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EX-31.2 - CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO RULE 13A-14(A) - Oaktree Strategic Income Corpfsfr-ex312_2015123110xq.htm
EX-32.2 - CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO SECTION 906 - Oaktree Strategic Income Corpfsfr-ex322_2015123110xq.htm
EX-31.1 - CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO RULE 13A-14(A) - Oaktree Strategic Income Corpfsfr-ex311_2015123110xq.htm
EX-32.1 - CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 906 - Oaktree Strategic Income Corpfsfr-ex321_2015123110xq.htm
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-Q
(Mark One)
 
 
þ
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
 
 
OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended December 31, 2015
OR
 
 
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
 
 
OF THE SECURITIES EXCHANGE ACT OF 1934
 
COMMISSION FILE NUMBER: 1-35999
Fifth Street Senior Floating Rate Corp.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
 
DELAWARE
(State or jurisdiction of
incorporation or organization)
 
61-1713295
(I.R.S. Employer
Identification No.)
 
 
 
777 West Putnam Avenue, 3rd Floor
Greenwich, CT
(Address of principal executive office)
 
06830
(Zip Code)

REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE:
(203) 681-3600
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 periods as the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    YES   þ     NO   ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    YES   ¨   NO   ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer  o
 
Accelerated filer  þ
 
Non-accelerated filer  o
 
Smaller reporting company  o
 
 
 
 
(Do not check if a smaller reporting company)
 
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act)    YES  ¨     NO  þ
The registrant had 29,466,768 shares of common stock outstanding as of February 9, 2016.
 

 





TABLE OF CONTENTS
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 3.
Item 4.
 
 





 



PART I — FINANCIAL INFORMATION

Item 1.
Consolidated Financial Statements.

Fifth Street Senior Floating Rate Corp.
Consolidated Statements of Assets and Liabilities
(unaudited)
 
 
 
December 31,
2015
 
September 30,
2015
ASSETS
 
 
Investments at fair value:
 
 
 
 
Control investments (cost December 31, 2015: $60,815,474; cost September 30, 2015: $58,977,973)
 
$
55,243,930

 
$
57,156,921

Non-control/Non-affiliate investments (cost December 31, 2015: $573,264,001; cost September 30, 2015: $574,538,984)
 
548,711,905

 
566,490,553

Total investments at fair value (cost December 31, 2015: $634,079,475; cost September 30, 2015: $633,516,957)
 
603,955,835

 
623,647,474

Cash and cash equivalents
 
13,145,865

 
41,433,301

Restricted cash
 
7,346,098

 
11,258,796

Interest, dividends and fees receivable
 
3,535,034

 
2,783,379

Due from portfolio companies
 
209,312

 
11,587

Receivables from unsettled transactions
 
11,427,161

 
13,541,056

Deferred financing costs
 
4,799,894

 
5,001,675

Other assets
 
62,567

 
33,216

Total assets
 
$
644,481,766

 
$
697,710,484

LIABILITIES AND NET ASSETS
 
 
Liabilities:
 
 
 
 
Accounts payable, accrued expenses and other liabilities
 
$
1,882,712

 
$
1,964,249

Base management fee and incentive fee payable
 
859,209

 
2,055,179

Due to FSC CT
 
379,846

 
379,641

Interest payable
 
1,538,385

 
1,669,012

Distributions payable
 
2,210,008

 

Payables from unsettled transactions
 
11,393,092

 
11,809,500

Credit facilities payable
 
109,226,800

 
136,659,800

Notes payable
 
182,331,000

 
186,366,000

Total liabilities
 
309,821,052

 
340,903,381

Commitments and contingencies (Note 14)
 
 
 
 
Net assets:
 
 
 
 
Common stock, $0.01 par value, 150,000,000 shares authorized; 29,466,768 shares issued and outstanding at December 31, 2015 and September 30, 2015
 
294,668

 
294,668

Additional paid-in-capital
 
373,995,934

 
373,995,934

Net unrealized depreciation on investments
 
(30,123,640
)
 
(9,869,483
)
Net realized gain on investments
 
1,745,950

 
1,800,070

Accumulated overdistributed net investment income
 
(11,252,198
)
 
(9,414,086
)
Total net assets (equivalent to $11.36 and $12.11 per common share at December 31, 2015 and September 30, 2015, respectively) (Note 13)
 
334,660,714

 
356,807,103

Total liabilities and net assets
 
$
644,481,766

 
$
697,710,484

See notes to Consolidated Financial Statements.


3


Fifth Street Senior Floating Rate Corp.
Consolidated Statements of Operations
(unaudited)

 
 
Three months ended
December 31, 2015
 
Three months ended
December 31, 2014
(see Note 2)
Interest income:
 
 
 
 
Control investments
 
$
1,120,491

 
$

Non-control/Non-affiliate investments
 
11,005,597

 
8,261,529

Interest on cash and cash equivalents
 
20,399

 
3,935

Total interest income
 
12,146,487

 
8,265,464

PIK interest income:
 
 
 
 
Non-control/Non-affiliate investments
 
17,161

 

Total PIK interest income
 
17,161

 

Fee income:
 
 
 
 
Non-control/Non-affiliate investments
 
1,312,607

 
3,657,679

Total fee income
 
1,312,607

 
3,657,679

Dividend and other income:
 
 
 
 
Control investments
 
437,500

 

Total dividend and other income
 
437,500

 

Total investment income
 
13,913,755

 
11,923,143

Expenses:
 
 
 
 
Base management fee
 
1,586,192

 
1,156,911

Part I incentive fee
 
1,748,812

 
1,787,394

Part II incentive fee
 

 
(257,141
)
Professional fees
 
722,803

 
309,786

Board of Directors fees
 
168,650

 
98,250

Interest expense
 
2,273,433

 
886,155

Administrator expense
 
185,000

 
246,135

General and administrative expenses
 
226,947

 
200,151

Total expenses
 
6,911,837

 
4,427,641

Net investment income
 
7,001,918

 
7,495,502

Unrealized appreciation (depreciation) on investments:
 
 
 
 
Control investments
 
(3,750,492
)
 

  Non-control/Non-affiliate investments
 
(16,503,665
)
 
(1,439,578
)
Net unrealized depreciation on investments
 
(20,254,157
)
 
(1,439,578
)
Realized gain (loss) on investments:
 
 
 
 
  Non-control/Non-affiliate investments
 
(54,120
)
 
428,002

Net realized gain (loss) on investments
 
(54,120
)
 
428,002

Net increase (decrease) in net assets resulting from operations
 
$
(13,306,359
)
 
$
6,483,926

Net investment income per common share — basic and diluted
 
$
0.24

 
$
0.25

Earnings (loss) per common share — basic and diluted
 
$
(0.45
)
 
$
0.22

Weighted average common shares outstanding — basic and diluted
 
29,466,768

 
29,466,768

Distributions per common share (Note 6)
 
$
0.30

 
$
0.30

 



See notes to Consolidated Financial Statements.

4


Fifth Street Senior Floating Rate Corp.
Consolidated Statements of Changes in Net Assets
(unaudited)

 
 
 
Three months ended
December 31, 2015
 
Three months ended
December 31, 2014
(see Note 2)
Operations:
 
 
 
 
Net investment income
 
$
7,001,918

 
$
7,495,502

Net unrealized depreciation on investments
 
(20,254,157
)
 
(1,439,578
)
Net realized gain (loss) on investments
 
(54,120
)
 
428,002

Net increase (decrease) in net assets resulting from operations
 
(13,306,359
)
 
6,483,926

Stockholder transactions:
 
 
 
 
Distributions to stockholders
 
(8,840,030
)
 
(8,840,030
)
Net decrease in net assets from stockholder transactions
 
(8,840,030
)
 
(8,840,030
)
Capital share transactions:
 
 
 
 
Issuance of common stock under dividend reinvestment plan
 
319,856

 
242,678

Repurchases of common stock under dividend reinvestment plan
 
(319,856
)
 
(242,678
)
Net increase in net assets from capital share transactions
 

 

Total decrease in net assets
 
(22,146,389
)
 
(2,356,104
)
Net assets at beginning of period
 
356,807,103

 
372,677,678

Net assets at end of period
 
$
334,660,714

 
$
370,321,574

Net asset value per common share
 
$
11.36

 
$
12.57

Common shares outstanding at end of period
 
29,466,768

 
29,466,768

See notes to Consolidated Financial Statements.


5


Fifth Street Senior Floating Rate Corp.
Consolidated Statements of Cash Flows
(unaudited)
 
 
 
Three months ended
December 31, 2015
 
Three months ended
December 31, 2014
(see Note 2)
Operating activities:
 
 
 

Net increase (decrease) in net assets resulting from operations
 
$
(13,306,359
)
 
$
6,483,926

Adjustments to reconcile net increase (decrease) in net assets resulting from operations to net cash provided (used) by operating activities:
 
 
 
 
Net unrealized depreciation on investments
 
20,254,157

 
1,439,578

Net realized (gain) loss on investments
 
54,120

 
(428,002
)
PIK interest income
 
(17,161
)
 

Recognition of fee income
 
(1,312,607
)
 
(3,657,679
)
Accretion of original issue discount on investments
 
(557,498
)
 
(420,921
)
Amortization of deferred financing costs
 
201,781

 
79,762

Changes in operating assets and liabilities:
 
 
 
 
Fee income received
 
1,398,382

 
3,810,252

(Increase) decrease in restricted cash
 
3,912,698

 
(993,405
)
Increase in interest and fees receivable
 
(751,655
)
 
(613,969
)
(Increase) decrease in due from portfolio companies
 
(197,725
)
 
50,937

(Increase) decrease in receivables from unsettled transactions
 
2,113,895

 
(22,245,540
)
Increase in other assets
 
(29,351
)
 
(32,136
)
Increase (decrease) in accounts payable, accrued expenses and other liabilities
 
(81,537
)
 
1,143,179

Increase (decrease) in base management fee and incentive fee payable
 
(1,195,970
)
 
1,285,547

Increase in due to FSC CT
 
205

 
139,264

Increase (decrease) in interest payable
 
(130,627
)
 
440,342

Increase (decrease) in payables from unsettled transactions
 
(416,408
)
 
37,872,500

Purchases of investments and net revolver activity
 
(132,415,573
)
 
(438,959,301
)
Principal payments applied to investments (scheduled payments)
 
2,574,842

 
2,384,401

Principal payments applied to investments (payoffs)
 
52,825,096

 
11,750,000

Proceeds from the sale of investments
 
76,887,881

 
128,228,815

Net cash provided (used) by operating activities
 
9,810,586

 
(272,242,450
)
Financing activities:
 
 
 
 
Distributions paid in cash
 
(6,310,166
)
 
(8,648,937
)
Borrowings under credit facilities
 
4,267,000

 
259,000,000

Repayments of borrowings under credit facilities
 
(31,700,000
)
 
(74,152,354
)
Proceeds from issuance of notes payable
 
12,215,000

 

Repayments of notes payable
 
(16,250,000
)
 

Repurchases of common stock under dividend reinvestment plan
 
(319,856
)
 
(191,093
)
Deferred financing costs paid
 

 
(1,019,000
)
Net cash provided (used) by financing activities
 
(38,098,022
)
 
174,988,616

Net decrease in cash and cash equivalents
 
(28,287,436
)
 
(97,253,834
)
Cash and cash equivalents, beginning of period
 
41,433,301

 
107,429,760

Cash and cash equivalents, end of period
 
$
13,145,865

 
$
10,175,926

Supplemental information:
 
 
 
 
Cash paid for interest
 
$
2,202,279

 
$
397,047

Non-cash financing activities:
 
 
 
 
Issuance of shares of common stock under dividend reinvestment plan
 
$
319,856

 
$
191,093

See notes to Consolidated Financial Statements.

6

Fifth Street Senior Floating Rate Corp.
Consolidated Schedule of Investments
December 31, 2015
(unaudited)


Portfolio Company/Type of Investment (1)(2)
 
Industry
 
Principal (5)

 
Cost
 
Fair Value
Control Investments (3)
 
 
 
 
 
 
 
 
 FSFR Glick JV LLC
 
Multi-sector holdings
 
 
 
 
 
 
 Subordinated Note, LIBOR+8% cash due 10/20/2021 (7)(8)(12)
 
 
 
$
54,749,347

 
$
54,749,348

 
$
53,531,179

 87.5% equity interest (7)
 
 
 
 
 
6,066,126

 
1,712,751

 
 
 
 
 
 
60,815,474

 
55,243,930

 Total Control Investments (16.5% of net assets)
 
 
 
 
 
$
60,815,474

 
$
55,243,930

Affiliate Investments (4)
 
 
 
 
 
$

 
$

Non-Control/Non-Affiliate Investments (6)
 
 
 
 
 
 
 
 
 Triple Point Group Holdings, Inc.
 
Application software
 
 
 
 
 
 
 First Lien Revolver, LIBOR+4.25% (1% floor) cash due 7/10/2018 (8)(11)
 
 
 
 
 
$

 
$

 
 
 
 
 
 

 

 Blackhawk Specialty Tools, LLC
 
Oil & gas equipment & services
 
 
 
 
 
 
 First Lien Term Loan, LIBOR+5.25% (1.25% floor) cash due 8/1/2019 (8)(13)
 
 
 
$
4,437,496

 
4,358,329

 
4,104,683

 
 
 
 
 
 
4,358,329

 
4,104,683

 New Trident Holdcorp, Inc.
 
Healthcare services
 
 
 
 
 
 
 First Lien Term Loan B, LIBOR+5.25% (1.25% floor) cash due 7/31/2019 (8)(10)(13)
 
 
 
11,818,486

 
11,678,250

 
11,369,383

 Second Lien Term Loan, LIBOR+9% (1.25% floor) cash due 7/31/2020 (8)
 
 
 
1,000,000

 
970,250

 
956,250

 
 
 
 
 
 
12,648,500

 
12,325,633

 Landslide Holdings, Inc.
 
Application software
 
 
 
 
 
 
 First Lien Revolver, LIBOR+4.25% (1% floor) cash due 8/9/2018 (8)(11)
 
 
 
 
 

 

 
 
 
 
 
 

 

 Smile Brands Group Inc.
 
Healthcare services
 
 
 
 
 
 
 First Lien Term Loan B, LIBOR+6.25% (1.25% floor) cash due 8/16/2019 (8)(9)(13)
 
 
 
5,726,250

 
5,435,803

 
4,145,805

 
 
 
 
 
 
5,435,803

 
4,145,805

 NXT Capital, LLC
 
Diversified capital markets
 
 
 
 
 
 
 First Lien Term Loan, LIBOR+5.25% (1% floor) cash due 9/4/2020 (8)(13)
 
 
 
8,787,309

 
8,738,415

 
8,787,089

 
 
 
 
 
 
8,738,415

 
8,787,089

 Vitera Healthcare Solutions, LLC
 
Healthcare technology
 
 
 
 
 
 
 First Lien Term Loan, LIBOR+5% (1% floor) cash due 11/4/2020 (8)(13)
 
 
 
4,900,000

 
4,892,804

 
4,630,500

 
 
 
 
 
 
4,892,804

 
4,630,500

 The Active Network, Inc.
 
Internet software & services
 
 
 
 
 
 
 Second Lien Term Loan, LIBOR+8.5% (1% floor) cash due 11/15/2021 (8)(13)
 
 
 
2,400,000

 
2,301,665

 
2,252,004

 
 
 
 
 
 
2,301,665

 
2,252,004

 Accruent, LLC
 
Internet software & services
 
 
 
 
 
 
 First Lien Term Loan, LIBOR+4.5% (1.25% floor) cash due 11/25/2019 (8)(9)(10)(13)
 
 
 
19,821,886

 
19,821,886

 
19,500,556

 
 
 
 
 
 
19,821,886

 
19,500,556

 Pacific Architects and Engineers Incorporated
 
Diversified support services
 
 
 
 
 
 
 First Lien Term Loan B, LIBOR+6.25% (1% floor) cash due 7/17/2018 (8)(13)
 
 
 
3,430,000

 
3,401,403

 
3,344,250

 
 
 
 
 
 
3,401,403

 
3,344,250

 Survey Sampling International, LLC
 
Research & consulting services
 
 
 
 
 
 
 First Lien Term Loan, LIBOR+5% (1% floor) cash due 12/16/2020 (8)(10)(13)
 
 
 
8,337,000

 
8,283,733

 
8,222,366

 Second Lien Term Loan, LIBOR+9% (1% floor) cash due 12/16/2021 (8)
 
 
 
1,000,000

 
983,095

 
980,000

 
 
 
 
 
 
9,266,828

 
9,202,366

See notes to Consolidated Financial Statements.

7

Fifth Street Senior Floating Rate Corp.
Consolidated Schedule of Investments
December 31, 2015
(unaudited)


Portfolio Company/Type of Investment (1)(2)
 
Industry
 
Principal (5)

 
Cost
 
Fair Value
 Answers Corporation
 
Internet software & services
 
 
 
 
 
 
 First Lien Term Loan, LIBOR+5.25% (1% floor) cash due 10/1/2021 (8)(10)(13)
 
 
 
$
11,880,000

 
$
11,476,816

 
$
8,078,400

 Second Lien Term Loan, LIBOR+9% (1% floor) cash due 10/3/2022 (8)
 
 
 
8,000,000

 
7,605,257

 
2,649,496

 
 
 
 
 
 
19,082,073

 
10,727,896

 Maxor National Pharmacy Services, LLC
 
Pharmaceuticals
 
 
 
 
 
 
 First Lien Term Loan, LIBOR+5.25% (1.25% floor) cash due 1/31/2020 (8)(10)(13)
 
 
 
9,800,000

 
9,800,000

 
9,442,764

 
 
 
 
 
 
9,800,000

 
9,442,764

 NextCare, Inc.
 
Healthcare services
 
 
 
 
 
 
 Senior Term Loan, LIBOR+6% (1% floor) cash due 7/31/2018 (8)(13)
 
 
 
7,082,539

 
7,082,539

 
7,014,412

Delayed Draw Term Loan, LIBOR+6% (1% floor) cash due 7/31/2018 (8)
 
 
 
1,411,496

 
1,411,496

 
1,369,248

 
 
 
 
 
 
8,494,035

 
8,383,660

 J.A. Cosmetics Holdings, Inc.
 
Personal products
 
 
 
 
 
 
 First Lien Term Loan, LIBOR+5% (1.25% floor) cash due 1/31/2019 (8)(13)
 
 
 
4,781,250

 
4,758,750

 
4,763,320

 
 
 
 
 
 
4,758,750

 
4,763,320

 B&H Education, Inc. (see Note 15)
 
Education services
 
 
 
 
 
 
 First Lien Term Loan, LIBOR+5.25% (1.5% floor) cash due 5/3/2015 (8)(14)
 
 
 
5,686,571

 
5,686,571

 
3,726,200

 
 
 
 
 
 
5,686,571

 
3,726,200

 Aptean, Inc.
 
Application software
 
 
 
 
 
 
 Second Lien Term Loan, LIBOR+7.5% (1% floor) cash due 2/26/2021 (8)
 
 
 
1,250,000

 
1,238,170

 
1,205,206

 
 
 
 
 
 
1,238,170

 
1,205,206

 Stratus Technologies, Inc.
 
Computer hardware
 
 
 
 
 
 
 First Lien Term Loan, LIBOR+5% (1% floor) cash due 4/28/2021 (8)(13)
 
 
 
4,069,444

 
4,038,624

 
4,003,316

 
 
 
 
 
 
4,038,624

 
4,003,316

 TravelCLICK, Inc.
 
Internet software & services
 
 
 
 
 
 
 Second Lien Term Loan, LIBOR+7.75% (1% floor) cash due 11/6/2021 (8)(13)
 
 
 
3,380,000

 
3,286,268

 
3,177,200

 
 
 
 
 
 
3,286,268

 
3,177,200

 Language Line, LLC
 
Integrated telecommunication services
 
 
 
 
 
 
 First Lien Term Loan, LIBOR+5.5% (1% floor) cash due 7/7/2021 (8)(13)
 
 
 
6,690,833

 
6,690,833

 
6,671,330

 Second Lien Term Loan, LIBOR+9.75% (1% floor) cash due 7/7/2022 (8)(13)
 
 
 
8,000,000

 
8,000,000

 
7,930,000

 
 
 
 
 
 
14,690,833

 
14,601,330

 GTCR Valor Companies, Inc.
 
Advertising
 
 
 
 
 
 
 First Lien Term Loan, LIBOR+5% (1% floor) cash due 5/30/2021 (8)(10)(13)
 
 
 
13,421,981

 
13,242,245

 
13,354,871

 
 
 
 
 
 
13,242,245

 
13,354,871

 ConvergeOne Holdings Corp.
 
Integrated telecommunication services
 
 
 
 
 
 
 First Lien Term Loan, LIBOR+5% (1% floor) cash due 6/17/2020 (8)(13)
 
 
 
5,384,005

 
5,351,832

 
5,316,705

 
 
 
 
 
 
5,351,832

 
5,316,705

 Verdesian Life Sciences, LLC
 
Fertilizers & agricultural chemicals
 
 
 
 
 
 
 First Lien Term Loan, LIBOR+5% (1% floor) cash due 7/1/2020 (8)(13)
 
 
 
3,704,932

 
3,665,459

 
3,575,259

 
 
 
 
 
 
3,665,459

 
3,575,259

See notes to Consolidated Financial Statements.

8

Fifth Street Senior Floating Rate Corp.
Consolidated Schedule of Investments
December 31, 2015
(unaudited)


Portfolio Company/Type of Investment (1)(2)
 
Industry
 
Principal (5)

 
Cost
 
Fair Value
 PR Wireless, Inc.
 
Wireless telecommunication services
 
 
 
 
 
 
 First Lien Term Loan, LIBOR+9% (1% floor) cash due 6/29/2020 (7)(8)
 
 
 
$
5,881,554

 
$
5,739,890

 
$
5,286,124

 35.5263 Common Stock Warrants (7)
 
 
 
 
 

 
154,314

 
 
 
 
 
 
5,739,890

 
5,440,438

 TV Borrower US, LLC
 
Integrated telecommunication services
 
 
 
 
 
 
 First Lien Term Loan, LIBOR+5% (1% floor) cash due 1/8/2021 (7)(8)(13)
 
 
 
6,912,500

 
6,781,250

 
6,845,553

 Second Lien Term Loan, LIBOR+8.5% (1% floor) cash due 7/8/2021 (7)(8)(13)
 
 
 
3,000,000

 
2,907,365

 
2,895,000

 
 
 
 
 
 
9,688,615

 
9,740,553

 American Dental Partners, Inc.
 
Healthcare services
 
 
 
 
 
 
 First Lien Term Loan, LIBOR+4.75% (1% floor) cash due 8/30/2021 (8)(10)
 
 
 
5,925,000

 
5,901,786

 
5,925,000

 
 
 
 
 
 
5,901,786

 
5,925,000

 BeyondTrust Software, Inc.
 
Application software
 
 
 
 
 
 
 First Lien Term Loan, LIBOR+7% (1% floor) cash due 9/25/2019 (8)(10)(13)
 
 
 
19,821,886

 
19,560,204

 
19,630,728

 First Lien Revolver, LIBOR+7% (1% floor) cash due 9/25/2019 (8)(11)
 
 
 
 
 
(37,195
)
 

 500,000 Class A membership interest in BeyondTrust Holdings LLC
 
 
 
 
 
500,000

 
819,333

 
 
 
 
 
 
20,023,009

 
20,450,061

 Hill International, Inc.
 
Construction and engineering
 
 
 
 
 
 
 First Lien Term Loan, LIBOR+6.75% (1% floor) cash due 9/26/2020 (8)(13)
 
 
 
6,023,750

 
5,936,317

 
6,016,220

 
 
 
 
 
 
5,936,317

 
6,016,220

 Teaching Strategies, LLC
 
Education services
 
 
 
 
 
 
 First Lien Term Loan, LIBOR+5.5% (0.5% floor) cash due 10/1/2019 (8)(10)(13)
 
 
 
15,808,436

 
15,737,968

 
15,519,519

 First Lien Revolver, LIBOR+5.5% (0.5% floor) cash due 10/1/2019 (8)(11)
 
 
 
 
 
(1,317
)
 

 
 
 
 
 
 
15,736,651

 
15,519,519

 Dynatect Group Holdings, Inc.
 
Industrial machinery
 
 
 
 
 
 
 First Lien Term Loan, LIBOR+4.5% (1% floor) cash due 9/30/2020 (8)(10)(13)
 
 
 
3,960,000

 
3,960,000

 
3,857,324

 First Lien Delayed Draw Term Loan, LIBOR+4.5% (1% floor) cash due 9/30/2020 (8)(10)(11)
 
 
 
 
 

 

 
 
 
 
 
 
3,960,000

 
3,857,324

 Idera, Inc.
 
Internet software & services
 
 
 
 
 
 
 First Lien Term Loan, LIBOR+5.5% (1% floor) cash due 4/9/2021 (8)(10)(13)
 
 
 
20,000,000

 
19,045,455

 
18,300,000

 
 
 
 
 
 
19,045,455

 
18,300,000

 Central Security Group, Inc.
 
Specialized consumer services
 
 
 
 
 
 
 First Lien Term Loan, LIBOR+5.25% (1% floor) cash due 10/6/2020 (8)(10)
 
 
 
2,559,113

 
2,534,572

 
2,487,138

 
 
 
 
 
 
2,534,572

 
2,487,138

See notes to Consolidated Financial Statements.

9

Fifth Street Senior Floating Rate Corp.
Consolidated Schedule of Investments
December 31, 2015
(unaudited)


Portfolio Company/Type of Investment (1)(2)
 
Industry
 
Principal (5)

 
Cost
 
Fair Value
 Kellermeyer Bergensons Services, LLC
 
Diversified support services
 
 
 
 
 
 
 First Lien Term Loan, LIBOR+5% (1% floor) cash due 10/29/2021 (8)(13)
 
 
 
$
5,346,000

 
$
5,284,333

 
$
5,051,970

 Second Lien Term Loan, LIBOR+8.5% (1% floor) cash due 4/29/2022 (8)(13)
 
 
 
280,000

 
280,000

 
277,200

 
 
 
 
 
 
5,564,333

 
5,329,170

 GOBP Holdings Inc.
 
Food retail
 
 
 
 
 
 
 Second Lien Term Loan, LIBOR+8.25% (1% floor) cash due 10/21/2022 (8)(10)(13)
 
 
 
6,400,000

 
6,331,431

 
6,312,000

 
 
 
 
 
 
6,331,431

 
6,312,000

 NAVEX Global, Inc.
 
Internet software & services
 
 
 
 
 
 
 First Lien Term Loan, LIBOR+4.75% (1% floor) cash due 11/19/2021 (8)(13)
 
 
 
6,785,308

 
6,712,227

 
6,581,748

 Second Lien Term Loan, LIBOR+8.75% (1% floor) cash due 11/18/2022 (8)
 
 
 
1,500,000

 
1,500,000

 
1,455,000

 
 
 
 
 
 
8,212,227

 
8,036,748

 Executive Consulting Group, LLC
 
Healthcare services
 
 
 
 
 
 
 First Lien Term Loan, LIBOR+4.75% (1% floor) cash due 11/21/2019 (8)(10)(13)
 
 
 
7,000,000

 
7,000,000

 
6,852,106

 Delayed Draw Term Loan, LIBOR+4.75% (1% floor) cash due 11/21/2019 (8)(10)(11)
 
 
 
 
 

 

 
 
 
 
 
 
7,000,000

 
6,852,106

 TIBCO Software, Inc.
 
Internet software & services
 
 
 
 
 
 
 First Lien Term Loan, LIBOR+5.5% (1% floor) cash due 12/4/2020 (8)(10)
 
 
 
7,979,700

 
7,576,601

 
7,271,502

 First Lien Revolver, LIBOR+4% cash due 11/25/2020 (8)
 
 
 
1,272,000

 
1,272,000

 
1,176,600

 
 
 
 
 
 
8,848,601

 
8,448,102

 Metamorph US 3, LLC
 
Internet software & services
 
 
 
 
 
 
 First Lien Term Loan, LIBOR+5.5% (1% floor) cash due 12/1/2020 (8)(10)(13)
 
 
 
17,200,472

 
17,072,980

 
16,782,148

 First Lien Revolver, LIBOR+5.5% (1% floor) cash due 12/1/2020 (8)(13)
 
 
 
600,000

 
565,344

 
600,000

 
 
 
 
 
 
17,638,324

 
17,382,148

 Compuware Corporation
 
Internet software & services
 
 
 
 
 
 
 First Lien Term Loan B1, LIBOR+5.25% (1% floor) cash due 12/15/2019 (8)(10)(13)
 
 
 
8,147,152

 
8,035,641

 
7,731,647

 First Lien Term Loan B2, LIBOR+5.25% (1% floor) cash due 12/15/2021 (8)(10)
 
 
 
6,435,000

 
6,160,298

 
6,019,396

 
 
 
 
 
 
14,195,939

 
13,751,043

 AF Borrower, LLC
 
IT consulting & other services
 
 
 
 
 
 
 First Lien Term Loan, LIBOR+5.25% (1% floor) cash due 1/28/2022 (8)(13)
 
 
 
4,293,403

 
4,121,901

 
4,215,585

 
 
 
 
 
 
4,121,901

 
4,215,585

 Ameritox Ltd.
 
Healthcare services
 
 
 
 
 
 
 First Lien Term Loan, LIBOR+7.5% (1% floor) cash due 6/23/2019 (8)(10)(13)
 
 
 
19,680,542

 
19,661,876

 
12,567,891

 First Lien Revolver, LIBOR+7.5% (1% floor) cash due 6/23/2019 (8)
 
 
 
1,200,000

 
1,198,667

 
766,216

 
 
 
 
 
 
20,860,543

 
13,334,107

 TrialCard Incorporated
 
Healthcare services
 
 
 
 
 
 
 First Lien Term Loan, LIBOR+5.25% (1% floor) cash due 12/31/2019 (8)(9)(10)(13)
 
 
 
10,085,815

 
10,056,976

 
9,999,207

 First Lien Revolver, LIBOR+5.25% (1% floor) cash due 12/31/2019 (8)(9)(11)
 
 
 
 
 
(2,060
)
 

 
 
 
 
 
 
10,054,916

 
9,999,207

 Motion Recruitment Partners LLC
 
Diversified support services
 
 
 
 
 
 
 First Lien Term Loan, LIBOR+6% (1% floor) cash due 2/13/2020 (8)(10)(13)
 
 
 
14,527,500

 
14,524,810

 
14,404,957

 First Lien Revolver, LIBOR+6% (1% floor) cash due 2/13/2020 (8)(11)
 
 
 
 
 
(240
)
 

 
 
 
 
 
 
14,524,570

 
14,404,957

See notes to Consolidated Financial Statements.

10

Fifth Street Senior Floating Rate Corp.
Consolidated Schedule of Investments
December 31, 2015
(unaudited)


Portfolio Company/Type of Investment (1)(2)
 
Industry
 
Principal (5)

 
Cost
 
Fair Value
 PowerPlan, Inc.
 
Internet software & services
 
 
 
 
 
 
 First Lien Term Loan, LIBOR+5.25% (1% floor) cash due 2/23/2022 (8)(10)(13)
 
 
 
$
13,668,333

 
$
13,668,333

 
$
12,880,135

 First Lien Revolver, LIBOR+5.25% (1% floor) cash due 2/23/2021 (8)(11)
 
 
 
 
 

 

 
 
 
 
 
 
13,668,333

 
12,880,135

 Digital River, Inc.
 
Internet software & services
 
 
 
 
 
 
 First Lien Term Loan, LIBOR+6.5% (1% floor) cash due 2/12/2021 (8)(13)
 
 
 
4,523,868

 
4,340,511

 
4,478,630

 
 
 
 
 
 
4,340,511

 
4,478,630

 Research Now Group, Inc.
 
Data processing & outsourced services
 
 
 
 
 
 
 First Lien Term Loan, LIBOR+4.5% (1% floor) cash due 3/18/2021 (8)(13)
 
 
 
1,721,875

 
1,700,347

 
1,704,656

 Second Lien Term Loan, LIBOR+8.75% (1% floor) cash due 3/18/2022 (8)(10)
 
 
 
4,000,000

 
3,947,143

 
3,880,000

 
 
 
 
 
 
5,647,490

 
5,584,656

 Fineline Technologies, Inc.
 
 Electronic equipment & instruments
 
 
 
 
 
 
 First Lien Term Loan, LIBOR+5.5% (1% floor) cash due 5/5/2017 (8)(10)(13)
 
 
 
13,580,000

 
13,580,000

 
13,478,550

 
 
 
 
 
 
13,580,000

 
13,478,550

 My Alarm Center, LLC
 
Security & alarm services
 
 
 
 
 
 
 First Lien Term Loan A, LIBOR+8% (1% floor) cash due 1/9/2018 (8)(10)(13)
 
 
 
16,047,619

 
16,047,619

 
15,999,899

 First Lien Term Loan B, LIBOR+8% (1% floor) cash due 1/9/2018 (8)(10)
 
 
 
859,142

 
859,142

 
856,911

 First Lien Term Loan C, LIBOR+8% (1% floor) cash due 1/9/2018 (8)
 
 
 
620,878

 
620,878

 
616,162

 First Lien Term Revolver, LIBOR+8% (1% floor) cash due 1/9/2018 (8)(11)
 
 
 
 
 

 

 
 
 
 
 
 
17,527,639

 
17,472,972

 Legalzoom.com, Inc.
 
Specialized consumer services
 
 
 
 
 
 
 First Lien Term Loan, LIBOR+7% (1% floor) cash due 5/13/2020 (8)(10)(13)
 
 
 
19,850,000

 
19,835,465

 
19,566,641

 First Lien Revolver, LIBOR+7% (1% floor) cash due 5/13/2020 (8)(11)
 
 
 
 
 
(1,263
)
 

 
 
 
 
 
 
19,834,202

 
19,566,641

 TWCC Holding Corp.
 
Specialized consumer services
 
 
 
 
 
 
 First Lien Term Loan B1, LIBOR+5% (0.75% floor) cash due 2/11/2020 (8)(13)
 
 
 
6,352,000

 
6,296,982

 
6,355,398

 
 
 
 
 
 
6,296,982

 
6,355,398

 Raley's
 
Food retail
 
 
 
 
 
 
 First Lien Term Loan, LIBOR+6.25% (1% floor) cash due 5/18/2022 (8)(13)
 
 
 
3,997,500

 
3,923,310

 
3,977,513

 
 
 
 
 
 
3,923,310

 
3,977,513

 Retail Solutions Group, Inc.
 
Data processing & outsourced services
 
 
 
 
 
 
 First Lien Term Loan, LIBOR+5.25% (0.75% floor) cash due 6/23/2022 (8)(13)
 
 
 
5,970,000

 
5,917,667

 
5,940,150

 
 
 
 
 
 
5,917,667

 
5,940,150

 All Web Leads, Inc.
 
