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EX-99.(32) - CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER - Goldman Sachs BDC, Inc.d170881dex9932.htm
EX-99.(31)(2) - CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO SECURITIES EXCHANGE ACT - Goldman Sachs BDC, Inc.d170881dex99312.htm
EX-99.(10)(2) - TRANSFER AGENCY AND SERVICE AGREEMENT, EFFECTIVE AS OF MAY 2, 2016 - Goldman Sachs BDC, Inc.d170881dex99102.htm
EX-99.(10)(1) - AMENDED AND RESTATED DIVIDEND REINVESTMENT PLAN. - Goldman Sachs BDC, Inc.d170881dex99101.htm
EX-99.(31)(1) - CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO SECURITIES EXCHANGE ACT - Goldman Sachs BDC, Inc.d170881dex99311.htm

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

 

 

 

x

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

For the quarterly period ended March 31, 2016

or

¨

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

Commission file number 814-00998

 

 

Goldman Sachs BDC, Inc.

(Exact Name of Registrant as Specified in Its Charter)

 

 

 

Delaware   46-2176593

(State or Other Jurisdiction of

Incorporation or Organization)

 

(I.R.S. Employer

Identification No.)

200 West Street, New York, New York   10282
(Address of Principal Executive Office)   (Zip Code)

Registrant’s Telephone Number, Including Area Code: (212) 902-0300

Not Applicable

Former Name, Former Address and Former Fiscal Year, If Changed Since Last Report.

 

 

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

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

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

 

Large accelerated filer:

 

¨

  

Accelerated filer:

 

¨

 

Non-accelerated filer:

 

X

 

Smaller reporting company:

 

¨

        

(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 X

The number of shares of the registrant’s common stock, $0.001 par value per share, outstanding at May 9, 2016 was 36,312,437.

 

 

 


GOLDMAN SACHS BDC, INC.

 

   

INDEX

       PAGE    

PART I

  FINANCIAL INFORMATION    4

ITEM 1.

  Financial Statements    4
  Consolidated Statements of Assets and Liabilities as of March 31, 2016 (Unaudited) and December 31, 2015    4
  Consolidated Statements of Operations for the three months ended March 31, 2016 (Unaudited) and 2015 (Unaudited)    5
  Consolidated Statements of Changes in Net Assets for the three months ended March 31, 2016 (Unaudited) and 2015 (Unaudited)    6
  Consolidated Statements of Cash Flows for the three months ended March 31, 2016 (Unaudited) and 2015 (Unaudited)    7
  Consolidated Schedules of Investments as of March 31, 2016 (Unaudited) and December 31, 2015    8
  Notes to the Consolidated Financial Statements (Unaudited)    14

ITEM 2.

  Management’s Discussion and Analysis of Financial Condition and Results of Operations    37

ITEM 3.

  Quantitative and Qualitative Disclosures About Market Risk    58

ITEM 4.

  Controls and Procedures    58

PART II

  OTHER INFORMATION    59

ITEM 1.

  Legal Proceedings    59

ITEM 1A.

  Risk Factors    59

ITEM 2.

  Unregistered Sales of Equity Securities and Use of Proceeds    59

ITEM 3.

  Defaults Upon Senior Securities    59

ITEM 4.

  Mine Safety Disclosures    59

ITEM 5.

  Other Information    59

ITEM 6.

  Exhibits    59

SIGNATURES

   60

 

2


CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This report contains forward-looking statements that involve substantial risks and uncertainties. You can identify these statements by the use of forward-looking terminology such as “may,” “will,” “should,” “expect,” “anticipate,” “project,” “target,” “estimate,” “intend,” “continue” or “believe” or the negatives thereof or other variations thereon or comparable terminology. You should read statements that contain these words carefully because they discuss our plans, strategies, prospects and expectations concerning our business, operating results, financial condition and other similar matters. We believe that it is important to communicate our future expectations to our investors. Our forward-looking statements include information in this report regarding general domestic and global economic conditions, our future financing plans, our ability to operate as a business development company (“BDC”) and the expected performance of, and the yield on, our portfolio companies. There may be events in the future, however, that we are not able to predict accurately or control. The factors listed under “Risk Factors” in our annual report on Form 10-K for the year ended December 31, 2015 and in this report, as well as any cautionary language in this report, provide examples of risks, uncertainties and events that may cause our actual results to differ materially from the expectations we describe in our forward-looking statements. The occurrence of the events described in these risk factors and elsewhere in this report could have a material adverse effect on our business, results of operation and financial position. Any forward-looking statement made by us in this report speaks only as of the date of this report. Factors or events that could cause our actual results to differ from our forward-looking statements may emerge from time to time, and it is not possible for us to predict all of them. You are advised to consult any additional disclosures that we may make directly to you or through reports that we in the future may file with the U.S. Securities and Exchange Commission (the “SEC”), including annual reports on Form 10-K, registration statements on Form N-2, quarterly reports on Form 10-Q and current reports on Form 8-K. Under Section 21E(b)(2)(B) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995 do not apply to statements made in periodic reports we file under the Exchange Act, such as this quarterly report on Form 10-Q.

