through September 30, 2014.

	For the nine months ended			For the period May 8, 2014 through
	September 30, 2015			September 30, 2014
	(Unaudited)			(Unaudited)*
Per share data⁽¹⁾
Net asset value, beginning of period	$	14.87		$	14.55

Net investment income (loss)		1.09			0.52
Net realized and unrealized gains (losses)		(0.06	)		0.55
Benefit for taxes on unrealized appreciation on investments		0.04			—
Net increase (decrease) in net assets resulting from operations		1.07			1.07

Distributions to shareholders:⁽²⁾
From net investment income		(1.02	)		(0.52	)

Offering costs		—			(0.10	)

Net asset value, end of period	$	14.92		$	15.00
Market value per share, end of period	$	11.59		$	13.28

Total return based on net asset value⁽³⁾⁽⁴⁾		7.2	%		3.5	%⁽⁵⁾
Total return based on market value⁽³⁾⁽⁴⁾		0.9	%		(8.0	)%⁽⁵⁾

Shares outstanding at end of period		13,516,766			13,516,766

Ratio/Supplemental Data:
Net assets, at end of period	$	201,733,672		$	202,786,655
Ratio of total expenses before waiver to average net assets⁽⁶⁾		7.60	%		4.87	%
Ratio of interest expenses to average net assets⁽⁶⁾		2.31	%		1.01	%
Ratio of incentive fees to average net assets⁽⁶⁾		1.82	%		0.97	%
Ratio of waiver of management and incentive fees to average net assets⁽⁶⁾		0.66	%		1.75	%
Ratio of net expenses to average net assets⁽⁶⁾		6.94	%		3.12	%
Ratio of net investment income (loss) before waiver to average net assets⁽⁶⁾		9.12	%		7.24	%
Ratio of net investment income (loss) after waiver to average net assets⁽⁶⁾		9.78	%		8.99	%

Total Credit Facility payable outstanding	$	52,654,738		$	26,939,154
Total Notes payable outstanding	$	40,000,000		$	—

Asset coverage ratio⁽⁷⁾		3.2			8.5
Portfolio turnover rate⁽⁴⁾		18	%⁽⁸⁾		13	%⁽⁹⁾

Commencement of operations of the Company.

(1)

The per share data was derived by using the average shares outstanding during the period.

(2)

The per share data for distributions is the actual amount of distributions paid or payable per share of common stock outstanding during the entire period.

(3)

Returns are historical and are calculated by determining the percentage change in net asset value or market value with all distributions reinvested. Distributions are assumed to be reinvested at prices obtained under the Company’s dividend reinvestment plan.

(4)

Not Annualized.

(5)

Total investment return on net asset value is calculated assuming a purchase at the offering price of $15.00 per share paid by the shareholder on the first day and a sale at the net asset value on the last day of the period reported with all distributions reinvested. Total investment return on market value is calculated assuming a purchase at the offering price of $15.00 per share paid by the shareholder on the first day and a sale at the current market price on the last day of the period reported with all distributions reinvested.

	(6)	Annualized.
	(7)	Asset coverage ratio is equal to (i) the sum of (A) net assets at the end of the period and (B) debt outstanding at the end of the period, divided by (ii) total debt outstanding at the end of the period.
	(8)	For the nine months ended September 30, 2015.
	(9)	For the period from May 8, 2014 to September 30, 2014.

The following performance ratios and internal rate of return (“IRR”) (since inception) are presented for the Limited Partners as a single class, taken as a whole. The actual ratios of each individual investor may vary and are dependent upon the specific allocations of income and expense to such investor and the timing of capital transactions for such investor.

The net investment income (loss) ratio and the expense ratio are computed using the weighted average capital of the Limited Partners during the periods. The net investment income (loss) ratio does not include the effects of the carried interest allocation. The weighted average capital calculation reflects a measure of capital after each capital contribution, distribution or other significant change in capital at the end of each quarterly accounting period. The IRR was computed based on the actual dates of Limited Partners’ cash inflows (capital contributions) and outflows (cash and stock distributions), and the residual value of the Limited Partners’ capital accounts as from January 1, 2014 through May 7, 2014.

	January 1, 2014 to May 7, 2014

Net investment income (loss) ratio before carried interest allocation		15.06	%

Expense ratio before carried interest allocation		1.81	%

Carried interest allocation		(4.51	)%

Expense ratio after carried interest allocation		(2.70	)%

Cumulative IRR after carried interest allocation		13.69	%

16.

Unconsolidated Significant Subsidiaries

In accordance with the SEC’s Regulation S-X and GAAP, we have subsidiaries that are not required to be consolidated. We have certain unconsolidated significant subsidiaries that pursuant to Rule 4-08(g) of Regulation S-X, summarized financial information is presented below in aggregate as of and for the nine months ended September 30, 2015 and as of and for the year ended December 31, 2014.