Advertising
 
 
 
 
 
 
 First Lien Term Loan, LIBOR+6.5% (1% floor) cash due 6/30/2020 (8)(10)(13)
 
 
 
30,541,464

 
30,529,129

 
30,541,463

 First Lien Revolver, LIBOR+6.5% (1% floor) cash due 6/30/2020 (8)(11)
 
 
 
 
 
(1,821
)
 

 
 
 
 
 
 
30,527,308

 
30,541,463

 Too Faced Cosmetics, LLC
 
Personal products
 
 
 
 
 
 
 First Lien Term Loan, LIBOR+5% (1% floor) cash due 7/7/2021 (8)(13)
 
 
 
5,955,000

 
5,955,000

 
5,909,136

 
 
 
 
 
 
5,955,000

 
5,909,136

 Internet Pipeline, Inc.
 
Internet software & services
 
 
 
 
 
 
 First Lien Term Loan, LIBOR+7.25% (1% floor) cash due 8/4/2022 (8)(13)
 
 
 
11,970,000

 
11,970,000

 
11,962,457

 First Lien Revolver, LIBOR+7.25% (1% floor) cash due 8/4/2021 (8)(11)
 
 
 
 
 

 

 
 
 
 
 
 
11,970,000

 
11,962,457

 Worley Claims Services, LLC
 
Internet software & services
 
 
 
 
 
 
 First Lien Term Loan, LIBOR+8% (1% floor) cash due 10/31/2020 (8)
 
 
 
1,446,358

 
1,432,342

 
1,439,126

 
 
 
 
 
 
1,432,342

 
1,439,126

 Poseidon Merger Sub, Inc.
 
Advertising
 
 
 
 
 
 
 First Lien Term Loan, LIBOR+4.75% (1% floor) cash due 8/15/2022 (8)(13)
 
 
 
3,990,000

 
3,980,595

 
3,950,100

 Second Lien Term Loan, LIBOR+8.5% (1% floor) cash due 8/15/2023 (8)
 
 
 
7,000,000

 
6,983,609

 
6,956,181

 
 
 
 
 
 
10,964,204

 
10,906,281

See notes to Consolidated Financial Statements.

11

Fifth Street Senior Floating Rate Corp.
Consolidated Schedule of Investments
December 31, 2015
(unaudited)


Portfolio Company/Type of Investment (1)(2)
 
Industry
 
Principal (5)

 
Cost
 
Fair Value
 American Seafoods Group LLC
 
Food distributors
 
 
 
 
 
 
 First Lien Term Loan, LIBOR+5% (1% floor) cash due 8/19/2021 (8)(13)
 
 
 
$
5,985,000

 
$
5,930,556

 
$
5,935,115

 Second Lien Term Loan, LIBOR+9% (1% floor) cash due 2/19/2022 (8)
 
 
 
3,000,000

 
2,971,923

 
2,995,855

 
 
 
 
 
 
8,902,479

 
8,930,970

 CRGT Inc.
 
IT consulting & other services
 
 
 
 
 
 
 First Lien Term Loan, LIBOR+6.5% (1% floor) cash due 12/19/2020 (8)(13)
 
 
 
3,850,633

 
3,841,645

 
3,831,380

 
 
 
 
 
 
3,841,645

 
3,831,380

 Valet Merger Sub, Inc.
 
Environmental & facilities services
 
 
 
 
 
 
 First Lien Term Loan, LIBOR+7% (1% floor) cash due 9/24/2021 (8)(13)
 
 
 
9,975,000

 
9,829,889

 
9,830,274

 First Lien Revolver, LIBOR+7% (1% floor) cash due 9/24/2021 (8)
 
 
 
333,333

 
318,822

 
328,333

 
 
 
 
 
 
10,148,711

 
10,158,607

 Baart Programs, Inc.
 
Healthcare services
 
 
 
 
 
 
 First Lien Term Loan, LIBOR+7.75% cash due 10/9/2021 (8)
 
 
 
7,719,115

 
7,573,356

 
7,603,329

 First Lien Revolver, LIBOR+7.75% cash due 10/9/2021 (8)(11)
 
 
 
 
 
(15,529
)
 

 
 
 
 
 
 
7,557,827

 
7,603,329

 DigiCert, Inc.
 
Internet software & services
 
 
 
 
 
 
 Second Lien Term Loan, LIBOR+9% (1% floor) cash due 10/21/2022 (8)
 
 
 
2,000,000

 
1,980,714

 
1,980,000

 
 
 
 
 
 
1,980,714

 
1,980,000

 Sundial Group Holdings LLC
 
Personal products
 
 
 
 
 
 
 First Lien Term Loan, LIBOR+6.25% (1% floor) cash due 10/19/2021 (8)
 
 
 
4,000,000

 
3,922,254

 
4,000,000

 
 
 
 
 
 
3,922,254

 
4,000,000

 TruckPro LLC
 
Auto parts & equipment
 
 
 
 
 
 
 First Lien Term Loan, LIBOR+5% (1% floor) cash due 8/6/2018 (8)
 
 
 
1,980,000

 
1,980,000

 
1,977,228

 
 
 
 
 
 
1,980,000

 
1,977,228

 RSC Acquisition, Inc.
 
Insurance brokers
 
 
 
 
 
 
 First Lien Term Loan, LIBOR+5.25% (1% floor) cash due 11/30/2022 (8)
 
 
 
3,512,195

 
3,477,496

 
3,490,244

 Delayed Draw Term Loan, LIBOR+5.25% (1% floor) cash due 11/30/2022 (8)(11)
 
 
 
 
 
(4,819
)
 

 
 
 
 
 
 
3,472,677

 
3,490,244

 Integro Parent Inc.
 
Insurance brokers
 
 
 
 
 
 
 First Lien Term Loan, LIBOR+5.75% (1% floor) cash due 10/31/2022 (8)
 
 
 
4,342,593

 
4,171,007

 
4,234,028

 Delayed Draw Term Loan, LIBOR+5.75% (1% floor) cash due 10/31/2022 (8)
 
 
 
657,407

 
631,432

 
640,972

 
 
 
 
 
 
4,802,439

 
4,875,000

 Falmouth Group Holdings Corp.
 
Specialty chemicals
 
 
 
 
 
 
 First Lien Term Loan, LIBOR+6.75% (1% floor) cash due 12/13/2021 (8)
 
 
 
5,000,000

 
4,950,694

 
5,000,000

 
 
 
 
 
 
4,950,694

 
5,000,000

 Total Non-Control/Non-Affiliate Investments (164.0% of net assets)
 
 
 
 
 
$
573,264,001

 
$
548,711,905

 Total Portfolio Investments  (180.5% of net assets)
 
 
 
 
 
$
634,079,475

 
$
603,955,835

See notes to Consolidated Financial Statements.


12

Fifth Street Senior Floating Rate Corp.
Consolidated Schedule of Investments
December 31, 2015
(unaudited)



(1)
All debt investments are income producing unless otherwise noted. Equity investments are non-income producing unless otherwise noted.
(2)
See Note 4 to the Consolidated Financial Statements for portfolio composition by geographic region.
(3)
Control Investments generally are defined by the Investment Company Act of 1940, as amended ("1940 Act"), as investments in companies in which the Company owns more than 25% of the voting securities or maintains greater than 50% of the board representation.
(4)
Affiliate Investments generally are defined by the 1940 Act as investments in companies in which the Company owns between 5% and 25% of the voting securities.
(5)
Principal amount is net of repayments, if any.
(6)
Non-Control/Non-Affiliate Investments generally are defined by the 1940 Act as investments that are neither Control Investments nor Affiliate Investments.
(7)
Investment is not a qualifying asset as defined under Section 55(a) of the 1940 Act. Under the 1940 Act, the Company may not acquire any non-qualifying asset unless, at the time the acquisition is made, qualifying assets represent at least 70% of the Company's total assets.
(8)
The principal balance outstanding for all floating rate loans is indexed to LIBOR and 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.
(9)
Interest rates have been adjusted on certain term loans from the stated rates in the original credit agreement as shown in the Consolidated Schedule of Investments. These rate adjustments are temporary in nature due to tier pricing arrangements or financial or payment covenant violations in the original credit agreements, or permanent in nature per loan amendment or waiver documents. The table below summarizes these rate adjustments by portfolio company:
Portfolio Company
 
Effective date
 
Cash interest
 
Reason
TrialCard Incorporated
 
November 3, 2015
 
- 0.75% on Term Loan and Revolver
 
Tier pricing per loan agreement
Smile Brands Group Inc.
 
October 30, 2015
 
+ 1.50% on First Lien Term Loan B
 
Per loan amendment
Accruent, LLC
 
November 14, 2014
 
+ 1.50% on First Lien Term Loan
 
Per loan amendment
(10)
Investment pledged as collateral under the Company's credit facility, in whole or in part.
(11)
Investment has undrawn commitments. A negative cost basis may result from unamortized fees. Unamortized fees are classified as unearned income which reduces cost basis.
(12)
As defined in the 1940 Act, the Company is deemed to be both an "Affiliated Person" of and to "Control" this portfolio company as the Company owns more than 25% of the portfolio company's outstanding voting securities or has the power to exercise control over management or policies of such portfolio company (including through a management agreement). See Schedule 12-14 in the accompanying notes to the consolidated financial statements for transactions during the three months ended December 31, 2015 in which the issuer was both an Affiliated Person and a portfolio company that the Company is deemed to control.
(13)
Investment pledged as collateral under the Company's 2015 Debt Securitization (as defined in Note 7 Borrowings), in whole or in part.
(14)
The Company is currently in negotiations with the borrower to extend the maturity date on this loan.   

See notes to Consolidated Financial Statements.

13

Fifth Street Senior Floating Rate Corp.
Consolidated Schedule of Investments
September 30, 2015


Portfolio Company/Type of Investment (1)(2)
 
Industry
 
Principal (5)

 
Cost
 
Fair Value
Control Investments (3)
 
 
 
 
 
 
 
 
 FSFR Glick JV LLC
 
Multi-sector holdings
 
 
 
 
 
 
 Subordinated Note, LIBOR+8% cash due 10/20/2021 (7)(8)(12)
 
 
 
$
53,095,597

 
$
53,095,597

 
$
52,603,346

 87.5% equity interest (7)
 
 
 
 
 
5,882,376

 
4,553,575

 
 
 
 
 
 
58,977,973

 
57,156,921

 Total Control Investments (16.0% of net assets)
 
 
 
 
 
$
58,977,973

 
$
57,156,921

Affiliate Investments (4)
 
 
 
 
 
$

 
$

Non-Control/Non-Affiliate Investments (6)
 
 
 
 
 
 
 
 
 Triple Point Group Holdings, Inc.
 
Application software
 
 
 
 
 
 
 First Lien Revolver, LIBOR+4.25% (1% floor) cash due 7/10/2018 (8)(11)
 
 
 
 
 
$

 
$

 
 
 
 
 
 

 

 Blackhawk Specialty Tools, LLC
 
Oil & gas equipment & services
 
 
 
 
 
 
 First Lien Term Loan, LIBOR+5.25% (1.25% floor) cash due 8/1/2019 (8)(13)
 
 
 
$
4,499,996

 
4,418,746

 
4,364,794

 
 
 
 
 
 
4,418,746

 
4,364,794

 New Trident Holdcorp, Inc.
 
Healthcare services
 
 
 
 
 
 
 First Lien Term Loan B, LIBOR+5.25% (1.25% floor) cash due 7/31/2019 (8)(10)(13)
 
 
 
11,851,711

 
11,701,369

 
11,481,404

 Second Lien Term Loan, LIBOR+9% (1.25% floor) cash due 7/31/2020 (8)
 
 
 
1,000,000

 
969,500

 
966,665

 
 
 
 
 
 
12,670,869

 
12,448,069

 Landslide Holdings, Inc.
 
Application software
 
 
 
 
 
 
 First Lien Revolver, LIBOR+4.25% (1% floor) cash due 8/9/2018 (8)(11)
 
 
 
 
 

 

 
 
 
 
 
 

 

 Smile Brands Group Inc.
 
Healthcare services
 
 
 
 
 
 
 First Lien Term Loan B, LIBOR+6.25% (1.25% floor) cash due 8/16/2019 (8)(13)
 
 
 
4,900,000

 
4,825,097

 
3,448,375

 
 
 
 
 
 
4,825,097

 
3,448,375

 NXT Capital, LLC
 
Diversified capital markets
 
 
 
 
 
 
 First Lien Term Loan, LIBOR+5.25% (1% floor) cash due 9/4/2020 (8)(13)
 
 
 
8,809,782

 
8,756,158

 
8,831,807

 
 
 
 
 
 
8,756,158

 
8,831,807

 Vitera Healthcare Solutions, LLC
 
Healthcare technology
 
 
 
 
 
 
 First Lien Term Loan, LIBOR+5% (1% floor) cash due 11/4/2020 (8)(13)
 
 
 
4,912,500

 
4,959,398

 
4,838,813

 
 
 
 
 
 
4,959,398

 
4,838,813

 The Active Network, Inc.
 
Internet software & services
 
 
 
 
 
 
 Second Lien Term Loan, LIBOR+8.5% (1% floor) cash due 11/15/2021 (8)(13)
 
 
 
2,400,000

 
2,297,362

 
2,282,004

 
 
 
 
 
 
2,297,362

 
2,282,004

 Accruent, LLC
 
Internet software & services
 
 
 
 
 
 
 First Lien Term Loan, LIBOR+4.5% (1.25% floor) cash due 11/25/2019 (8)(9)(10)(13)
 
 
 
19,872,068

 
19,872,068

 
19,974,214

 
 
 
 
 
 
19,872,068

 
19,974,214

 Pacific Architects and Engineers Incorporated
 
Diversified support services
 
 
 
 
 
 
 First Lien Term Loan B, LIBOR+6.25% (1% floor) cash due 7/17/2018 (8)(13)
 
 
 
3,438,750

 
3,405,864

 
3,403,709

 
 
 
 
 
 
3,405,864

 
3,403,709

 Survey Sampling International, LLC
 
Research & consulting services
 
 
 
 
 
 
 First Lien Term Loan, LIBOR+5% (1% floor) cash due 12/16/2020 (8)(10)(13)
 
 
 
8,358,000

 
8,301,333

 
8,326,658

 Second Lien Term Loan, LIBOR+9% (1% floor) cash due 12/16/2021 (8)
 
 
 
1,000,000

 
982,381

 
990,000

 
 
 
 
 
 
9,283,714

 
9,316,658

See notes to Consolidated Financial Statements.

14

Fifth Street Senior Floating Rate Corp.
Consolidated Schedule of Investments
September 30, 2015


Portfolio Company/Type of Investment (1)(2)
 
Industry
 
Principal (5)

 
Cost
 
Fair Value
 Answers Corporation
 
Internet software & services
 
 
 
 
 
 
 First Lien Term Loan, LIBOR+5.25% (1% floor) cash due 10/1/2021 (8)(10)(13)
 
 
 
$
11,910,000

 
$
11,504,344

 
$
8,763,795

 Second Lien Term Loan, LIBOR+9% (1% floor) cash due 10/3/2022 (8)
 
 
 
8,000,000

 
7,605,257

 
4,427,839

 
 
 
 
 
 
19,109,601

 
13,191,634

 Maxor National Pharmacy Services, LLC
 
Pharmaceuticals
 
 
 
 
 
 
 First Lien Term Loan, LIBOR+5.25% (1.25% floor) cash due 1/31/2020 (8)(10)(13)
 
 
 
9,825,000

 
9,825,000

 
9,819,438

 
 
 
 
 
 
9,825,000

 
9,819,438

 NextCare, Inc.
 
Healthcare services
 
 
 
 
 
 
 Senior Term Loan, LIBOR+6% (1% floor) cash due 7/31/2018 (8)(13)
 
 
 
7,100,334

 
7,100,334

 
7,085,839

Delayed Draw Term Loan, LIBOR+6% (1% floor) cash due 7/31/2018 (8)
 
 
 
610,250

 
610,250

 
609,204

 
 
 
 
 
 
7,710,584

 
7,695,043

 J.A. Cosmetics Holdings, Inc.
 
Personal products
 
 
 
 
 
 
 First Lien Term Loan, LIBOR+5% (1.25% floor) cash due 1/31/2019 (8)(13)
 
 
 
4,812,500

 
4,787,500

 
4,818,516

 
 
 
 
 
 
4,787,500

 
4,818,516

 B&H Education, Inc.
 
Education services
 
 
 
 
 
 
 First Lien Term Loan, LIBOR+5.25% (1.5% floor) cash due 5/3/2015 (8)(14)
 
 
 
5,686,571

 
5,686,571

 
5,256,256

 
 
 
 
 
 
5,686,571

 
5,256,256

 Aptean, Inc.
 
Application software
 
 
 
 
 
 
 Second Lien Term Loan, LIBOR+7.5% (1% floor) cash due 2/26/2021 (8)
 
 
 
1,250,000

 
1,237,500

 
1,205,206

 
 
 
 
 
 
1,237,500

 
1,205,206

 Stratus Technologies, Inc.
 
Computer hardware
 
 
 
 
 
 
 First Lien Term Loan, LIBOR+5% (1% floor) cash due 4/28/2021 (8)(13)
 
 
 
4,131,944

 
4,099,489

 
4,121,614

 
 
 
 
 
 
4,099,489

 
4,121,614

 TravelCLICK, Inc.
 
Internet software & services
 
 
 
 
 
 
 Second Lien Term Loan, LIBOR+7.75% (1% floor) cash due 11/6/2021 (8)(13)
 
 
 
3,380,000

 
3,281,969

 
3,333,525

 
 
 
 
 
 
3,281,969

 
3,333,525

 Language Line, LLC
 
Integrated telecommunication services
 
 
 
 
 
 
 First Lien Term Loan, LIBOR+5.5% (1% floor) cash due 7/7/2021 (8)(10)(13)
 
 
 
15,000,000

 
15,000,000

 
15,031,275

 Second Lien Term Loan, LIBOR+9.75% (1% floor) cash due 7/7/2022 (8)(10)(13)
 
 
 
8,000,000

 
8,000,000

 
8,040,000

 
 
 
 
 
 
23,000,000

 
23,071,275

 GTCR Valor Companies, Inc.
 
Advertising
 
 
 
 
 
 
 First Lien Term Loan, LIBOR+5% (1% floor) cash due 5/30/2021 (8)(10)(13)
 
 
 
13,455,992

 
13,275,118

 
13,338,252

 
 
 
 
 
 
13,275,118

 
13,338,252

 ConvergeOne Holdings Corp.
 
Integrated telecommunication services
 
 
 
 
 
 
 First Lien Term Loan, LIBOR+5% (1% floor) cash due 6/17/2020 (8)(13)
 
 
 
5,397,670

 
5,363,527

 
5,367,308

 
 
 
 
 
 
5,363,527

 
5,367,308

 Verdesian Life Sciences, LLC
 
Fertilizers & agricultural chemicals
 
 
 
 
 
 
 First Lien Term Loan, LIBOR+5% (1% floor) cash due 7/1/2020 (8)(13)
 
 
 
3,754,945

 
3,713,056

 
3,754,945

 
 
 
 
 
 
3,713,056

 
3,754,945

See notes to Consolidated Financial Statements.

15

Fifth Street Senior Floating Rate Corp.
Consolidated Schedule of Investments
September 30, 2015


Portfolio Company/Type of Investment (1)(2)
 
Industry
 
Principal (5)

 
Cost
 
Fair Value
 PR Wireless, Inc.
 
Wireless telecommunication services
 
 
 
 
 
 
 First Lien Term Loan, LIBOR+9% (1% floor) cash due 6/29/2020 (7)(8)
 
 
 
$
5,896,482

 
$
5,746,610

 
$
5,299,540

 35.5263 Common Stock Warrants (7)
 
 
 
 
 

 
154,706

 
 
 
 
 
 
5,746,610

 
5,454,246

 TV Borrower US, LLC
 
Integrated telecommunication services
 
 
 
 
 
 
 First Lien Term Loan, LIBOR+5% (1% floor) cash due 1/8/2021 (7)(8)(13)
 
 
 
6,930,000

 
6,792,500

 
6,919,606

 Second Lien Term Loan, LIBOR+8.5% (1% floor) cash due 7/8/2021 (7)(8)(13)
 
 
 
3,000,000

 
2,902,560

 
2,929,995

 
 
 
 
 
 
9,695,060

 
9,849,601

 American Dental Partners, Inc.
 
Healthcare services
 
 
 
 
 
 
 First Lien Term Loan, LIBOR+4.75% (1% floor) cash due 8/30/2021 (8)(10)
 
 
 
5,940,000

 
5,915,714

 
5,940,000

 
 
 
 
 
 
5,915,714

 
5,940,000

 BeyondTrust Software, Inc.
 
Application software
 
 
 
 
 
 
 First Lien Term Loan, LIBOR+7% (1% floor) cash due 9/25/2019 (8)(10)(13)
 
 
 
19,872,068

 
19,590,591

 
19,868,049

 First Lien Revolver, LIBOR+7% (1% floor) cash due 9/25/2019 (8)(11)
 
 
 
 
 

 

 500,000 Class A membership interest in BeyondTrust Holdings LLC
 
 
 
 
 
500,000

 
809,394

 
 
 
 
 
 
20,090,591

 
20,677,443

 Reliant Hospital Partners, LLC
 
Healthcare services
 
 
 
 
 
 
 First Lien Term Loan, LIBOR+4.75% (1% floor) cash due 10/1/2019 (8)(13)
 
 
 
7,359,375

 
7,359,375

 
7,359,375

 
 
 
 
 
 
7,359,375

 
7,359,375

 Hill International, Inc.
 
Construction and engineering
 
 
 
 
 
 
 First Lien Term Loan, LIBOR+6.75% (1% floor) cash due 9/26/2020 (8)(13)
 
 
 
6,039,000

 
5,945,467

 
5,908,869

 
 
 
 
 
 
5,945,467

 
5,908,869

 Teaching Strategies, LLC
 
Education services
 
 
 
 
 
 
 First Lien Term Loan, LIBOR+5.5% (0.5% floor) cash due 10/1/2019 (8)(10)(13)
 
 
 
16,106,327

 
16,057,408

 
16,129,873

 First Lien Revolver, LIBOR+5.5% (0.5% floor) cash due 10/1/2019 (8)(11)
 
 
 
 
 

 

 
 
 
 
 
 
16,057,408

 
16,129,873

 Dynatect Group Holdings, Inc.
 
Industrial machinery
 
 
 
 
 
 
 First Lien Term Loan, LIBOR+4.5% (1% floor) cash due 9/30/2020 (8)(10)
 
 
 
3,970,000

 
3,970,000

 
3,867,602

 First Lien Delayed Draw Term Loan, LIBOR+4.5% (1% floor) cash due 9/30/2020 (8)(10)(11)
 
 
 
 
 

 

 
 
 
 
 
 
3,970,000

 
3,867,602

 Idera, Inc.
 
Internet software & services
 
 
 
 
 
 
 First Lien Term Loan, LIBOR+5.5% (0.5% floor) cash due 11/5/2020 (8)(10)(13)
 
 
 
16,787,500

 
16,553,740

 
16,787,500

 First Lien Revolver, LIBOR+5.5% (0.5% floor) cash due 11/5/2019 (8)(11)
 
 
 
 
 
(128
)
 

 
 
 
 
 
 
16,553,612

 
16,787,500

 Central Security Group, Inc.
 
Specialized consumer services
 
 
 
 
 
 
 First Lien Term Loan, LIBOR+5.25% (1% floor) cash due 10/6/2020 (8)(10)
 
 
 
2,565,575

 
2,535,124

 
2,539,919

 
 
 
 
 
 
2,535,124

 
2,539,919

See notes to Consolidated Financial Statements.

16

Fifth Street Senior Floating Rate Corp.
Consolidated Schedule of Investments
September 30, 2015


Portfolio Company/Type of Investment (1)(2)
 
Industry
 
Principal (5)

 
Cost
 
Fair Value
 Kellermeyer Bergensons Services, LLC
 
Diversified support services
 
 
 
 
 
 
 First Lien Term Loan, LIBOR+5% (1% floor) cash due 10/29/2021 (8)(13)
 
 
 
$
5,359,500

 
$
5,295,190

 
$
5,292,506

 Second Lien Term Loan, LIBOR+8.5% (1% floor) cash due 4/29/2022 (8)(13)
 
 
 
280,000

 
280,000

 
281,400

 
 
 
 
 
 
5,575,190

 
5,573,906

 GOBP Holdings Inc.
 
Food retail
 
 
 
 
 
 
 Second Lien Term Loan, LIBOR+8.25% (1% floor) cash due 10/21/2022 (8)(10)(13)
 
 
 
6,400,000

 
6,328,892

 
6,384,000

 
 
 
 
 
 
6,328,892

 
6,384,000

 NAVEX Global, Inc.
 
Internet software & services
 
 
 
 
 
 
 First Lien Term Loan, LIBOR+4.75% (1% floor) cash due 11/19/2021 (8)(13)
 
 
 
6,802,442

 
6,726,246

 
6,768,430

 Second Lien Term Loan, LIBOR+8.75% (1% floor) cash due 11/18/2022 (8)
 
 
 
1,500,000

 
1,500,000

 
1,485,000

 
 
 
 
 
 
8,226,246

 
8,253,430

 Executive Consulting Group, LLC
 
Healthcare services
 
 
 
 
 
 
 First Lien Term Loan, LIBOR+4.75% (1% floor) cash due 11/21/2019 (8)(10)(13)
 
 
 
7,000,000

 
7,000,000

 
6,988,039

 Delayed Draw Term Loan, LIBOR+4.75% (1% floor) cash due 11/21/2019 (8)(10)(11)
 
 
 
 
 

 

 
 
 
 
 
 
7,000,000

 
6,988,039

 TIBCO Software, Inc.
 
Internet software & services
 
 
 
 
 
 
 First Lien Term Loan, LIBOR+5.5% (1% floor) cash due 12/4/2020 (8)(10)
 
 
 
7,999,800

 
7,571,941

 
7,939,802

 First Lien Revolver, LIBOR+4% cash due 11/25/2020 (8)(11)
 
 
 
 
 

 

 
 
 
 
 
 
7,571,941

 
7,939,802

 Metamorph US 3, LLC
 
Internet software & services
 
 
 
 
 
 
 First Lien Term Loan, LIBOR+5.5% (1% floor) cash due 12/1/2020 (8)(10)(13)
 
 
 
17,310,731

 
17,200,848

 
17,131,150

 First Lien Revolver, LIBOR+5.5% (1% floor) cash due 12/1/2020 (8)(13)
 
 
 
600,000

 
567,664

 
600,000

 
 
 
 
 
 
17,768,512

 
17,731,150

 Compuware Corporation
 
Internet software & services
 
 
 
 
 
 
 First Lien Term Loan B1, LIBOR+5.25% (1% floor) cash due 12/15/2019 (8)(10)(13)
 
 
 
8,254,351

 
8,140,683

 
7,994,339

 First Lien Term Loan B2, LIBOR+5.25% (1% floor) cash due 12/15/2021 (8)(10)
 
 
 
6,451,250

 
6,164,940

 
6,233,520

 
 
 
 
 
 
14,305,623

 
14,227,859

 Novetta Solutions, LLC
 
Diversified support services
 
 
 
 
 
 
 First Lien Term Loan, LIBOR+5% (1% floor) cash due 10/2/2020 (8)(13)
 
 
 
5,742,000

 
5,693,114

 
5,742,000

 
 
 
 
 
 
5,693,114

 
5,742,000

 AF Borrower, LLC
 
IT consulting & other services
 
 
 
 
 
 
 First Lien Term Loan, LIBOR+5.25% (1% floor) cash due 1/28/2022 (8)(10)
 
 
 
8,258,500

 
8,078,315

 
8,217,208

 
 
 
 
 
 
8,078,315

 
8,217,208

 Ameritox Ltd.
 
Healthcare services
 
 
 
 
 
 
 First Lien Term Loan, LIBOR+7.5% (1% floor) cash due 6/23/2019 (8)(10)(13)
 
 
 
19,680,542

 
19,677,876

 
17,815,474

 First Lien Revolver, LIBOR+7.5% (1% floor) cash due 6/23/2019 (8)
 
 
 
1,000,000

 
999,810

 
1,000,000

 
 
 
 
 
 
20,677,686

 
18,815,474

 TrialCard Incorporated
 
Healthcare services
 
 
 
 
 
 
 First Lien Term Loan, LIBOR+5.25% (1% floor) cash due 12/31/2019 (8)(9)(10)(13)
 
 
 
10,085,815

 
10,080,571

 
9,947,755

 First Lien Revolver, LIBOR+5.25% (1% floor) cash due 12/31/2019 (8)(9)(11)
 
 
 
 
 
(375
)
 

 
 
 
 
 
 
10,080,196

 
9,947,755

 Motion Recruitment Partners LLC
 
Diversified support services
 
 
 
 
 
 
 First Lien Term Loan, LIBOR+6% (1% floor) cash due 2/13/2020 (8)(10)(13)
 
 
 
14,917,500

 
14,906,741

 
14,757,057

 First Lien Revolver, LIBOR+6% (1% floor) cash due 2/13/2020 (8)(11)
 
 
 
 
 
(960
)
 

 
 
 
 
 
 
14,905,781

 
14,757,057

See notes to Consolidated Financial Statements.

17

Fifth Street Senior Floating Rate Corp.
Consolidated Schedule of Investments
September 30, 2015


Portfolio Company/Type of Investment (1)(2)
 
Industry
 
Principal (5)

 
Cost
 
Fair Value
 PowerPlan, Inc.
 
Internet software & services
 
 
 
 
 
 
 First Lien Term Loan, LIBOR+5.25% (1% floor) cash due 2/23/2022 (8)(10)(13)
 
 
 
$
13,668,333

 
$
13,668,333

 
$
13,665,537

 First Lien Revolver, LIBOR+5.25% (1% floor) cash due 2/23/2021 (8)(11)
 
 
 
 
 

 

 
 
 
 
 
 
13,668,333

 
13,665,537

 Digital River, Inc.
 
Internet software & services
 
 
 
 
 
 
 First Lien Term Loan, LIBOR+6.5% (1% floor) cash due 2/12/2021 (8)(10)(13)
 
 
 
9,937,500

 
9,751,027

 
9,937,500

 
 
 
 
 
 
9,751,027

 
9,937,500

 Curo Health Services Holdings, Inc.
 
Healthcare services
 
 
 
 
 
 
 First Lien Term Loan B, LIBOR+5.5% (1% floor) cash due 2/5/2022 (8)(10)
 
 
 
5,392,950

 
5,344,819

 
5,410,936

 
 
 
 
 
 
5,344,819

 
5,410,936

 Research Now Group, Inc.
 
Data processing & outsourced services
 
 
 
 
 
 
 First Lien Term Loan, LIBOR+4.5% (1% floor) cash due 3/18/2021 (8)(13)
 
 
 
3,731,250

 
3,708,681

 
3,721,922

 Second Lien Term Loan, LIBOR+8.75% (1% floor) cash due 3/18/2022 (8)(10)
 
 
 
4,000,000

 
3,945,000

 
3,990,000

 
 
 
 
 
 
7,653,681

 
7,711,922

 Fineline Technologies, Inc.
 
 Electronic equipment & instruments
 
 
 
 
 
 
 First Lien Term Loan, LIBOR+5.5% (1% floor) cash due 5/5/2017 (8)(10)(13)
 
 
 
13,720,000

 
13,720,000

 
13,717,288

 
 
 
 
 
 
13,720,000

 
13,717,288

 My Alarm Center, LLC
 
Security & alarm services
 
 
 
 
 
 
 First Lien Term Loan A, LIBOR+8% (1% floor) cash due 1/9/2018 (8)(10)(13)
 
 
 
16,047,619

 
16,047,619

 
16,046,254

 First Lien Term Loan B, LIBOR+8% (1% floor) cash due 1/9/2018 (8)(10)
 
 
 
960,356

 
960,356

 
966,015

 First Lien Term Loan C, LIBOR+8% (1% floor) cash due 1/9/2018 (8)
 
 
 
618,812

 
618,812

 
617,504

 First Lien Term Revolver, LIBOR+8% (1% floor) cash due 1/9/2018 (8)
 
 
 
133,333

 
133,333

 
133,333

 
 
 
 
 
 
17,760,120

 
17,763,106

 Legalzoom.com, Inc.
 
Specialized consumer services
 
 
 
 
 
 
 First Lien Term Loan, LIBOR+7% (1% floor) cash due 5/13/2020 (8)(10)(13)
 
 
 
19,900,000

 
19,874,564

 
19,912,601

 First Lien Revolver, LIBOR+7% (1% floor) cash due 5/13/2020 (8)(11)
 
 
 
 
 
(2,210
)
 

 
 
 
 
 
 
19,872,354

 
19,912,601

 TWCC Holding Corp.
 
Specialized consumer services
 
 
 
 
 
 
 First Lien Term Loan B1, LIBOR+5% (0.75% floor) cash due 2/11/2020 (8)(13)
 
 
 
6,368,000

 
6,309,614

 
6,342,528

 
 
 
 
 
 
6,309,614

 
6,342,528

 Raley's
 
Food retail
 
 
 
 
 
 
 First Lien Term Loan, LIBOR+6.25% (1% floor) cash due 5/18/2022 (8)(13)
 
 
 
4,048,750

 
3,971,631

 
4,048,750

 
 
 
 
 
 
3,971,631

 
4,048,750

 Retail Solutions Group, Inc.
 
Data processing & outsourced services
 
 
 
 
 
 
 First Lien Term Loan, LIBOR+5.25% (0.75% floor) cash due 6/23/2022 (8)(13)
 
 
 
5,985,000

 
5,927,667

 
5,970,038

 
 
 
 
 
 
5,927,667

 
5,970,038

 All Web Leads, Inc.
 
Advertising
 
 
 
 
 
 
 First Lien Term Loan, LIBOR+6.5% (1% floor) cash due 6/30/2020 (8)(10)(13)
 
 
 
17,598,366

 
17,578,629

 
17,604,775

 First Lien Revolver, LIBOR+6.5% (1% floor) cash due 6/30/2020 (8)
 
 
 
1,636,381

 
1,633,468

 
1,636,381

 
 
 
 
 
 
19,212,097

 
19,241,156

 Too Faced Cosmetics, LLC
 
Personal products
 
 
 
 
 
 
 First Lien Term Loan, LIBOR+5% (1% floor) cash due 7/7/2021 (8)(13)
 
 
 
6,000,000

 
6,000,000

 
6,000,000

 
 
 
 
 
 
6,000,000

 
6,000,000

 Internet Pipeline, Inc.
 
Internet software & services
 
 
 
 
 
 
 First Lien Term Loan, LIBOR+7.25% (1% floor) cash due 8/4/2022 (8)(13)
 
 
 
12,000,000

 
12,000,000

 
12,000,000

 First Lien Revolver, LIBOR+7.25% (1% floor) cash due 8/4/2021 (8)(11)
 
 
 
 
 

 

 
 
 
 
 
 
12,000,000

 
12,000,000

 Poseidon Merger Sub, Inc.
 