The following factors are among those that may cause actual results to differ materially from our forward-looking statements:

 

   

our future operating results;

   

changes in political, economic or industry conditions, the interest rate environment or conditions affecting the financial and capital markets;

   

uncertainty surrounding the strength of the U.S. economic recovery;

   

our business prospects and the prospects of our portfolio companies;

   

the impact of investments that we expect to make;

   

the impact of increased competition;

   

our contractual arrangements and relationships with third parties;

   

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

   

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

   

the relative and absolute performance of our investment adviser;

   

our expected financings and investments;

   

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

   

our ability to make distributions;

   

the adequacy of our cash resources and working capital;

   

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

   

the impact of future acquisitions and divestitures;

   

the effect of changes in tax laws and regulations and interpretations thereof;

   

our ability to maintain our status as a BDC and a regulated investment company under Subchapter M of the Internal Revenue Code of 1986, as amended;

   

actual and potential conflicts of interest with Goldman Sachs Asset Management, L.P. (“GSAM”) and its affiliates;

   

general price and volume fluctuations in the stock market;

   

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

   

the impact on our business from new or amended legislation or regulations.

 

3


PART I. FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS

Goldman Sachs BDC, Inc.

Consolidated Statements of Assets and Liabilities

(in thousands, except share and per share amounts)

 

      March 31, 2016  
   (unaudited)
      December 31,  
2015
 

Assets

   

Investments, at fair value

   

Non-controlled/non-affiliated investments (cost of $1,080,544 and $1,067,299, respectively)

  $ 1,030,049        $ 1,032,119     

Non-controlled affiliated investments (cost of $9,237 and $9,237, respectively)

    3,653          4,048     

Controlled affiliated investments (cost of $54,342 and $46,167, respectively)

    52,971          44,897     

Investments in affiliated money market fund (cost of $13,445 and $10,117, respectively)

    13,445          10,117     
 

 

 

   

 

 

 

Total investments, at fair value (cost of $1,157,568 and $1,132,820, respectively)

    1,100,118          1,091,181     

Cash

    11,797          22,710     

Receivable for investments sold

    1,090          313     

Interest and dividends receivable from non-controlled/non-affiliated investments

    10,430          10,399     

Dividend receivable from controlled affiliated investments

    1,275          1,350     

Other income receivable from controlled affiliated investments

    107          681     

Deferred financing costs

    5,473          5,775     

Other assets

    335          350     
 

 

 

   

 

 

 

Total assets

  $ 1,130,625        $ 1,132,759     
 

 

 

   

 

 

 

Liabilities

   

Debt

  $ 428,050        $ 419,000     

Interest and credit facility expense payable

    379          432     

Management fees payable

    4,126          4,238     

Incentive fees payable

    1,404          360     

Distribution payable

    16,338          16,338     

Accrued offering costs

    —          40     

Accrued expenses and other liabilities

    2,615          3,701     
 

 

 

   

 

 

 

Total liabilities

  $ 452,912        $ 444,109     
 

 

 

   

 

 

 

Commitments and Contingencies (Note 7)

   

Net Assets

   

Preferred stock, par value $0.001 per share (1,000,000 shares authorized, no shares issued and outstanding)

  $ —        $ —     

Common stock, par value $0.001 per share (200,000,000 shares authorized, 36,306,880 and 36,306,882 shares issued and outstanding at March 31, 2016 and December 31, 2015, respectively)