	As of			For the nine months ended
Balance Sheet	September 30, 2015		Income Statement	September 30, 2015

Current Assets		15,219,136	Net Sales		19,163,262
Noncurrent Assets		25,565,840	Gross Profit		3,729,742
Current Liabilities		5,741,410	Net Income (Loss)		(5,150,170	)
Noncurrent Liabilities		20,000,000

	As of			For the year ended
Balance Sheet	December 31, 2014		Income Statement	December 31, 2014

Current Assets		21,752,296	Net Sales		73,379,709
Noncurrent Assets		26,765,177	Gross Profit		26,108,240
Current Liabilities		5,827,408	Net Income (Loss)		9,166,096
Noncurrent Liabilities		20,000,000

In addition to the risks associated with our investments in general, there are unique risks associated with our investments in each of these entities. In this regard, DRC Emergency Services LLC (“DRC ES”) derives significantly all of its revenue from contracts with federal, state and local governments and governmental agencies. As a result, if it does not comply with the terms of a contract or with regulations or statutes, it could be subject to downward contract price adjustments or refund obligations or could in extreme circumstances be assessed penalties or be debarred or suspended from obtaining future contracts for a specified period of time. Any such suspension or debarment or other sanction could have an adverse effect on its business.

Similarly, the business and growth of FST Technical Services, LLC (“FST”) depends in large part on the continued trend toward outsourcing of certain services in the semiconductor and biopharmaceutical industries. There can be no assurance that this trend in outsourcing will continue, as companies may elect to perform such services internally. A significant change in the direction of this trend generally, or a trend in the semiconductor and biopharmaceutical industry not to use, or to reduce the use of, outsourced services such as those provided by it, could significantly decrease its revenues and such decreased revenues could have a material adverse effect on it or its results operations or financial condition.

On August 29, 2014, DRC ES was suspended from Federal Government contracting and from directly or indirectly receiving the benefits of federal assistance programs. In DRC ES’s opinion the suspension primarily resulted from alleged actions taken by former employees and subcontractors related to two particular contracts. None of the employees in question work for DRC ES or any of its affiliates. DRC ES fully cooperated with all Government investigations. The suspension was terminated on October 1, 2014. DRC ES’s contracts and customer relationships were not materially impacted by the suspension.

17.

Subsequent Events

The Company has evaluated the need for disclosures and/or adjustments resulting from subsequent events through the date the financial statements were issued.

Subsequent to September 30, 2015, the following activity occurred:

On October 15, 2015, Alcentra funded a $5,500,000 investment in Xpress Global Systems, LLC (13.5% 2^nd Lien).

On October 15, 2015, Stancor repaid a portion of its debt in the amount of $1,028,364.

On October 16, 2015, Alcentra funded a $7,875,000 investment in NTI Holdings, LLC (9% Unitranche) and $350,000 in equity.

On October 20, 2015, Alcentra amended the terms of its deal with My Alarm Company from 16.25% subordinated debt to 12% 2nd lien debt and extended the maturity to July 2019.

On October 20, 2015, Cologix, Inc. announced the purchase of Net Access, LLC in a transaction expected to close before year end. Net Access LLC is an existing portfolio company and Alcentra has an equity investment in Net Access LLC.

On October 30, 2015, Alcentra funded an additional $2,000,000 investment to Alpine, an existing portfolio company.

On October 30, 2015, Quality Systems, Inc. announced an agreement to acquire Health Fusion Holdings, Inc. for $165 million plus potential additional contingent consideration of up to $25 million. HealthFusion is an existing portfolio company and Alcentras investment consists of $5,923,000 of 1^st lien debt and 1.79% of warrants. Expected closing date is before December 31, 2015.

On November 5th, 2015, the Board of Directors approved the 2015 fourth quarter dividend of $0.34 per share for shareholders of record date December 31, 2015 and payable January 7, 2016.

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

Forward-Looking Statements

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

•

our future operating results;

•

our business prospects and the prospects of our portfolio companies;

•

the effect of investments that we expect to make;

•

our contractual arrangements and relationships with third parties;

•

actual and potential conflicts of interest with Alcentra NY, LLC;

•

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

•

the ability of our portfolio companies to achieve their objectives;

•

the use of borrowed money to finance a portion of our investments;

•

the adequacy of our financing sources and working capital;

•

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

•

our ability to maintain our qualification as a business development company; and

•

the effect of future changes in laws or regulations (including the interpretation of these laws and regulations by regulatory authorities) and conditions in our operating areas, particularly with respect to business development companies.

Such forward-looking statements may include statements preceded by, followed by or that otherwise include the words "may," "might," "will," "intend," "should," "could," "can," "would," "expect," "believe," "estimate," "anticipate," "predict," "potential," "plan" or similar words.