Advertising
 
 
 
 
 
 
 First Lien Term Loan, LIBOR+4.75% (1% floor) cash due 8/15/2022 (8)(13)
 
 
 
4,000,000

 
4,000,000

 
4,000,000

 Second Lien Term Loan, LIBOR+8.5% (1% floor) cash due 8/15/2023 (8)
 
 
 
7,000,000

 
6,980,768

 
7,000,000

 
 
 
 
 
 
10,980,768

 
11,000,000

See notes to Consolidated Financial Statements.

18

Fifth Street Senior Floating Rate Corp.
Consolidated Schedule of Investments
September 30, 2015


Portfolio Company/Type of Investment (1)(2)
 
Industry
 
Principal (5)

 
Cost
 
Fair Value
 American Seafoods Group LLC
 
Food distributors
 
 
 
 
 
 
 First Lien Term Loan, LIBOR+5% (1% floor) cash due 8/19/2021 (8)(13)
 
 
 
$
6,000,000

 
$
5,942,222

 
$
5,970,000

 Second Lien Term Loan, LIBOR+9% (1% floor) cash due 2/19/2022 (8)
 
 
 
3,000,000

 
2,970,769

 
3,000,000

 
 
 
 
 
 
8,912,991

 
8,970,000

 Accentcare, Inc.
 
Healthcare services
 
 
 
 
 
 
 First Lien Term Loan, LIBOR+5.75% (1% floor) cash due 9/3/2021 (8)
 
 
 
8,000,000

 
7,921,111

 
7,960,000

 
 
 
 
 
 
7,921,111

 
7,960,000

 CRGT Inc.
 
IT consulting & other services
 
 
 
 
 
 
 First Lien Term Loan, LIBOR+6.5% (1% floor) cash due 12/19/2020 (8)(13)
 
 
 
3,875,316

 
3,875,316

 
3,865,628

 
 
 
 
 
 
3,875,316

 
3,865,628

 Valet Merger Sub, Inc.
 
Environmental & facilities services
 
 
 
 
 
 
 First Lien Term Loan, LIBOR+7% (1% floor) cash due 9/24/2021 (8)(13)
 
 
 
10,000,000

 
9,998,007

 
10,000,000

 First Lien Revolver, LIBOR+7% (1% floor) cash due 9/24/2021 (8)(11)
 
 
 
 
 
(200
)
 

 
 
 
 
 
 
9,997,807

 
10,000,000

 Total Non-Control/Non-Affiliate Investments (158.8% of net assets)
 
 
 
 
 
$
574,538,984

 
$
566,490,553

 Total Portfolio Investments (174.8% of net assets)
 
 
 
 
 
$
633,516,957

 
$
623,647,474

See notes to Consolidated Financial Statements.

19

Fifth Street Senior Floating Rate Corp.
Consolidated Schedule of Investments
September 30, 2015



(1)
All debt investments are income producing unless otherwise noted. Equity investments are non-income producing unless otherwise noted.
(2)
See Note 4 to the Consolidated Financial Statements for portfolio composition by geographic region.
(3)
Control Investments generally are defined by the 1940 Act as investments in companies in which the Company owns more than 25% of the voting securities or maintains greater than 50% of the board representation.
(4)
Affiliate Investments generally are defined by the 1940 Act as investments in companies in which the Company owns between 5% and 25% of the voting securities.
(5)
Principal amount is net of repayments, if any.
(6)
Non-Control/Non-Affiliate Investments generally are defined by the 1940 Act as investments that are neither Control Investments nor Affiliate Investments.
(7)
Investment is not a qualifying asset as defined under Section 55(a) of the 1940 Act. Under the 1940 Act, the Company may not acquire any non-qualifying asset unless, at the time the acquisition is made, qualifying assets represent at least 70% of the Company's total assets.
(8)
The principal balance outstanding for all floating rate loans is indexed to LIBOR and 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.
(9)
Interest rates have been adjusted on certain term loans from the stated rates in the original credit agreement as shown in the Consolidated Schedule of Investments. These rate adjustments are temporary in nature due to tier pricing arrangements or financial or payment covenant violations in the original credit agreements, or permanent in nature per loan amendment or waiver documents. The table below summarizes these rate adjustments by portfolio company:
Portfolio Company
 
Effective date
 
Cash interest
 
Reason
TrialCard Incorporated
 
April 1, 2015
 
- 0.25% on Term Loan and Revolver
 
Tier pricing per loan agreement
Accruent, LLC
 
November 14, 2014
 
+ 1.50% on First Lien Term Loan
 
Per loan amendment
(10)
Investment pledged as collateral under the Company's credit facility, in whole or in part.
(11)
Investment has undrawn commitments. A negative cost basis may result from unamortized fees. Unamortized fees are classified as unearned income which reduces cost basis.
(12)
As defined in the 1940 Act, the Company is deemed to be both an "Affiliated Person" of and to "Control" this portfolio company as the Company owns more than 25% of the portfolio company's outstanding voting securities or has the power to exercise control over management or policies of such portfolio company (including through a management agreement).
(13)
Investment pledged as collateral under the Company's 2015 Debt Securitization, in whole or in part.
(14)
The Company is currently in negotiations with the borrower to extend the maturity date on this loan.   

See notes to Consolidated Financial Statements.


20

FIFTH STREET SENIOR FLOATING RATE CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


Note 1. Organization
Fifth Street Senior Floating Rate Corp. (together with its consolidated subsidiaries, the "Company") is a specialty finance company that is a closed-end, non-diversified management investment company and has elected to be regulated as a business development company under the 1940 Act. The Company has qualified and elected to be treated as a regulated investment company ("RIC") under the Internal Revenue Code of 1986, as amended (the "Code"), for tax purposes.
The Company's investment objective is to maximize its portfolio's total return by generating current income from its debt investments while seeking to preserve its capital. The Company invests primarily in senior secured loans, including first lien, unitranche and second lien debt instruments, that pay interest at rates which are determined periodically on the basis of a floating base lending rate, made to private middle market companies whose debt is rated below investment grade. The Company may also invest in senior unsecured loans issued by private middle market companies and, to a lesser extent, subordinated loans issued by private middle market companies and senior and subordinated loans issued by public companies.
The Company is externally managed by Fifth Street Management LLC (the "Investment Adviser"), a subsidiary of Fifth Street Asset Management Inc. ("FSAM"), a publicly traded, leading alternative asset manager, pursuant to an investment advisory agreement. FSC CT LLC, a subsidiary of the Investment Adviser, also provides certain administrative and other services necessary for the Company to operate.


21


Note 2. Revision of Previously Issued Financial Statements for Correction of Immaterial Errors
The Company previously identified accounting errors from the commencement of operations through September 30, 2015 related to revenue recognition. The revenue recognition errors were the result of certain fees which were historically recognized on the deal closing date, but should have been amortized over the life of the loan since the fees did not represent a separately identifiable revenue contract. These errors were partially offset by the net overpayment of Part I and Part II Incentive Fees paid to the Investment Adviser. The Company assessed the materiality of the errors on its prior quarterly and annual financial statements, assessing materiality both quantitatively and qualitatively, in accordance with the SEC’s staff Accounting Bulletin (“SAB”) No. 99 and SAB 108, and concluded that the errors were not material to any of the previously issued financial statements. However, the Company concluded the cumulative corrections of these errors would be qualitatively material to the Company's quarterly financial statements within in any quarter during the September 30, 2015 fiscal year end. Accordingly, all prior period financial statements since the commencement of operations have been revised in Note 2 and Note 14 to the Consolidated Financial Statements for the year ended September 30, 2015 contained in the Form 10-K. The total immaterial revisions for the three months ended December 31, 2014 were as follows:
 
 
Three months ended December 31, 2014
Consolidated Statement of Operations:
 
As previously reported
 
Adjustment
 
As revised
Interest income
 
$
7,887,719

 
$
377,745

 
$
8,265,464

Fee income
 
7,972,646

 
(4,314,967
)
 
3,657,679

Total investment income
 
15,860,365

 
(3,937,222
)
 
11,923,143

Part I incentive fee
 
2,592,595

 
(805,201
)
 
1,787,394

Part II incentive fee
 
(54,826
)
 
(202,315
)
 
(257,141
)
Total expenses
 
5,435,157

 
(1,007,516
)
 
4,427,641

Net investment income
 
10,425,208

 
(2,929,706
)
 
7,495,502

Net unrealized depreciation on investments
 
(4,389,006
)
 
2,949,428

 
(1,439,578
)
Net realized gain (loss) on investments
 
(559,792
)
 
987,794

 
428,002

Net increase in net assets resulting from operations
 
$
5,476,410

 
$
1,007,516

 
$
6,483,926

Total investment income per common share
 
$
0.54

 
$
(0.14
)
 
$
0.40

Net investment income per common share
 
$
0.35

 
$
(0.10
)
 
$
0.25

Earnings per common share
 
$
0.19

 
$
0.03

 
$
0.22

 
 
Three months ended December 31, 2014
Consolidated Statement of Changes in Net Assets:
 
As previously reported
 
Adjustment
 
As revised
Net investment income
 
$
10,425,208

 
$
(2,929,706
)
 
$
7,495,502

Net unrealized depreciation on investments
 
(4,389,006
)
 
2,949,428

 
(1,439,578
)
Net realized gain (loss) on investments
 
(559,792
)
 
987,794

 
428,002

Net increase in net assets resulting from operations
 
5,476,410

 
1,007,516

 
6,483,926

Total decrease in net assets
 
(3,363,620
)
 
1,007,516

 
(2,356,104
)
Net assets at beginning of period
 
372,686,925

 
(9,247
)
 
372,677,678

Net assets at end of period
 
$
369,323,305

 
$
998,269

 
$
370,321,574

Net asset value per common share at period end
 
$
12.53

 
$
0.04

 
$
12.57


22


 
 
Three months ended December 31, 2014
Consolidated Statement of Cash Flows:
 
As previously reported
 
Adjustment
 
As revised
Net increase in net assets resulting from operations
 
$
5,476,410

 
$
1,007,516

 
$
6,483,926

Net unrealized depreciation on investments
 
4,389,006

 
(2,949,428
)
 
1,439,578

Net realized (gain) loss on investments
 
559,792

 
(987,794
)
 
(428,002
)
Recognition of fee income
 
(7,972,646
)
 
4,314,967

 
(3,657,679
)
Accretion of original issue discount on investments
 
(43,176
)
 
(377,745
)
 
(420,921
)
Fee income received
 
8,125,219

 
(4,314,967
)
 
3,810,252

Increase in base management fee and incentive fee payable
 
2,293,063

 
(1,007,516
)
 
1,285,547

Purchases of investments and net revolver activity
 
(443,274,268
)
 
4,314,967

 
(438,959,301
)
Net cash used in operating activities
 
(272,242,450
)
 

 
(272,242,450
)
Net decrease in cash and cash equivalents
 
(97,253,834
)
 

 
(97,253,834
)
Cash and cash equivalents, beginning of period
 
107,429,760

 

 
107,429,760

Cash and cash equivalents, end of period
 
$
10,175,926

 
$

 
$
10,175,926


Note 3. Significant Accounting Policies
Basis of Presentation:
The Consolidated Financial Statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") and pursuant to the requirements for reporting on Form 10-Q and Regulation S-X. In the opinion of management, all adjustments of a normal recurring nature considered necessary for the fair presentation of the Consolidated Financial Statements have been made. All intercompany balances and transactions have been eliminated. The Company is an investment company following the accounting and reporting guidance in Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") 946, Financial Services-Investment Company ("ASC 946").
Use of Estimates:
The preparation of the financial statements in conformity with GAAP requires management to make certain estimates and assumptions affecting amounts reported in the financial statements and accompanying notes. These estimates are based on the information that is currently available to the Company and on various other assumptions that the Company believes to be reasonable under the circumstances. Changes in the economic environment, financial markets and any other parameters used in determining these estimates could cause actual results to differ and such differences could be material. Significant estimates include the valuation of investments and revenue recognition.
Consolidation:
The accompanying Consolidated Financial Statements include the accounts of the Company and its subsidiaries, which were established to hold certain investments of the Company. Each subsidiary is wholly-owned and, as such, consolidated into the Consolidated Financial Statements. The subsidiaries hold investments which are treated as pass through entities for tax purposes. The assets of the Company's consolidated subsidiaries are not directly available to satisfy the claims of the creditors of the Company or any of its other subsidiaries.
Since the Company is an investment company, portfolio investments held by the Company and its subsidiaries are not consolidated into the Consolidated Financial Statements. The portfolio investments held by the Company and its subsidiaries are included on the Statements of Assets and Liabilities as Investments at fair value.

Fair Value Measurements:
The Company values its investments in accordance with FASB ASC 820 Fair Value Measurements and Disclosures ("ASC 820"), which defines fair value as the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. A liability's fair value is defined as the amount that would be paid to transfer the liability to a new obligor, not the amount that would be paid to settle the liability with the creditor. ASC 820 prioritizes the use of observable market prices derived from such prices over entity-specific inputs. Where observable prices or inputs are not available or reliable, valuation techniques are applied. These valuation techniques involve some level of management estimation and judgment, the degree of which is dependent on the price transparency for the investments or market and the investments' complexity.

23

FIFTH STREET SENIOR FLOATING RATE CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


Hierarchical levels, defined by ASC 820 and directly related to the amount of subjectivity associated with the inputs to fair valuation of these assets and liabilities, are as follows:
 
Level 1 — Unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date.
Level 2 — Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data at the measurement date for substantially the full term of the assets or liabilities.
Level 3 — Unobservable inputs that reflect management's best estimate of what market participants would use in pricing the asset or liability at the measurement date. Consideration is given to the risk inherent in the valuation technique and the risk inherent in the inputs to the model.
In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, an investment's level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The Company's assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the investment. Generally, it is expected that all of the Company's investment securities will be valued using Level 3 inputs. This includes investment securities that are valued using "bid" and "ask" prices obtained from independent third party pricing services or directly from brokers. These investments are generally classified as Level 3 because the quoted prices may be indicative in nature for securities that are in an inactive market, may be for similar securities or may require adjustments for investment-specific factors or restrictions.
Financial instruments with readily available quoted prices generally will have a higher degree of market price observability and a lesser degree of judgment inherent in measuring fair value. As such, the Company obtains and analyzes readily available market quotations provided by independent pricing services for all of the Company's senior secured debt investments for which quotations are available. In determining the fair value of a particular investment, pricing services use observable market information, including both binding and non-binding indicative quotations. The Company evaluates the prices obtained from independent pricing services based on available market information and company specific data that could affect the credit quality and/or fair value of the investment. Investments for which market quotations are readily available may be valued at such market quotations. In order to validate market quotations, the Company looks at a number of factors to determine if the quotations are representative of fair value, including the source and nature of the quotations. The Company does not adjust the prices unless it has a reason to believe any such market quotations are not reflective of the fair value of an investment. Examples of these events could include cases when a security trades infrequently causing a quoted purchase or sale price to become stale or in the event of a "fire sale" by a distressed seller. In these instances, the Company values such investments by using the valuation procedure that it uses with respect to assets for which market quotations are not readily available (as discussed below).
If the quotation provided by the pricing service is based on only one or two market sources, the Company performs additional procedures to corroborate such information, generally including, but not limited to, the bond yield approach discussed below and a quantitative and qualitative assessment of the credit quality and market trends affecting the portfolio company.
The Company performs detailed valuations of its debt and equity investments for which market quotations are not readily available or are deemed not to represent fair value of the investments. The Company typically uses two different valuation techniques. The first valuation technique is an analysis of the enterprise value ("EV") of the portfolio company. EV means the entire value of the portfolio company to a market participant, including the sum of the values of debt and equity securities used to capitalize the enterprise at a point in time. The primary method for determining EV uses a multiple analysis whereby appropriate multiples are applied to the portfolio company's EBITDA (generally defined as earnings before net interest expense, income tax expense, depreciation and amortization). EBITDA multiples are typically determined based upon review of market comparable transactions and publicly traded comparable companies, if any. The Company may also employ other valuation multiples to determine EV, such as revenues. The second method for determining EV uses a discounted cash flow analysis whereby future expected cash flows of the portfolio company are discounted to determine a present value using estimated discount rates (typically a weighted average cost of capital based on costs of debt and equity consistent with current market conditions). The EV analysis is typically performed to determine the value of equity investments and to determine if there is credit impairment for debt investments. If debt investments are credit impaired, an EV analysis may be used to value such debt investments; however, in addition to the methods outlined above, other alternative methods such as an asset liquidation model, expected recovery model or a recent observable or pending transaction may be utilized to estimate EV. The second valuation technique is a bond yield approach, which is typically performed for non-credit impaired debt investments. To determine fair value using a bond yield approach, a current price is imputed for the investment based upon an assessment of the expected market yield for a similarly structured investment with a similar level of risk. In the bond yield approach, the Company considers the current contractual interest rate, the capital structure and other terms of the investment relative to risk of the company and the specific investment. A key determinant of risk, among other things, is the leverage through the investment relative to the EV of the portfolio company. As debt investments held by the Company are substantially illiquid with no active transaction market, the Company

24

FIFTH STREET SENIOR FLOATING RATE CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


depends on primary market data, including newly funded transactions and industry specific market movements, as well as secondary market data with respect to high yield debt instruments and syndicated loans, as inputs in determining the appropriate market yield, as applicable.
The Company estimates the fair value of privately held warrants using a Black Scholes pricing model, which includes an analysis of various factors and subjective assumptions including, but not limited to, the current stock price (by analyzing the portfolio company's operating performance and financial condition and general market conditions), the expected period until exercise, expected volatility of the underlying stock price, expected dividends and the risk free rate. Changes in the subjective input assumptions can materially affect the fair value estimates.
The Company's Board of Directors undertakes a multi-step valuation process each quarter in connection with determining the fair value of the Company's investments:
The quarterly valuation process begins with each portfolio company or investment being initially valued by the Investment Adviser's valuation team in conjunction with the Investment Adviser's portfolio management and capital markets teams;
Preliminary valuations are then reviewed and discussed with principals of the Investment Adviser;
Separately, independent valuation firms engaged by the Board of Directors prepare valuations of the Company's investments, on a selected basis, for which market quotations are not readily available or are readily available but deemed not reflective of the fair value of the investment, and submit the reports to the Company and provide such reports to the Investment Adviser and the Audit Committee of the Board of Directors;
The Investment Adviser compares and contrasts its preliminary valuations to the valuations of the independent valuation firms and prepares a valuation report for the Audit Committee of the Board of Directors;
The Audit Committee of the Board of Directors reviews the preliminary valuations with the portfolio managers of the Investment Adviser, and the Investment Adviser responds and supplements the preliminary valuations to reflect any discussions between the Investment Adviser and the Audit Committee;
The Audit Committee of the Board of Directors makes a recommendation to the Board of Directors regarding the fair value of the investments in the Company's portfolio; and
The Board of Directors discusses valuations and determines the fair value of each investment in the Company's portfolio in good faith.
The fair value of each of the Company's investments at December 31, 2015 and September 30, 2015 was determined in good faith by the Board of Directors. In addition, the Company will continue to utilize independent valuation firms to provide assistance regarding the determination of the fair value of a portion of the Company's portfolio securities for which market quotations are not readily available or are readily available but deemed not reflective of the fair value of the investment each quarter, with a substantial portion being valued over the course of each fiscal year. As of December 31, 2015, 29.3% of the Company's portfolio at fair value was valued by independent valuation firms. However, the Board of Directors is ultimately and solely responsible for the valuation of the portfolio investments at fair value as determined in good faith pursuant to the Company's valuation policy and a consistently applied valuation process.
Investment Income:
Interest income, adjusted for accretion of original issue discount ("OID"), is recorded on an accrual basis to the extent that such amounts are expected to be collected. The Company stops accruing interest on investments when it is determined that interest is no longer collectible. In connection with its investment, the Company sometimes receives nominal cost equity that is valued as part of the negotiation process with the particular portfolio company. When the Company receives nominal cost equity, the Company allocates its cost basis in its investment between its debt securities and its nominal cost equity at the time of origination. Any resulting discount from recording the loan, or otherwise purchasing a security at a discount, is accreted into interest income over the life of the loan.
For the Company's secured borrowings, the interest earned on the entire loan balance is recorded within interest income and the interest earned by the buyer from the partial loan sales is recorded within interest expense in the Consolidated Statements of Operations.
The Company generally recognizes dividend income on the ex-dividend date.
The Company has one investment in debt securities which contains payment in kind ("PIK") interest provisions. PIK interest is computed at the contractual rate specified in each investment agreement and added to the principal balance of the investment and

25

FIFTH STREET SENIOR FLOATING RATE CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


recorded as income. The Company stops accruing PIK interest on investments when it is determined that PIK interest is no longer collectible.
Fee income consists of the monthly servicing fees, advisory fees, amendment fees, structuring fees and prepayment fees that the Company receives in connection with its debt investments. These fees are recognized as earned.
The Company has also structured exit fees across certain of its portfolio investments to be received upon the future exit of those investments. These fees are to be paid to the Company upon the sooner to occur of (i) a sale of the borrower or substantially all of the assets of the borrower, (ii) the maturity date of the loan or (iii) the date when full prepayment of the loan occurs. The receipt of such fees is contingent upon the occurrence of one of the events listed above for each of the investments. A percentage of these fees is included in net investment income over the life of the loan.
Cash and Cash Equivalents:
Cash, cash equivalents and restricted cash consist of demand deposits and highly liquid investments with maturities of three months or less, when acquired. The Company places its cash, cash equivalents and restricted cash with financial institutions and, at times, cash held in bank accounts may exceed the Federal Deposit Insurance Corporation ("FDIC") insured limit.
Restricted Cash:
As of December 31, 2015, included in restricted cash is $7.3 million that was held at U.S. Bank, National Association and Wells Fargo in connection with the Company's credit facility and its 2015 Debt Securitization (as defined in Note 7 — Borrowings). Pursuant to the terms of the credit facility and the 2015 Debt Securitization, the Company is restricted in terms of access to $3.0 million until such time as the Company submits its required monthly reporting schedules. As of December 31, 2015, $4.3 million of restricted cash could only be used for the payment of interest expense on the notes issued in the 2015 Debt Securitization.
Due from Portfolio Companies:
Due from portfolio companies consists of amounts payable to the Company from its portfolio companies, excluding those amounts attributable to interest, dividends or fees receivable. These amounts are recognized as they become payable to the Company (e.g., principal payments on the scheduled amortization payment date).
Deferred Financing Costs:
Deferred financing costs consist of fees and expenses in connection with the closing or amending of the Company's credit facilities or debt securitizations, and are capitalized at the time of payment. Deferred financing costs are amortized either using the straight line method or effective interest method over the terms of the respective credit arrangement, as appropriate. This amortization expense is included in interest expense in the Company's Consolidated Statements of Operations. Upon early termination of a credit facility, the remaining balance of unamortized fees related to such facility is accelerated into interest expense.
Offering Costs:
Offering costs consist of fees and expenses incurred in connection with the public offer and sale of Company's common stock, including legal, accounting and printing fees. There were no offering costs charged to capital during the three months ended December 31, 2015 and December 31, 2014.
Income Taxes:
In order to be subject to tax as a RIC, among other things, the Company is required to meet certain source of income and asset diversification requirements and timely distribute dividends to its stockholders of an amount generally at least equal to 90% of net taxable income and net realized short-term capital gains in excess of net realized long-term capital losses, or “investment company taxable income,” as defined by the Code and determined without regard to any deduction for dividends paid, for each taxable year. The Company is not subject to U.S. federal income tax on the portion of its taxable income and gains distributed to its stockholders as a dividend. Depending on the level of taxable income earned during a taxable year, the Company may choose to retain taxable income in excess of current year dividend distributions and would distribute such taxable income in the next taxable year. The Company anticipates timely distribution of its taxable income within the tax rules; however, the Company incurred a de minimis U.S. federal excise tax for calendar year 2013. The Company did not incur a U.S. federal excise tax for calendar year 2014 and does not expect to incur a U.S. federal excise tax for calendar year 2015. The Company may incur a U.S. federal excise tax in future years.

26

FIFTH STREET SENIOR FLOATING RATE CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


The Company holds certain portfolio investments through taxable subsidiaries. The purpose of the Company's taxable subsidiaries is to permit the Company to hold equity investments in portfolio companies which are "pass through" entities for U.S. federal income tax purposes in order to comply with the "source income" requirements contained in the RIC tax requirements. The taxable subsidiaries are consolidated for financial reporting purposes, and portfolio investments held by them are included in the Company’s consolidated financial statements as portfolio investments and recorded at fair value. The taxable subsidiaries are not consolidated with the Company for U.S. federal income tax purposes and may generate income tax expense, or benefit, and the related tax assets and liabilities, as a result of their ownership of certain portfolio investments. This income tax expense, if any, would be reflected in the Company's Consolidated Statements of Operations. The Company uses the asset and liability method to account for its taxable subsidiaries' income taxes. Using this method, the Company recognizes deferred tax assets and liabilities for the estimated future tax effects attributable to temporary differences between financial reporting and tax bases of assets and liabilities. In addition, the Company recognizes deferred tax benefits associated with net operating carry forwards that it may use to offset future tax obligations. The Company measures deferred tax assets and liabilities using the enacted tax rates expected to apply to taxable income in the years in which it expects to recover or settle those temporary differences.
ASC 740 Accounting for Uncertainty in Income Taxes ("ASC 740") provides guidance for how uncertain tax positions should be recognized, measured, presented, and disclosed in the Company's Consolidated Financial Statements. ASC 740 requires the evaluation of tax positions taken or expected to be taken in the course of preparing the Company's tax returns to determine whether the tax positions are "more-likely-than-not" of being sustained by the applicable tax authority. Tax positions not deemed to meet the more-likely-than-not threshold are recorded as a tax benefit or expense in the current year. Management's determinations regarding ASC 740 may be subject to review and adjustment at a later date based upon factors including, but not limited to, an ongoing analysis of tax laws, regulations and interpretations thereof. The Company recognizes the tax benefits of uncertain tax positions only where the position is "more likely than not" to be sustained assuming examination by tax authorities. The Company identifies its major tax jurisdictions as U.S. Federal and Connecticut, and the Company is not aware of any tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will change materially in the next 12 months.
Recent Accounting Pronouncements:
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers, which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. ASU 2014-09 will replace most existing revenue recognition guidance in GAAP when it becomes effective. The new standard will be effective for the Company on January 1, 2018 and early adoption is permitted on the original effective date of January 1, 2017. The standard permits the use of either the retrospective or cumulative effect transition method. The Company is evaluating the effect that ASU 2014-09 will have on its consolidated financial statements and related disclosures. The Company has not yet selected a transition method nor has it determined the effect of this standard on its consolidated financial statements and its ongoing financial reporting.
In April 2015, the FASB issued ASU 2015-03, Interest-Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs, that requires debt issuance costs (deferred financing costs) related to a recognized debt liability to be presented on the balance sheet as a direct deduction from the related debt liability, similar to the presentation of debt discounts. The update is effective for fiscal years beginning after December 15, 2015 and interim periods within those fiscal years. Additionally, in August 2015, the FASB issued ASU 2015-15, which provides further clarification on the same topic and states that the SEC would not object to the deferral and presentation of debt issuance costs as an asset and subsequent amortization of the deferred costs over the term of the line-of-credit arrangement, regardless of whether there are any outstanding borrowings on the line-of-credit arrangement. This guidance is not expected to have a material effect on the consolidated financial statements as it will result in a reclassification on the Consolidated Statements of Assets and Liabilities. Accordingly, there will be no impact on net asset value or net increase in net assets resulting from operations as a result of adoption of this guidance.
In May 2015, the FASB issued ASU 2015-07, Fair Value Measurement (Topic 820): Disclosures for Investments in Certain Entities that Calculate Net Asset Value per Share (or Its Equivalent). The new guidance removes the requirement that investments for which NAV is determined based on practical expedient reliance be reported utilizing the fair value hierarchy. ASU 2015-07 is required to be applied retrospectively for periods beginning on or after December 15, 2015, and interim periods within those fiscal years, with early adoption permitted. The Company is currently evaluating the impact of adopting this ASU on its consolidated financial statements.
In January 2016, the FASB issued ASU 2016-01, Financial Instruments - Overall, which makes limited amendments to the guidance in U.S. GAAP on the classification and measurement of financial instruments. The new standard significantly revises an entity’s accounting related to (1) the classification and measurement of investments in equity securities and (2) the presentation of certain fair value changes for financial liabilities measured at fair value. It also amends certain disclosure requirements associated with the fair value of financial instruments. ASU 2016-01 is effective for fiscal years beginning after December 15, 2017, including interim periods therein.  Early adoption is permitted specifically for the amendments pertaining to the presentation of certain fair value changes for financial liabilities measured at fair value.  Early adoption of all other amendments is not permitted. Upon adoption, the Company

27

FIFTH STREET SENIOR FLOATING RATE CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


will be required to make a cumulative-effect adjustment to the Consolidated Statement of Assets and Liabilities as of the beginning of the first reporting period in which the guidance is effective.  The Company did not early adopt the new guidance during the three months ended December 31, 2015.  The Company is evaluating the effect that ASU 2016-01 will have on its consolidated financial statements and related disclosures.

Note 4. Portfolio Investments
At December 31, 2015, 180.5% of net assets, or $604.0 million, was invested in 68 portfolio investments, including 16.5% of net assets, or $55.2 million, in subordinated notes and LLC equity interests of FSFR Glick JV LLC ("FSFR Glick JV"), and 6.1% of net assets, or $20.5 million, was in cash and cash equivalents (including restricted cash). In comparison, at September 30, 2015, 174.8% of net assets, or $623.6 million, was invested in 64 portfolio investments and 14.8% of net assets, or $52.7 million, was invested in cash and cash equivalents (including restricted cash). As of December 31, 2015, 90.7% of the Company's portfolio at fair value consisted of senior secured debt investments that bore interest at floating rates and that are secured by first or second priority liens on the assets of the portfolio companies, 8.9% consisted of investments in the subordinated notes of FSFR Glick JV and 0.4% consisted of investments in the LLC equity interests of FSFR Glick JV and other portfolio companies. As of September 30, 2015, 90.7% of the Company's portfolio at cost and fair value, consisted of senior secured debt investments that bore interest at floating rates which are secured by first or second priority liens on the assets of the portfolio companies, 8.4% consisted of investments in the subordinated notes of FSFR Glick JV and 0.9% consisted of investments in the LLC equity interests of FSFR Glick JV and other portfolio companies.
During the three months ended December 31, 2015 and December 31, 2014, the Company recorded net unrealized depreciation of $20.3 million and $1.4 million, respectively. During the three months ended December 31, 2015 and December 31, 2014, the Company recorded net realized losses of $0.1 million and net realized gains of $0.4 million, respectively.

28

FIFTH STREET SENIOR FLOATING RATE CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


The composition of the Company's investments as of December 31, 2015 and September 30, 2015 at cost and fair value was as follows:
 
 
December 31, 2015
 
September 30, 2015
 
 
Cost
 
Fair Value
 
Cost
 
Fair Value
Investments in debt securities (senior secured)
 
$
572,764,001

 
$
547,738,258

 
$
574,038,984

 
$
565,526,453

Investments in equity securities (common stock and warrants)
 
500,000

 
973,647

 
500,000

 
964,100

Debt investment in FSFR Glick JV
 
54,749,348

 
53,531,179

 
53,095,597

 
52,603,346

Equity investment in FSFR Glick JV
 
6,066,126

 
1,712,751

 
5,882,376

 
4,553,575

Total
 
$
634,079,475

 
$
603,955,835

 
$
633,516,957

 
$
623,647,474

The following table presents the financial instruments carried at fair value as of December 31, 2015, on the Company's Consolidated Statements of Assets and Liabilities for each of the three levels of hierarchy established by ASC 820:
 
 
Level 1
 
Level 2
 
Level 3
 
Total
Investments in debt securities (senior secured)
 
$

 
$

 
$
547,738,258

 
$
547,738,258

Investments in debt securities (subordinated notes of FSFR Glick JV)
 

 

 
53,531,179

 
53,531,179

Investment in equity securities (common stock and warrants, including LLC equity interests of FSFR Glick JV)
 

 

 
2,686,398

 
2,686,398

Total investments at fair value
 
$

 
$

 
$
603,955,835

 
$
603,955,835

The following table presents the financial instruments carried at fair value as of September 30, 2015, on the Company's Consolidated Statements of Assets and Liabilities for each of the levels of hierarchy established by ASC 820:
 
 
Level 1
 
Level 2
 
Level 3
 
Total
Investments in debt securities (senior secured)
 
$

 
$

 
$
565,526,453

 
$
565,526,453

Investments in debt securities (subordinated notes of FSFR Glick JV)
 

 

 
52,603,346

 
52,603,346

Investment in equity securities (common stock and warrants, including LLC equity interests of FSFR Glick JV)
 

 

 
5,517,675

 
5,517,675

Total investments at fair value
 
$

 
$

 
$
623,647,474

 
$
623,647,474


When a determination is made to classify a financial instrument within Level 3 of the valuation hierarchy, the determination is based upon the fact that the unobservable factors are significant to the overall fair value measurement. However, Level 3 financial instruments typically include, in addition to the unobservable or Level 3 components, observable components (that is, components that are actively quoted and can be validated by external sources). Accordingly, the appreciation (depreciation) in the tables below includes changes in fair value due in part to observable factors that are part of the valuation methodology.