    36          36     

Paid-in capital in excess of par

    719,690          719,690     

Accumulated net realized gain (loss)

    (2,367)         (2,367)    

Accumulated undistributed net investment income

    19,225          14,351     

Net unrealized appreciation (depreciation) on investments

    (57,450)         (41,639)    

Allocated income tax expense

    (1,421)         (1,421)    
 

 

 

   

 

 

 

TOTAL NET ASSETS

  $ 677,713        $ 688,650     
 

 

 

   

 

 

 

TOTAL LIABILITIES AND NET ASSETS

  $ 1,130,625        $ 1,132,759     
 

 

 

   

 

 

 

Net asset value per share

  $ 18.67        $ 18.97     

The accompanying notes are part of these unaudited consolidated financial statements.

 

4


Goldman Sachs BDC, Inc.

Consolidated Statements of Operations

(in thousands, except share and per share amounts)

(Unaudited)

 

     For the three months
ended
March 31, 2016
     For the three months
ended
March 31, 2015
 

Investment Income:

  

From non-controlled/non-affiliated investments:

     

Interest income

   $ 29,131       $ 25,078   

Dividend income

     627         615   

Other income

     193         129   
  

 

 

    

 

 

 

Total investment income from non-controlled/non-affiliated investments

     29,951         25,822   

From non-controlled affiliated investments:

     

Dividend income

     11           
  

 

 

    

 

 

 

Total investment income from non-controlled affiliated investments

     11           

From controlled affiliated investments:

     

Dividend income

     1,275         550   

Other income

     107           
  

 

 

    

 

 

 

Total investment income from controlled affiliated investments

     1,382         550   
  

 

 

    

 

 

 

Total investment income

   $ 31,344       $ 26,372   
  

 

 

    

 

 

 

Expenses:

     

Interest and credit facility expense

   $ 3,035       $ 2,486   

Management fees

     4,126         3,472   

Incentive fees

     1,404         3,508   

Professional fees

     596         591   

Administration and custodian fees

     226         215   

Directors’ fees

     224         110   

Other expenses

     308         219   
  

 

 

    

 

 

 

Total expenses

   $ 9,919       $ 10,601   
  

 

 

    

 

 

 

NET INVESTMENT INCOME (LOSS) BEFORE TAXES

   $ 21,425       $ 15,771   
  

 

 

    

 

 

 

Excise tax expense

   $ 213       $ 25   
  

 

 

    

 

 

 

NET INVESTMENT INCOME (LOSS) AFTER TAXES

   $ 21,212       $ 15,746   
  

 

 

    

 

 

 

Net realized and unrealized gains (losses) on investment transactions:

     

Net realized gain (loss) from:

     

Non-controlled/non-affiliated investments

   $       $   

Net change in unrealized appreciation (depreciation) from:

     

Non-controlled/non-affiliated investments

     (15,315)         (1,012)   

Non-controlled affiliated investments

     (395)         (1,415)   

Controlled affiliated investments

     (101)         714   
  

 

 

    

 

 

 

Net realized and unrealized gains (losses)

   $ (15,811)       $ (1,713)   
  

 

 

    

 

 

 
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS    $ 5,401       $ 14,033   
  

 

 

    

 

 

 

Net investment income (loss) per share (basic and diluted)

   $ 0.58       $ 0.52   

Earnings per share (basic and diluted)

   $ 0.15       $ 0.46   

Weighted average shares outstanding

     36,306,881         30,314,460   

Distribution declared per share

   $ 0.45       $ 0.45   

The accompanying notes are part of these unaudited consolidated financial statements.

 

5


Goldman Sachs BDC, Inc.

Consolidated Statements of Changes in Net Assets

(in thousands, except share and per share amounts)

(Unaudited)

 

     For the three
months ended
March 31,
2016
     For the three
months ended
March 31,
2015
 

Increase (decrease) in net assets resulting from operations:

  

Net investment income

   $ 21,212        $ 15,746    

Net realized gain (loss) on investments

     —          —    

Net change in unrealized appreciation (depreciation) on investments

     (15,811)         (1,713)   
  

 

 

    

 

 

 

Net increase (decrease) in net assets resulting from operations

   $ 5,401        $ 14,033    
  

 

 

    

 

 

 

Distributions to stockholders from:

     

Net investment income

   $ (16,338)       $ (15,922)   
  