We have based the forward-looking statements included in this quarterly report on Form 10-Q on information available to us on the date of this quarterly report on Form 10-Q. Actual results could differ materially from those anticipated in our forward-looking statements, and future results could differ materially from historical performance. We undertake no obligation to revise or update any forward-looking statements, whether as a result of new information, future events or otherwise, unless required by law or SEC rule or regulation. You are advised to consult any additional disclosures that we may make directly to you or through reports that we in the future may file with the SEC, including annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K.

The following analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and the related notes thereto contained in this quarterly report on Form 10-Q.

Overview

Alcentra Capital Corporation (the "Company", "Alcentra", "ACC", "we", "us" or "our") was formed as a Maryland corporation on June 4, 2013 as an externally managed, non-diversified closed-end management investment company that has elected to be regulated as a business development company under the Investment Company Act of 1940, as amended (the "1940 Act"). Alcentra is managed by Alcentra NY, LLC (the "Adviser", or "Alcentra NY"), registered investment adviser under the Investment Advisers Act of 1940, as amended (the "Advisers Act"). State Street Bank and Trust Company ("State Street") provides us with financial reporting, post-trade compliance, and treasury services. In addition, for U.S. federal income tax purposes, Alcentra has elected to be treated as a regulated investment company ("RIC"). under Subchapter M of the Internal Revenue.

BNY Mellon-Alcentra Mezzanine III, L.P. (the "Partnership" or "Fund III") is a Delaware limited partnership, which commenced operations on May 14, 2010. The Partnership was formed for the purpose of seeking current income and long-term capital appreciation by making investments in senior debt securities, subordinated debt securities, and common and preferred equity securities with equity rights or participations in U.S.-based middle market companies. BNY Mellon-Alcentra Mezzanine III (GP), L.P. (the "General Partner"), a Delaware limited liability company, is the General Partner of the Partnership. BNY Mellon-Alcentra Mezzanine Partners (the "Manager"), a division of Alcentra NY, LLC ("Alcentra Group") and an affiliate of the General Partner, manages the investment activities of the Partnership. Alcentra NY, LLC is wholly owned by BNY Alcentra Group Holdings, Inc. which is wholly owned by The Bank of New York Mellon Corporation.

On May 14, 2014, Alcentra completed its initial public offering (the "Offering"), at a price of $15.00 per share. Through its initial public offering the Company sold 6,666,666 shares for gross proceeds of approximately $100,000,000. On June 6, 2014, Alcentra sold 750,000 shares through the underwriters' exercise of the overallotment option for gross proceeds of $11,250,000.

Immediately prior to the Offering, Fund III sold all of its assets other than its investment in the shares of common stock and warrants to purchase common stock of GTT Communications (the "Fund III Acquired Assets") to the Company for $64.4 million in cash and $91.5 million in shares of the Company's common stock. Concurrent with the acquisition of the Fund III Acquired Assets from Fund III, the Company also purchased for $29 million in cash certain additional investments (the "Warehouse Portfolio") from Alcentra Group. The Warehouse Portfolio consisted of approximately $29 million in debt investments originated by the investment professionals of the Manager and purchased by Alcentra Group using funds under a warehouse credit facility provided by The Bank of New York Mellon Corporation in anticipation of the Offering.

The Company entered into a senior secured term loan agreement (the "Bridge Facility") with ING Capital LLC as lender that it used to fund the purchase of the Warehouse Portfolio and to fund the cash portion of the consideration paid to Fund III. In May 2014, the Company used $94.2 million of the proceeds from the Offering to repay the Bridge Facility in full.

The Company's investment objective is to generate both current income and capital appreciation through debt and equity investments by targeting investment opportunities with favorable risk-adjusted returns. The Company invests primarily in middle-market companies in the form of mezzanine and senior secured loans, each of which may include an equity component, and, to a lesser extent, by making direct equity investments in such companies.

The Company is required to comply with certain regulatory requirements such as not acquiring any assets other than "qualifying assets" specified in the 1940 Act unless, at the time the acquisition is made, at least 70% of our total assets are qualifying assets. Qualifying assets include investments in "eligible portfolio companies." Under the relevant SEC rules, the term "eligible portfolio company" includes all private operating companies, operating companies whose securities are not listed on a national securities exchange, and certain public operating companies that have listed their securities on a national securities exchange and have a market capitalization of less than $250 million, in each case organized and with their principal of business in the United States.

Since Alcentra did not commence investment operations until May 8, 2014, the discussion and analysis of financial condition and results of operations as of June 30, 2014 described in this section pertains to the historical operations of Fund III given that Alcentra acquired substantially all of Fund III's investment portfolio in connection with the acquisition of the Fund III Acquired Assets. However, ACC did not assume any liabilities of Fund III in connection with the acquisition of the Fund III Acquired Assets or contractual arrangements of Fund III, including with its lender or the Manager, in connection with the acquisition of the Fund III Acquired Assets other than to fund $2.6 million under revolving lines of credit. As a result, you should be mindful of the foregoing facts when reviewing the discussion and analysis set forth in this section as well as in connection with reviewing the financial information contained elsewhere in this Form 10-Q. In addition, the discussion and analysis below does not take into account or otherwise relate to the Warehouse Portfolio acquired by ACC from Alcentra Group.