29

FIFTH STREET SENIOR FLOATING RATE CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


The following table provides a roll-forward in the changes in fair value from September 30, 2015 to December 31, 2015, for all investments for which the Company determines fair value using unobservable (Level 3) factors:
 
 
Senior Secured Debt
 
Subordinated Debt (subordinated notes of FSFR Glick JV)
 
Common Equity (including LLC equity interests of FSFR Glick JV)/Warrants
 
Total
Fair value as of September 30, 2015
 
$
565,526,453

 
$
52,603,346

 
$
5,517,675

 
$
623,647,474

New investments & net revolver activity
 
130,578,072

 
1,653,751

 
183,750

 
132,415,573

Redemptions/repayments
 
(132,287,819
)
 

 

 
(132,287,819
)
Net accrual of PIK interest income
 
17,161

 

 

 
17,161

Accretion of original issue discount
 
557,498

 

 

 
557,498

Net change in unearned income
 
(85,775
)
 

 

 
(85,775
)
Net unrealized depreciation on investments
 
(16,513,212
)
 
(725,918
)
 
(3,015,027
)
 
(20,254,157
)
Net realized loss on investments
 
(54,120
)
 

 

 
(54,120
)
Fair value as of December 31, 2015
 
$
547,738,258

 
$
53,531,179

 
$
2,686,398

 
$
603,955,835

Net unrealized depreciation relating to Level 3 assets still held at December 31, 2015 and reported within net unrealized depreciation on investments in the Consolidated Statement of Operations for the three months ended December 31, 2015
 
$
(16,125,436
)
 
$
(725,918
)
 
$
(3,015,027
)
 
$
(19,866,381
)
The following table provides a roll-forward in the changes in fair value from September 30, 2014 to December 31, 2014, for all investments for which the Company determines fair value using unobservable (Level 3) factors:
 
 
Senior Secured Debt
 
Common Equity/Warrants
 
Total
Fair value as of September 30, 2014
 
$
299,333,407

 
$
667,990

 
$
300,001,397

New investments & net revolver activity
 
438,959,301

 

 
438,959,301

Redemptions/repayments
 
(142,363,216
)
 

 
(142,363,216
)
Accretion of original issue discount
 
420,921

 

 
420,921

Net change in unearned income
 
(152,573
)
 

 
(152,573
)
Net unrealized appreciation (depreciation) on investments
 
(1,411,744
)
 
(27,834
)
 
(1,439,578
)
Net realized gain on investments
 
428,002

 

 
428,002

Fair value as of December 31, 2014
 
$
595,214,098

 
$
640,156

 
$
595,854,254

Net unrealized depreciation relating to Level 3 assets still held at December 31, 2014 and reported within net unrealized depreciation on investments in the Consolidated Statement of Operations for the three months ended December 31, 2014
 
$
(983,742
)
 
$
(27,834
)
 
$
(1,011,576
)


30

FIFTH STREET SENIOR FLOATING RATE CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


Significant Unobservable Inputs for Level 3 Investments
The following table provides quantitative information related to the significant unobservable inputs for Level 3 investments, which are carried at fair value as of December 31, 2015:
Asset
 
Fair Value
 
Valuation Technique
 
Unobservable Input
 
Range
 
Weighted
Average (c)
Senior secured debt
 
$
255,736,359

 
Bond yield approach
 
Capital structure premium
 
(a)
0.0
 %
-
2.0%
 
0.20%
 
 
 
 
 
 
Tranche specific risk premium / (discount)
 
(a)
(4.3
)%
-
2.3%
 
(1.9)%
 
 
 
 
 
 
Size premium
 
(a)
0.5
 %
-
1.5%
 
1.1%
 
 
 
 
 
 
Industry premium / (discount)
 
(a)
(2.7
)%
-
0.5%
 
(0.3)%
 
 
19,709,803

 
Market and income approaches
 
Weighted average cost of capital
 
 
18.0
 %
-
20.0%
 
18.5%
 
 
 
 
 
 
Company specific risk premium
 
(a)
5.0
 %
-
10.0%
 
9.3%
 
 
 
 
 
 
Revenue growth rate
 
 
(21.8
)%
-
6.3
 %
 
(12.9)%
 
 
 
 
 
 
EBITDA multiple
 
(b)
1.1x

-
4.9x
 
1.4x
 
 
23,692,036

 
Transactions precedent approach
 
Transaction price
 
(d)
N/A

-
N/A
 
N/A
 
 
248,600,060

 
Market quotations
 
Broker quoted price
 
(e)
N/A

-
N/A
 
N/A
FSFR Glick JV subordinated notes
 
53,531,179

 
Bond yield approach
 
Capital structure premium
 
(a)
2.0
 %
-
2.0%
 
2.0%
 
 
 
 
 
 
Tranche specific risk premium / (discount)
 
(a)
(1.4
)%
-
(1.4
)%
 
(1.4)%
 
 
 
 
 
 
Size premium
 
(a)
2.0
 %
-
2.0%
 
2.0%
 
 
 
 
 
 
Industry premium / (discount)
 
(a)
(2.3
)%
-
(2.3
)%
 
(2.3)%
FSFR Glick JV equity interests
 
1,712,751

 
Net asset value
 
Net asset value
 
 
N/A

-
N/A
 
N/A
Common equity/warrants
 
973,647

 
Market and income approaches
 
Weighted average cost of capital
 
 
17.0
 %
-
17.0%
 
17.0%
 
 
 
 
 
 
Company specific risk premium
 
(a)
1.0
 %
-
1.0%
 
1.0%
 
 
 
 
 
 
Revenue growth rate
 
 
13.1
 %
-
13.1%
 
13.1%
 
 
 
 
 
 
EBITDA multiple
 
(b)
13.4x

-
13.4x
 
13.4x
Total
 
$
603,955,835

 
 
 
 
 
 
 
 
 
 
 
_____________________
(a) Used when market participant would take into account this premium or discount when pricing the investment.
(b) Used when market participant would use such multiples when pricing the investment.
(c) Weighted averages are calculated based on fair value of investments.
(d) Used when there is an observable transaction or pending event for the investment.
(e) The Company generally uses prices provided by an independent pricing service which are non-binding indicative prices on or near the valuation date as the primary basis for the fair value determinations for quoted senior secured debt investments. Since these prices are non-binding, they may not be indicative of fair value. Each quoted price is evaluated by the Audit Committee in conjunction with additional information compiled by the Company, including financial performance, recent business developments and various other factors.

31

FIFTH STREET SENIOR FLOATING RATE CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


The following table provides quantitative information related to the significant unobservable inputs for Level 3 investments, which are carried at fair value as of September 30, 2015:
Asset
 
Fair Value
 
Valuation Technique
 
Unobservable Input
 
Range
 
Weighted
Average (c)
Senior secured debt
 
$
319,401,727

 
Bond yield approach
 
Capital structure premium
 
(a)
0.0
 %
-
2.0%
 
0.03%
 
 
 
 
 
 
Tranche specific risk premium / (discount)
 
(a)
(7.5
)%
-
6.0%
 
(0.8)%
 
 
 
 
 
 
Size premium
 
(a)
0.5
 %
-
2.0%
 
1.1%
 
 
 
 
 
 
Industry premium / (discount)
 
(a)
(2.2
)%
-
7.3%
 
(0.02)%
 
 
246,124,726

 
Market quotations
 
Broker quoted price
 
(d)
N/A

-
N/A
 
N/A
FSFR Glick JV subordinated notes
 
52,603,346

 
Bond yield approach
 
Capital structure premium
 
(a)
2.0
 %
-
2.0%
 
2.0%
 
 
 
 
 
 
Tranche specific risk premium / (discount)
 
(a)
(1.4
)%
-
(1.4
)%
 
(1.4)%
 
 
 
 
 
 
Size premium
 
(a)
2.0
 %
-
2.0%
 
2.0%
 
 
 
 
 
 
Industry premium / (discount)
 
(a)
(1.9
)%
-
(1.9
)%
 
(1.9)%
FSFR Glick JV equity interests
 
4,553,575

 
Net asset value
 
Net asset value
 
 
N/A

-
N/A
 
N/A
Common equity/warrants
 
964,100

 
Market and income approaches
 
Weighted average cost of capital
 
 
17.0
 %
-
17.0%
 
17.0%
 
 
 
 
 
 
Company specific risk premium
 
(a)
1.0
 %
-
1.0%
 
1.0%
 
 
 
 
 
 
Revenue growth rate
 
 
34.3
 %
-
34.3%
 
34.3%
 
 
 
 
 
 
EBITDA multiple
 
(b)
12.2x

-
12.2x
 
12.2x
Total
 
$
623,647,474

 
 
 
 
 
 
 
 
 
 
 
_____________________
(a) Used when market participant would take into account this premium or discount when pricing the investment.
(b) Used when market participant would use such multiples when pricing the investment.
(c) Weighted averages are calculated based on fair value of investments.
(d) The Company generally uses prices provided by an independent pricing service which are non-binding indicative prices on or near the valuation date as the primary basis for the fair value determinations for quoted senior secured debt investments. Since these prices are non-binding, they may not be indicative of fair value. Each quoted price is evaluated by the Audit Committee in conjunction with additional information compiled by the Company, including financial performance, recent business developments and various other factors.
Under the bond yield approach, the significant unobservable inputs used in the fair value measurement of the Company's investments in debt securities are capital structure premium, tranche specific risk premium/(discount), size premium and industry premium/(discount). Significant increases or decreases in any of those inputs in isolation may result in a significantly lower or higher fair value measurement, respectively.
Under the market and income approaches, the significant unobservable inputs used in the fair value measurement of the Company's investments in debt or equity securities are the weighted average cost of capital, company specific risk premium, revenue growth rate and EBITDA multiple. Significant increases or decreases in a portfolio company's weighted average cost of capital or company specific risk premium in isolation may result in a significantly lower or higher fair value measurement, respectively. Significant increases or decreases in the revenue growth rate or valuation multiples in isolation may result in a significantly higher or lower fair value measurement, respectively.

32

FIFTH STREET SENIOR FLOATING RATE CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


Financial Instruments Disclosed, But Not Carried, At Fair Value
The following table presents the carrying value and fair value of the Company’s financial liabilities disclosed, but not carried, at fair value as of December 31, 2015, and the level of each financial liability within the fair value hierarchy: 
 
 
Carrying
 Value
 
Fair Value
 
Level 1
 
Level 2
 
Level 3
Citibank facility payable
 
$
109,226,800

 
$
109,226,800

 
$

 
$

 
$
109,226,800

Notes payable
 
182,331,000

 
182,331,000

 

 

 
182,331,000

Total
 
$
291,557,800

 
$
291,557,800

 
$

 
$


$
291,557,800

The carrying value of credit facility payable and notes payable approximates their fair values and are both included in Level 3 of the hierarchy.

Portfolio Composition
 Summaries of the composition of the Company's investment portfolio at cost and fair value as a percentage of total investments are shown in the following tables:
 
 
 
December 31, 2015
 
September 30, 2015
Cost:
 
 
 
 
 
 
 
 
Senior secured debt
 
$
572,764,001

 
90.33
%
 
$
574,038,984

 
90.61
%
Subordinated notes of FSFR Glick JV
 
54,749,348

 
8.63

 
53,095,597

 
8.38

LLC equity interests of FSFR Glick JV
 
6,066,126

 
0.96

 
5,882,376

 
0.93

Purchased equity
 
500,000

 
0.08

 
500,000

 
0.08

Total
 
$
634,079,475

 
100.00
%
 
$
633,516,957

 
100.00
%
Fair Value:
 
 
 
 
 
 
 
 
Senior secured debt
 
$
547,738,258

 
90.69
%
 
$
565,526,453

 
90.68
%
Subordinated notes of FSFR Glick JV
 
53,531,179

 
8.86

 
52,603,346

 
8.43

LLC equity interests of FSFR Glick JV
 
1,712,751

 
0.28

 
4,553,575

 
0.73

Purchased equity
 
819,333

 
0.14

 
809,394

 
0.13

Equity grants
 
154,314

 
0.03

 
154,706

 
0.03

Total
 
$
603,955,835

 
100.00
%
 
$
623,647,474

 
100.00
%

33

FIFTH STREET SENIOR FLOATING RATE CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


The Company primarily invests in portfolio companies located in North America. The following tables show the portfolio composition by geographic region at cost and fair value as a percentage of total investments. The geographic composition is determined by the location of the corporate headquarters of the portfolio company, which may not be indicative of the primary source of the portfolio company's business.
 
 
December 31, 2015
 
September 30, 2015
Cost:
 
 
 
 
 
 
 
 
 Northeast U.S.
 
$
228,071,848

 
35.97
%
 
$
215,112,970

 
33.96
%
 Southwest U.S.
 
129,048,081

 
20.35

 
124,389,488

 
19.63

 West U.S.
 
114,093,098

 
17.99

 
117,699,067

 
18.58

 Midwest U.S.
 
74,475,348

 
11.75

 
80,106,244

 
12.64

 Southeast U.S.
 
72,962,595

 
11.51

 
80,767,518

 
12.75

 International
 
15,428,505

 
2.43

 
15,441,670

 
2.44

Total
 
$
634,079,475

 
100.00
%
 
$
633,516,957

 
100.00
%
 
 
 
 
 
 
 
 
 
Fair Value:
 
 
 
 
 
 
 
 
 Northeast U.S.
 
$
214,004,670

 
35.43
%
 
$
211,240,832

 
33.87
%
 Southwest U.S.
 
127,603,516

 
21.13

 
125,336,010

 
20.10

 West U.S.
 
109,894,290

 
18.20

 
116,741,778

 
18.72

 Southeast U.S.
 
71,669,640

 
11.87

 
80,689,139

 
12.94

 Midwest U.S.
 
65,602,728

 
10.86

 
74,335,868

 
11.92

 International
 
15,180,991

 
2.51

 
15,303,847

 
2.45

Total
 
$
603,955,835

 
100.00
%
 
$
623,647,474

 
100.00
%

    

34

FIFTH STREET SENIOR FLOATING RATE CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


The composition of the Company's portfolio by industry at cost and fair values as of December 31, 2015 and September 30, 2015 were as follows:
 
December 31, 2015
 
September 30, 2015
Cost:
 
 
 
 
 
 
 
 Internet software & services
$
145,824,338

 
23.00
%
 
$
144,406,294

 
22.79
%
 Healthcare services
77,953,410

 
12.29

 
89,505,451

 
14.13

 Multi-sector holdings
60,815,474

 
9.59

 
58,977,973

 
9.31

 Advertising
54,733,757

 
8.63

 
43,467,983

 
6.86

 Integrated telecommunication services
29,731,280

 
4.69

 
38,058,587

 
6.01

 Specialized consumer services
28,665,756

 
4.52

 
28,717,092

 
4.53

 Diversified support services
23,490,306

 
3.70

 
29,579,949

 
4.67

 Education services
21,423,222

 
3.38

 
21,743,979

 
3.43

 Application software
21,261,179

 
3.35

 
21,328,091

 
3.37

 Security & alarm services
17,527,639

 
2.76

 
17,760,120

 
2.80

 Personal products
14,636,004

 
2.31

 
10,787,500

 
1.70

 Electronic equipment & instruments
13,580,000

 
2.14

 
13,720,000

 
2.17

 Data processing & outsourced services
11,565,157

 
1.82

 
13,581,348

 
2.14

 Food retail
10,254,741

 
1.62

 
10,300,523

 
1.63

 Environmental & facilities services
10,148,711

 
1.60

 
9,997,807

 
1.58

 Pharmaceuticals
9,800,000

 
1.55

 
9,825,000

 
1.55

 Research & consulting services
9,266,828

 
1.46

 
9,283,714

 
1.47

 Food distributors
8,902,479

 
1.40

 
8,912,991

 
1.41

 Diversified capital markets
8,738,415

 
1.38

 
8,756,158

 
1.38

 Insurance brokers
8,275,116

 
1.31

 

 

 IT consulting & other services
7,963,546

 
1.26

 
11,953,631

 
1.89

 Construction and engineering
5,936,317

 
0.94

 
5,945,467

 
0.94

 Wireless telecommunication services
5,739,890

 
0.91

 
5,746,610

 
0.91

 Specialty chemicals
4,950,694

 
0.78

 

 

 Healthcare technology
4,892,804

 
0.77

 
4,959,398

 
0.78

 Oil & gas equipment & services
4,358,329

 
0.69

 
4,418,746

 
0.70

 Computer hardware
4,038,624

 
0.64

 
4,099,489

 
0.65

 Industrial machinery
3,960,000

 
0.62

 
3,970,000

 
0.63

 Fertilizers & agricultural chemicals
3,665,459

 
0.59

 
3,713,056

 
0.57

 Auto parts & equipment
1,980,000

 
0.30

 

 

Total
$
634,079,475

 
100.00
%
 
$
633,516,957

 
100.00
%

35

FIFTH STREET SENIOR FLOATING RATE CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


 
December 31, 2015
 
September 30, 2015
Fair Value:
 
 
 
 
 
 
 
 Internet software & services
$
134,316,045

 
22.24
%
 
$
139,324,155

 
22.34
%
 Healthcare services
68,568,847

 
11.35

 
86,013,066

 
13.79

 Multi-sector holdings
55,243,930

 
9.15

 
57,156,921

 
9.16

 Advertising
54,802,615

 
9.07

 
43,579,408

 
6.99

 Integrated telecommunication services
29,658,588

 
4.91

 
38,288,184

 
6.14

 Specialized consumer services
28,409,177

 
4.70

 
28,795,048

 
4.62

 Diversified support services
23,078,377

 
3.82

 
29,476,672

 
4.73

 Application software
21,655,267

 
3.59

 
21,882,649

 
3.51

 Education services
19,245,719

 
3.19

 
21,386,129

 
3.43

 Security & alarm services
17,472,972

 
2.89

 
17,763,106

 
2.85

 Personal products
14,672,456

 
2.43

 
10,818,516

 
1.73

 Electronic equipment & instruments
13,478,550

 
2.23

 
13,717,288

 
2.20

 Data processing & outsourced services
11,524,806

 
1.91

 
13,681,960

 
2.19

 Food retail
10,289,513

 
1.70

 
10,432,750

 
1.67

 Environmental & facilities services
10,158,607

 
1.68

 
10,000,000

 
1.60

 Pharmaceuticals
9,442,764

 
1.56

 
9,819,438

 
1.57

 Research & consulting services
9,202,366

 
1.52

 
9,316,658

 
1.49

 Food distributors
8,930,970

 
1.48

 
8,970,000

 
1.44

 Diversified capital markets
8,787,089

 
1.45

 
8,831,807

 
1.42

 Insurance brokers
8,365,244

 
1.39

 

 

 IT consulting & other services
8,046,965

 
1.33

 
12,082,836

 
1.94

 Construction and engineering
6,016,220

 
1.00

 
5,908,869

 
0.95

 Wireless telecommunication services
5,440,438

 
0.90

 
5,454,246

 
0.87

 Specialty chemicals
5,000,000

 
0.83

 

 

 Healthcare technology
4,630,500

 
0.77

 
4,838,813

 
0.78

 Oil & gas equipment & services
4,104,683

 
0.68

 
4,364,794

 
0.70

 Computer hardware
4,003,316

 
0.66

 
4,121,614

 
0.66

 Industrial machinery
3,857,324

 
0.64

 
3,867,602

 
0.62

 Fertilizers & agricultural chemicals
3,575,259

 
0.59

 
3,754,945

 
0.61

 Auto parts & equipment
1,977,228

 
0.34

 

 

Total
$
603,955,835

 
100.00
%
 
$
623,647,474

 
100.00
%
The Company's investments are generally in middle market companies in a variety of industries. At both December 31, 2015 and September 30, 2015, the Company had no single investment that represented greater than 10% of the total investment portfolio at fair value. Income, consisting of interest, dividends, fees, other investment income and realization of gains or losses, can fluctuate upon repayment or sale of an investment and in any given year can be highly concentrated among several investments. For the three months ended December 31, 2015, the Company’s investment in FSFR Glick JV LLC produced investment income of $1.6 million, which represented 11.2% of total investment income. For the three months ended December 31, 2014, the Company’s investment in Teaching Strategies, LLC produced investment income of $1.4 million, which represented 11.6% of total investment income. No other individual investment produced investment income that exceeded 10% of total investment income for the three months ended December 31, 2015 or December 31, 2014.

36

FIFTH STREET SENIOR FLOATING RATE CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


FSFR Glick JV LLC
In October 2014, the Company entered into an LLC agreement with GF Equity Funding 2014 LLC ("GF Equity Funding") to form FSFR Glick JV. On April 21, 2015, FSFR Glick JV began investing primarily in senior secured loans of middle market companies. The Company co-invests in these securities with GF Equity Funding through its investment in FSFR Glick JV. FSFR Glick JV is managed by a four person Board of Directors, two of whom are selected by the Company and two of whom are selected by GF Equity Funding. FSFR Glick JV is capitalized as transactions are completed, and portfolio decisions and investment decisions in respect of the FSFR Glick JV must be approved by an investment committee of the FSFR Glick JV consisting of one representative of the Company and one representative of GF Equity Funding (with approval of each required). The members provide capital to the FSFR Glick JV in exchange for LLC equity interests, and the Company and GF Debt Funding 2014 LLC ("GF Debt Funding"), an entity advised by affiliates of GF Equity Funding, provide capital to the FSFR Glick JV in exchange for subordinated notes (the "Subordinated Notes"). As of December 31, 2015, the Company and GF Equity Funding owned 87.5% and 12.5%, respectively, of the outstanding LLC equity interests and the Company and GF Debt Funding owned 87.5% and 12.5%, respectively, of the Subordinated Notes. FSFR Glick JV is not an "eligible portfolio company" as defined in section 2(a)(46) of the 1940 Act.
The Company has determined that FSFR Glick JV is an investment company under ASC 946; however, in accordance with such guidance, the Company will generally not consolidate its investment in a company other than a wholly-owned investment company subsidiary or a controlled operating company whose business consists of providing services to the Company. Accordingly, the Company does not consolidate its noncontrolling interest in FSFR Glick JV.
As of December 31, 2015 and September 30, 2015, FSFR Glick JV had total assets of $199.4 million and $190.4, respectively. The Company's investment in FSFR Glick JV consisted of LLC equity interests of $1.7 million and Subordinated Notes of $53.5 million, at fair value as of December 31, 2015. As of September 30, 2015, the Company's investment consisted of LLC equity interests of $4.6 million and Subordinated Notes of $52.6 million, at fair value. The Subordinated Notes are junior in right of payment to the repayment of temporary contributions made by the Company to fund investments of FSFR Glick JV. FSFR Glick JV's portfolio consisted of middle market and other corporate debt securities of 29 and 29 "eligible portfolio companies" (as defined in the Section 2(a)(46) of the 1940 Act) as of December 31, 2015 and September 30, 2015, respectively. The portfolio companies in FSFR Glick JV are in industries similar to those in which the Company may invest directly.
As of December 31, 2015 and September 30, 2015, FSFR Glick JV had total capital commitments of $100.0 million, $87.5 million of which was from the Company and the remaining $12.5 million from GF Equity Funding and GF Debt Funding. Approximately $69.3 million and $67.4 million in aggregate commitments were funded as of December 31, 2015 and September 30, 2015, respectively, of which $60.6 million and $59.0 million, respectively, was from the Company. As of December 31, 2015, the Company had commitments to fund Subordinated Notes to FSFR Glick JV of $78.8 million, of which $24.2 million was unfunded. As of December 31, 2015, the Company had commitments to fund LLC equity interests in FSFR Glick JV of $8.7 million, of which $2.7 million was unfunded. As of September 30, 2015, the Company had commitments to fund Subordinated Notes to FSFR Glick JV of $78.8 million, of which $25.7 million was unfunded. As of September 30, 2015, the Company had commitments to fund LLC equity interests in FSFR Glick JV of $8.7 million, of which $2.9 million was unfunded.
Additionally, FSFR Glick JV has a senior revolving credit facility with Credit Suisse AG, Cayman Island Branch ("Credit Suisse facility") with a stated maturity date of April 17, 2023, which permitted up to $200.0 million of borrowings as of December 31, 2015 and September 30, 2015. Borrowings under the Credit Suisse facility are secured by all of the assets of FSFR Glick JV and all of the equity interests in FSFR Glick JV and bore interest at a rate equal to the 3-month LIBOR plus 2.5% per annum with no LIBOR floor as of December 31, 2015 and September 30, 2015. Under the Credit Suisse facility, $129.6 million and $122.4 million of borrowings were outstanding as of December 31, 2015 and September 30, 2015, respectively.

37

FIFTH STREET SENIOR FLOATING RATE CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


Below is a summary of FSFR Glick JV's portfolio, followed by a listing of the individual loans in FSFR Glick JV's portfolio as of December 31, 2015 and September 30, 2015:
 
 
December 31, 2015
 
September 30, 2015
Senior secured loans (1)
 
$191,880,606
 
$186,764,451
Weighted average current interest rate on senior secured loans (2)
 
6.88%
 
6.93%
Number of borrowers in FSFR Glick JV
 
29
 
29
Largest loan exposure to a single borrower (1)
 
$14,740,615
 
$14,777,933
Total of five largest loan exposures to borrowers (1)
 
$57,475,811
 
$58,331,216
__________
(1) At principal amount.
(2) Computed using the annual interest rate on accruing senior secured loans.




38

FIFTH STREET SENIOR FLOATING RATE CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


FSFR Glick JV Loan Portfolio as of December 31, 2015
Portfolio Company (4)
 
Business Description
 
Investment Type
 
Maturity Date
 
Stated Interest Rate (1)
 
Principal
 
Cost
 
Fair Value (2)
 Accruent, LLC (3)
 
 Internet software & services
 
First Lien Term Loan
 
11/25/2019
 
LIBOR +6.25% (1% floor) cash
 
$
14,740,615

 
$
14,551,949

 
$
14,499,913

 Ameritox Ltd. (3) (5)
 
 Healthcare services
 
First Lien Term Loan
 
6/23/2019
 
LIBOR+7.5% (1% floor) cash
 
7,794,458

 
7,670,333

 
4,809,117

 Answers Corporation (3)
 
 Internet software & services
 
First Lien Term Loan
 
10/1/2021
 
LIBOR+5.25% (1% floor) cash
 
7,939,850

 
7,651,353

 
5,399,098

 Beyond Trust Software, Inc. (3)
 
 Application software
 
First Lien Term Loan
 
9/25/2019
 
LIBOR+7% (1% floor) cash
 
13,631,274

 
13,522,609

 
13,417,251

 Compuware Corporation (3)
 
 Internet software & services
 
First Lien Term Loan B1
 
12/15/2019
 
LIBOR+5.25% (1% floor) cash
 
7,696,203

 
7,589,882

 
7,303,697

 Metamorph US 3, LLC (3)
 
 Internet software & services
 
First Lien Term Loan
 
12/1/2020
 
LIBOR+5.5% (1% floor) cash
 
8,344,528

 
8,235,305

 
8,141,585

 Motion Recruitment Partners LLC (3)
 
 Diversified support services
 
First Lien Term Loan
 
2/13/2020
 
LIBOR+6% (1% floor) cash
 
9,312,500

 
9,312,500

 
9,233,947

 NAVEX Global, Inc. (3)
 
 Internet software & services
 
First Lien Term Loan
 
11/19/2021
 
LIBOR+4.75% (1% floor) cash
 
3,526,537

 
3,510,567

 
3,420,741

 Teaching Strategies, LLC (3)
 
 Education services
 
First Lien Term Loan
 
10/1/2019
 
LIBOR+5.5% (0.5% floor) cash
 
2,645,589

 
2,641,947

 
2,578,080

 Teaching Strategies, LLC
 
Education services
 
First Lien Delayed Draw Term Loan
 
10/1/2019
 
LIBOR+5.5% (0.5% floor) cash
 
6,975,000

 
6,965,843

 
6,796,508

 TrialCard Incorporated (3)
 
 Healthcare services
 
First Lien Term Loan
 
12/31/2019
 
LIBOR+5% (1% floor) cash
 
7,332,387

 
7,289,467

 
7,136,912

 Air Newco LLC
 
 IT consulting & other services
 
First Lien Term Loan B
 
3/20/2022
 
LIBOR+5.5% (1% floor) cash
 
8,355,000

 
8,328,367

 
8,208,788

 Fineline Technologies, Inc. (3)
 
 Electronic equipment & instruments
 
First Lien Term Loan
 
5/5/2017
 
LIBOR+5.5% (1% floor) cash
 
8,730,000

 
8,671,304

 
8,664,782

 LegalZoom.com, Inc. (3)
 
 Specialized consumer services
 
First Lien Term Loan
 
5/13/2020
 
LIBOR+7% (1% floor) cash
 
9,925,000

 
9,708,898

 
9,708,857

 GK Holdings, Inc.
 
 IT consulting & other services
 
First Lien Term Loan
 
1/20/2021
 
LIBOR+5.5% (1% floor) cash
 
3,465,000

 
3,480,632

 
3,430,350

 Vitera Healthcare Solutions, LLC
 
 Healthcare technology
 
Second Lien Term Loan
 
11/4/2021
 
LIBOR+8.25% (1% floor) cash
 
3,000,000

 
2,952,273

 
2,880,000

 TIBCO Software, Inc. (3)
 
 Internet software & services
 
First Lien Term Loan
 
12/4/2020
 
LIBOR+5.5% (1% floor) cash
 
2,322,450

 
2,327,070

 
2,116,333

 CM Delaware LLC
 
 Advertising
 
First Lien Term Loan
 
3/18/2021
 
LIBOR+5.25% (1% floor) cash
 
2,146,579

 
2,144,231

 
2,082,182

 New Trident Holdcorp, Inc. (3)
 
 Healthcare services
 
First Lien Term Loan B
 
7/31/2019
 
LIBOR+5.25% (1.25% floor) cash
 
2,058,720

 
2,024,198

 
1,980,489

 Central Security Group, Inc. (3)
 
 Specialized consumer services
 
First Lien Term Loan
 
10/6/2020
 
LIBOR+5.25% (1% floor) cash
 
5,954,887

 
5,961,836

 
5,787,406

Language Line, LLC (3)
 
Integrated telecommunication services
 
First Lien Term Loan
 
7/7/2021
 
LIBOR+5.5% (1% floor) cash
 
9,558,333

 
9,571,151

 
9,530,471

Auction.com, LLC
 
Internet software & services
 
First Lien Term Loan
 
5/12/2019
 
LIBOR+5% (1% floor) cash
 
3,970,000

 
3,952,710

 
3,935,263

Aptos, Inc. (3)
 
Data processing & outsourced services
 
First Lien Term Loan B
 
6/23/2022
 
LIBOR+5.25% (0.75% floor) cash
 
7,960,000

 
7,978,554

 
7,920,200

Vubiquity, Inc.
 
Application software
 
First Lien Term Loan
 
8/12/2021
 
LIBOR+5.5% (1% floor) cash
 
4,200,000

 
4,159,800

 
4,180,800

Too Faced Cosmetics, LLC (3)
 
Personal products
 
First Lien Term Loan B
 
7/7/2021
 
LIBOR+5% (1% floor) cash
 
2,977,500

 
2,906,786

 
2,954,568

American Seafoods Group LLC (3)
 
Food distributors
 
First Lien Term Loan
 
8/19/2021
 
LIBOR+5% (1% floor) cash
 
3,990,000

 
3,971,127

 
3,956,743

Worley Claims Services, LLC (3)
 
Internet software & services
 
First Lien Term Loan
 
10/31/2020
 
LIBOR+8% (1% floor) cash
 
4,328,196

 
4,307,874

 
4,306,553

Poseidon Merger Sub, Inc. (3)
 
Advertising
 
Second Lien Term Loan
 
8/15/2023
 
LIBOR+8.5% (1% floor) cash
 
3,000,000

 
2,913,789

 
2,981,221

AccentCare, Inc.
 
Healthcare services
 
First Lien Term Loan
 
9/3/2021
 
LIBOR+5.75% (1% floor) cash
 
8,000,000

 
7,911,699

 
7,855,040

Novetta Solutions, LLC
 
Diversified support services
 
First Lien Term Loan
 
9/3/2021
 
LIBOR+5.75% (1% floor) cash
 
8,000,000

 
7,903,571

 
7,813,320

 Total Portfolio Investments
 
 
 
 
 
 
 
 
 
$
191,880,606

 
$
190,117,625

 
$
183,030,215

__________
(1) Represents the current interest rate as of December 31, 2015. All interest rates are payable in cash, unless otherwise noted.
(2) Represents the current determination of fair value as of December 31, 2015 utilizing a similar process as the Company in accordance with ASC 820. However, the determination of such fair value is not included in the Company's Board of Directors' valuation process described elsewhere herein.
(3) This investment is held by both the Company and FSFR Glick JV as of December 31, 2015.

39

FIFTH STREET SENIOR FLOATING RATE CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


(4) The principal balance outstanding for all floating rate loans is indexed to LIBOR and 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.
(5) This investment is on cash non-accrual status as of December 31, 2015.



40

FIFTH STREET SENIOR FLOATING RATE CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


FSFR Glick JV Loan Portfolio as of September 30, 2015
Portfolio Company (4)
 
Business Description
 
Investment Type
 
Maturity Date
 
Stated Interest Rate (1)
 
Principal
 
Cost
 
Fair Value (2)
 Accruent, LLC (3)
 
 Internet software & services
 
First Lien Term Loan
 
11/25/2019
 
LIBOR +6.25% (1% floor) cash
 
$
14,777,933

 
$
14,576,963

 
$
14,853,895

 Ameritox Ltd. (3)
 
 Healthcare services
 
First Lien Term Loan
 
6/23/2019
 
LIBOR+7.5% (1% floor) cash
 
7,794,458

 
7,661,251

 
7,048,923

 Answers Corporation (3)
 
 Internet software & services
 
First Lien Term Loan
 
10/1/2021
 
LIBOR+5.25% (1% floor) cash
 
7,959,900

 
7,658,675

 
5,857,173

 Beyond Trust Software, Inc. (3)
 
 Application software
 
First Lien Term Loan
 
9/25/2019
 
LIBOR+7% (1% floor) cash
 
13,665,783

 
13,549,710

 
13,549,671

 Compuware Corporation (3)
 
 Internet software & services
 
First Lien Term Loan B1
 
12/15/2019
 
LIBOR+5.25% (1% floor) cash
 
7,797,468

 
7,684,361

 
7,551,848

 Idera, Inc. (3)
 
 Internet software & services
 
First Lien Term Loan
 
11/5/2020
 
LIBOR+5.5% (0.5% floor) cash
 
3,160,000

 
3,134,841

 
3,160,000

 Metamorph US 3, LLC (3)
 
 Internet software & services
 
First Lien Term Loan
 
12/1/2020
 
LIBOR+5.5% (1% floor) cash
 
8,398,019

 
8,283,147

 
8,310,898

 Motion Recruitment Partners LLC (3)
 
 Diversified support services
 
First Lien Term Loan
 
2/13/2020
 
LIBOR+6% (1% floor) cash
 
9,562,500

 
9,562,500

 
9,459,652

 NAVEX Global, Inc. (3)
 
 Internet software & services
 
First Lien Term Loan
 
11/19/2021
 
LIBOR+4.75% (1% floor) cash
 
2,435,442

 
2,429,788

 
2,423,265

 Teaching Strategies, LLC (3)
 
 Education services
 
First Lien Term Loan
 
10/1/2019
 
LIBOR+5.5% (0.5% floor) cash
 
2,695,442

 
2,691,552

 
2,673,135

 Teaching Strategies, LLC
 
Education services
 
First Lien Delayed Draw Term Loan
 
10/1/2019
 
LIBOR+5.5% (0.5% floor) cash
 
7,020,000

 
7,010,218

 
6,961,725

 TrialCard Incorporated (3)
 
 Healthcare services
 
First Lien Term Loan
 
12/31/2019
 
LIBOR+5% (1% floor) cash
 
7,332,387

 
7,286,727

 
7,232,017

 Air Newco LLC
 
 IT consulting & other services
 
First Lien Term Loan B
 
3/20/2022
 
LIBOR+5.5% (1% floor) cash
 
5,970,000

 
6,004,722

 
5,977,463

 Fineline Technologies, Inc. (3)
 
 Electronic equipment & instruments
 
First Lien Term Loan
 
5/5/2017
 
LIBOR+5.5% (1% floor) cash
 
8,820,000

 
8,749,565

 
8,818,256

 LegalZoom.com, Inc. (3)
 
 Specialized consumer services
 
First Lien Term Loan
 
5/13/2020
 
LIBOR+7% (1% floor) cash
 
9,950,000

 
9,721,186

 
9,882,838

 GK Holdings, Inc.
 