 

 

    

 

 

 

Total distributions to stockholders

   $ (16,338)       $ (15,922)   
  

 

 

    

 

 

 

Capital transactions:

     

Issuance of common stock, net of offering and underwriting costs (0 and 6,000,000 shares, respectively)

   $ —        $ 114,866    
  

 

 

    

 

 

 

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

   $ —        $ 114,866    
  

 

 

    

 

 

 

TOTAL INCREASE (DECREASE) IN NET ASSETS

   $ (10,937)       $ 112,977    
  

 

 

    

 

 

 

Net assets at beginning of period

   $ 688,650        $ 574,582    
  

 

 

    

 

 

 

Net assets at end of period

   $ 677,713        $ 687,559    
  

 

 

    

 

 

 

Accumulated undistributed net investment income

   $ 19,225        $ 3,882    
  

 

 

    

 

 

 

 

The accompanying notes are part of these unaudited consolidated financial statements.

 

6


Goldman Sachs BDC, Inc.

Consolidated Statements of Cash Flows

(in thousands, except share and per share amounts)

(Unaudited)

 

     For the three
months ended
March 31, 2016
    For the three
months ended
March 31, 2015
 

Cash flows from operating activities:

    

Net increase (decrease) in net assets resulting from operations:

   $ 5,401      $ 14,033     

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

    

Purchases of investments

     (50,396     (8,567)     

Payment-in-kind interest

     (104     (102)     

Investments in affiliated money market fund, net

     (3,328     23,999     

Proceeds from sales of investments and principal repayments

     30,588        12,059     

Net change in unrealized (appreciation) depreciation on investments

     15,811        1,713     

Amortization of premium and accretion of discount, net

     (1,508     (1,062)     

Amortization of deferred financing costs

     302        281     

Increase (decrease) in operating assets and liabilities:

    

(Increase) decrease in interest and dividends receivable

     44        (721)   

(Increase) decrease in receivable for investments sold

     (777     —     

(Increase) decrease in other income receivable

     574        —     

(Increase) decrease in other assets

     15        (66)     

Increase (decrease) in interest and credit facility expense payable

     (35     (213)     

Increase (decrease) in management fees payable

     (112     146     

Increase (decrease) in incentive fees payable

     1,044        3,508     

Increase (decrease) in payable for investments purchased

            (19,700)     

Increase (decrease) in directors’ fees payable

            (115)     

Increase (decrease) in accrued expenses and other liabilities

     (1,090     100     
  

 

 

 

Net cash provided by (used for) operating activities

   $ (3,571   $ 25,293     
  

 

 

 

Cash flows from financing activities:

    

Proceeds from issuance of common stock (net of underwriting costs)

   $      $ 117,840     

Offering costs paid

     (36     (10)     

Repurchase of common stock

            (732)     

Distributions paid

     (16,338     (15,506)     

Financing costs paid

     (18     (505)     

Borrowings on debt

     63,000        10,000     

Repayments of debt

     (53,950     (136,000)     
  

 

 

 

Net cash provided by (used for) financing activities

   $ (7,342   $ (24,913)     
  

 

 

 

Net increase (decrease) in cash

     (10,913     380     

Cash, beginning of period

     22,710        8,609     
  

 

 

 

Cash, end of period

   $ 11,797      $ 8,989     
  

 

 

 

Supplemental and non-cash financing activities

    

Interest expense paid

   $ 2,629      $ 2,237     

Accrued but unpaid excise tax expense

   $ 207      $ 25     

Accrued but unpaid deferred financing costs

   $ 36      $ 63     

Accrued but unpaid offering costs

   $      $ 2,054     

Accrued but unpaid distributions

   $ 16,338      $ 15,922     

The accompanying notes are part of these unaudited consolidated financial statements.

 

7


Goldman Sachs BDC, Inc.