As used in this section, the terms "we" and "us" refer to Fund III for the periods prior to the Offering and refer to ACC for the periods after the Offering.

Portfolio Composition and Investment Activity

Portfolio Composition

During the nine months ended September 30, 2015, we invested $69.8 million in debt and equity investments, including six new portfolio companies. These investments consisted of subordinated notes ($35.0 million, or 50.1%), second lien notes ($21.3 million, or 30.5%) and senior secured loans ($13.5 million, or 19.4%). During the nine months ended September 30, 2015 we received proceeds from sales or repayments, including principal, return of capital dividends and net realized gains (losses), of $41.2 million. During the period May 8, 2014 through September 30, 2014, we invested $50.7 million in debt and equity investments, including seven new portfolio companies. These investments consisted of subordinated notes ($22.5 million, or 44.3%), second lien notes ($16.7 million, or 32.9%) and senior secured loans ($11.5 million, or 22.7%). During the period May 8, 2014 through September 30, 2014, we received proceeds from sales or repayments, including principal, return of capital dividends and realized gains, of $18.3 million.

As of September 30, 2015, the fair value of our investment portfolio totaled $288.9 million (at fair value) and consisted of 29 portfolio companies. At September 30, 2015, 44.2% of our debt investments bore interest based on floating rates (subject to interest rate floors), such as LIBOR, and 55.8% bore interest at fixed rates. Our average portfolio company investment at amortized cost and fair value was approximately $9.9 million and $10.0 million, respectively, and our largest portfolio company investment by amortized cost and fair value was approximately $17.1 million and $19.6 million, respectively.

As of December 31, 2014, the fair value of our investment portfolio totaled $258.6 million (at fair value) and consisted of 28 portfolio companies. At December 31, 2014, 31.8% of our debt investments bore interest based on floating rates (subject to interest rate floors), such as LIBOR, and 68.2% bore interest at fixed rates. Our average portfolio company investment at amortized cost and fair value was approximately $8.8 million and $8.9 million, respectively, and our largest portfolio company investment by amortized cost and fair value was approximately $16.5 million and $16.8 million, respectively.

The weighted average yield on all of our debt investments as of September 30, 2015 and December 31, 2014 was approximately 12.2% and 11.7%, respectively. The weighted average yields were computed using the effective interest rates for debt investments, including accretion of original issue discount.

Our investment portfolio may contain loans that are in the form of lines of credit or revolving credit facilities, which require us to provide funding when requested by portfolio companies in accordance with the terms of the underlying loan agreements. As of September 30, 2015 and December 31, 2014, we had $9.8 million and $12.3 million respectively of unfunded commitments under loan and financing agreements.

The following table shows the portfolio composition by investment type at fair value and cost as a percentage of total investments:

	Fair Value						Cost
	September 30, 2015			December 31, 2014			September 30, 2015			December 31, 2014

Senior Secured - First Lien Debt		28.4	%		37.7	%		28.3	%		38.8	%
Senior Secured - Second Lien Debt		20.9	%		18.1	%		21.2	%		18.2	%
Subordinated Debt		31.0	%		21.3	%		31.3	%		21.8	%
Equity		19.7	%		23.0	%		19.2	%		21.2	%
		100.0	%		100.0	%		100.0	%		100.0	%

The following table shows the detailed industry composition of our portfolio at fair value and cost as a percentage of total investments:

	Fair Value						Cost
	September 30, 2015			December 31, 2014			September 30, 2015			December 31, 2014
Aerospace		1.38	%		-			1.40	%		-
Automotive Business Services		6.89	%		5.51	%		6.99	%		5.61	%
Business Services		0.42	%		1.62	%		0.42	%		1.65	%
Disaster Recovery Services		3.79	%		4.87	%		4.53	%		4.84	%
Education		5.39	%		6.08	%		5.01	%		5.62	%
Environmental Services		1.89	%		1.77	%		2.29	%		2.47	%
Food & Beverage		1.48	%		1.78	%		1.47	%		1.97	%
Healthcare		15.77	%		16.88	%		15.74	%		16.78	%
Industrial Services		5.97	%		3.87	%		6.03	%		3.90	%
Infrastructure Maintenance		6.77	%		6.23	%		6.03	%		6.24	%
Media & Entertainment		6.60	%		6.64	%		8.42	%		7.59	%
Oil & Gas Services		4.49	%		5.04	%		4.55	%		5.02	%
Packaging		1.31	%		1.44	%		1.32	%		1.46	%
Restoration Services		3.98	%		4.69	%		4.28	%		4.77	%
Retail Distribution		-			5.65	%		-			5.76	%
Services: Consumer		3.33	%		2.77	%		3.38	%		2.82	%
Technology & Telecom		15.78	%		10.39	%		13.49	%		8.82	%
Transportation Logistics		3.46	%		-			3.51	%		-
Waste Services		7.27	%		7.87	%		7.55	%		8.01	%
Wholesale		4.05	%		6.90	%		3.59	%		6.68	%
Grand Total		100.00	%		100.00	%		100.00	%		100.00	%