 IT consulting & other services
 
First Lien Term Loan
 
1/20/2021
 
LIBOR+5.5% (1% floor) cash
 
3,473,750

 
3,490,164

 
3,460,723

 Vitera Healthcare Solutions, LLC
 
 Healthcare technology
 
Second Lien Term Loan
 
11/4/2021
 
LIBOR+8.25% (1% floor) cash
 
3,000,000

 
2,950,227

 
2,925,000

 TIBCO Software, Inc. (3)
 
 Internet software & services
 
First Lien Term Loan
 
12/4/2020
 
LIBOR+5.5% (1% floor) cash
 
2,328,300

 
2,333,155

 
2,310,838

 CM Delaware LLC
 
 Advertising
 
First Lien Term Loan
 
3/18/2021
 
LIBOR+5.25% (1% floor) cash
 
2,152,041

 
2,149,579

 
2,143,971

 New Trident Holdcorp, Inc. (3)
 
 Healthcare services
 
First Lien Term Loan B
 
7/31/2019
 
LIBOR+5.25% (1.25% floor) cash
 
2,064,508

 
2,027,520

 
2,000,003

 Central Security Group, Inc. (3)
 
 Specialized consumer services
 
First Lien Term Loan
 
10/6/2020
 
LIBOR+5.25% (1% floor) cash
 
5,969,925

 
5,977,239

 
5,910,225

Language Line, LLC (3)
 
Integrated telecommunication services
 
First Lien Term Loan
 
7/7/2021
 
LIBOR+5.5% (1% floor) cash
 
10,000,000

 
10,013,409

 
10,020,850

All Web Leads, Inc. (3)
 
Advertising
 
First Lien Term Loan
 
6/30/2020
 
LIBOR+6.5% (1% floor) cash
 
9,937,500

 
9,700,212

 
9,884,905

Auction.com, LLC
 
Internet software & services
 
First Lien Term Loan
 
5/12/2019
 
LIBOR+5% (1% floor) cash
 
3,980,000

 
3,961,380

 
3,970,050

Aptos, Inc. (3)
 
Data processing & outsourced services
 
First Lien Term Loan B
 
6/23/2022
 
LIBOR+5.25% (0.75% floor) cash
 
7,980,000

 
7,999,277

 
7,960,050

Vubiquity, Inc.
 
Application software
 
First Lien Term Loan
 
8/12/2021
 
LIBOR+5.5% (1% floor) cash
 
4,200,000

 
4,158,000

 
4,179,000

Too Faced Cosmetics, LLC (3)
 
Personal products
 
First Lien Term Loan B
 
7/7/2021
 
LIBOR+5% (1% floor) cash
 
3,000,000

 
2,926,072

 
3,000,000

American Seafoods Group LLC (3)
 
Food distributors
 
First Lien Term Loan
 
8/19/2021
 
LIBOR+5% (1% floor) cash
 
4,000,000

 
3,980,282

 
3,980,000

Worley Claims Services, LLC (3)
 
Internet software & services
 
First Lien Term Loan
 
10/31/2020
 
LIBOR+8% (1% floor) cash
 
4,339,095

 
4,317,702

 
4,317,400

Poseidon Merger Sub, Inc. (3)
 
Advertising
 
Second Lien Term Loan
 
8/15/2023
 
LIBOR+8.5% (1% floor) cash
 
3,000,000

 
2,910,947

 
3,000,000

 Total Portfolio Investments
 
 
 
 
 
 
 
 
 
$
186,764,451

 
$
184,900,371

 
$
182,823,774

__________
(1) Represents the current interest rate as of September 30, 2015. All interest rates are payable in cash, unless otherwise noted.

41

FIFTH STREET SENIOR FLOATING RATE CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


(2) Represents the fair value determined utilizing a similar process as the Company in accordance with ASC 820. However, the determination of such fair value is not included in the Company's Board of Directors' valuation process described elsewhere herein.
(3) This investment is held by both the Company and FSFR Glick JV as of September 30, 2015.
(4) The principal balance outstanding for all floating rate loans is indexed to LIBOR and 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.

The amortized cost and fair value of the Subordinated Notes held by the Company was $54.7 million and $53.5 million, respectively, as of December 31, 2015 and $53.1 million and $52.6 million, respectively, as of September 30, 2015. The Subordinated Notes pay a weighted average interest rate of LIBOR plus 8.0% per annum and also entitle the holders thereof to receive a portion of the excess cash flow from the investment portfolio, which may result in a return greater than the contractual coupon. For the three months ended December 31, 2015, the Company earned interest income of $1.1 million on its investment in the Subordinated Notes. The cost and fair value of the LLC equity interests held by the Company was $6.1 million and $1.7 million, respectively, as of December 31, 2015 and $5.9 million and $4.6 million, respectively, as of September 30, 2015. The Company earned dividend income of $0.4 million for the three months ended December 31, 2015 with respect to its LLC equity interests. The LLC equity interests are dividend producing to the extent there is residual income to be distributed on a quarterly basis.
Below is certain summarized financial information for FSFR Glick JV as of December 31, 2015 and September 30, 2015 and for the three months ended December 31, 2015:
 
 
December 31, 2015
 
September 30, 2015
Selected Balance Sheet Information:
 
 
 
 
Investments in loans at fair value (cost December 31, 2015: $190,117,625; cost September 30, 2015: $184,900,371)
 
$
183,030,215

 
$
182,823,774

Cash and cash equivalents
 
10,836,647

 
3,127,824

Restricted cash
 
2,739,103

 
2,188,133

Other assets
 
2,817,519

 
2,253,143

Total assets
 
$
199,423,484

 
$
190,392,874

 
 
 
 
 
Senior credit facility payable
 
$
129,615,636

 
$
122,380,636

Subordinated notes payable at fair value (proceeds December 31, 2015: $62,570,682; proceeds September 30, 2015: $60,680,682)
 
61,178,489

 
60,118,109

Other liabilities
 
6,671,929

 
2,690,043

Total liabilities
 
$
197,466,054

 
$
185,188,788

Members' equity
 
1,957,430

 
5,204,086

Total liabilities and members' equity
 
$
199,423,484

 
$
190,392,874


 
 
Three months ended December 31, 2015
Selected Statement of Operations Information:
 
 
Interest income
 
$
3,688,589

Fee income
 
4,167

Total investment income
 
3,692,756

Interest expense
 
2,414,446

Other expenses
 
63,693

Total expenses (1)
 
2,478,139

Net unrealized depreciation
 
(4,083,557
)
Net loss
 
$
(2,868,940
)
__________
(1) There are no management fees or incentive fees charged at FSFR Glick JV.

42

FIFTH STREET SENIOR FLOATING RATE CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


FSFR Glick JV has elected to fair value the Subordinated Notes issued to the Company and GF Debt Funding under ASC 825. The Subordinated Notes are valued by calculating the net present value of the future expected cash flow streams using an appropriate risk-adjusted discount rate model.
During the three months ended December 31, 2015, the Company sold $9.0 million of senior secured debt investments at fair value to FSFR Glick JV in exchange for $9.0 million cash consideration.

Note 5. Fee Income
The Company receives a variety of fees in the ordinary course of business including servicing, advisory, amendment, structuring and prepayment fees, which are classified as fee income and recognized as they are earned. The majority of fee income is comprised of advisory fees which are recognized at investment close and are non-recurring in nature.
For the three months ended December 31, 2015, the Company recorded total fee income of $1.3 million, $0.2 million of which was recurring in nature. For the three months ended December 31, 2014, the Company recorded total fee income of $3.7 million, $0.1 million of which was recurring in nature.

Note 6. Share Data and Distributions
Earnings per Share
The following sets forth the computation of basic and diluted earnings per share, pursuant to ASC 260-10 Earnings per Share, for the three months ended December 31, 2015 and December 31, 2014:
 
 
Three months ended
December 31, 2015
 
Three months ended
December 31, 2014
Earnings per common share — basic and diluted:
 
 
 
 
Net increase (decrease) in net assets resulting from operations
 
$
(13,306,359
)
 
$
6,483,926

Weighted average common shares outstanding
 
29,466,768

 
29,466,768

Earnings (loss) per common share — basic and diluted
 
$
(0.45
)
 
$
0.22

Distributions
Distributions to common stockholders are recorded on the ex-dividend date. The Company is required to distribute dividends each taxable year to its stockholders of an amount at least 90% of its investment company taxable income in order to be eligible for tax benefits allowed to a RIC under Subchapter M of the Code. The Company anticipates paying out as a distribution all or substantially all of those amounts. The amount to be paid out as a dividend is determined by the Board of Directors and is based on management’s estimate of the Company’s annual taxable income. Net realized capital gains, if any, are generally distributed, although the Company may decide to retain such net realized capital gains for investment.
The Company has adopted a dividend reinvestment plan (“DRIP”) that provides for reinvestment of any distributions the Company declares in cash on behalf of its stockholders, unless a stockholder elects to receive cash. As a result, if the Company’s Board of Directors authorizes, and the Company declares, a cash dividend, then the Company’s stockholders who have not “opted out” of the Company’s dividend reinvestment plan will have their cash dividends automatically reinvested in additional shares of the Company’s common stock, rather than receiving the cash dividend. If the Company’s shares are trading at a premium to net asset value, the Company typically issues new shares to implement the dividend reinvestment plan. If the Company’s shares are trading at a discount to net asset value, the Company typically purchases shares in the open market in connection with the Company’s obligations under the dividend reinvestment plan. However, the Company reserves the right to issue new shares of the Company’s common stock in connection with the Company’s obligations under the dividend reinvestment plan even if the Company’s shares are trading below net asset value.
For income tax purposes, the Company estimates that its distributions will be composed primarily of ordinary income, and the actual character of such distributions will be reflected on the Company’s Form 1099-DIVs for the calendar year. To the extent that the Company’s taxable earnings fall below the amount of dividends declared, however, a portion of the total amount of the Company’s dividends for the fiscal year may be deemed a return of capital for tax purposes to the Company’s stockholders.
The following table reflects the distributions per share that the Company has recorded, including shares issued under the DRIP, on its common stock during the three months ended December 31, 2015 and December 31, 2014:

43

FIFTH STREET SENIOR FLOATING RATE CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


Frequency
 
Date Declared
 
Record Date
 
Payment Date
 
Amount
per Share
 
Total Distribution
 
DRIP Shares Issued (1)
 
DRIP Shares Value
Monthly
 
July 10, 2015
 
October 6, 2015
 
October 15, 2015
 
$0.075
 
$2,210,008
 
12,080
 
$108,563
Monthly
 
July 10, 2015
 
November 5, 2015
 
November 16, 2015
 
0.075
 
2,210,008
 
13,269
 
116,730
Monthly
 
November 30, 2015
 
December 11, 2015
 
December 22, 2015
 
0.075
 
2,210,007
 
11,103
 
94,563
Monthly
 
November 30, 2015
 
January 4, 2016
(2)
January 15, 2016
 
0.075
 
2,210,007
 
8,627
 
61,079
 
 
Total for the three months ended December 31, 2015
 
$0.30
 
$8,840,030
 
45,079
 
$380,935
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Date Declared
 
Record Date
 
Payment Date
 
Amount
per Share
 
Cash
Distribution
 
DRIP Shares
Issued
 
DRIP Shares
Value
Quarterly
 
September 9, 2014
 
December 15, 2014
 
January 15, 2015
 
0.30
 
8,840,030
 
23,183
 
242,678
 
 
Total for the three months ended December 31, 2014
 
$0.30
 
8,840,030
 
23,183
 
242,678
 __________
(1) Shares were purchased on the open market and distributed.
(2) Distribution recorded on ex-dividend date, which was prior to December 31, 2015. Accordingly, four monthly dividends were recorded for the three months ended December 31, 2015.
Common Stock Offering
There were no common stock offerings during the three months ended December 31, 2015 and December 31, 2014.

Note 7. Borrowings
Natixis Facility
On November 1, 2013, FS Senior Funding LLC, the Company's wholly-owned, special purpose financing subsidiary, entered into a $100 million revolving credit facility (the "Natixis facility") with the lenders referred to therein, Natixis, New York Branch, as administrative agent, and U.S. Bank National Association, as collateral agent and custodian.
Borrowings under the Natixis facility were subject to certain customary advance rates and accrued interest at a rate equal to either the applicable commercial paper rate (subject to an overall cap) plus 1.90% in the case of a lender that is a commercial paper conduit or otherwise the three-month LIBOR plus 2.00% per annum. In addition, there was a commitment fee payable on the undrawn amount under the Natixis facility equal to 1.00% (or 0.50% for the first six months after the closing date) of such undrawn amount. Interest and commitment fees were payable quarterly in arrears. The reinvestment period under the Natixis facility ended 18 months after the closing date and the Natixis facility was scheduled to mature on November 1, 2021.
On October 16, 2014, the Company entered into agreements to expand the Natixis facility from $100 million to $200 million, including a $100 million term loan and a $100 million revolving credit facility. Fifth Third Bank ("Fifth Third") also joined the facility as a term loan lender.  The $50 million term loan provided by Fifth Third was priced at LIBOR plus 2% per annum, and the $100 million revolving credit facility and $50 million term loan provided by Natixis, New York Branch, were priced at the applicable commercial paper rate plus 1.9% per annum. The facility maturity date remained unchanged.
Borrowings under the Natixis facility were secured by all of the assets of FS Senior Funding LLC and all of the Company's equity interest in FS Senior Funding LLC. The Company used the Natixis facility to fund a portion of its loan origination activities and for general corporate purposes. Each loan origination under the Natixis facility was subject to the satisfaction of certain conditions. The Company's borrowings under the Natixis facility bore interest at a weighted average interest rate of 2.268% for the three months ended December 31, 2014. For the three months ended December 31, 2014, the Company recorded interest expense of $0.9 million related to the Natixis facility.
On May 28, 2015, the Company completed a $309.0 million debt securitization transaction (the "2015 Debt Securitization"), the proceeds of which were used to repay the entire amount outstanding under the Natixis facility. In connection therewith, the Amended and Restated Loan and Servicing Agreement and other related documents governing the Natixis facility were also terminated. As such, the Company had no borrowings outstanding or capacity available under the Natixis facility as of December 31, 2015.
Citibank Facility
On January 15, 2015, FS Senior Funding II LLC, the Company's wholly-owned, special purpose financing subsidiary, entered into a $175 million revolving credit facility (the "Citibank facility") with the lenders referred to therein, Citibank, N.A., as administrative agent, and Wells Fargo Bank, N. A., as collateral agent and custodian.

44

FIFTH STREET SENIOR FLOATING RATE CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


Borrowings under the Citibank facility are subject to certain customary advance rates and accrued interest at a rate equal to LIBOR plus 2.00% per annum on broadly syndicated loans and LIBOR plus 2.25% per annum on all other eligible loans during the reinvestment period, and rates equal to LIBOR plus 3.50% per annum and LIBOR plus 4.00% per annum during the subsequent two years, respectively. In addition, there is a commitment fee payable on the undrawn amount under the credit facility of either 0.50% per annum on the unused amount of the credit facility (if the advances outstanding on the credit facility exceed 50% of the aggregate commitments by lenders to make advances on such day) or 0.75% per annum on the unused amount of the credit facility (if the advances outstanding on the credit facility do not exceed 50% of the aggregate commitments by lenders to make advances on such day) for the duration of the reinvestment period. Interest and commitment fees are payable quarterly in arrears. The reinvestment period under the credit facility ends January 15, 2018 and the credit facility will mature on January 15, 2020. The Citibank facility does not require the Company to comply with significant financial covenants.
As of December 31, 2015, the Company had $109.2 million outstanding under the Citibank facility. Borrowings under the Citibank facility are secured by all of the assets of FS Senior Funding II LLC and all of the Company's equity interests in FS Senior Funding II LLC. The Company may use the Citibank facility to fund a portion of its loan origination activities and for general corporate purposes. Each loan origination under the Citibank facility is subject to the satisfaction of certain conditions. The Company's borrowings under the Citibank facility bore interest at a weighted average interest rate of 2.639% for the three months ended December 31, 2015For the three months ended December 31, 2015, the Company recorded interest expense of $1.1 million related to the Citibank facility.
Debt Securitization
On May 28, 2015, the Company completed its $309.0 million 2015 Debt Securitization consisting of $222.6 million in senior secured notes ("2015 Notes") and $86.4 million of unsecured subordinated notes ("2015 Subordinated Notes"). The notes offered in the 2015 Debt Securitization were issued by FS Senior Funding Ltd. (the "2015 Issuer"), a wholly-owned subsidiary of the Company, through a private placement. The 2015 Notes are secured by the assets held by the 2015 Issuer. The 2015 Debt Securitization consists of $126.0 million Class A-T Senior Secured 2015 Notes of the 2015 Issuer which bear interest at three-month LIBOR plus 1.80% per annum; $29.0 million Class A-S Senior Secured Notes of the 2015 Issuer which bear interest at a rate of three-month LIBOR plus 1.55% per annum, with a step-up in spread to 2.10% to occur in October 2016; $20.0 million Class A-R Senior Secured Revolving Notes of the 2015 Issuer which bear interest at a rate of Commercial Paper ("CP") plus 1.80% per annum, collectively, the "Class A Notes;" and $25.0 million Class B Senior Secured Notes of the 2015 Issuer which bear interest at a rate of three-month LIBOR plus 2.65% per annum. In partial consideration for the loans transferred to the 2015 Issuer as part of the 2015 Debt Securitization, the Company currently retains the entire $22.6 million of the Class C Senior Secured Notes (which the Company purchased at 98.0% of par value) and the entire $86.4 million of the 2015 Subordinated Notes. The Class A Notes and Class B Notes are included in the Company's December 31, 2015 Consolidated Statements of Assets and Liabilities as notes payable. As of December 31, 2015, the Class C Notes and the 2015 Subordinated Notes were eliminated in consolidation.

The proceeds of the private placement of the 2015 Notes, net of expenses, were used to repay the entire amount outstanding under the Natixis Facility. As part of the 2015 Debt Securitization, FS Senior Funding LLC, the borrower under the Natixis Facility, merged with and into 2015 Issuer, with the 2015 Issuer remaining as the surviving entity. Upon completion of the 2015 Debt Securitization, the Company’s Natixis credit facility was paid off and terminated.
 
The Company serves as collateral manager to the 2015 Issuer under a collateral management agreement. The Company is entitled
to a fee for its services as collateral manager. The Company has retained Fifth Street Management LLC, the Company’s Investment Adviser, to furnish collateral management sub-advisory services to the Company pursuant to a sub-collateral management agreement.  Fifth Street Management LLC intends to waive its right to such sub-collateral management fees in respect of the 2015 Debt Securitization.

The collateral management agreement does not include any incentive fee payable to the Company as collateral manager or payable to Fifth Street Management LLC as sub-advisor under the sub-collateral management agreement.

Through May 28, 2019, all principal collections received on the underlying collateral may be used by the 2015 Issuer to purchase new collateral under the direction of the Investment Adviser in its capacity as sub-collateral manager of the 2015 Issuer and in accordance with the Company's investment strategy. All note classes are scheduled to mature on May 28, 2025.
 
As of December 31, 2015, there were 51 investments in portfolio companies with a total fair value of $277.4 million, securing the 2015 Notes of the 2015 Issuer. The pool of loans in the 2015 Debt Securitization must meet certain requirements, including asset mix and concentration, collateral coverage, term, agency rating, minimum coupon, minimum spread and sector diversity requirements.


45

FIFTH STREET SENIOR FLOATING RATE CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


The aggregate accrued interest payable on the 2015 Notes at December 31, 2015 was approximately $0.9 million. Deferred debt issuance costs consist of fees and expenses incurred in connection with debt offerings. As of December 31, 2015, the Company had a deferred debt issuance costs balance of approximately $2.7 million associated with the 2015 Debt Securitization.

For the three months ended December 31, 2015, the components of interest expense, cash paid for interest, average interest rates and average outstanding balances for the 2015 Debt Securitization were as follows:
Interest expense
 
$
1,086,623

Loan administration fees
 
26,566

Amortization of debt issuance costs
 
72,526

Total interest and other debt financing expenses
 
$
1,185,715

Cash paid for interest expense
 
$
1,634,246

Annualized average interest rate
 
2.275
%
Average outstanding balance
 
$
183,769,478

 
The classes, interest rates, spread over LIBOR, cash paid for interest and interest expense of each of the Class A-T, A-S, A-R, B and C notes the three months ended December 31, 2015 is as follows:
 
 
 
 
 
 
Three months ended December 31, 2015

 
Stated Interest Rate
 
LIBOR Spread (basis points)
 
Cash Paid for Interest
 
Interest Expense
Class A-T Notes
 
2.15103%
 
180
 
$
1,038,948

 
$
692,632

Class A-S Notes
 
1.90103%
 
155
(1)
211,331

 
140,888

Class A-R Notes
 
1.99075%
 
180
(2)
96,368

 
61,370

Class B Notes
 
3.00103%
 
265
 
287,599

 
191,733

Class C Notes
 
3.60103%
 
325
(3)

 

Total
 
 
 
 
 
$
1,634,246

 
$
1,086,623

_______________________
(1) Step-up in spread to occur in October 2016.
(2) Interest expense includes 1.0% undrawn fee. Class A-R Notes were partially undrawn during the three months ended December 31, 2015.
(3) The Company holds all Class C Notes outstanding and thus has not recorded any related interest expense.

The classes, amounts, ratings and interest rates (expressed as a spread to three-month LIBOR) of the Class A, B, C and Subordinated Notes are as follows:
 
Description
 
Class A-T Notes
 
Class A-S Notes
 
Class A-R
Notes
 
Class B Notes
 
Class C Notes
 
Subordinated Notes
Type
 
Senior Secured Floating Rate Term Debt
 
Senior Secured Floating Rate Term Debt
 
Senior Secured Floating Rate Revolver
 
Senior Secured Floating Rate Term Debt
 
Senior Secured Floating Rate Term Debt
 
Subordinated Term Notes
Amount Outstanding
 
$126,000,000
 
$29,000,000
 
$2,331,000
 
$25,000,000
 
$22,575,680
 
$86,400,000
Moody's Rating
 
"Aaa"
 
"Aaa"
 
"Aaa"
 
"Aa2"
 
"Aa2"
 
NR
S&P Rating
 
"AAA"
 
"AAA"
 
"AAA"
 
NR
 
NR
 
NR
Interest Rate
 
LIBOR + 1.80%
 
LIBOR + 1.55%*
 
CP + 1.80% **
 
LIBOR + 2.65%
 
LIBOR + 3.25%
 
NA
Stated Maturity
 
May 28, 2025
 
May 28, 2025
 
May 28, 2025
 
May 28, 2025
 
May 28, 2025
 
May 28, 2025
_______________________
* Spread to step-up to 2.10% in October 2016.
** Carries a 1.0% undrawn fee.

     The proceeds of the private placement of the Class A Notes and the Class B Notes of the 2015 Securitization Issuer, net of discount and debt issuance costs, may be used to fund a portion of the 2015 Issuer's loan origination activities and for general corporate purposes. The creditors of the 2015 Issuer have received security interests in the assets owned by the 2015 Issuer and such assets are not intended to be available to the Creditors of the Company (or any other affiliate of the Company). As part of the 2015 Debt Securitization, the Company entered into master loan sale agreements under which the Company agreed to directly or indirectly sell or

46

FIFTH STREET SENIOR FLOATING RATE CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


contribute certain senior secured debt investments (or participation interests therein) to the 2015 Issuer, and to purchase or otherwise acquire the 2015 Subordinated Notes of the 2015 Issuer, as applicable. The 2015 Notes (other than the Class C Notes) are the secured obligations of the 2015 Issuer and indentures governing the 2015 Notes include customary covenants and events of default.
The 2015 Debt Securitization requires the Company to comply with certain monthly financial covenants, including overcollateralization and interest coverage tests. As of December 31, 2015, the Company was in compliance with all financial covenants under the Debt Securitization.

Note 8. Interest and Dividend Income
Interest income is recorded on an accrual basis to the extent that such amounts are expected to be collected. In accordance with the Company's policy, accrued interest is evaluated periodically for collectability. The Company stops accruing interest on investments when it is determined that interest is no longer collectible. Distributions of income from portfolio companies are generally recorded as dividend income on the ex-dividend date.
As of December 31, 2015, there were two investments on which the Company stopped accruing cash and/or PIK interest or OID income. As of September 30, 2015, there was one investment on which the Company stopped accruing cash and/or PIK interest or OID income. As of December 31, 2014, there were no investments on which the Company had stopped accruing cash and/or PIK interest or OID income.
The percentages of the Company's debt investments at cost and fair value by accrual status as of December 31, 2015 and September 30, 2015 were as follows:
 
 
December 31, 2015
 
September 30, 2015
 
 
Cost
 
% of Debt
Portfolio
 
Fair
Value
 
% of Debt
Portfolio
 
Cost
 
% of Debt
Portfolio
 
Fair
Value
 
% of Debt
Portfolio
Accrual
 
$
605,613,675

 
95.51
%
 
$
587,972,232

 
97.35
%
 
$
625,911,700

 
98.80
%
 
$
619,219,635

 
99.29
%
PIK non-accrual (paying)
 
7,605,257

 
1.20

 
2,649,496

 
0.44

 
7,605,257

 
1.20

 
4,427,839

 
0.71

Cash non-accrual (non-paying)
 
20,860,543

 
3.29

 
13,334,107

 
2.21

 

 

 

 

Total
 
$
634,079,475

 
100.00
%
 
$
603,955,835

 
100.00
%
 
$
633,516,957

 
100.00
%
 
$
623,647,474

 
100.00
%
  __________________
(1)
PIK non-accrual status is inclusive of other noncash income, where applicable. Cash non-accrual status is inclusive of PIK and other noncash income, where applicable.
The non-accrual status of the Company's portfolio investments as of December 31, 2015 and September 30, 2015 was as follows:
 
  
December 31, 2015
 
September 30, 2015
Answers Corporation - second lien term loan
  
PIK non-accrual (1)
 
PIK non-accrual (1)
Ameritox Ltd.
 
Cash non-accrual
 
 
  __________________
(1)
PIK non-accrual status is inclusive of other noncash income, where applicable. Cash non-accrual status is inclusive of PIK and other noncash income, where applicable.

Income non-accrual amounts for the three months ended December 31, 2015 are presented in the following table.
 
 
Three months ended
December 31, 2015
Cash interest income
 
453,194

OID income
 
13,816

Total
 
$
467,010


Note 9. Taxable/Distributable Income and Dividend Distributions
Taxable income may differ from net increase (decrease) in net assets resulting from operations primarily due to unrealized appreciation (depreciation) on investments, as investment gains and losses are not included in taxable income until they are realized.

47

FIFTH STREET SENIOR FLOATING RATE CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


Listed below is a reconciliation of net increase in net assets resulting from operations to taxable income for the three months ended December 31, 2015, including cumulative prior period items related to the Revision:
Net decrease in net assets resulting from operations
 
$
(13,306,359
)
Net unrealized depreciation on investments
 
20,254,157

Book/tax difference due to deferred loan fees
 
82,809

Book/tax difference due to capital losses not recognized
 

Other book/tax differences
 
(383,380
)
Taxable/Distributable Income (1)
 
$
6,647,227

 
__________________
(1)
The Company's taxable income for the three months ended December 31, 2015 is an estimate and will not be finally determined until the Company files its tax return for the fiscal and taxable year ending September 30, 2016. Therefore, the final taxable income may be different than the estimate.
As of September 30, 2015, the components of accumulated undistributed income on a tax basis were as follows:
Undistributed ordinary income, net
$
2,028,702

Net realized capital gains (losses)
691,260

Unrealized gains, net
(17,295,681
)
The effect of the permanent book/tax reclassifications during the fiscal year ended September 30, 2015 resulted in increase/(decrease) to the components of net assets on the Consolidated Statements of Assets and Liabilities as of September 30, 2015 as follows:
Undistributed Net Investment Income
$
(278,397
)
Accumulated Net Realized Gain/(Loss) on Investments
278,397

Paid-In Capital

For financial reporting purposes, capital accounts have been adjusted to reflect the tax character of permanent book/tax differences.  Reclassifications are primarily due to the tax treatment of prepayment fees, nondeductible excise taxes paid, reclassification of distributions paid and return of capital distributions.  
The Company is permitted to carry forward any net capital losses, if any, incurred in taxable years beginning after December 22, 2010 for an unlimited period. However, any losses incurred during such taxable years will be required to be utilized prior to the capital losses incurred in taxable years ended prior to December 23, 2010, which are subject to an expiration date. As a result of this ordering rule, capital loss carryforwards may be more likely to expire unused.
As a RIC, the Company is also subject to a U.S. federal excise tax based on distributive requirements of its taxable income generally determined on a calendar year basis. The Company incurred a de minimis U.S. federal excise tax for calendar year 2013. The Company did not incur a U.S. federal excise tax for calendar year 2014 and does not expect to incur a U.S. federal excise tax for calendar year 2015.

Note 10. Realized Gains or Losses and Net Unrealized Appreciation or Depreciation on Investments
Realized gains or losses are measured by the difference between the net proceeds from the sale or redemption and the cost basis of the investment without regard to unrealized appreciation or depreciation previously recognized, and includes investments written-off during the period, net of recoveries. Realized losses may also be recorded in connection with the Company's determination that certain investments are considered worthless securities and/or meet the conditions for loss recognition per the applicable tax rules.
Net unrealized appreciation or depreciation reflects the net change in the valuation of the portfolio pursuant to the Company's valuation guidelines and the reclassification of any prior period unrealized appreciation or depreciation.
During the three months ended December 31, 2015, the Company recorded investment realization events, including the following:
In October 2015, the Company received a cash payment of $7.4 million from Reliant Hospital Partners, LLC in full satisfaction of all obligations under the loan agreement. The debt investment was exited at par and no realized gain or loss was recorded on the transaction;

48

FIFTH STREET SENIOR FLOATING RATE CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


In October 2015, the Company received a cash payment of $16.8 million from Idera, Inc. in full satisfaction of all obligations under the loan agreement. The debt investment was exited at par and no realized gain or loss was recorded on the transaction;
In October 2015, the Company received a cash payment of $5.7 million from Novetta Solutions, LLC in full satisfaction of all obligations under the loan agreement. The debt investment was exited at par and no realized gain or loss was recorded on the transaction;
In December 2015, the Company received a cash payment of $17.6 million from All Web Leads, Inc. in full satisfaction of all obligations under the loan agreement. The debt investment was exited at par and no realized gain or loss was recorded on the transaction; and
During the three months ended December 31, 2015, the Company received cash payments of $76.9 million in connection with syndications and sales of debt investments and recorded a net realized loss of $0.1 million.
During the three months ended December 31, 2014, the Company recorded investment realization events, including the following:
In October 2014, the Company received a cash payment of $6.8 million from Answers Corporation in full satisfaction of all obligations under the loan agreement. The debt investment was exited at par (plus additional fees) and no realized gain or loss was recorded on the transaction;
In December 2014, the Company received a cash payment of $4.9 million from Survey Sampling International, LLC in full satisfaction of all obligations under the loan agreement. The debt investment was exited at par and no realized gain or loss was recorded on the transaction; and
During the three months ended December 31, 2014, the Company received cash payments of $128.2 million in connection with syndications and sales of debt investments and recorded a net realized gain of $0.4 million.
During the three months ended December 31, 2015 and December 31, 2014, the Company recorded net unrealized depreciation of $20.3 million and $1.4 million, respectively. For the three months ended December 31, 2015 this consisted of $16.9 million of net unrealized depreciation on debt investments, $3.0 million of net unrealized depreciation on equity investments and $0.4 million of net reclassifications to realized gains (resulting in unrealized depreciation). For the three months ended December 31, 2014, the Company's net unrealized depreciation consisted of $1.1 million of net unrealized depreciation on debt investments, $27,834 of net unrealized depreciation on equity investments and $0.3 million of net reclassifications to realized gains (resulting in unrealized depreciation).

Note 11. Concentration of Credit Risks
The Company places its cash in financial institutions and at times such balances may be in excess of the FDIC insured limit. The Company limits its exposure to credit loss by depositing its cash with high credit quality financial institutions and monitoring their financial stability.

Note 12. Related Party Transactions
The Company has entered into an investment advisory agreement with the Investment Adviser. Under the investment advisory agreement, the Company pays the Investment Adviser a fee for its services consisting of two components — a base management fee and an incentive fee.
Base Management Fee
The base management fee is calculated at an annual rate of 1% of the Company's gross assets (i.e., total assets held before deduction of any liabilities), which includes any investments acquired with the use of leverage and excludes any cash, cash equivalents and restricted cash. The base management fee is calculated based on the average value of the Company's gross assets at the end of the two most recently completed quarters. The base management fee is payable quarterly in arrears and the fee for any partial month or quarter is appropriately prorated.
For the three months ended December 31, 2015 and December 31, 2014, base management fees (net of waivers, if any) were $1.6 million and $1.2 million, respectively.