Consolidated Schedule of Investments as of March 31, 2016

(in thousands, except share and per share amounts)

(Unaudited)

 

Portfolio Company   Industry   Interest   Maturity     Par Amount     Cost     Fair Value  

Investments at Fair Value - 160.35% #

           

Corporate Debt (1) - 148.90%

           

1st Lien/Senior Secured Debt - 61.03%

           

Artesyn Embedded Technologies, Inc.(2)

  Electronic Equipment, Instruments & Components   9.75%     10/15/2020      $ 20,000      $ 20,000       $ 16,900    

Data Driven Delivery Systems, LLC(++)

  Health Care Technology   L + 7.00% (1.00% Floor)     05/31/2019        70,500        68,266         70,500    

Dispensing Dynamics International(2)

  Building Products   12.50%     01/01/2018        24,000        24,596         21,450    

Heligear Acquisition Co.(2)

  Aerospace & Defense   10.25%     10/15/2019        17,500        17,247         18,375    

Infinity Sales Group(+)

  Media   L + 10.50% (1.00% Floor)     11/21/2018        33,727        33,315         32,630    

Iracore International Holdings, Inc.(2)

  Energy Equipment & Services   9.50%     06/01/2018        24,250        21,143         15,278    

Kawa Solar Holdings Limited(3)

  Construction & Engineering   F + 8.20%     07/02/2018        12,600        12,542         12,600    

Kawa Solar Holdings Limited(++) (3)

  Construction & Engineering   L + 8.20%     07/02/2018        2,400        2,389         2,400    

Legacy Buyer Corp.(++)

  Health Care Providers & Services   L + 8.00% (1.00% Floor)     10/24/2019        29,041        28,595         28,678    

Legacy Buyer Corp.(4) (5)

  Health Care Providers & Services   L + 8.00% (1.00% Floor)     10/24/2019        2,500        (38)        (31)   

Madison-Kipp Corporation(+)

  Machinery   L + 9.00% (1.00% Floor)     05/26/2020        37,000        36,360         36,722    

NTS Communications, Inc.(++)

  Diversified Telecommunication Services   L + 9.00% (1.25% Floor)     06/06/2019        44,200        43,581         41,659    

Perfect Commerce, LLC(++)

  Internet Software & Services   L + 8.50% (1.00% Floor)     06/30/2020        39,105        38,277         38,421    

US Med Acquisition, Inc.(+)

  Health Care Equipment & Supplies   L + 9.00% (1.00% Floor)     08/13/2021        30,806        30,236         30,806    

Vexos, Inc.(++)

  Electronic Equipment, Instruments & Components   L + 9.50% (1.00% Floor)     10/09/2019        47,963        47,243         47,243    
         

 

 

   

 

 

 

Total 1st Lien/Senior Secured Debt

            423,752         413,631    

1st Lien/Last-Out Unitranche (6) - 44.81%

           

Associations, Inc.(++)

  Real Estate Management & Development   L + 7.00% (1.00% Floor)     12/23/2019        88,657        87,224         87,328    

Avenue Stores, LLC(+)

  Specialty Retail   L + 8.00% (1.00% Floor)     09/19/2019        30,000        29,442         30,300    

Bolttech Mannings, Inc.(+)

  Commercial Services & Supplies   L + 7.75% (1.00% Floor)     12/21/2018        36,346        35,842         32,711    

Integrated Practice Solutions, Inc.(++)

  Software   L + 9.10% (1.00% Floor)     08/03/2020        26,813        26,158         26,142    

Mervin Manufacturing, Inc.(++)

  Leisure Equipment & Products   L + 7.50% (1.00% Floor)     10/10/2019        11,165        10,994         10,160    

Pro-Pet, LLC(+)

  Household Products   L + 7.25% (0.75% Floor)     11/21/2019        28,600        28,217         26,884    

The Service Companies Inc.(++)

  Professional Services   L + 10.25% (1.00% Floor)     03/26/2019        47,240        46,600         46,413    

United Road Services, Inc.(+)

  Air Freight & Logistics   L + 7.50% (1.00% Floor)     12/14/2017        44,658        44,285         43,765    
         

 

 

   

 

 

 

Total 1st Lien/Last-Out Unitranche

            308,762         303,703    

2nd Lien/Senior Secured Debt - 43.06%

           

DiscoverOrg, LLC(++)

  Software   L + 9.00% (1.00% Floor)     02/10/2022        39,500        38,726         38,710    

DiversiTech Corporation(++)

  Building Products   L + 8.00% (1.00% Floor)     11/18/2022        10,000        9,863         9,850    

Extraction Oil & Gas Holdings, LLC

  Oil, Gas & Consumable Fuels   11.00%     05/29/2019        15,000        14,843         15,187    

Extraction Oil & Gas Holdings, LLC  

  Oil, Gas & Consumable Fuels   10.00%     05/29/2019        8,412        8,320         8,286    

The accompanying notes are part of these unaudited consolidated financial statements.