$93.4 million of the portfolio (34.2%) had a first credit exposure at 0.0x-1.0x EBITDA ; $121.7 million of the portfolio (44.6%) had a first credit exposure at 1.0x-3.0x EBITDA; $42.1 million of the portfolio (15.4%) had a first credit exposure at 3.0x-4.0x EBITDA ; and $1.0 million of the portfolio (0.4%) had a first credit exposure at 4.0x-4.5x EBITDA; and $14.7 million of the portfolio (5.4%) had a first credit exposure at >4.5x EBITDA.

EBITDA is defined as earnings before interest, taxes, depreciation and amortization.

Non-Accrual Status

We will generally not accrue interest on loans and debt securities if principal or interest cash payments are past due 30 days or more and/or we have reason to doubt our ability to collect such interest. As of September 30, 2015 and December 31, 2014, we had no loans on non-accrual status.

Asset Quality

We currently do not use a rating system to monitor portfolio performance. As the portfolio grows in size, we would expect to implement a portfolio rating system.

RESULTS OF OPERATIONS

Comparison of the three month period ended September 30, 2015 and September 30, 2014 Investment Activity

During the three months ended September 30, 2015, we funded $21.2 million of new and existing investments and $15.8 million of repayments were received.

During the three months ended September 30, 2014, we invested $35.0 million, $30.3 million in new portfolio companies and $4.7 million in add-on investments, and received $25.4 in repayments.

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

Investment Income

We generate revenue in the form of interest income on debt investments and capital gains and distributions, if any, on investment securities that we may acquire in portfolio companies. Our debt investments typically have a term of five to seven years and bear interest at a fixed or floating rate. Interest on our debt securities is payable both quarterly and monthly. Payments of principal on our debt investments may be amortized over the stated term of the investment, deferred for several years or due entirely at maturity. In some cases, our debt investments may pay interest in-kind, or PIK. Any outstanding principal amount of our debt securities and any accrued but unpaid interest will generally become due at the maturity date. The level of interest income we receive is directly related to the balance of interest-bearing investments multiplied by the weighted average yield of our investments. We expect that the total dollar amount of interest and any dividend income that we earn to increase as the size of our investment portfolio increases. In addition, we may generate revenue in the form of prepayment fees, commitment, loan origination, structuring or due diligence fees, fees for providing significant managerial assistance and consulting fees.

For the three months ended September 30, 2015, total investment income totaled $8.5 million and was primarily composed of interest and PIK income, and $0.48 million of other income, of which prepayment fee income was $0.387 million. Total investment income for the three months ended September 30, 2014 totaled $5.8 million and was primarily composed of interest income, including $0.8 million of PIK income, $0.4 million of dividend income and $1.1 million of other income.

Net Increase in Net Assets Resulting from Operations

For the three months ended September 30, 2015, the net increase in net assets resulting from operations totaled $3.254 million.

For the three months ended September 30, 2014, net increase in net assets resulting from operations totaled $7.9 million.

Comparison of nine months ended September 30, 2015 and January 1, 2014 through May 7, 2014 and May 8, 2014 through September 30, 2014

Investment Income

For the nine month period ended September 30, 2015, net investment income was $14.76 million.

For the period January 1, 2014 through May 7, 2014, net investment income was $6.9 million.

For the period May 8, 2014 through September 30, 2014, net investment income was $7.05 million.

Expenses

For the nine month period ended September 30, 2015, operating expenses totaled $11.4 million (before a waiver for Capital Gains-based incentive fee of $1.0 million and including a management fee of $3.6 million). Interest and financing expenses for the nine months ended September 30, 2015 were $3.5 million.

For the period January 1, 2014 through May 7, 2014, operating expenses totaled $0.8 million (inclusive of a management fee of $0.7 million). Interest and financing expenses for this period was $0.050 million.

For the period May 8, 2014 through September 30, 2014, operating expenses totaled $3.8 million (before a waiver for management and incentive fees of $1.4 million and inclusive of management and incentive fees of $2.2 million). Interest and financing expenses for this period was $0.8 million.

Net Increase in Net Assets Resulting from Operations

For the nine months ended September 30, 2015, the total net increase in assets resulting from operations totaled $14.65 million.

For the period January 1, 2014 through May 7, 2014, the total net increase in assets resulting from operations totaled $9.9 million.