49

FIFTH STREET SENIOR FLOATING RATE CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


Incentive Fee
The incentive fee portion of the investment advisory agreement has two parts. The first part ("Part I incentive fee") is calculated and payable quarterly in arrears based on the Company's "Pre-Incentive Fee Net Investment Income" for the immediately preceding fiscal quarter. For this purpose, "Pre-Incentive Fee Net Investment Income" means interest income, dividend income and any other income (including any other fees (other than fees for providing managerial assistance), such as commitment, origination, structuring, diligence and consulting fees or other fees that the Company receives from portfolio companies) accrued during the fiscal quarter, minus the Company's operating expenses for the quarter (including the base management fee, expenses payable under the Company's administration agreement, and any interest expense and dividends paid on any issued and outstanding indebtedness or preferred stock, but excluding the incentive fee). Pre-Incentive Fee Net Investment Income includes, in the case of investments with a deferred interest feature (such as OID, debt instruments with PIK interest and zero coupon securities), accrued income that the Company has not yet received in cash. Pre-Incentive Fee Net Investment Income does not include any realized capital gains, realized capital losses or unrealized capital appreciation or depreciation. Pre-Incentive Fee Net Investment Income, expressed as a rate of return on the value of the Company's net assets at the end of the immediately preceding fiscal quarter, will be compared to a "hurdle rate" of 1.5% per quarter (6% annualized), subject to a "catch-up" provision measured as of the end of each fiscal quarter. The Company's net investment income used to calculate this part of the incentive fee is also included in the amount of its gross assets used to calculate the 1% base management fee. The operation of the incentive fee with respect to the Company's Pre-Incentive Fee Net Investment Income for each quarter is as follows:
No incentive fee is payable to the Investment Adviser in any fiscal quarter in which the Company's Pre-Incentive Fee Net Investment Income does not exceed the hurdle rate of 1.5% (the "preferred return" or "hurdle");
50% of the Company's Pre-Incentive Fee Net Investment Income with respect to that portion of such Pre-Incentive Fee Net Investment Income, if any, that exceeds the hurdle rate but is less than or equal to 2.5% in any fiscal quarter (10% annualized) is payable to the Investment Adviser. The Company refers to this portion of its Pre-Incentive Fee Net Investment Income (which exceeds the hurdle rate but is less than or equal to 2.5%) as the "catch-up." The "catch-up" provision is intended to provide the Investment Adviser with an incentive fee of 20% on all of the Company's Pre-Incentive Fee Net Investment Income as if a hurdle rate did not apply when the Company's Pre-Incentive Fee Net Investment Income exceeds 2.5% in any fiscal quarter; and
20% of the amount of the Company's Pre-Incentive Fee Net Investment Income, if any, that exceeds 2.5% in any fiscal quarter (10% annualized) is payable to the Investment Adviser once the hurdle is reached and the catch-up is achieved.
For the three months ended December 31, 2015 and December 31, 2014, the Part I incentive fee was $1.7 million and $1.8 million, respectively.
The second part ("Part II Incentive Fee" or "capital gain incentive fee") of the incentive fee is determined and payable in arrears as of the end of each fiscal year (or upon termination of the investment advisory agreement, as of the termination date) and equals 20% of the Company's realized capital gains, if any, on a cumulative basis from inception through the end of each fiscal year, computed net of all realized capital losses and unrealized capital depreciation on a cumulative basis, less the aggregate amount of any previously paid capital gain incentive fees. For the three months ended December 31, 2014, the Part II incentive fee was $(0.3) million. For the three months ended December 31, 2015, there was no Part II incentive fee.
GAAP requires that the capital gains incentive fee accrual consider the cumulative aggregate unrealized capital appreciation in the calculation, as a capital gains incentive fee would be payable if such unrealized capital appreciation were realized, even though such unrealized capital appreciation is not permitted to be considered in calculating the fee actually payable under the investment advisory and management agreement. This GAAP accrual is calculated using the aggregate cumulative realized capital gains and losses and aggregate cumulative unrealized capital depreciation included in the calculation of the capital gain incentive fee plus the aggregate cumulative unrealized capital appreciation. If such amount is positive at the end of a period, then GAAP requires the Company to record a capital gains incentive fee equal to 20% of such cumulative amount, less the aggregate amount of actual capital gain incentive fees paid or capital gains incentive fees accrued under GAAP in all prior periods. As of December 31, 2015, the Company has paid $145,898 of capital gain incentive fees since inception. The resulting accrual for any capital gains incentive fee under GAAP in a given period may result in an additional expense if such cumulative amount is greater than in the prior periods or a reversal of previously recorded expense if such cumulative amount is less than in the prior periods. If such cumulative amount is negative, then there is no accrual. There can be no assurance that such unrealized capital appreciation will be realized in the future. The Company does not currently accrue for capital gain incentive fees due to the accumulated realized and unrealized losses in the portfolio.
At December 31, 2015 and September 30, 2015, the Company had a liability on its Consolidated Statements of Assets and Liabilities in the amount of $0.9 million and $2.1 million, respectively, reflecting the unpaid portion of the base management fee and incentive fees payable to the Investment Adviser.

50

FIFTH STREET SENIOR FLOATING RATE CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


Indemnification
The investment advisory agreement provides that, absent willful misfeasance, bad faith or gross negligence in the performance of their respective duties or by reason of the reckless disregard of their respective duties and obligations, the Company's Investment Adviser and its officers, managers, agents, employees, controlling persons, members (or their owners) and any other person or entity affiliated with it, are entitled to indemnification from the Company for any damages, liabilities, costs and expenses (including reasonable attorneys' fees and amounts reasonably paid in settlement) arising from the rendering of the Investment Adviser's services under the investment advisory agreement or otherwise as the Company's Investment Adviser.
Administration Agreement
On January 1, 2015, the Company entered into an administration agreement with its administrator, FSC CT LLC ("FSC CT"), under substantially similar terms as its prior administration agreement with FSC CT, Inc. Under the administration agreement with FSC CT, administrative services are provided to the Company, including office facilities and equipment, and clerical, bookkeeping and recordkeeping services at such facilities. Under the administration agreement, FSC CT also performs or oversees the performance of the Company's required administrative services, which includes being responsible for the financial records which the Company is required to maintain and preparing reports to the Company's stockholders and reports filed with the SEC. In addition, FSC CT assists the Company in determining and publishing the Company's net asset value, overseeing the preparation and filing of the Company's tax returns and the printing and dissemination of reports to the Company's stockholders, and generally overseeing the payment of the Company's expenses and the performance of administrative and professional services rendered to the Company by others. For providing these services, facilities and personnel, the Company provides reimbursement for the allocable portion of overhead and other expenses incurred in connection with payments of rent at market rates and the Company's allocable portion of the costs of compensation and related expenses of the Company's chief financial officer and chief compliance officer and their staffs. Such reimbursement is at cost with no profit to, or markup by, FSC CT. FSC CT may also provide, on the Company's behalf, managerial assistance to the Company's portfolio companies. The administration agreement may be terminated by either party without penalty upon 60 days' written notice to the other party.
For the three months ended December 31, 2015 and December 31, 2014, the Company accrued administrative expenses of $0.3 million and $0.3 million, respectively. At December 31, 2015 and September 30, 2015, $0.4 million and $0.4 million, respectively, was included in Due to FSC CT in the Consolidated Statements of Assets and Liabilities.


51

FIFTH STREET SENIOR FLOATING RATE CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


Note 13. Financial Highlights
 
 
Three months ended
December 31, 2015
 
Three months ended
December 31, 2014
Net asset value at beginning of period
 
$
12.11

 
$
12.65

Net investment income (5)
 
0.24

 
0.25

Net unrealized depreciation on investments (5)
 
(0.69
)
 
(0.04
)
Net realized gain on investments (5)
 

 
0.01

Distributions to stockholders
 
(0.30
)
 
(0.30
)
Net asset value at end of period
 
$
11.36

 
$
12.57

Per share market value at beginning of period
 
$
8.73

 
$
11.82

Per share market value at end of period
 
$
8.57

 
$
10.22

Total return (1)
 
0.71
%
 
(11.21
)%
Common shares outstanding at beginning of period
 
29,466,768

 
29,466,768

Common shares outstanding at end of period
 
29,466,768

 
29,466,768

Net assets at beginning of period
 
$
356,807,103

 
$
372,677,678

Net assets at end of period
 
$
334,660,714

 
$
370,321,574

Average net assets (2)
 
$
346,931,889

 
$
374,382,244

Ratio of net investment income to average net assets (3)
 
8.01
%
 
7.94
 %
Ratio of total expenses to average net assets (3)
 
7.90
%
 
4.69
 %
Ratio of portfolio turnover to average investments at fair value
 
9.92
%
 
6.28
 %
Weighted average outstanding debt (4)
 
$
320,921,843

 
$
126,026,943

Average debt per share (5)
 
$
10.89

 
$
4.28

_______________
(1)
Total return equals the increase or decrease of ending market value over beginning market value, plus distributions, divided by the beginning market value, assuming dividend reinvestment prices obtained under the Company's DRIP. Total return is not annualized during interim periods.
(2)
Calculated based upon the weighted average net assets for the period.
(3)
Periods less than twelve months are annualized.
(4)
Calculated based upon the weighted average of loans payable for the period.
(5)
Calculated based upon weighted average shares outstanding for the period.

Note 14. Commitments and Contingencies
Shareholder Actions
On December 18, 2015, Ironsides Special Situations Master Fund II L.P. ("Ironsides") delivered a letter to the Company (i) nominating a slate of two individuals for election to the Company's Board of Directors and (ii) submitting a business proposal for the Company's shareholders to vote on terminating the investment advisory agreement with Fifth Street Management LLC and (iii) submitting an advisory proposal, if the proposal to terminate the investment advisory agreement is successful, that none of Fifth Street Management LLC or any of its principals or other affiliates should be engaged to manage or advise any of the assets of the Company in any capacity, in each case, at the Company's 2016 annual stockholders’ meeting.
Off-Balance Sheet Arrangements
The Company's off-balance sheet arrangements consisted of $72.7 million and $76.8 million of unfunded commitments to provide debt and equity financing to its portfolio companies as of December 31, 2015 and September 30, 2015, respectively. Such commitments are subject to the portfolio companies' satisfaction of certain financial and nonfinancial covenants and involve, to varying degrees, elements of credit risk in excess of the amount recognized in the Consolidated Statements of Assets and Liabilities and are not reflected in the Company's Consolidated Statements of Assets and Liabilities.

52

FIFTH STREET SENIOR FLOATING RATE CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


A summary of the composition of the unfunded commitments (consisting of revolvers, term loans and FSFR Glick JV subordinated notes and LLC equity interests) as of December 31, 2015 and September 30, 2015 is shown in the table below:
 
 
December 31, 2015
 
September 30, 2015
 FSFR Glick JV LLC
 
$
26,684,526

 
$
28,522,027

 Landslide Holdings, Inc.
 
5,000,000

 
5,000,000

 Triple Point Group Holdings, Inc.
 
4,968,590

 
4,968,590

 Executive Consulting Group, Inc.
 
4,800,000

 
4,800,000

 TIBCO Software, Inc.
 
4,028,000

 
5,300,000

 BeyondTrust Software, Inc.
 
3,605,000

 
3,605,000

 All Web Leads, Inc.
 
3,458,537

 
2,454,572

 Motion Recruitment Partners LLC
 
2,900,000

 
2,900,000

 Legalzoom.com, Inc.
 
2,607,018

 
2,607,018

 Teaching Strategies, LLC
 
2,400,000

 
2,400,000

 PowerPlan, Inc.
 
2,100,000

 
2,100,000

 Metamorph US 3, LLC
 
1,800,000

 
1,800,000

 Dynatect Group Holdings, Inc.
 
1,800,000

 
1,800,000

 My Alarm Center, LLC
 
1,519,980

 
1,287,499

 Baart Programs, Inc.
 
1,000,000

 

 TrialCard Incorporated
 
850,000

 
850,000

 Ameritox Ltd.
 
800,000

 
1,000,000

 Internet Pipeline, Inc.
 
800,000

 
800,000

 Valet Merger Sub, Inc.
 
666,667

 
1,000,000

 RSC Acquisition, Inc.
 
487,805

 

 NextCare, Inc.
 
420,375

 
1,221,621

 Idera, Inc.
 

 
2,400,000

Total
 
$
72,696,498

 
$
76,816,327


Note 15. Subsequent Events
The Company's management evaluates subsequent events through the date of issuance of the Consolidated Financial Statements. There have been no subsequent events that occurred during such period that would require disclosure in, or would be required to be recognized in, the Consolidated Financial Statements as of and for the three months ended December 31, 2015, except as discussed below:
On January 6, 2016, the Company entered into a five-year $25 million senior secured revolving credit facility with the lenders referenced therein, U.S. Bank National Association, as Custodian, and East West Bank as Secured Lender (the “East West Bank Facility”). The East West Bank Facility bears an interest rate of LIBOR plus 3.75% per annum for borrowings in year one, 3.50% per annum for borrowings in year two, 3.25% per annum for borrowings in years three and four and 3.00% per annum for borrowings in year five.
In February 2016, the Company received notice that B&H Education, Inc. ("B&H"), a portfolio company, planned to close its remaining locations after learning that the Department of Education had revoked B&H's access to Title IV funding. The Company anticipates that its net recovery on this investment will be $1.4 million, as compared to fair value of $3.7 million at December 31, 2015.

53


Schedule 12-14
Fifth Street Senior Floating Rate Corp.
Schedule of Investments in and Advances to Affiliates
Three months ended December 31, 2015
Portfolio Company/Type of Investment (1)
 
Amount of
Interest,
Fees or
Dividends
Credited in
Income (2)
 
Fair Value
at October 1,
2015
 
Gross
Additions (3)
 
Gross
Reductions (4)
 
Fair Value at 
December 31, 2015
Control Investments
 
 
 
 
 
 
 
 
 
 
FSFR Glick JV LLC
 
 
 
 
 
 
 
 
 
 
 Subordinated Note, LIBOR+8% cash due 10/20/2021
 
$
1,120,491

 
$
52,603,346

 
$
1,653,751

 
$
(725,918
)
 
$
53,531,179

 87.5% equity interest (5)
 
437,500

 
4,553,575

 
183,750

 
(3,024,574
)
 
1,712,751

Total Control Investments
 
$
1,557,991

 
$
57,156,921

 
$
1,837,501

 
$
(3,750,492
)
 
$
55,243,930

This schedule should be read in connection with the Company's Consolidated Financial Statements, including the Consolidated Schedules of Investments and Notes to the Consolidated Financial Statements.
______________________
(1)
The principal amount and ownership detail as shown in the Company's Consolidated Schedules of Investments.
(2)
Represents the total amount of interest, fees and dividends credited to income for the portion of the year an investment was included in the Control or Affiliate categories.
(3)
Gross additions include increases in the cost basis of investments resulting from new portfolio investments, follow-on Investments and accrued interest, and the exchange of one or more existing securities for one or more new securities. Gross additions also include net increases in unrealized appreciation or net decreases in unrealized depreciation as well as the movement of an existing portfolio company into this category or out of a different category.
(4)
Gross reductions include decreases in the cost basis of investment resulting from principal payments or sales and exchanges of one or more existing securities for one or more new securities. Gross reductions also include net increases in unrealized depreciation or net decreases in unrealized appreciation as well as the movement of an existing portfolio company out of this category and into a different category.
(5)
Together with GF Equity Funding, the Company co-invests through FSFR Glick JV. FSFR Glick JV is capitalized as transactions are completed and all portfolio and investment decisions in respect to FSFR Glick JV must be approved by the FSFR Glick JV investment committee consisting of representatives of the Company and GF Equity Funding (with approval from a representative of each required).



54


Item 2.     Management's Discussion and Analysis of Financial Condition and Results of Operations
The following discussion should be read in connection with our Consolidated Financial Statements and the notes thereto included elsewhere in this quarterly report on Form 10-Q.
Some of the statements in this quarterly report on Form 10-Q constitute forward-looking statements because they relate to future events or our future performance or financial condition. The forward-looking statements contained in this quarterly report on Form 10-Q may include statements as to:
 
our future operating results and dividend projections;
our business prospects and the prospects of our portfolio companies;
the impact of the investments that we expect to make;
the ability of our portfolio companies to achieve their objectives;
our expected financings and investments;
the adequacy of our cash resources and working capital; and
the timing of cash flows, if any, from the operations of our portfolio companies.
In addition, words such as "anticipate," "believe," "expect," "seek," "plan," "should," "estimate," "project" and "intend" indicate forward-looking statements, although not all forward-looking statements include these words. The forward-looking statements contained in this quarterly report on Form 10-Q involve risks and uncertainties. Our actual results could differ materially from those implied or expressed in the forward-looking statements for any reason, including the factors set forth in "Item 1A. Risk Factors" and elsewhere in this quarterly report on Form 10-Q. Other factors that could cause actual results to differ materially include:
 
changes in the economy and the financial markets;
risks associated with possible disruption in our operations or the economy generally due to terrorism or natural disasters;
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 or RICs; and
other considerations that may be disclosed from time to time in our publicly disseminated documents and filings.
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 annual report, and we assume no obligation to update any such forward-looking statements. Although we undertake no obligation to revise or update any forward-looking statements, whether as a result of new information, future events or otherwise, you are advised to consult any additional disclosures that we may make directly to you or through reports that we in the future may file with the SEC, including annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K.
Except as otherwise specified, references to the "Company," "we," "us," and "our," refer to Fifth Street Senior Floating Rate Corp.
All amounts are in dollars, except share amounts, percentages and as otherwise indicated.
Overview
We are a specialty finance company that is a closed-end, non-diversified management investment company and have elected to be regulated as a business development company under the 1940 Act. We have qualified and elected to be treated as a regulated investment company ("RIC") under the Internal Revenue Code of 1986, as amended (the "Code"), for tax purposes.
Our investment objective is to maximize our portfolio's total return by generating current income from our debt investments while seeking to preserve our capital. We invest primarily in senior secured loans, including first lien, unitranche and second lien debt instruments, that pay interest at rates which are determined periodically on the basis of a floating base lending rate, made to private middle market companies whose debt is rated below investment grade. We may also invest in senior unsecured loans issued by private middle market companies and, to a lesser extent, subordinated loans issued by private middle market companies and senior and subordinated loans issued by public companies.
We are externally managed by Fifth Street Management LLC (the "Investment Adviser"), a subsidiary of Fifth Street Asset Management Inc. ("FSAM"), a publicly traded, leading alternative asset manager, pursuant to an investment advisory

55


agreement. FSC CT LLC, a subsidiary of our Investment Adviser, also provides certain administrative and other services necessary for us to operate.
Critical Accounting Policies
Basis of Presentation
The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America ("GAAP") requires management to make certain estimates and assumptions affecting amounts reported in the consolidated financial statements. We have identified investment valuation and revenue recognition as our most critical accounting estimates. We continuously evaluate our estimates, including those related to the matters described below. These estimates are based on the information that is currently available to us and on various other assumptions that we believe to be reasonable under the circumstances. Actual results could differ materially from those estimates under different assumptions or conditions. A discussion of our critical accounting policies follows.
Investment Valuation
We are required to report our investments that are not publicly traded or for which current market values are not readily available at fair value. The fair value is deemed to be the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.
We value our investments in accordance with FASB ASC 820 Fair Value Measurements and Disclosures, or ASC 820, which defines fair value as the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. A liability's fair value is defined as the amount that would be paid to transfer the liability to a new obligor, not the amount that would be paid to settle the liability with the creditor. ASC 820 prioritizes the use of observable market prices derived from such prices over entity-specific inputs. Where observable prices or inputs are not available or reliable, valuation techniques are applied. These valuation techniques involve some level of management estimation and judgment, the degree of which is dependent on the price transparency for the investments or market and the investments' complexity.
In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, an investment's level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. Our assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the investment. Generally, it is expected that all of our investment securities will be valued using Level 3 inputs. This includes investment securities that are valued using "bid" and "ask" prices obtained from independent third party pricing services or directly from brokers. These investments are generally classified as Level 3 because the quoted prices may be indicative in nature for securities that are in an inactive market, may be for similar securities or may require adjustments for investment-specific factors or restrictions.
Financial instruments with readily available quoted prices generally will have a higher degree of market price observability and a lesser degree of judgment inherent in measuring fair value. As such, we obtain and analyzes readily available market quotations provided by independent pricing services for all of our senior secured debt investments for which quotations are available. In determining the fair value of a particular investment, pricing services use observable market information, including both binding and non-binding indicative quotations. We evaluate the prices obtained from independent pricing services based on available market information and company specific data that could affect the credit quality and/or fair value of the investment. Investments for which market quotations are readily available may be valued at such market quotations. In order to validate market quotations, we look at a number of factors to determine if the quotations are representative of fair value, including the source and nature of the quotations. Our Investment Adviser does not adjust the prices unless it has a reason to believe any such market quotations are not reflective of the fair value of an investment. Examples of these events could include cases when a security trades infrequently causing a quoted purchase or sale price to become stale or in the event of a "fire sale" by a distressed seller. In these instances, we value such investments by using the valuation procedure that it uses with respect to assets for which market quotations are not readily available (as discussed below).
If the quotation provided by the pricing service is based on only one or two market sources, we perform additional procedures to corroborate such information, generally including, but not limited to, the bond yield approach discussed below and a quantitative and qualitative assessment of the credit quality and market trends affecting the portfolio company.
We perform detailed valuations of its debt and equity investments for which market quotations are not readily available or are deemed not to represent fair value of the investments. We typically use two different valuation techniques. The first valuation technique is an analysis of the enterprise value ("EV") of the portfolio company. EV means the entire value of the portfolio company to a market participant, including the sum of the values of debt and equity securities used to capitalize the enterprise at a point in time. The primary method for determining EV uses a multiple analysis whereby appropriate multiples

56


are applied to the portfolio company's EBITDA (generally defined as earnings before net interest expense, income tax expense, depreciation and amortization). EBITDA multiples are typically determined based upon review of market comparable transactions and publicly traded comparable companies, if any. We may also employ other valuation multiples to determine EV, such as revenues. The second method for determining EV uses a discounted cash flow analysis whereby future expected cash flows of the portfolio company are discounted to determine a present value using estimated discount rates (typically a weighted average cost of capital based on costs of debt and equity consistent with current market conditions). The EV analysis is typically performed to determine the value of equity investments and to determine if there is credit impairment for debt investments. If debt investments are credit impaired, an EV analysis may be used to value such debt investments; however, in addition to the methods outlined above, other alternative methods such as an asset liquidation model, expected recovery model or a recent observable or pending transaction may be utilized to estimate EV. The second valuation technique is a bond yield approach, which is typically performed for non-credit impaired debt investments. To determine fair value using a bond yield approach, a current price is imputed for the investment based upon an assessment of the expected market yield for a similarly structured investment with a similar level of risk. In the bond yield approach, we consider the current contractual interest rate, the capital structure and other terms of the investment relative to risk of the company and the specific investment. A key determinant of risk, among other things, is the leverage through the investment relative to the EV of the portfolio company. As debt investments held by us are substantially illiquid with no active transaction market, we depend on primary market data, including newly funded transactions and industry specific market movements, as well as secondary market data with respect to high yield debt instruments and syndicated loans, as inputs in determining the appropriate market yield, as applicable.
We estimate the fair value of privately held warrants using a Black Scholes pricing model, which includes an analysis of various factors and subjective assumptions including, but not limited to, the current stock price (by analyzing the portfolio company's operating performance and financial condition and general market conditions), the expected period until exercise, expected volatility of the underlying stock price, expected dividends and the risk free rate. Changes in the subjective input assumptions can materially affect the fair value estimates.
Our Board of Directors undertakes a multi-step valuation process each quarter in connection with determining the fair value of our investments:
The quarterly valuation process begins with each portfolio company or investment being initially valued by our Investment Adviser's valuation team in conjunction with the Investment Adviser's portfolio management and capital markets teams;
Preliminary valuations are then reviewed and discussed with principals of our Investment Adviser;
Separately, independent valuation firms engaged by our Board of Directors prepare valuations of our investments, on a selected basis, for which market quotations are not readily available or are readily available but deemed not reflective of the fair value of the investment, and submit the reports to us and provide such reports to our Investment Adviser and the Audit Committee of our Board of Directors;
The Investment Adviser compares and contrasts its preliminary valuations to the valuations of the independent valuation firms and prepares a valuation report for the Audit Committee of our Board of Directors;
The Audit Committee of our Board of Directors reviews the preliminary valuations with the portfolio managers of the Investment Adviser, and our Investment Adviser responds and supplements the valuations to reflect any discussions between our Investment Adviser and the Audit Committee;
The Audit Committee of our Board of Directors makes a recommendation to our Board of Directors regarding the fair value of the investments in our portfolio; and
Our Board of Directors discusses valuations and determines the fair value of each investment in our portfolio in good faith.
The fair value of all of our investments at December 31, 2015 and September 30, 2015, was determined in good faith by our Board of Directors. In addition, we have independent valuation firms provide us with valuation assistance on a portion of our portfolio on a quarterly basis and a substantial portion of our portfolio over the course of each fiscal year. We will continue to utilize independent valuation firms to provide us with assistance regarding our determination of the fair value of selected portfolio securities for which market quotations are not readily available or are readily available but deemed not reflective of the fair value of the investment each quarter; however, our Board of Directors is ultimately and solely responsible for the valuation of our portfolio investments at fair value as determined in good faith pursuant to our valuation policy and a consistently applied valuation process. As of December 31, 2015, 29.3% of our portfolio at fair value was valued by independent valuation firms. However, our Board of Directors is ultimately and solely responsible for the valuation of the portfolio investments at fair value as determined in good faith pursuant to our valuation policy and a consistently applied valuation process.

57


The percentages of our portfolio, at fair value, valued by independent valuation firms each period during the current and preceding fiscal years are presented in the following table. The percentage of our portfolio valued by independent valuation firms may vary from period to period based on the availability of market quotations for our portfolio investments during the respective periods.
For the quarter ended December 31, 2013
34.1
%
For the quarter ended March 31, 2014
30.5
%
For the quarter ended June 30, 2014
56.6
%
For the quarter ended September 30, 2014
44.3
%
For the quarter ended December 31, 2014
54.1
%
For the quarter ended March 31, 2015 (1)
32.1
%
For the quarter ended June 30, 2015
23.8
%
For the quarter ended September 30, 2015 (2)
76.5
%
For the quarter ended December 31, 2015
29.3
%
__________
(1) The decrease from prior quarters is primarily related to the increased use of market quotations to value certain of our portfolio investments beginning in the quarter ended March 31, 2015.
(2) This quarter is higher primarily due to additional year-end procedures related to portfolio investments that were valued using market quotations based on only one source.
As of December 31, 2015 and September 30, 2015, approximately 93.7% and 89.4%, respectively, of our total assets represented investments in portfolio companies valued at fair value.
Revenue Recognition
Interest and Dividend Income
Interest income, adjusted for accretion of original issue discount, or OID, is recorded on the accrual basis to the extent that such amounts are expected to be collected. We stop accruing interest on investments when it is determined that interest is no longer collectible. Distributions of income from portfolio companies are generally recorded as dividend income on the ex-dividend date.
Fee Income
We receive a variety of fees in the ordinary course of business including servicing, advisory, amendment, structuring and prepayment fees which are classified as fee income and recognized as they are earned.
Payment-in-Kind (PIK) Interest
Although our loans typically do not contain contractual PIK interest provisions, a portion of our loans may contain contractual PIK interest provisions now and in the future. The PIK interest, which represents contractually deferred interest, will be added to the loan balance that is generally due at the end of the loan term, and would generally be recorded on the accrual basis to the extent such amounts are expected to be collected. We would generally cease accruing PIK interest if there is insufficient value to support the accrual or if we do not expect the portfolio company to be able to pay all principal and interest due. Our decision to cease accruing PIK interest would involve subjective judgments and determinations based on available information about a particular portfolio company, including whether the portfolio company is current with respect to its payment of principal and interest on its loans and debt securities; monthly and quarterly financial statements and financial projections for the portfolio company; our assessment of the portfolio company's business development success, including product development, profitability and the portfolio company's overall adherence to its business plan; information obtained by us in connection with periodic formal update interviews with the portfolio company's management and, if appropriate, the private equity sponsor; and information about the general economic and market conditions in which the portfolio company operates. Based on this and other information, we would determine whether to cease accruing PIK interest on a loan or debt security. Our determination to cease accruing PIK interest on a loan or debt security would generally be made well before our full write-down of such loan or debt security. In addition, if it is subsequently determined that we will not be able to collect any previously accrued PIK interest, the fair value of our loans or debt securities would decline by the amount of such previously accrued, but uncollectible, PIK interest. The accrual of PIK interest on our debt investments increases the recorded cost basis of these investments in our Consolidated Financial Statements and, as a result, increases the cost basis of these investments for purposes of computing the capital gains incentive fee payable by us to our Investment Adviser.

58


For a discussion of risks we are subject to if we were to acquire loans that bear PIK interest, see "Risk Factors — Risks Relating to Our Business and Structure — We may have difficulty paying our required distributions if we recognize income before or without receiving cash representing such income," "— We may in the future choose to pay distributions in our own stock, in which case you may be required to pay tax in excess of the cash you receive" and "— Our incentive fee may induce our investment adviser to make speculative investments" in our annual report on Form 10-K for the year ended September 30, 2015.
To maintain our status as a RIC, PIK income must be paid out to our stockholders in the form of distributions even though we have not yet collected the cash and may never collect the cash relating to the PIK interest. Accumulated PIK interest was $17,161 as of December 31, 2015. We did not have any accumulated PIK interest as of September 30, 2015. The net increases in loan balances as a result of contractual PIK arrangements are separately identified in our Consolidated Statements of Cash Flows.
Portfolio Composition
Our investments principally consist of senior secured loans in privately-held companies. Our loans are typically secured by a first or second lien on the assets of the portfolio company and generally have terms of up to seven years (but an expected average life of between three and four years). We are currently focusing our origination efforts on a prudent mix of first lien and second lien loans which we believe will provide superior risk-adjusted returns while maintaining adequate credit protection. The mix may change over time based on market conditions and management's view of where the best risk-adjusted returns are available.
A summary of the composition of our investment portfolio at cost and fair value as a percentage of total investments is shown in the following tables:
 
 
December 31, 2015
 
September 30, 2015
Cost:
 
 
 
 
Senior secured debt
 
90.33
%
 
90.61
%
Subordinated notes of FSFR Glick JV
 
8.63

 
8.38

LLC equity interests of FSFR Glick JV
 
0.96

 
0.93

Purchased equity
 
0.08

 
0.08

Total
 
100.00
%
 
100.00
%
 
 
 
December 31, 2015
 
September 30, 2015
Fair value:
 
 
 
 
Senior secured debt
 
90.69
%
 
90.68
%
Subordinated notes of FSFR Glick JV
 
8.86

 
8.43

LLC equity interests of FSFR Glick JV
 
0.28

 
0.73

Purchased equity
 
0.14

 
0.13

Equity grants
 
0.03

 
0.03

Total
 
100.00
%
 
100.00
%


59


The industry composition of our portfolio at cost and fair value, respectively, as a percentage of total investments was as follows:
 
 
December 31, 2015
 
September 30, 2015
Cost:
 
 
 
 
 Internet software & services
 
23.00
%
 
22.79
%
 Healthcare services
 
12.29

 
14.13

 Multi-sector holdings
 
9.59

 
9.31

 Advertising
 
8.63

 
6.86

 Integrated telecommunication services
 
4.69

 
6.01

 Specialized consumer services
 
4.52

 
4.53

 Diversified support services
 
3.70

 
4.67

 Education services
 
3.38

 
3.43

 Application software
 
3.35

 
3.37

 Security & alarm services
 
2.76

 
2.80

 Personal products
 
2.31

 
1.70

 Electronic equipment & instruments
 
2.14

 
2.17

 Data processing & outsourced services
 
1.82

 
2.14

 Food retail
 
1.62

 
1.63

 Environmental & facilities services
 
1.60

 
1.58

 Pharmaceuticals
 
1.55

 
1.55

 Research & consulting services
 
1.46

 
1.47

 Food distributors
 
1.40

 
1.41

 Diversified capital markets
 
1.38

 
1.38

 Insurance brokers
 
1.31

 

 IT consulting & other services
 
1.26

 
1.89

 Construction and engineering
 
0.94

 
0.94

 Wireless telecommunication services
 
0.91

 
0.91

 Specialty chemicals
 
0.78

 

 Healthcare technology
 
0.77

 
0.78

 Oil & gas equipment & services
 
0.69

 
0.70

 Computer hardware
 
0.64

 
0.65

 Industrial machinery
 
0.62

 
0.63

 Fertilizers & agricultural chemicals
 
0.59

 
0.57

 Auto parts & equipment
 
0.30

 

 
 
100.00
%
 
100.00
%


60


Fair value:
 
December 31, 2015
 
September 30, 2015
 Internet software & services
 
22.24
%
 
22.34
%
 Healthcare services
 
11.35

 
13.79

 Multi-sector holdings
 
9.15

 
9.16

 Advertising
 
9.07

 
6.99

 Integrated telecommunication services
 
4.91

 
6.14

 Specialized consumer services
 
4.70

 
4.62

 Diversified support services
 
3.82

 
4.73

 Application software
 
3.59

 
3.51

 Education services
 
3.19

 
3.43

 Security & alarm services
 
2.89

 
2.85

 Personal products
 
2.43

 
1.73

 Electronic equipment & instruments
 
2.23

 
2.20

 Data processing & outsourced services
 
1.91

 
2.19

 Food retail
 
1.70

 
1.67

 Environmental & facilities services
 
1.68

 
1.60

 Pharmaceuticals
 
1.56

 
1.57

 Research & consulting services
 
1.52

 
1.49

 Food distributors
 
1.48

 
1.44

 Diversified capital markets
 
1.45

 
1.42

 Insurance brokers
 
1.39

 

 IT consulting & other services
 
1.33

 
1.94

 Construction and engineering
 
1.00

 
0.95

 Wireless telecommunication services
 
0.90

 
0.87

 Specialty chemicals
 
0.83

 

 Healthcare technology
 
0.77

 
0.78

 Oil & gas equipment & services
 
0.68

 
0.70

 Computer hardware
 
0.66

 
0.66

 Industrial machinery
 
0.64

 
0.62

 Fertilizers & agricultural chemicals
 
0.59

 
0.61

 Auto parts & equipment
 
0.34

 

 
 
100.00
%
 
100.00
%
Portfolio Asset Quality
We employ a ranking system to assess and monitor the credit risk of our investment portfolio. We rank all investments on a scale from 1 to 4. The system is intended to reflect the performance of the borrower's business, the collateral coverage of the loan, and other factors considered relevant to making a credit judgment. We have determined that there should be an individual ranking assigned to each tranche of securities in the same portfolio company where appropriate. This may arise when the perceived risk of loss on the investment varies significantly between tranches due to their respective seniority in the capital structure.
Investment Ranking 1 is used for investments that are performing above expectations and/or capital gains are expected.
Investment Ranking 2 is used for investments that are performing substantially within our expectations, and whose risks remain materially consistent with the potential risks at the time of the original or restructured investment. All new investments are initially ranked 2.
Investment Ranking 3 is used for investments that are performing below our expectations and for which risk has materially increased since the original or restructured investment. The portfolio company may be out of compliance with debt covenants and may require closer monitoring. To the extent that the underlying agreement has a PIK interest provision, investments with a ranking of 3 are generally those on which we are not accruing PIK interest.
Investment Ranking 4 is used for investments that are performing substantially below our expectations and for which

61


risk has increased substantially since the original or restructured investment. Investments with a ranking of 4 are those for which some loss of principal is expected and are generally those on which we are not accruing cash interest.
The following table shows the distribution of our investments on the 1 to 4 investment ranking scale at fair value as of December 31, 2015 and September 30, 2015:
Investment Ranking
 
December 31, 2015
 
September 30, 2015
 
Fair Value
 
% of Portfolio
 
Leverage Ratio
 
Fair Value
 
% of Portfolio
 
Leverage Ratio
1
 

 

 

 

 

 

2
 
$
580,100,227

 
96.05
%
 
4.63

 
$
596,955,786

 
95.72
%
 
4.71

3
 
4,145,805

 
0.69

 
10.33

 
26,691,688

 
4.28

 
5.87

4
 
19,709,803

 
3.26

 
NM

(1)

 

 

Total
 
$
603,955,835

 
100.00
%
 
4.52

 
$
623,647,474

 
100.00
%
 
4.76

________________
(1)
Due to operating performance this ratio is not measurable and, as a result, is excluded from the total portfolio calculation.
We may from time to time modify the payment terms of our investments, either in response to current economic conditions and their impact on certain of our portfolio companies or in accordance with tier pricing provisions in certain loan agreements. Such modified terms may include increased PIK interest provisions and reduced cash interest rates. Any future modifications to our loan agreements, may limit the amount of interest income that we recognize from the modified investments, which may, in turn, limit our ability to make distributions to our stockholders. As of December 31, 2015, we had modified the payment terms of our investments in three portfolio companies. As of September 30, 2015, we had modified the payment terms of our investment in two portfolio companies.
Loans and Debt Securities on Non-Accrual Status
As of December 31, 2015, there were two investments on which we stopped accruing cash and/or PIK interest or OID income. As of September 30, 2015, there was one investment on which we stopped accruing cash and/or PIK interest or OID income. As of December 31, 2014, there were no investments on which we had stopped accruing cash and/or PIK interest or OID income.
The percentages of our debt investments at cost and fair value by accrual status as of December 31, 2015 and September 30, 2015 were as follows:
 
 
December 31, 2015
 
September 30, 2015
 
 
Cost
 
% of Debt
Portfolio
 
Fair
Value
 
% of Debt
Portfolio
 
Cost
 
% of Debt
Portfolio
 
Fair
Value
 
% of Debt
Portfolio
Accrual
 
$
605,613,675

 
95.51
%
 
$
587,972,232

 
97.35
%
 
$
625,911,700

 
98.80
%
 
$
619,219,635

 
99.29
%
PIK non-accrual (paying)
 
7,605,257

 
1.20

 
2,649,496

 
0.44

 
7,605,257

 
1.20

 
4,427,839

 
0.71

Cash non-accrual (non-paying)
 
20,860,543

 
3.29

 
13,334,107

 
2.21

 

 

 

 

Total
 
$
634,079,475

 
100.00
%
 
$
603,955,835

 
100.00
%
 
$
633,516,957

 
100.00
%
 
$
623,647,474

 
100.00
%
  __________________
(1)
PIK non-accrual status is inclusive of other noncash income, where applicable. Cash non-accrual status is inclusive of PIK and other noncash income, where applicable.