 

8


Goldman Sachs BDC, Inc.

Consolidated Schedule of Investments as of March 31, 2016 (continued)

(in thousands, except share and per share amounts)

(Unaudited)

 

Portfolio Company   Industry   Interest   Maturity     Par
Amount
    Cost     Fair Value  

Global Tel*Link Corporation(++)

  Diversified Telecommunication Services   L + 7.75% (1.25% Floor)     11/23/2020      $ 28,000      $ 27,604       $ 20,907    

Highwinds Capital, Inc.(+)

  Internet Software & Services   L + 12.25% (1.25% Floor)     01/29/2019        59,050        58,467         59,050    

Hunter Defense Technologies, Inc.(7) (8)

  Aerospace & Defense   P + 9.00%     02/05/2020        28,000        26,842         12,670    

Hutchinson Technology, Inc.

  Computers & Peripherals   10.88%     01/15/2017        12,200        12,045         13,030    

IHS Intermediate, Inc.(++)

  Health Care Providers & Services   L + 8.25% (1.00% Floor)     07/20/2022        10,000        9,814         9,800    

MPI Products LLC(++)

  Auto Components   L + 9.00% (1.00% Floor)     01/30/2020        20,000        19,772         19,800    

Oasis Outsourcing Holdings, Inc.(+)

  Diversified Financial Services   L + 8.75% (1.00% Floor)     12/26/2022        20,000        19,733         19,700    

P2 Upstream Acquisition Co.(++)

  Software   L + 8.00% (1.00% Floor)     04/30/2021        10,000        9,925         6,367    

Reddy Ice Corporation(++)

  Food Products   L + 9.50% (1.25% Floor)     11/01/2019        13,500        13,103         8,910    

Securus Technologies Holdings, Inc.(++)

  Diversified Telecommunication Services   L + 7.75% (1.25% Floor)     04/30/2021        20,000        19,834         16,450    

SW Holdings, LLC(+++)

  Media   L + 8.75% (1.00% Floor)     12/30/2021        13,500        13,253         13,230    

Washington Inventory Service(++)

  Professional Services   L + 9.00% (1.25% Floor)     06/20/2019        24,800        24,959         19,840    
         

 

 

   

 

 

 

Total 2nd Lien/Senior Secured Debt

            327,103         291,787    
         

 

 

   

 

 

 

Total Corporate Debt

            1,059,617         1,009,121    
Portfolio Company   Industry   Coupon          Shares     Cost     Fair Value  

Preferred Stock (1) - 3.63%

           

Crowley Holdings Preferred LLC(2)

  Marine   12.00% (Includes 2% PIK)       20,927      $ 20,927       $ 20,928    

Lone Pine Resources CDA, Ltd.^ (3) (7) (9)

  Oil, Gas & Consumable Fuels   10.00%       3,745,909        4,791         3,653    
         

 

 

   

 

 

 

Total Preferred Stock

            25,718         24,581    

Common Stock (1) - 0.00%

           

Lone Pine Resources CDA, Ltd.^ (3) (7) (10)

  Oil, Gas & Consumable Fuels         972,919        4,446         —    
         

 

 

   

 

 

 

Total Common Stock

            4,446         —    
Portfolio Company                    LLC Interest     Cost     Fair Value  

Investment Funds & Vehicles (1) - 7.82%

           

Senior Credit Fund, LLC^^ (3)

        $ 54,342      $ 54,342      $ 52,971   
         

 

 

   

 

 

 

Total Investment Funds & Vehicles

            54,342        52,971   
          Yield          Shares     Cost     Fair Value  

Investments in Affiliated Money Market Fund (1) - 1.98% #

       

Goldman Sachs Financial Square Government Fund

    0.26%(11)       13,445,276      $ 13,445      $ 13,445   
         

 

 

   

 

 

 

Total Investments in Affiliated Money Market Fund

            13,445        13,445   
         

 

 

   

 

 

 

TOTAL INVESTMENTS - 162.33%

          $ 1,157,568      $ 1,100,118   
         

 

 

   

 