For the period May 8, 2014 through September 30, 2014, the total net increase in assets resulting from operations totaled $11.7 million.

Provision for Taxes on Unrealized Appreciation on Investments

We have direct wholly owned subsidiaries that have elected to be taxable entities (the "Taxable Subsidiaries"). The Taxable Subsidiaries permit us to hold equity investments in portfolio companies which are "pass through" entities for tax purposes and continue to comply with the "source income" requirements contained in RIC tax provisions of the Code. The Taxable Subsidiaries are not consolidated with us for income tax purposes and may generate income tax expense, benefit, and the related tax assets and liabilities, as a result of their ownership of certain portfolio investments. The income tax expense, or benefit, if any, and related tax assets and liabilities are reflected in our consolidated financial statements. For the three and nine months ended September 30, 2015, we recognized a benefit for income tax on unrealized gains on investments of $1.1 million and $0.5 million, respectively.

Financial condition, liquidity and capital resources

Cash Flows from Operating and Financing Activities

For the nine months ended September 30, 2015, we experienced an increase in cash and cash equivalents in the amount of $1.4 million. During that period, our operating activities used $12.9 million in cash, primarily in connection with the purchase/repayments of investments and the increase in liabilities due to an increase in management and incentive fees. In addition, financing activities provided cash of $14.4 million primarily from the issuance of the Internotes. As of September 30, 2015, we had $11.5 million of cash on hand.

For the period from January 1, 2014 through May 7, 2014, we had an increase in cash and cash equivalents in the amount of $9.9 million. During that period, our operating activities used $29.9 million in cash, primarily in connection with the purchase of new investments. In addition, our financing activities provided cash of $39.9 million, primarily from capital contributions received from limited partners. As of May 7, 2014, we had $10.7 million of cash on hand.

For the period May 8, 2014 through September 30, 2014, we had an increase in cash and cash equivalents in the amount of $19.2 million. During that period, our operating activities used $111.6 million in cash, primarily through the purchase of the portfolio in connection with our IPO. In addition, our financing activities provided cash of $130.8 million primarily from the issuance of capital stock from the IPO.

Our liquidity and capital resources are derived from the capital contributions and cash flows from operations, including investment sales and repayments, and income earned. Our primary use of funds from operations includes investments in portfolio companies and other operating expenses we incur, as well as distributions to our stock holders. We expect to use these capital resources as well as proceeds from turnover within our portfolio, borrowings under the Credit Facility and from public and private offerings of securities to finance our investment activities.

Financing Transactions

In connection with the Offering, Alcentra entered into a senior secured revolving credit agreement ("Credit Facility") with ING Capital LLC, as administrative agent and lender. The Credit Facility had an initial commitment of $80 million with an accordion feature that allows for an increase in total commitments to $160 million. The Credit Facility was amended on August 11, 2015 to increase the accordion feature to allow for a future increase of the total commitments up to $250,000,000, subject to satisfaction of certain conditions at the time of any such future increase. As amended, the Credit Facility has a maturity date of August 11, 2020 and bears interest, at our election, at a rate per annum equal to (i) 2.25% plus the highest of a prime rate, the Federal Funds rate plus 0.5%, three month LIBOR plus 1%, and zero or (ii) 3.25% plus the one, three or six month LIBOR rate, as applicable.. The Credit Facility is secured by a first priority security interest in all of Alcentra's portfolio investments, the equity interests in certain of its direct and indirect subsidiaries and substantially all of its other assets. Alcentra is also subject to customary covenants and events of default typical of a facility of this type. As of September 30, 2015 total commitments under the Credit Facility were $135 million. Borrowings under the facility were $52.6 million as of September 30, 2015.

Regulated Investment Company Status and Distributions

We have elected to be treated as a RIC under Subchapter M of the Code for the fiscal year ending December 31, 2015. If we qualify as a RIC, we will not be taxed on our investment company taxable income or realized net capital gains, to the extent that such taxable income or gains are distributed, or deemed to be distributed, to stockholders on a timely basis.

Taxable income generally differs from net income for financial reporting purposes due to temporary and permanent differences in the recognition of income and expenses, and generally excludes net unrealized appreciation or depreciation until realized. Dividends declared and paid by us in a year may differ from taxable income for that year as such dividends may include the distribution of current year taxable income or the distribution of prior year taxable income carried forward into and distributed in the current year. Distributions also may include returns of capital.

To qualify for RIC tax treatment, we must, among other things, distribute, with respect to each taxable year, at least 90% of our investment company net taxable income (i.e., our net ordinary income and our realized net short-term capital gains in excess of realized net long-term capital losses, if any). If we qualify as a RIC, we will also be subject to a federal excise tax, based on distributive requirements of our taxable income on a calendar year basis.

We intend to distribute to our stockholders between 90% and 100% of our annual taxable income (which includes our taxable interest and fee income).