The non-accrual status of our portfolio investments as of December 31, 2015 and September 30, 2015 was as follows:
 
  
December 31, 2015
 
September 30, 2015
Answers Corporation - second lien term loan
  
PIK non-accrual (1)
 
PIK non-accrual (1)
Ameritox Ltd.
 
Cash non-accrual
 
 

62


  __________________
(1)
PIK non-accrual status is inclusive of other noncash income, where applicable. Cash non-accrual status is inclusive of PIK and other noncash income, where applicable.
Income non-accrual amount for the three months ended December 31, 2015 is presented in the following table.
 
 
Three months ended
December 31, 2015
Cash interest income
 
453,194

OID income
 
13,816

Total
 
$
467,010



FSFR Glick JV LLC
In October 2014, we entered into an LLC agreement with GF Equity Funding 2014 LLC ("GF Equity Funding") to form FSFR Glick JV LLC ("FSFR Glick JV"). On April 21, 2015, FSFR Glick JV began investing in senior secured loans of middle market companies. We co-invest in these securities with GF Equity Funding through our investment in FSFR Glick JV. FSFR Glick JV is managed by a four person Board of Directors, two of whom are selected by us and two of whom are selected by GF Equity Funding. FSFR Glick JV is capitalized as transactions are completed, and portfolio decisions and investment decisions in respect of FSFR Glick JV must be approved by an investment committee of FSFR Glick JV consisting of one representative of us and one representative of GF Equity Funding (with approval of each required). The members provide capital to FSFR Glick JV in exchange for LLC equity interests, and we and GF Debt Funding 2014 LLC ("GF Debt Funding"), an entity advised by affiliates of GF Equity Funding, provide capital to the FSFR Glick JV in exchange for subordinated notes (the "Subordinated Notes"). As of December 31, 2015, we and GF Equity Funding owned 87.5% and 12.5%, respectively, of the outstanding LLC interests and we and GF Debt Funding owned 87.5% and 12.5% respectively, of the Subordinated Notes. FSFR Glick JV is not an "eligible portfolio company" as defined in section 2(a)(46) of the 1940 Act.
We have determined that FSFR Glick JV is an investment company under ASC 946; however, in accordance with such guidance, we will generally not consolidate our investment in a company other than a wholly-owned investment company subsidiary or a controlled operating company whose business consists of providing services to us. Accordingly, we do not consolidate our noncontrolling interest in FSFR Glick JV.
As of December 31, 2015 and September 30, 2015, FSFR Glick JV had total assets of $199.4 million and $190.4, respectively. Our investment in FSFR Glick JV consisted of LLC equity interests of $1.7 million and Subordinated Notes of $53.5 million, at fair value as of December 31, 2015. As of September 30, 2015, our investment consisted of LLC equity interests of $4.6 million and Subordinated Notes of $52.6 million, at fair value. The Subordinated Notes are junior in right of payment to the repayment of temporary contributions made by us to fund investments of FSFR Glick JV. FSFR Glick JV's portfolio consisted of middle market and other corporate debt securities of 29 and 29 "eligible portfolio companies" (as defined in the section 2(a)(46) of the 1940 Act) as of December 31, 2015 and September 30, 2015, respectively. The portfolio companies in FSFR Glick JV are in industries similar to those in which we may invest directly.
As of December 31, 2015 and September 30, 2015, FSFR Glick JV had total capital commitments of $100.0 million, $87.5 million of which was from us and the remaining $12.5 million from GF Equity Funding and GF Debt Funding. Approximately $69.3 million and $67.4 million in aggregate commitments were funded as of December 31, 2015 and September 30, 2015, respectively, of which $60.6 million and $59.0 million, respectively, was from us. As of December 31, 2015, we had commitments to fund Subordinated Notes to FSFR Glick JV of $78.8 million, of which $24.2 million was unfunded. As of December 31, 2015, we had commitments to fund LLC equity interests in FSFR Glick JV of $8.7 million, of which $2.7 million was unfunded. As of September 30, 2015, we had commitments to fund Subordinated Notes to FSFR Glick JV of $78.8 million, of which $25.7 million was unfunded. As of September 30, 2015, we had commitments to fund LLC equity interests in FSFR Glick JV of $8.7 million, of which $2.9 million was unfunded.
Additionally, FSFR Glick JV has a senior revolving credit facility with Credit Suisse AG, Cayman Island Branch ("Credit Suisse facility") with a stated maturity date of April 17, 2023, which permitted up to $200.0 million of borrowings as of December 31, 2015 and September 30, 2015. Borrowings under the Credit Suisse facility are secured by all of the assets of FSFR Glick JV and all of the equity interests in FSFR Glick JV and bore interest at a rate equal to the 3-month LIBOR plus 2.5% per annum with no LIBOR floor as of December 31, 2015 and September 30, 2015. Under the Credit Suisse facility,

63


$129.6 million and $122.4 million in borrowings were outstanding as of December 31, 2015 and September 30, 2015, respectively.
Below is a summary of FSFR Glick JV's portfolio, followed by a listing of the individual loans in FSFR Glick JV's portfolio as of December 31, 2015 and September 30, 2015:

 
 
December 31, 2015
 
September 30, 2015
Senior secured loans (1)
 
$191,880,606
 
$186,764,451
Weighted average current interest rate on senior secured loans (2)
 
6.88%
 
6.93%
Number of borrowers in FSFR Glick JV
 
29
 
29
Largest loan exposure to a single borrower (1)
 
$14,740,615
 
$14,777,933
Total of five largest loan exposures to borrowers (1)
 
$57,475,811
 
$58,331,216
__________
(1) At principal amount.
(2) Computed using the annual interest rate on accruing senior secured loans.


64


FSFR Glick JV Loan Portfolio as of December 31, 2015
Portfolio Company (4)
 
Business Description
 
Investment Type
 
Maturity Date
 
Stated Interest Rate (1)
 
Principal
 
Cost
 
Fair Value (2)
 Accruent, LLC (3)
 
 Internet software & services
 
First Lien Term Loan
 
11/25/2019
 
LIBOR +6.25% (1% floor) cash
 
$
14,740,615

 
$
14,551,949

 
$
14,499,913

 Ameritox Ltd. (3) (5)
 
 Healthcare services
 
First Lien Term Loan
 
6/23/2019
 
LIBOR+7.5% (1% floor) cash
 
7,794,458

 
7,670,333

 
4,809,117

 Answers Corporation (3)
 
 Internet software & services
 
First Lien Term Loan
 
10/1/2021
 
LIBOR+5.25% (1% floor) cash
 
7,939,850

 
7,651,353

 
5,399,098

 Beyond Trust Software, Inc. (3)
 
 Application software
 
First Lien Term Loan
 
9/25/2019
 
LIBOR+7% (1% floor) cash
 
13,631,274

 
13,522,609

 
13,417,251

 Compuware Corporation (3)
 
 Internet software & services
 
First Lien Term Loan B1
 
12/15/2019
 
LIBOR+5.25% (1% floor) cash
 
7,696,203

 
7,589,882

 
7,303,697

 Metamorph US 3, LLC (3)
 
 Internet software & services
 
First Lien Term Loan
 
12/1/2020
 
LIBOR+5.5% (1% floor) cash
 
8,344,528

 
8,235,305

 
8,141,585

 Motion Recruitment Partners LLC (3)
 
 Diversified support services
 
First Lien Term Loan
 
2/13/2020
 
LIBOR+6% (1% floor) cash
 
9,312,500

 
9,312,500

 
9,233,947

 NAVEX Global, Inc. (3)
 
 Internet software & services
 
First Lien Term Loan
 
11/19/2021
 
LIBOR+4.75% (1% floor) cash
 
3,526,537

 
3,510,567

 
3,420,741

 Teaching Strategies, LLC (3)
 
 Education services
 
First Lien Term Loan
 
10/1/2019
 
LIBOR+5.5% (0.5% floor) cash
 
2,645,589

 
2,641,947

 
2,578,080

 Teaching Strategies, LLC
 
Education services
 
First Lien Delayed Draw Term Loan
 
10/1/2019
 
LIBOR+5.5% (0.5% floor) cash
 
6,975,000

 
6,965,843

 
6,796,508

 TrialCard Incorporated (3)
 
 Healthcare services
 
First Lien Term Loan
 
12/31/2019
 
LIBOR+5% (1% floor) cash
 
7,332,387

 
7,289,467

 
7,136,912

 Air Newco LLC
 
 IT consulting & other services
 
First Lien Term Loan B
 
3/20/2022
 
LIBOR+5.5% (1% floor) cash
 
8,355,000

 
8,328,367

 
8,208,788

 Fineline Technologies, Inc. (3)
 
 Electronic equipment & instruments
 
First Lien Term Loan
 
5/5/2017
 
LIBOR+5.5% (1% floor) cash
 
8,730,000

 
8,671,304

 
8,664,782

 LegalZoom.com, Inc. (3)
 
 Specialized consumer services
 
First Lien Term Loan
 
5/13/2020
 
LIBOR+7% (1% floor) cash
 
9,925,000

 
9,708,898

 
9,708,857

 GK Holdings, Inc.
 
 IT consulting & other services
 
First Lien Term Loan
 
1/20/2021
 
LIBOR+5.5% (1% floor) cash
 
3,465,000

 
3,480,632

 
3,430,350

 Vitera Healthcare Solutions, LLC
 
 Healthcare technology
 
Second Lien Term Loan
 
11/4/2021
 
LIBOR+8.25% (1% floor) cash
 
3,000,000

 
2,952,273

 
2,880,000

 TIBCO Software, Inc. (3)
 
 Internet software & services
 
First Lien Term Loan
 
12/4/2020
 
LIBOR+5.5% (1% floor) cash
 
2,322,450

 
2,327,070

 
2,116,333

 CM Delaware LLC
 
 Advertising
 
First Lien Term Loan
 
3/18/2021
 
LIBOR+5.25% (1% floor) cash
 
2,146,579

 
2,144,231

 
2,082,182

 New Trident Holdcorp, Inc. (3)
 
 Healthcare services
 
First Lien Term Loan B
 
7/31/2019
 
LIBOR+5.25% (1.25% floor) cash
 
2,058,720

 
2,024,198

 
1,980,489

 Central Security Group, Inc. (3)
 
 Specialized consumer services
 
First Lien Term Loan
 
10/6/2020
 
LIBOR+5.25% (1% floor) cash
 
5,954,887

 
5,961,836

 
5,787,406

Language Line, LLC (3)
 
Integrated telecommunication services
 
First Lien Term Loan
 
7/7/2021
 
LIBOR+5.5% (1% floor) cash
 
9,558,333

 
9,571,151

 
9,530,471

Auction.com, LLC
 
Internet software & services
 
First Lien Term Loan
 
5/12/2019
 
LIBOR+5% (1% floor) cash
 
3,970,000

 
3,952,710

 
3,935,263

Aptos, Inc. (3)
 
Data processing & outsourced services
 
First Lien Term Loan B
 
6/23/2022
 
LIBOR+5.25% (0.75% floor) cash
 
7,960,000

 
7,978,554

 
7,920,200

Vubiquity, Inc.
 
Application software
 
First Lien Term Loan
 
8/12/2021
 
LIBOR+5.5% (1% floor) cash
 
4,200,000

 
4,159,800

 
4,180,800

Too Faced Cosmetics, LLC (3)
 
Personal products
 
First Lien Term Loan B
 
7/7/2021
 
LIBOR+5% (1% floor) cash
 
2,977,500

 
2,906,786

 
2,954,568

American Seafoods Group LLC (3)
 
Food distributors
 
First Lien Term Loan
 
8/19/2021
 
LIBOR+5% (1% floor) cash
 
3,990,000

 
3,971,127

 
3,956,743

Worley Claims Services, LLC (3)
 
Internet software & services
 
First Lien Term Loan
 
10/31/2020
 
LIBOR+8% (1% floor) cash
 
4,328,196

 
4,307,874

 
4,306,553

Poseidon Merger Sub, Inc. (3)
 
Advertising
 
Second Lien Term Loan
 
8/15/2023
 
LIBOR+8.5% (1% floor) cash
 
3,000,000

 
2,913,789

 
2,981,221

AccentCare, Inc.
 
Healthcare services
 
First Lien Term Loan
 
9/3/2021
 
LIBOR+5.75% (1% floor) cash
 
8,000,000

 
7,911,699

 
7,855,040

Novetta Solutions, LLC
 
Diversified support services
 
First Lien Term Loan
 
9/3/2021
 
LIBOR+5.75% (1% floor) cash
 
8,000,000

 
7,903,571

 
7,813,320

 Total Portfolio Investments
 
 
 
 
 
 
 
 
 
$
191,880,606

 
$
190,117,625

 
$
183,030,215

__________
(1) Represents the current interest rate as of December 31, 2015. All interest rates are payable in cash, unless otherwise noted.
(2) Represents the current determination of fair value as of December 31, 2015 utilizing a similar process as us in accordance with ASC 820. However, the determination of such fair value is not included in our Board of Directors' valuation process described elsewhere herein.
(3) This investment is held by both us and FSFR Glick JV at December 31, 2015.

65


(4) The principal balance outstanding for all floating rate loans is indexed to LIBOR and 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, we have provided the applicable margin over LIBOR based on each respective credit agreement.
(5) This investment is on cash non-accrual status as of December 31, 2015.


66


FSFR Glick JV Loan Portfolio as of September 30, 2015
Portfolio Company (4)
 
Business Description
 
Investment Type
 
Maturity Date
 
Stated Interest Rate (1)
 
Principal
 
Cost
 
Fair Value (2)
 Accruent, LLC (3)
 
 Internet software & services
 
First Lien Term Loan
 
11/25/2019
 
LIBOR +6.25% (1% floor) cash
 
$
14,777,933

 
$
14,576,963

 
$
14,853,895

 Ameritox Ltd. (3)
 
 Healthcare services
 
First Lien Term Loan
 
6/23/2019
 
LIBOR+7.5% (1% floor) cash
 
7,794,458

 
7,661,251

 
7,048,923

 Answers Corporation (3)
 
 Internet software & services
 
First Lien Term Loan
 
10/1/2021
 
LIBOR+5.25% (1% floor) cash
 
7,959,900

 
7,658,675

 
5,857,173

 Beyond Trust Software, Inc. (3)
 
 Application software
 
First Lien Term Loan
 
9/25/2019
 
LIBOR+7% (1% floor) cash
 
13,665,783

 
13,549,710

 
13,549,671

 Compuware Corporation (3)
 
 Internet software & services
 
First Lien Term Loan B1
 
12/15/2019
 
LIBOR+5.25% (1% floor) cash
 
7,797,468

 
7,684,361

 
7,551,848

 Idera, Inc. (3)
 
 Internet software & services
 
First Lien Term Loan
 
11/5/2020
 
LIBOR+5.5% (0.5% floor) cash
 
3,160,000

 
3,134,841

 
3,160,000

 Metamorph US 3, LLC (3)
 
 Internet software & services
 
First Lien Term Loan
 
12/1/2020
 
LIBOR+5.5% (1% floor) cash
 
8,398,019

 
8,283,147

 
8,310,898

 Motion Recruitment Partners LLC (3)
 
 Diversified support services
 
First Lien Term Loan
 
2/13/2020
 
LIBOR+6% (1% floor) cash
 
9,562,500

 
9,562,500

 
9,459,652

 NAVEX Global, Inc. (3)
 
 Internet software & services
 
First Lien Term Loan
 
11/19/2021
 
LIBOR+4.75% (1% floor) cash
 
2,435,442

 
2,429,788

 
2,423,265

 Teaching Strategies, LLC (3)
 
 Education services
 
First Lien Term Loan
 
10/1/2019
 
LIBOR+5.5% (0.5% floor) cash
 
2,695,442

 
2,691,552

 
2,673,135

 Teaching Strategies, LLC
 
Education services
 
First Lien Delayed Draw Term Loan
 
10/1/2019
 
LIBOR+5.5% (0.5% floor) cash
 
7,020,000

 
7,010,218

 
6,961,725

 TrialCard Incorporated (3)
 
 Healthcare services
 
First Lien Term Loan
 
12/31/2019
 
LIBOR+5% (1% floor) cash
 
7,332,387

 
7,286,727

 
7,232,017

 Air Newco LLC
 
 IT consulting & other services
 
First Lien Term Loan B
 
3/20/2022
 
LIBOR+5.5% (1% floor) cash
 
5,970,000

 
6,004,722

 
5,977,463

 Fineline Technologies, Inc. (3)
 
 Electronic equipment & instruments
 
First Lien Term Loan
 
5/5/2017
 
LIBOR+5.5% (1% floor) cash
 
8,820,000

 
8,749,565

 
8,818,256

 LegalZoom.com, Inc. (3)
 
 Specialized consumer services
 
First Lien Term Loan
 
5/13/2020
 
LIBOR+7% (1% floor) cash
 
9,950,000

 
9,721,186

 
9,882,838

 GK Holdings, Inc.
 
 IT consulting & other services
 
First Lien Term Loan
 
1/20/2021
 
LIBOR+5.5% (1% floor) cash
 
3,473,750

 
3,490,164

 
3,460,723

 Vitera Healthcare Solutions, LLC
 
 Healthcare technology
 
Second Lien Term Loan
 
11/4/2021
 
LIBOR+8.25% (1% floor) cash
 
3,000,000

 
2,950,227

 
2,925,000

 TIBCO Software, Inc. (3)
 
 Internet software & services
 
First Lien Term Loan
 
12/4/2020
 
LIBOR+5.5% (1% floor) cash
 
2,328,300

 
2,333,155

 
2,310,838

 CM Delaware LLC
 
 Advertising
 
First Lien Term Loan
 
3/18/2021
 
LIBOR+5.25% (1% floor) cash
 
2,152,041

 
2,149,579

 
2,143,971

 New Trident Holdcorp, Inc. (3)
 
 Healthcare services
 
First Lien Term Loan B
 
7/31/2019
 
LIBOR+5.25% (1.25% floor) cash
 
2,064,508

 
2,027,520

 
2,000,003

 Central Security Group, Inc. (3)
 
 Specialized consumer services
 
First Lien Term Loan
 
10/6/2020
 
LIBOR+5.25% (1% floor) cash
 
5,969,925

 
5,977,239

 
5,910,225

Language Line, LLC (3)
 
Integrated telecommunication services
 
First Lien Term Loan
 
7/7/2021
 
LIBOR+5.5% (1% floor) cash
 
10,000,000

 
10,013,409

 
10,020,850

All Web Leads, Inc. (3)
 
Advertising
 
First Lien Term Loan
 
6/30/2020
 
LIBOR+6.5% (1% floor) cash
 
9,937,500

 
9,700,212

 
9,884,905

Auction.com, LLC
 
Internet software & services
 
First Lien Term Loan
 
5/12/2019
 
LIBOR+5% (1% floor) cash
 
3,980,000

 
3,961,380

 
3,970,050

Aptos, Inc. (3)
 
Data processing & outsourced services
 
First Lien Term Loan B
 
6/23/2022
 
LIBOR+5.25% (0.75% floor) cash
 
7,980,000

 
7,999,277

 
7,960,050

Vubiquity, Inc.
 
Application software
 
First Lien Term Loan
 
8/12/2021
 
LIBOR+5.5% (1% floor) cash
 
4,200,000

 
4,158,000

 
4,179,000

Too Faced Cosmetics, LLC (3)
 
Personal products
 
First Lien Term Loan B
 
7/7/2021
 
LIBOR+5% (1% floor) cash
 
3,000,000

 
2,926,072

 
3,000,000

American Seafoods Group LLC (3)
 
Food distributors
 
First Lien Term Loan
 
8/19/2021
 
LIBOR+5% (1% floor) cash
 
4,000,000

 
3,980,282

 
3,980,000

Worley Claims Services, LLC (3)
 
Internet software & services
 
First Lien Term Loan
 
10/31/2020
 
LIBOR+8% (1% floor) cash
 
4,339,095

 
4,317,702

 
4,317,400

Poseidon Merger Sub, Inc. (3)
 
Advertising
 
Second Lien Term Loan
 
8/15/2023
 
LIBOR+8.5% (1% floor) cash
 
3,000,000

 
2,910,947

 
3,000,000

 Total Portfolio Investments
 
 
 
 
 
 
 
 
 
$
186,764,451

 
$
184,900,371

 
$
182,823,774

__________
(1) Represents the current interest rate as of September 30, 2015. All interest rates are payable in cash, unless otherwise noted.
(2) Represents the fair value determined utilizing a similar process as us in accordance with ASC 820. However, the determination of such fair value is not included in our Board of Directors' valuation process described elsewhere herein.
(3) This investment is held by both us and FSFR Glick JV at September 30, 2015.

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(4) The principal balance outstanding for all floating rate loans is indexed to LIBOR and 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, we have provided the applicable margin over LIBOR based on each respective credit agreement.
The amortized cost and fair value of the Subordinated Notes held by us was $54.7 million and $53.5 million, respectively, as of December 31, 2015 and $53.1 million and $52.6 million, respectively, as of September 30, 2015. The Subordinated Notes pay a weighted average interest rate of LIBOR plus 8.0% per annum and also entitle the holders thereof to receive a portion of the excess cash flow from the investment portfolio, which may result in a return greater than the contractual coupon. For the three months ended December 31, 2015, we earned interest income of $1.1 million on our investment in the Subordinated Notes. The cost and fair value of the LLC equity interests held by us was $6.1 million and $1.7 million as of December 31, 2015, respectively and $5.9 million and $4.6 million, respectively, as of September 30, 2015. We earned dividend income of $0.4 million for the three months ended December 31, 2015 with respect to our LLC equity interests. The LLC equity interests are dividend producing to the extent there is residual income to be distributed on a quarterly basis. The total investment income earned on FSFR Glick JV represented a 10.5% and 12.4% weighted average annualized return on our total investment as of December 31, 2015 and September 30, 2015, respectively.
Below is certain summarized financial information for FSFR Glick JV as of December 31, 2015 and September 30, 2015 and for the three months ended December 31, 2015:
 
 
December 31, 2015
 
September 30, 2015
Selected Balance Sheet Information:
 
 
 
 
Investments in loans at fair value (cost December 31, 2015: $190,117,625; cost September 30, 2015: $184,900,371)
 
$
183,030,215

 
$
182,823,774

Cash and cash equivalents
 
10,836,647

 
3,127,824

Restricted cash
 
2,739,103

 
2,188,133

Other assets
 
2,817,519

 
2,253,143

Total assets
 
$
199,423,484

 
$
190,392,874

 
 
 
 
 
Senior credit facility payable
 
$
129,615,636

 
$
122,380,636

Subordinated notes payable at fair value (proceeds December 31, 2015: $62,570,682; proceeds September 30, 2015: $60,680,682)
 
61,178,489

 
60,118,109

Other liabilities
 
6,671,929

 
2,690,043

Total liabilities
 
$
197,466,054

 
$
185,188,788

Members' equity
 
1,957,430

 
5,204,086

Total liabilities and members' equity
 
$
199,423,484

 
$
190,392,874


 
 
Three months ended December 31, 2015
Selected Statement of Operations Information:
 
 
Interest income
 
$
3,688,589

Fee income
 
4,167

Total investment income
 
3,692,756

Interest expense
 
2,414,446

Other expenses
 
63,693

Total expenses (1)
 
2,478,139

Net unrealized depreciation
 
(4,083,557
)
Net loss
 
$
(2,868,940
)
 __________
(1) There are no management fees or incentive fees charged at FSFR Glick JV.
FSFR Glick JV has elected to fair value the Subordinated Notes issued to us and GF Debt Funding under ASC 825 — Financial Instruments, or ASC 825. The Subordinated Notes are valued by calculating the net present value of the future expected cash flow streams using an appropriate risk-adjusted discount rate model.

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During the three months ended December 31, 2015, we sold $9.0 million of senior secured debt investments at fair value to FSFR Glick JV in exchange for $9.0 million cash consideration.
 Discussion and Analysis of Results and Operations
Revisions to Prior Period Financial Information
We previously identified accounting errors from the commencement of operations through September 30, 2015 related to revenue recognition. The revenue recognition errors were the result of certain fees which were historically recognized on the deal closing date, but should have been amortized over the life of the loan since the fees did not represent a separately identifiable revenue contract. These errors were partially offset by the overpayment of Part I and Part II Incentive Fees paid to the Investment Adviser. We assessed the materiality of the errors on its prior quarterly and annual financial statements, assessing materiality both quantitatively and qualitatively, in accordance with the SEC’s staff Accounting Bulletin (“SAB”) No. 99 and SAB 108, and concluded that the errors were not material to any of the previously issued financial statements. However, we concluded the cumulative corrections of these errors would be qualitatively material to our quarterly financial statements within in any quarter during the September 30, 2015 fiscal year end. Accordingly, all prior period financial statements since the commencement of operations have been revised in Note 2 and Note 14 to the Consolidated Financial Statements for the year ended September 30, 2015 contained in the Form 10-K. See Note 2 to the Consolidated Financial Statements for the total immaterial revisions for the three months ended December 31, 2014.
Results of Operations
The principal measure of our financial performance is the net increase (decrease) in net assets resulting from operations, which includes net investment income (loss), net realized gain (loss) and net unrealized appreciation (depreciation). Net investment income is the difference between our income from interest, dividends, fees, and other investment income and total expenses. Net realized gain (loss) on investments is the difference between the proceeds received from dispositions of portfolio investments and their stated costs. Net unrealized appreciation (depreciation) is the net change in the fair value of our investment portfolio.
Comparison of the three months ended December 31, 2015 and December 31, 2014
Total Investment Income
Total investment income includes interest income on our investments, fee income and other investment income. Fee income consists principally of servicing, advisory, structuring, amendment and prepayment fees.
Total investment income for the three months ended December 31, 2015 and December 31, 2014 was $13.9 million and $11.9 million, respectively. For the three months ended December 31, 2015, this amount primarily consisted of $12.2 million of interest income from portfolio investments, $1.3 million of fee income and $0.4 million of dividend and other income. For the three months ended December 31, 2014, this amount primarily consisted of $8.3 million of interest income from portfolio investments and $3.7 million of fee income.
The increase in our total investment income for the three months ended December 31, 2015, as compared to the three months ended December 31, 2014, was primarily attributable to higher average levels of outstanding debt investments, which was principally due to a net increase of 11 debt investments in our portfolio year over year.
Expenses
Total expenses for the three months ended December 31, 2015 and December 31, 2014 were $6.9 million and $4.4 million, respectively. Total expenses increased for the three months ended December 31, 2015 as compared to the three months ended December 31, 2014 by $2.5 million. This was due primarily to a $1.4 million increase in interest expense due to a higher level of borrowings, a $0.4 million increase in base management fees and a $0.4 million increase in professional fees.
Net Investment Income
As a result of the $2.5 million increase in total expenses, as compared to the $2.0 million increase in total investment income, net investment income for the three months ended December 31, 2015 reflected an approximate $0.5 million decrease, as compared to the three months ended December 31, 2014.
Realized Gain (Loss) on Investments
During the three months ended December 31, 2015, we recorded investment realization events, including the following:

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In October 2015, we received a cash payment of $7.4 million from Reliant Hospital Partners, LLC in full satisfaction of all obligations under the loan agreement. The debt investment was exited at par and no realized gain or loss was recorded on the transaction;
In October 2015, we received a cash payment of $16.8 million from Idera, Inc. in full satisfaction of all obligations under the loan agreement. The debt investment was exited at par and no realized gain or loss was recorded on the transaction;
In October 2015, we received a cash payment of $5.7 million from Novetta Solutions, LLC in full satisfaction of all obligations under the loan agreement. The debt investment was exited at par and no realized gain or loss was recorded on the transaction;
In December 2015, we received a cash payment of $17.6 million from All Web Leads, Inc. in full satisfaction of all obligations under the loan agreement. The debt investment was exited at par and no realized gain or loss was recorded on the transaction; and
During the three months ended December 31, 2015, we received cash payments of $76.9 million in connection with syndications and sales of debt investments and recorded a net realized loss of $0.1 million.
During the three months ended December 31, 2014, we recorded investment realization events, including the following:
In October 2014, we received a cash payment of $6.8 million from Answers Corporation in full satisfaction of all obligations under the loan agreement. The debt investment was exited at par (plus additional fees) and no realized gain or loss was recorded on the transaction;
In December 2014, we received a cash payment of $4.9 million from Survey Sampling International, LLC in full satisfaction of all obligations under the loan agreement. The debt investment was exited at par and no realized gain or loss was recorded on the transaction; and
During the three months ended December 31, 2014, we received cash payments of $128.2 million in connection with syndications and sales of debt investments and recorded a net realized gain of $0.4 million.
Net Unrealized Appreciation (Depreciation) on Investments
Net unrealized appreciation or depreciation is the net change in the fair value of our investments during the reporting period, including the reversal of previously recorded unrealized appreciation or depreciation when gains or losses are realized.
During the three months ended December 31, 2015 and December 31, 2014, we recorded net unrealized depreciation of $20.3 million and $1.4 million, respectively. For the three months ended December 31, 2015 this consisted of $16.9 million of net unrealized depreciation on debt investments, $3.0 million of net unrealized depreciation on equity investments and $0.4 million of net reclassifications to realized gains (resulting in unrealized depreciation). For the quarter ended December 31, 2015, over 50% of our portfolio losses were due to broader market fluctuations, including spread widening, with the remainder due to credit deterioration in a small number of investments.
For the three months ended December 31, 2014, our net unrealized depreciation consisted of $1.1 million of net unrealized depreciation on debt investments, $27,834 of net unrealized depreciation on equity investments and $0.3 million of net reclassifications to realized gains (resulting in unrealized depreciation).
Financial Condition, Liquidity and Capital Resources
Cash Flows
We have a number of alternatives available to fund the growth of our investment portfolio and our operations, including, but not limited to, raising equity, increasing debt and funding from operational cash flow. Additionally, we may reduce investment size by syndicating a portion of any given transaction. We intend to fund our future distribution obligations through operating cash flow or with funds obtained through future equity and debt offerings or as we deem appropriate.
For the three months ended December 31, 2015, we experienced a net decrease in cash and cash equivalents of $28.3 million. During that period, $9.8 million of cash was provided by operating activities, primarily consisting of $132.3 million of principal payments and proceeds from the sale of investments and cash activities related to $7.0 million of net investment income, partially offset by cash used in funding of $132.4 million of investments and net revolvers. During the same period, cash used by financing activities was $38.1 million, primarily consisting of $27.4 million of net repayments under credit facilities, $4.0 million of net repayments under our 2015 Debt Securitization and $6.3 million of cash distributions paid to our shareholders.

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For the three months ended December 31, 2014, we experienced a net decrease in cash and cash equivalents of $97.3 million. During that period, we used $272.2 million of cash in operating activities, primarily for the funding of $439.0 million of investments and net revolvers, partially offset by $142.4 million of amortization payments and proceeds from the sale of investments and cash activities related to $7.5 million of net investment income. During the same period, cash provided by financing activities was $175.0 million, primarily consisting of $184.8 million net borrowings under credit facilities, partially offset by $8.6 million of cash distributions paid to our shareholders and $1.0 million of deferred financing costs paid.
At December 31, 2015, we had $20.5 million of cash and cash equivalents (including restricted cash), portfolio investments (at fair value) of $604.0 million, receivables from unsettled transactions of $11.4 million, payables from unsettled transactions of $11.4 million, $109.2 million of borrowings outstanding under our revolving credit facility, $182.3 million of borrowings outstanding under our debt securitization and $72.7 million of unfunded commitments. Pursuant to the terms of our Citibank facility and 2015 Debt Securitization, we are restricted in terms of access to $3.0 million of restricted cash until such time as we submit required monthly reporting schedules. As of December 31, 2015, $4.3 million of restricted cash could be used only for the payment of interest expense on the notes issued in the 2015 Debt Securitization, which is described in further detail in Note 7 to our Consolidated Financial Statements.
At September 30, 2015, we had $52.7 million of cash and cash equivalents (including restricted cash), portfolio investments (at fair value) of $623.6 million, receivables from unsettled transactions of $13.5 million, payables from unsettled transactions of $11.8 million, $136.7 million of borrowings outstanding under our revolving credit facility, $186.4 million of borrowings outstanding under our debt securitization and $76.8 million of unfunded commitments. Pursuant to the terms of our Citibank facility and 2015 Debt Securitization, we are restricted in terms of access to $4.2 million of restricted cash until such time as we submit required monthly reporting schedules. As of September 30, 2015, $7.1 million of restricted cash could be used only for the payment of interest expense on the notes issued in the 2015 Debt Securitization.
Other Sources of Liquidity
We intend to continue to generate cash primarily from cash flows from operations, including interest earned, future borrowings and future offerings of our securities. We generally maintain a universal shelf registration statement that allows for the public offering and sale of our common stock, debt securities and warrants to purchase such securities. We may from time to time issue securities pursuant to the shelf registration statement or otherwise pursuant to private offerings. The issuance of debt or equity securities will depend on future market conditions, funding needs and other factors and there can be no assurance that any such issuance will occur or be successful. In the future, we may also securitize a portion of our investments in first and second lien senior loans or unsecured debt or other assets. To securitize loans, we would likely create a wholly-owned subsidiary and contribute a pool of loans to the subsidiary. We would then sell interests in the subsidiary on a non-recourse basis to purchasers and we would retain all or a portion of the equity in the subsidiary. Our primary use of funds is investments in our targeted asset classes and cash distributions to holders of our common stock.
Although we expect to fund the growth of our investment portfolio through the net proceeds from future equity offerings and issuances of senior securities or future borrowings to the extent permitted by the 1940 Act, our plans to raise capital may not be successful. In this regard, because our common stock has at times traded at a price below our then-current net asset value per share and we are limited in our ability to sell our common stock at a price below net asset value per share, we may be limited in our ability to raise equity capital.
In addition, we intend to distribute between 90% and 100% of our taxable income each taxable year as dividends to our stockholders in order to satisfy the requirements applicable to RICs under Subchapter M of the Code. See "Regulated Investment Company Status and Distributions" below. Consequently, we may not have the funds or the ability to fund new investments, to make additional investments in our portfolio companies, to fund our unfunded commitments to portfolio companies or to repay borrowings. In addition, the illiquidity of our portfolio investments may make it difficult for us to sell these investments when desired and, if we are required to sell these investments, we may realize significantly less than their recorded value.
Also, as a business development company, we generally are required to meet a coverage ratio of total assets, less liabilities and indebtedness not represented by senior securities, to total senior securities, which include all of our borrowings and any outstanding preferred stock, of at least 200%. This requirement limits the amount that we may borrow. As of December 31, 2015, we were in compliance with this requirement. The amount of leverage that we employ will depend on our assessment of market conditions and other factors at the time of any proposed borrowing, such as the maturity, covenant package and rate structure of the proposed borrowings, our ability to raise funds through the issuance of shares of our common stock and the risks of such borrowings within the context of our investment outlook. Ultimately, we only intend to use leverage if the expected returns from borrowing to make investments will exceed the cost of such borrowing. To fund growth in our investment portfolio in the future, we anticipate needing to raise additional capital from various sources, including the equity markets and the securitization or other debt-related markets, which may or may not be available on favorable terms, if at all.

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Significant Capital Transactions
The following table reflects the dividend distributions per share that our Board of Directors has declared, including shares issued under our DRIP, on our common stock from inception through December 31, 2015:
Frequency
 
Date Declared
 
Record Date
 
Payment Date
 
Amount
per Share
 
Total Distribution
 
DRIP Shares Issued (1)
 
DRIP Shares Value
Quarterly
 
October 8, 2013
 
October 21, 2013
 
October 31, 2013
 
$0.01
 
$66,668
 
 
Quarterly
 
October 8, 2013
 
December 16, 2013
 
January 31, 2014
 
0.20
 
1,333,354
 
606
 
$8,288
Quarterly
 
January 3, 2014
 
March 31, 2014
 
April 15, 2014
 
0.23
 
1,533,357
 
469
 
6,734
Quarterly
 
February 11, 2014
 
June 30, 2014
 
July 15, 2014
 
0.27
 
1,800,027
 
1,279
 
17,924
Quarterly
 
May 12, 2014
 
September 15, 2014
 
October 15, 2014
 
0.30
 
8,840,030
 
17,127
 
191,093
Quarterly
 
September 9, 2014
 
December 15, 2014
 
January 15, 2015
 
0.30
 
8,840,030
 
23,183
 
242,678
Quarterly
 
November 20, 2014
 
April 2, 2015
 
April 15, 2015
 
0.30
 
8,840,030
 
28,296
 
307,794
Monthly
 
February 4, 2015
 
May 1, 2015
 
May 15, 2015
 
0.10
 
2,946,677
 
5,045
 
50,830
Monthly
 
February 4, 2015
 
June 1, 2015
 
June 15, 2015
 
0.10
 
2,946,677
 
5,296
 
53,237
Monthly
 
February 4, 2015
 
July 1, 2015
 
July 15, 2015
 
0.10
 
2,946,677
 
14,572
 
137,464
Monthly
 
February 4, 2015
 
August 3, 2015
 
August 17, 2015
 
0.10
 
2,946,677
 
6,174
 
56,388
Monthly
 
July 10, 2015
 
September 4, 2015
 
September 15, 2015
 
0.075
 
2,210,007
 
4,575
 
41,121
Monthly
 
July 10, 2015
 
October 6, 2015
 
October 15, 2015
 
0.075
 
2,210,008
 
12,080
 
108,563
Monthly
 
July 10, 2015
 
November 5, 2015
 
November 16, 2015
 
0.075
 
2,210,008
 
13,269
 
116,730
Monthly
 
November 30, 2015
 
December 11, 2015
 
December 22, 2015
 
0.075
 
2,210,007
 
11,103
 
94,563
Monthly
 
November 30, 2015
 
January 4, 2016
 
January 15, 2016
 
0.075
 
2,210,007
 
8,627
 
61,079
Monthly
 
November 30, 2015
 
February 5, 2016
 
February 16, 2016
 
0.075
 
 
 
 
 
 
______________
(1) Shares were purchased on the open market and distributed.
On July 17, 2013, we completed an initial public offering of 6,666,668 shares of our common stock at the public offering price of $15.00 per share. The proceeds totaled $100.0 million and all offering costs were borne by our Investment Adviser, including $5.3 million of underwriting commissions and $0.4 million of other offering related expenses.
On August 19, 2014, we completed a follow-on public offering of 22,800,000 shares of our common stock at the public offering price of $12.91. The net proceeds totaled $276.2 million after deducting underwriting commissions of $17.7 million and offering costs of $0.5 million.
Borrowings
Natixis Facility
On November 1, 2013, FS Senior Funding LLC, our wholly-owned, special purpose financing subsidiary entered into the $100 million revolving credit facility (the "Natixis facility") with the lenders referred to therein, Natixis, New York Branch, as administrative agent, and U.S. Bank National Association, as collateral agent and custodian.
Borrowings under the Natixis facility were subject to certain customary advance rates and accrued interest at a rate equal to either the applicable commercial paper rate (subject to an overall cap) plus 1.90% in the case of a lender that is a commercial paper conduit or otherwise the three-month LIBOR plus 2.00% per annum. In addition, there was a commitment fee payable on the undrawn amount under the credit facility equal to 1.00% (or 0.50% for the first six months after the closing date) of such undrawn amount. Interest and commitment fees were payable quarterly in arrears. The reinvestment period under the credit facility ended 18 months after the closing date and the credit facility was scheduled to mature on November 1, 2021.
On October 16, 2014, we entered into agreements to expand the Natixis facility from $100 million to $200 million, including a $100 million term loan and a $100 million revolving credit facility. Fifth Third Bank ("Fifth Third") also joined the facility as a term loan lender.  The $50 million term loan provided by Fifth Third is priced at LIBOR plus 2% per annum, and the $100 million revolving credit facility and $50 million term loan provided by Natixis, New York Branch, are priced at the applicable commercial paper rate plus 1.9% per annum. The facility maturity date remained unchanged.
Borrowings under the Natixis facility, were secured by all of the assets of FS Senior Funding LLC and all of our equity interest in FS Senior Funding LLC. We used the Natixis facility to fund a portion of FS Senior Funding LLC's loan origination activities and for general corporate purposes. Each loan origination under the Natixis facility was subject to the satisfaction of certain conditions. Our borrowings under the Natixis facility bore interest at a weighted average interest rate of 2.268% for the

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three months ended December 31, 2014, respectively. For the three months ended December 31, 2014, we recorded interest expense of $0.9 million, respectively, related to the Natixis facility.
On May 28, 2015, we completed a $309.0 million debt securitization transaction (the "2015 Debt Securitization"), the proceeds of which were used to repay the entire amount outstanding under the Natixis facility. In connection therewith, the Amended and Restated Loan and Servicing Agreement and other related documents governing the Natixis facility were also terminated. As such, we had no borrowings outstanding or capacity available under the Natixis facility as of December 31, 2015.
Citibank Facility
On January 15, 2015, FS Senior Funding II LLC, our wholly-owned, special purpose financing subsidiary, entered into a $175 million revolving credit facility (the "Citibank facility") with the lenders referred to therein, Citibank, N.A., as administrative agent, and Wells Fargo Bank, N. A., as collateral agent and custodian.
Borrowings under the Citibank facility are subject to certain customary advance rates and accrued interest at a rate equal to LIBOR plus 2.00% per annum on broadly syndicated loans and LIBOR plus 2.25% per annum on all other eligible loans during the reinvestment period, and rates equal to LIBOR plus 3.50% per annum and LIBOR plus 4.00% per annum during the subsequent two years, respectively. In addition, there is a commitment fee payable on the undrawn amount under the Citibank facility of either 0.50% per annum on the unused amount of the credit facility (if the advances outstanding on the credit facility exceed 50% of the aggregate commitments by lenders to make advances on such day) or 0.75% per annum on the unused amount of the credit facility (if the advances outstanding on the credit facility do not exceed 50% of the aggregate commitments by lenders to make advances on such day) for the duration of the reinvestment period. Interest and commitment fees are payable quarterly in arrears. The reinvestment period under the Citibank facility ends January 15, 2018 and the credit facility will mature on January 15, 2020. The Citibank facility does not require us to comply with significant financial covenants.
As of December 31, 2015, we had $109.2 million outstanding under the Citibank facility. Borrowings under the Citibank facility are secured by all of the assets of FS Senior Funding II LLC and all of our equity interests in FS Senior Funding II LLC. We may use the Citibank facility to fund a portion of its loan origination activities and for general corporate purposes. Each loan origination under the Citibank facility is subject to the satisfaction of certain conditions. Our borrowings under the Citibank facility bore interest at a weighted average interest rate of 2.639% for the three months ended December 31, 2015For the three months ended December 31, 2015, we recorded interest expense of $1.1 million related to the Citibank facility.
Debt Securitization
On May 28, 2015, we completed our $309.0 million 2015 Debt Securitization consisting of $222.6 million in senior secured notes ("2015 Notes") and $86.4 million of unsecured subordinated notes ("2015 Subordinated Notes"). The notes offered in the 2015 Debt Securitization were issued by FS Senior Funding Ltd. (the "2015 Issuer"), a wholly-owned subsidiary of us, through a private placement. The 2015 Notes are secured by the assets held by the 2015 Issuer. The 2015 Debt Securitization consists of $126.0 million Class A-T Senior Secured 2015 Notes of the 2015 Issuer which bear interest at three-month LIBOR plus 1.80%; $29.0 million Class A-S Senior Secured Notes of the 2015 Issuer which bear interest at a rate of three-month LIBOR plus 1.55%, with a step-up in spread to 2.10% to occur in October 2016; $20.0 million Class A-R Senior Secured Revolving Notes of the 2015 Issuer which bear interest at a rate of Commercial Paper ("CP") plus 1.80%, collectively, the "Class A Notes;" and $25.0 million Class B Senior Secured Notes of the 2015 Issuer which bear interest at a rate of three-month LIBOR plus 2.65% per annum. In partial consideration for the loans transferred to the 2015 Issuer as part of the 2015 Debt Securitization, we currently retain the entire $22.6 million of the Class C Senior Secured Notes (which we purchased at 98.0% of par value) and the entire $86.4 million of the 2015 Subordinated Notes. The Class A Notes and Class B Notes are included in our December 31, 2015 Consolidated Statement of Assets and Liabilities as notes payable. As of December 31, 2015, the Class C Notes and the 2015 Subordinated Notes were eliminated in consolidation.
The proceeds of the private placement of the 2015 Notes, net of expenses, were used to repay the entire amount outstanding under the Natixis Facility. As part of the 2015 Debt Securitization, FS Senior Funding LLC, the borrower under the Natixis Facility, merged with and into 2015 Issuer, with the 2015 Issuer remaining as the surviving entity. Upon completion of the 2015 Debt Securitization, our Natixis facility was paid off and terminated.
We serve as collateral manager to the 2015 Issuer under a collateral management agreement. We are entitled to a fee for our services as collateral manager. The collateral management fee is eliminated in consolidation. We have retained Fifth Street Management LLC, our Investment Adviser, to furnish collateral management sub-advisory services to us pursuant to a sub-collateral management agreement. Our Investment Adviser intends to waive its right to such sub-collateral management fees in respect of the 2015 Debt Securitization.

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The collateral management agreement does not include any incentive fee payable to us as collateral manager or payable to our Investment Adviser as sub-advisor under the sub-collateral management agreement.
Through May 28, 2019, all principal collections received on the underlying collateral may be used by the 2015 Issuer to purchase new collateral under the direction of the Investment Adviser in its capacity as collateral manager of the 2015 Issuer and in accordance with our investment strategy. All note classes are scheduled to mature on May 28, 2025.
As of December 31, 2015, there were 51 investments in portfolio companies with a total fair value of $277.4 million, securing the 2015 Notes of the 2015 Issuer. The pool of loans in the 2015 Debt Securitization must meet certain requirements, including asset mix and concentration, collateral coverage, term, agency rating, minimum coupon, minimum spread and sector diversity requirements.
The aggregate accrued interest payable on the notes of the 2015 Issuer at December 31, 2015 was approximately $0.9 million. Deferred debt issuance costs consist of fees and expenses incurred in connection with debt offerings. As of December 31, 2015, we had a deferred debt issuance costs balance of approximately $2.7 million associated with the 2015 Debt Securitization.
For the three months ended December 31, 2015, the components of interest expense, cash paid for interest, average interest rates and average outstanding balances for the 2015 Debt Securitization were as follows: 
Interest expense
 
$
1,086,623

Amortization of debt issuance costs
 
72,526

Loan administration fees
 
26,566

Total interest and other debt financing expenses
 
$
1,185,715

Cash paid for interest expense
 
$
1,634,246

Annualized average interest rate
 
2.275
%
Average outstanding balance
 
$
183,769,478

The classes, interest rates, spread over LIBOR, cash paid for interest, stated interest expense and note discount expense of each of the Class A-T, A-S, A-R and B the three months ended December 31, 2015 is as follows:
 
 
 
 
 
 
Three months ended December 31, 2015

 
Stated Interest Rate
 
LIBOR Spread (basis points)
 
Cash Paid for Interest
 
Interest Expense
Class A-T Notes
 
2.15103%
 
180
 
$
1,038,948

 
$
692,632

Class A-S Notes
 
1.90103%
 
155
(1)
211,331

 
140,888

Class A-R Notes
 
1.99075%
 
180
(2)
96,368

 
61,370

Class B Notes
 
3.00103%
 
265
 
287,599

 
191,733

Class C Notes
 
3.60103%
 
325
(3)

 

Total
 
 
 
 
 
$
1,634,246

 
$
1,086,623

_______________________
(1) Step-up in spread to occur in October 2016.
(2) Interest expense includes 1.0% undrawn fee. Class A-R Notes were partially undrawn during the three months ended December 31, 2015.
(3) We hold all Class C Notes outstanding and thus have not recorded any related interest expense.


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The classes, amounts, ratings and interest rates (expressed as a spread to three-month LIBOR) of the Class A, B, C and Subordinated Notes are as follows:
Description
 
Class A-T Notes
 
Class A-S Notes
 
Class A-R
Notes
 
Class B Notes
 
Class C Notes
 
Subordinated Notes
Type
 
Senior Secured Floating Rate Term Debt
 
Senior Secured Floating Rate Term Debt
 
Senior Secured Floating Rate Revolver
 
Senior Secured Floating Rate Term Debt
 
Senior Secured Floating Rate Term Debt
 
Subordinated Term Notes
Amount Outstanding
 
$126,000,000
 
$29,000,000
 
$2,331,000
 
$25,000,000
 
$22,575,680
 
$86,400,000
Moody's Rating
 
"Aaa"
 
"Aaa"
 
"Aaa"
 
"Aa2"
 
"Aa2"
 
NR
S&P Rating
 
"AAA"
 
"AAA"
 
"AAA"
 
NR
 
NR
 
NR
Interest Rate
 
LIBOR + 1.80%
 
LIBOR + 1.55%*
 
CP + 1.80% **
 
LIBOR + 2.65%
 
LIBOR + 3.25%
 
NA
Stated Maturity
 
May 28, 2025
 
May 28, 2025
 
May 28, 2025
 
May 28, 2025
 
May 28, 2025
 
May 28, 2025
_______________________
* Spread to step-up to 2.10% in October 2016.
** Carries a 1.0% undrawn fee.

 The proceeds of the private placement of the Class A Notes and the Class B Notes of the 2015 Securitization Issuer, net of discount and debt issuance costs, may be used to fund a portion of the 2015 Issuer's loan origination activities and for general corporate purposes. The creditors of the 2015 Issuer have received security interests in the assets owned by the 2015 Issuer and such assets are not intended to be available to our Creditors (or any of our other affiliates). As part of the 2015 Debt Securitization, we entered into master loan sale agreements under which we agreed to directly or indirectly sell or contribute certain senior secured debt investments (or participation interests therein) to the 2015 Issuer, and to purchase or otherwise acquire the 2015 Subordinated Notes of the 2015 Issuer, as applicable. The 2015 Notes (other than the Class C Notes) are the secured obligations of the 2015 Issuer and indentures governing the 2015 Notes include customary covenants and events of default.
The 2015 Debt Securitization requires us to comply with certain monthly financial covenants, including overcollateralization and interest coverage tests. As of December 31, 2015, we were in compliance with all financial covenants under the Debt Securitization.
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. As of December 31, 2015 and September 30, 2015, our only off-balance sheet arrangements consisted of $72.7 million and $76.8 million, respectively, of unfunded commitments to provide debt and equity financing to certain of our portfolio companies. Such commitments are subject to our portfolio companies' satisfaction of certain financial and nonfinancial covenants and involve, to varying degrees, elements of credit risk in excess of the amount recognized in the Consolidated Statements of Assets and Liabilities and are not reflected on our Consolidated Statements of Assets and Liabilities. We believe that our assets will provide adequate cover to satisfy all of our unfunded commitments as of December 31, 2015.

75


A summary of the composition of unfunded commitments (consisting of revolvers, term loans and FSFR Glick JV subordinated notes and LLC equity interests) as of December 31, 2015 and September 30, 2015 is shown in the table below:
 
 
December 31, 2015
 
September 30, 2015
 FSFR Glick JV LLC
 
$
26,684,526

 
$
28,522,027

 Landslide Holdings, Inc.
 
5,000,000

 
5,000,000

 Triple Point Group Holdings, Inc.
 
4,968,590

 
4,968,590

 Executive Consulting Group, Inc.
 
4,800,000

 
4,800,000

 TIBCO Software, Inc.
 
4,028,000

 
5,300,000

 BeyondTrust Software, Inc.
 
3,605,000

 
3,605,000

 All Web Leads, Inc.
 
3,458,537

 
2,454,572

 Motion Recruitment Partners LLC
 
2,900,000

 
2,900,000

 Legalzoom.com, Inc.
 
2,607,018

 
2,607,018

 Teaching Strategies, LLC
 
2,400,000

 
2,400,000

 PowerPlan, Inc.
 
2,100,000

 
2,100,000

 Metamorph US 3, LLC
 
1,800,000

 
1,800,000

 Dynatect Group Holdings, Inc.
 
1,800,000

 
1,800,000

 My Alarm Center, LLC
 
1,519,980

 
1,287,499

 Baart Programs, Inc.
 
1,000,000

 

 TrialCard Incorporated
 
850,000

 
850,000

 Ameritox Ltd.
 
800,000

 
1,000,000

 Internet Pipeline, Inc.
 
800,000

 
800,000

 Valet Merger Sub, Inc.
 
666,667

 
1,000,000

 RSC Acquisition, Inc.
 
487,805

 


 NextCare, Inc.
 
420,375

 
1,221,621

 Idera, Inc.
 

 
2,400,000

Total
 
$
72,696,498

 
$
76,816,327

Contractual Obligations
The following table reflects information pertaining to our debt outstanding under the Citibank facility and 2015 Debt Securitization:
 
 
Debt Outstanding
as of
September 30, 2015
 
Debt Outstanding
as of
December 31, 2015
 
Weighted average debt outstanding for the three months ended December 31, 2015
 
Maximum debt outstanding
for the three months ended December 31, 2015
Citibank credit facility payable
 
136,659,800

 
109,226,800

 
137,152,365

 
140,426,800

2015 Debt Securitization
 
186,366,000

 
182,331,000

 
183,769,478

 
190,966,000

Total debt
 
$
323,025,800

 
$
291,557,800

 
$
320,921,843

 



The following table reflects our contractual obligations arising from the Citibank Facility and 2015 Debt Securitization:
 
 
Payments due by period as of December 31, 2015
 
 
Total
 
< 1 year
 
1-3 years
 
3-5 years
 
> 5 years
Citibank facility
 
$
109,226,800

 
$

 
$

 
$
109,226,800

 
$

Interest due on Citibank facility
 
12,395,161

 
3,065,199

 
6,130,398

 
3,199,564

 

Notes payable
 
182,331,000

 

 

 

 
182,331,000

Interest due on notes payable
 
38,240,282

 
4,062,195

 
4,062,195

 
4,062,195

 
26,053,697

Total
 
$
342,193,243

 
$
7,127,394

 
$
10,192,593

 
$
116,488,559

 
$
208,384,697

Regulated Investment Company Status and Distributions
We have elected to be treated as a RIC under Subchapter M of the Code. As long as we continue to 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. Distributions declared and paid by us in a taxable year may differ from taxable income for that taxable year as such

76


distributions may include the distribution of taxable income derived from the current taxable year or the distribution of taxable income derived from the prior taxable year and carried forward into and distributed in the current year. Distributions also may include returns of capital.
To maintain 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) determined without regard to any deduction for dividends paid. As a RIC, we are also subject to a U.S. federal excise tax, based on distributive requirements of our taxable income on a calendar year basis (e.g., calendar year 2015). We anticipate timely distribution of our taxable income within the tax rules; however, we incurred a de minimis U.S. federal excise tax for calendar year 2013. We did not incur a U.S. federal excise tax for calendar year 2014 and do not expect to incur a U.S. federal excise tax for calendar year 2015. We may incur a U.S. federal excise tax in future years.
We intend to distribute to our stockholders between 90% and 100% of our annual taxable income (which includes our taxable interest and fee income). In addition, we may retain for investment some or all of our net taxable capital gains (i.e., realized net long-term capital gains in excess of realized net short-term capital losses) and treat such amounts as deemed distributions to our stockholders. If we do this, our stockholders will be treated as if they received actual distributions of the capital gains we retained and then reinvested the net after-tax proceeds in our common stock. Our stockholders also may be eligible to claim tax credits (or, in certain circumstances, tax refunds) equal to their allocable share of the tax we paid on the capital gains deemed distributed to them. To the extent our taxable earnings for a fiscal and taxable year fall below the total amount of our dividends for that fiscal and taxable year, a portion of those dividend distributions may be deemed a return of capital to our stockholders.
We may not be able to achieve operating results that will allow us to make distributions at a specific level or to increase the amount of these distributions from time to time. In addition, we may be limited in our ability to make distributions due to the asset coverage test for borrowings applicable to us as a business development company under the 1940 Act and due to provisions in our Natixis facility. If we do not distribute a certain percentage of our taxable income in any taxable year, we will suffer adverse tax consequences, including possible loss of our ability to be subject to tax as a RIC. We cannot assure stockholders that they will receive any distributions or distributions at a particular level.
A RIC may treat a distribution of its own stock as fulfilling its RIC distribution requirements if each stockholder may elect to receive his or her entire distribution in either cash or stock of the RIC, subject to certain limitations regarding the aggregate amount of cash to be distributed to all stockholders. If these and certain other requirements are met, for U.S federal income tax purposes, the amount of the dividend paid in stock will be equal to the amount of cash that could have been guidelines.
Related Party Transactions
We have entered into an investment advisory agreement with Fifth Street Management. Messrs. Berman, Dimitrov and Owens, each an interested member of our Board of Directors, have a direct or indirect pecuniary interest in Fifth Street Management. Fifth Street Management is a registered Investment Adviser under the Investment Advisers Act of 1940, as amended, that is partially and indirectly owned by Fifth Street Asset Management Inc. Pursuant to the investment advisory agreement, fees payable to our investment adviser will be equal to (a) a base management fee of 1.0% of the average value of our gross assets at the end of the two most recently completed quarters, which includes any borrowings for investment purposes and excludes cash, cash equivalents and restricted cash and (b) an incentive fee based on our performance. The incentive fee consists of two parts. The Part I incentive fee is calculated and payable quarterly in arrears and equals 20% of our "Pre-Incentive Fee Net Investment Income" for the immediately preceding quarter, subject to a preferred return, or "hurdle," and a "catch up" feature. The Part II incentive fee is determined and payable in arrears as of the end of each fiscal year (or upon termination of the investment advisory agreement) and equals 20% of our "Incentive Fee Capital Gains," which equals our realized capital gains on a cumulative basis from inception through the end of the year, if any, computed net of all realized capital losses and unrealized capital depreciation on a cumulative basis, less the aggregate amount of any previously paid capital gain incentive fee. The investment advisory agreement may be terminated by either party without penalty upon no fewer than 60 days' written notice to the other. During the three months ended December 31, 2015 and December 31, 2014, we incurred fees of $3.3 million and $2.7 million respectively, under the investment advisory agreement.
The Company serves as collateral manager to the 2015 Issuer under a collateral management agreement in connection with the 2015 Debt Securitization and will receive a fee for providing these services. We have retained Fifth Street Management LLC to furnish collateral management sub-advisory services to us pursuant to a sub-collateral management agreement. Fifth Street Management LLC will be entitled to receive 100% of the collateral management fees paid to us under the collateral management agreement, but intends to waive its right to such sub-collateral management fees in respect of the 2015 Debt Securitization.

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Pursuant to the administration agreement with FSC CT LLC, a wholly-owned subsidiary of our Investment Adviser, FSC CT will furnish us with the facilities, including our principal executive offices and administrative services necessary to conduct our day-to-day operations, including equipment, clerical, bookkeeping and recordkeeping services at such facilities. In addition, FSC CT assists us in connection with the determination and publishing of our net asset value, the preparation and filing of tax returns and the printing and dissemination of reports to our stockholders. We pay FSC CT its allocable portion of overhead and other expenses incurred by FSC CT in performing its obligations under the administration agreement, including a portion of the rent at market rates and the compensation of our chief financial officer and chief compliance officer and their respective staffs. We utilize office space that is leased by our administrator from an affiliate controlled by the chief executive officer of our investment adviser and administrator, Mr. Tannenbaum.  We also utilize additional office space that is leased by our affiliates in Chicago, IL and San Francisco, CA.  Any reimbursement for a portion of the rent at these locations is at cost with no profit to, or markup by, FSC CT.
The administration agreement may be terminated by either party without penalty upon no fewer than 60 days' written notice to the other. During the three months ended December 31, 2015 and December 31, 2014, we incurred expenses of $0.3 million and $0.3 million, respectively, under the administration agreements.
We have also entered into a license agreement with Fifth Street Capital LLC pursuant to which Fifth Street Capital LLC has agreed to grant us a non-exclusive, royalty-free license to use the name "Fifth Street." Under this agreement, we will have a right to use the "Fifth Street" name for so long as Fifth Street Management LLC or one of its affiliates remains our Investment Adviser. Other than with respect to this limited license, we will have no legal right to the "Fifth Street" name. Fifth Street Capital LLC is controlled by Mr. Tannenbaum, our Investment Adviser's chief executive officer.
Recent Developments
On February 8, 2016, our Board of Directors declared the following distributions:
$0.075 per share, payable on March 31, 2016 to stockholders of record on March 15, 2016;
$0.075 per share, payable on April 29, 2016 to stockholders of record on April 15, 2016; and
$0.075 per share, payable on May 31, 2016 to stockholders of record on May 13, 2016.
Recently Issued Accounting Standards
See Note 3 to the Consolidated Financial Statements for a description of recent accounting pronouncements, including the expected dates of adoption and the anticipated impact on our consolidated financial statements.

Item 3. Quantitative and Qualitative Disclosures about Market Risk
We are subject to financial market risks, including changes in interest rates. Changes in interest rates may affect both our cost of funding and our interest income from portfolio investments, cash and cash equivalents and idle funds investments. Our risk management systems and procedures are designed to identify and analyze our risk, to set appropriate policies and limits and to continually monitor these risks and limits by means of reliable administrative and information systems and other policies and programs. Our investment income will be affected by changes in various interest rates, including LIBOR and prime rates, to the extent our debt investments include floating interest rates. In addition, our investments are carried at fair value as determined in good faith by our Board of Directors in accordance with the 1940 Act. Our valuation methodology utilizes discount rates in part in valuing our investments, and changes in those discount rates may have an impact on the valuation of our investments.
As of December 31, 2015, 100% of our debt investment portfolio (at cost and fair value) bore interest at floating rates and had interest rate floors between 0% and 2%.
Based on our Consolidated Statement of Assets and Liabilities as of December 31, 2015, the following table shows the approximate annualized increase in interest income from hypothetical base rate changes in interest rates, assuming no changes in our investment and capital structure. However, there can be no assurances our portfolio companies will be able to meet their contractual obligations at any or all levels of increases in interest rates.
 

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Basis point increase(1)
 
Interest Income
 
Interest Expense
 
Net increase (decrease)
500
 
$
25,615,117

 
$
(14,577,890
)
 
$
11,037,227

400
 
19,735,764

 
(11,662,312
)
 
8,073,452

300
 
13,856,411

 
(8,746,734
)
 
5,109,677

200
 
7,977,057

 
(5,831,156
)
 
2,145,901

100
 
2,106,246

 
(2,915,578
)
 
(809,332
)
 __________________
(1)
A decline in interest rates would not have a material impact on our financial statements.
We regularly measure exposure to interest rate risk. We assess interest rate risk and manage our interest rate exposure on an ongoing basis by comparing our interest rate sensitive assets to our interest rate sensitive liabilities. Based on this review, we determine whether or not any hedging transactions are necessary to mitigate exposure to changes in interest rates. The following table shows a comparison of the interest rate base for our interest-bearing cash and outstanding investments, at principal as of December 31, 2015 and September 30, 2015.

 
 
December 31, 2015
 
September 30, 2015
 
 
Interest Bearing Cash and Investments
 
Borrowings
 
Interest Bearing Cash and Investments
 
Borrowings
Money market rate
 
$
20,491,963

 
$

 
$
52,692,097

 
$

Prime rate
 
7,132,890

 

 
18,905,206

 

LIBOR:
 
 
 
 
 
 
 
 
30 day
 
117,957,691

 

 
171,084,244

 

60 day
 

 

 
14,963,919

 

90 day
 
508,934,688

 
291,557,800

 
420,878,965

 
186,366,000

  180 day
 

 

 
6,352,000

 
136,659,800

Fixed rate
 

 

 

 

Total
 
$
654,517,232

 
$
291,557,800

 
$
684,876,431

 
$
323,025,800


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Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures (as that term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) that are designed to ensure that information required to be disclosed in our reports under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosures. The design of any disclosure controls and procedures is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Any controls and procedures, no matter how well designed and operated, can provide only reasonable, not absolute, assurance of achieving the desired control objectives. Our management, with the participation of our principal executive officer and principal financial officer, has evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of December 31, 2015. Based upon that evaluation and subject to the foregoing, our principal executive officer and principal financial officer concluded that, as of December 31, 2015, as a result of the ongoing material weakness described below, the design and operation of our disclosure controls and procedures were not effective.
Material Weakness in Internal Control over Financial Reporting
As of September 30, 2015, management determined that we did not design or maintain effective controls to internally communicate current accounting policies and procedures including the nature of supporting documentation required to validate certain portfolio company data. Specifically, our policies and procedures with respect to loan origination fees, while in accordance with GAAP, were not properly communicated between departments and personnel to allow for appropriate validation of support as the Fifth Street platform grew and diversified, which has led to revisions to prior period financial information. This material weakness remained as of December 31, 2015 primarily because the remediation actions described below remain in process.
Remediation of Material Weakness in Internal Control over Financial Reporting
To remediate the material weakness described above, we have initiated a number of actions including, but not limited to, formalizing policies and procedures in all significant areas and communicating them throughout the organization, adding senior experienced accounting and financial reporting personnel and reallocating existing internal resources as necessary. Management is committed to improving our internal control processes and believes that the measures described above should be sufficient to remediate the identified material weakness and strengthen our internal control over financial reporting. The material weakness will not be considered remediated until the applicable remedial controls operate for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively. We expect that the remediation of this material weakness will be completed prior to the end of fiscal year 2016. However, we cannot assure you that the steps we have taken and continue to take will remediate such weakness, nor can we be certain of whether additional actions will be required or the costs of any such actions.
Changes in Internal Control over Financial Reporting
Other than the remediation efforts described above, there were no changes in our internal control over financial reporting during the three months ended December 31, 2015 that materially affected, or were reasonably likely to materially affect, our internal control over financial reporting.

PART II — OTHER INFORMATION


Item 1.     Legal Proceedings
Although we may, from time to time, be involved in litigation arising out of our operations in the normal course of business or otherwise, we are currently not a party to any pending material legal proceedings.
Item 1A. Risk Factors
The election of one or more of Ironsides’ two director nominees to the Company’s Board of Directors and/or termination or modification of the investment advisory agreement may adversely affect our ability to effectively implement our business strategy.

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A proxy contest would be disruptive, costly and time-consuming to the Company, and would divert the attention of senior management and employees of Fifth Street Management LLC, the Company's external manager, from the business and operations of the Company. If one or more of Ironsides' nominees are elected to our Board of Directors, it may adversely affect our ability to effectively implement our business strategy.
In addition, perceived uncertainties as to our future strategic direction, or any abrupt changes in our senior management or Board of Directors, may lead to concerns regarding the direction or stability of our business and operations, which may be exploited by our competitors, result in the loss of business opportunities for the Company.
Terminating or modifying the investment advisory agreement could cause disruption in the Company's business and may adversely affect the Company's ability to successfully implement its business strategy. Furthermore, if the investment advisory agreement were terminated, there is a risk that the Company would not be able to enter into a new investment advisory agreement with another party with terms and conditions as favorable to the Company.
Under certain circumstances, the termination of the investment advisory agreement constitutes an event of default under the Company’s outstanding credit facilities absent an effective waiver of the lenders under such credit facilities and otherwise has potential negative effects on the Company’s debt securitization. In addition, the termination of the investment advisory agreement could result in the termination of management services to the Company and the expiry of the Company’s license to use the name “Fifth Street”, which could significantly adversely affect the business of the Company.
Any change to the composition of our Board of Directors or the termination or modification of the investment advisory agreement could also cause our stock price and trading volume to experience periods of volatility.
There have been no other material changes during the three months ended December 31, 2015 to the risk factors discussed in Item 1A. Risk Factors in our Annual Report on Form 10-K for the year ended September 30, 2015.

Item 2.    Unregistered Sales of Equity Securities and Use of Proceeds
None.

Item 3. Defaults Upon Senior Securities
None.

Item 4.     Mine Safety Disclosures
Not applicable.

Item 5.    Other Information
None.

Item 6.    Exhibits.
Exhibit
Number
  
Description of Exhibit
 
 
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 Financial 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 Financial Officer Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
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.


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FIFTH STREET SENIOR FLOATING RATE CORP.
 
 
By:
 
/s/    Ivelin M. Dimitrov
 
 
Ivelin M. Dimitrov
 
 
Chief Executive Officer
 
 
By:
 
/s/    Steven M. Noreika
 
 
Steven M. Noreika
 
 
Chief Financial Officer
Date: February 9, 2016
EXHIBIT INDEX
Exhibit
Number
  
Description of Exhibit
 
 
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 Financial 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 Financial Officer Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.


82