Investment Advisory Agreement

Under the Advisory Agreement, Alcentra pays Alcentra NY, LLC (the "Adviser") a base management fee calculated at an annual rate as follows: 1.75% of its gross assets (i.e., total assets held before deduction of any liabilities), including assets purchased with borrowed funds or other forms of leverage and excluding cash and cash equivalents (such as investments in U.S. Treasury Bills), if its gross assets are below $625 million; 1.625% of its total gross assets if our gross assets are between $625 million and $750 million; and 1.5% of its gross assets if its assets are greater than $750 million. These various management fee percentages (i.e. 1.75%, 1.625% and 1.5%) would apply to ACC's entire gross assets in the event its gross assets exceed the various gross asset thresholds.

In addition, Alcentra pays the Adviser an incentive fee under the Advisory Agreement which consists of two parts. The first part, which is calculated and payable quarterly in arrears, equals 20% of ACC's "pre-incentive fee net investment income" for the immediately preceding quarter, subject to a hurdle rate of 2% per quarter (8% annualized), and is subject to a "catch-up" feature. The second part is calculated and payable in arrears as of the end of each calendar year (or, upon termination of the Advisory Agreement, as of the termination date) and equals 20% of ACC's aggregate cumulative realized capital gains from inception through the end of each calendar year, computed net of aggregate cumulative realized capital losses and aggregate cumulative unrealized capital depreciation through the end of such year, less the aggregate amount of any previously paid capital gain incentive fees. See Note 7.

The Adviser has agreed to waive its fees (base management and incentive fee), without recourse against or reimbursement by ACC, for the remainder of the quarter in which the Offering is completed and the subsequent four quarters to the extent required in order for ACC to earn a quarterly net investment income to maintain a targeted dividend payment on shares of common stock outstanding on the relevant dividend payment dates of 9.0% (to be paid on a quarterly basis).

Critical Accounting Policies

The preparation of our financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. Changes in the economic environment, financial markets and any other parameters used in determining such estimates could cause actual results to differ.

Valuation of portfolio investments

We generally invest in illiquid loans and securities including debt and equity securities of middle-market companies. Debt and equity securities that are not publicly traded or whose market prices are not readily available are valued at fair value as determined in good faith by ACC's board of directors. Such determination of fair values may involve subjective judgments and estimates, although we engage independent valuation providers to review the valuation of each portfolio investment that does not have a readily available market quotation at least once annually. With respect to unquoted securities, we value each investment considering, among other measures, discounted cash flow models, comparisons of financial ratios of peer companies and other factors.

Because there is not a readily available market for substantially all of the investments in our portfolio, we value most of our portfolio investments at fair value as determined in good faith by ACC's board of directors using a documented valuation policy and a consistently applied valuation process. Due to the inherent uncertainty of determining the fair value of investments that do not have a readily available market value, the fair value of our investments may differ significantly from the values that would have been used had a readily available market value existed for such investments, and the differences could be material.

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

•

Our quarterly valuation process begins with each portfolio company or investment being initially valued by the investment professionals of the Adviser responsible for the portfolio investment;

•

Preliminary valuation conclusions are then documented and discussed with our senior management and the Adviser committee;

•

The audit committee of ACC's board of directors then reviews these preliminary valuations;

•

At least once quarterly, independent valuation firms engaged by ACC's board of directors will prepare valuations on a selected basis and submit reports to the board of directors; and

•

The board of directors then discusses valuations and determines the fair value of each investment in our portfolio in good faith, based the input of Adviser, the independent valuation firm and the audit committee.

Revenue recognition

We record interest income on an accrual basis to the extent that we expect to collect such amounts. For loans and debt securities with contractual PIK interest, which represents contractual interest accrued and added to the loan balance that generally becomes due at maturity, we do not accrue PIK interest if the portfolio company valuation indicates that such PIK interest is not collectible. We will not accrue interest on loans and debt securities if principal or interest cash payments are past due 30 days or more and/or we have reason to doubt our ability to collect such interest.

Loan origination fees, original issue discount and market discount or premium are capitalized, and we then accrete or amortize such amounts using the effective interest method as interest income. Upon the prepayment of a loan or debt security, any unamortized loan origination is recorded as interest income. We record prepayment premiums on loans and debt securities as interest income.

Off-Balance Sheet Arrangements

We may be a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financial needs of our portfolio companies. Our off-balance sheet arrangements consisted of $9.8 million and $12.3 million of unfunded commitments to provide debt financing to one of our portfolio companies as of September 30, 2015 and December 31, 2014, respectively.

Recent Developments

Subsequent to September 30, 2015, the following activity occurred:

On October 15, 2015, Alcentra funded a $5,500,000 investment in Xpress Global Systems, LLC (13.5% 2^nd Lien).

On October 15, 2015, Stancor repaid a portion of its debt in the amount of $1,028,364.

On October 16, 2015, Alcentra funded a $7,875,000 investment in NTI Holdings, LLC (9% Unitranche) and $350,000 in equity.

On October 20, 2015, Alcentra amended the terms of its deal with My Alarm Company from 16.25% subordinated debt to 12% 2nd lien debt and extended the maturity to July 2019.

On October 30, 2015, Alcentra funded an additional $2,000,000 to Alpine, an existing portfolio company.

On November 5th, 2015, the Board of Directors approved the 2015 fourth quarter dividend of $0.34 per share for shareholders of record date December 31, 2015 and payable January 7, 2016.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

We are subject to financial market risks, including changes in interest rates. As of September 30, 2015 and December 31, 2014, 44.2% and 32%, or 10 and 9 of the loans in our portfolio bore interest at floating rates, respectively. In the future, we expect other loans in our portfolio will have floating rates. As of September 30, 2015 and September 30, 2014, we did not engage in hedging activities.

Changes in interest rates will affect our cost of funding. Our interest expense will be affected by changes in certain published indices such as the LIBOR rate in connection with the Credit Facility.

Item 4. Controls and Procedures

(a) Evaluation of Disclosure Controls and Procedures

The Company’s management, under the supervision and with the participation of various members of management, including its Chief Executive Officer (“CEO”) and its Chief Accounting Officer (“CAO”), has evaluated the effectiveness of its disclosure controls and procedures (as defined in Rule 13a-15(e) or Rule 15d-15(e) of the Exchange Act) as of the end of the period covered by this report. Based upon that evaluation, the Company’s CEO and CAO have concluded that the Company’s disclosure controls and procedures are effective as of the end of the period covered by this report.

(b) Changes in Internal Control Over Financial Reporting

Management did not identify any change in the Company’s internal control over financial reporting that occurred during the quarter ended September 30, 2015 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II — OTHER INFORMATION

Item 1. Legal Proceedings

The Company is not currently subject to any material legal proceedings, other than as set forth below, nor, to its knowledge, is any material legal proceeding threatened against it. From time to time, the Company may be a party to certain legal proceedings in the ordinary course of business, including proceedings relating to the enforcement of its rights under contracts with its portfolio companies. While the outcome of these legal proceedings cannot be predicted with certainty, the Company does not expect that these proceedings will have a material effect upon its financial condition or results of operations.

Item 1A. Risk Factors

There has been no material change in the information provided under the heading “Risk Factors” in the Company’s annual report on Form 10-K/A filed with the SEC on March 19, 2015. Additional risks and uncertainties not currently known to the Company or that it currently deems to be immaterial may materially affect its business, financial condition and/or operating results.

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

None.

Item 3. Defaults Upon Senior Securities

Not applicable.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

Not applicable.

Item 6. Exhibits

The following exhibits are filed as part of this report or hereby incorporated by reference to exhibits previously filed with the SEC:

Exhibit Number		Description
10.1		Amendment No. 3 to the Senior Revolving Credit Agreement, dated August 11, 2015, by and among the Company, as borrower, the lenders party thereto and ING Capital, LLC, as Administrative Agent and bookrunner ⁽¹⁾

11.1		Computation of Per Share Earnings ⁽²⁾

31.1		Chief Executive Officer Certification Pursuant to Exchange Act Rule 13a-14 (a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*

31.2		Chief Accounting Officer Certification Pursuant to Exchange Act Rule 13a-14 (a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*

32.1		Chief Executive Officer Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*

32.2		Chief Accounting Officer Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*

Filed herewith.

⁽¹⁾

Previously filed in connection with the Company’s current report on Form 8-K, filed on August 12, 2015, and incorporated herein by reference

⁽²⁾

Included in the notes to the consolidated financial statements contained in this report

SIGNATURES

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

Dated: November 9, 2015

	By:	/s/ Paul J. Echausse
		Name: Paul J. Echausse
		Title: Chief Executive Officer and President

	By:	/s/ Ellida McMillan
		Name: Ellida McMillan
		Title: Chief Accounting Officer, Secretary, and Treasurer

EXHIBIT INDEX

Exhibit Number		Description
10.1		Amendment No. 3 to the Senior Revolving Credit Agreement, dated August 11, 2015, by and among the Company, as borrower, the lenders party thereto and ING Capital, LLC, as Administrative Agent and bookrunner ⁽¹⁾

11.1		Computation of Per Share Earnings ⁽²⁾

31.1		Chief Executive Officer Certification Pursuant to Exchange Act Rule 13a-14 (a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*

31.2		Chief Accounting Officer Certification Pursuant to Exchange Act Rule 13a-14 (a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*

32.1		Chief Executive Officer Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*

32.2		Chief Accounting Officer Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*

Filed herewith.

⁽¹⁾

Previously filed in connection with the Company’s current report on Form 8-K, filed on August 12, 2015, and incorporated herein by reference

⁽²⁾

Included in the notes to the consolidated financial statements contained in this report

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