 

 

LIABILITIES IN EXCESS OF OTHER ASSETS - (62.33%)

        $ (422,405
           

 

 

 

NET ASSETS - 100.00%

            $ 677,713   
           

 

 

 

 

  #  Percentages are based on net assets.
  (+)  The interest rate on these loans is subject to a base rate plus 1 month LIBOR, which as of March 31, 2016 was 0.44%. As the interest rate is subject to a minimum LIBOR floor which was greater than the 1 month LIBOR rate at March 31, 2016, the prevailing rate in effect as of March 31, 2016 was the base rate plus the LIBOR floor.
  (++)  The interest rate on these loans is subject to a base rate plus 3 month LIBOR, which as of March 31, 2016 was 0.63%. As the interest rate is subject to a minimum LIBOR floor which was greater than the 3 month LIBOR rate at March 31, 2016, the prevailing rate in effect as of March 31, 2016 was the base rate plus the LIBOR floor.

The accompanying notes are part of these unaudited consolidated financial statements.

 

9


Goldman Sachs BDC, Inc.

Consolidated Schedule of Investments as of March 31, 2016 (continued)

(in thousands, except share and per share amounts)

(Unaudited)

 

  (+++) 

The interest rate on these loans is subject to a base rate plus 6 month LIBOR, which as of March 31, 2016 was 0.90%. As the interest rate is subject to a minimum LIBOR floor which was greater than the 6 month LIBOR rate at March 31, 2016, the prevailing rate in effect as of March 31, 2016 was the base rate plus the LIBOR floor.

  ^ 

As defined in the Investment Company Act of 1940, the investment is deemed to be an “affiliated person” of the Company because the Company owns, either directly or indirectly, 5% or more of the portfolio company’s outstanding voting securities. See Note 3 “Significant Agreements and Related Parties”.

  ^^ 

As defined in the Investment Company Act of 1940, the investment is deemed to be a “controlled affiliated person” of the Company because the Company owns, either directly or indirectly, 25% or more of the portfolio company’s outstanding voting securities or has the power to exercise control over management or policies of such portfolio company. See Note 3 “Significant Agreements and Related Parties”.

  (1) 

Assets are pledged as collateral for the Revolving Credit Facility. See Note 6 “Debt”.

  (2) 

Security exempt from registration pursuant to Rule 144A under the Securities Act of 1933. These securities may be sold in certain transactions (normally to qualified institutional buyers) and remain exempt from registration. As of March 31, 2016, the aggregate fair value of these securities is $92,931 or 13.71% of the Company’s net assets.

  (3) 

The investment is not a qualifying asset under Section 55(a) of the Investment Company Act of 1940. The Company may not acquire any non-qualifying asset unless, at the time of acquisition, qualifying assets represent at least 70% of the Company’s total assets.

  (4) 

Position or portion thereof is an unfunded loan commitment, and no interest is being earned on the unfunded portion. The unfunded loan commitment may be subject to a commitment termination date, that may expire prior to the maturity date stated. See Note 7 “Commitments and Contingencies”.

  (5) 

The negative cost is the result of the capitalized discount being greater than the principal amount outstanding on the loan. The negative fair value is the result of the capitalized discount on the loan.

  (6) 

In addition to the interest earned based on the stated rate of this loan, the Company may be entitled to receive additional interest as a result of its arrangement with other lenders in a syndication.

  (7) 

Non-income producing security.

  (8) 

The investment is on non-accrual status as of March 31, 2016. See Note 2 “Significant Accounting Policies”.

  (9) 

In addition, the Company holds 3,745,909 shares of voting securities in an affiliated entity with zero cost and zero value.

  (10) 

In addition, the Company holds 972,919 shares of voting securities in an affiliated entity with zero cost and zero value.

  (11) 

The rate shown is the annualized seven-day yield as of March 31, 2016.

  F -

Federal Funds Rate (which as of March 31, 2016 was 0.25%)

  L -

LIBOR

  P -

U.S. Prime Rate (which as of March 31, 2016 was 3.50%)

  PIK -

Payment-In-Kind

The accompanying notes are part of these unaudited consolidated financial statements.

 

10


Goldman Sachs BDC, Inc.

Consolidated Schedule of Investments as of December 31, 2015

(in thousands, except share and per share amounts)

 

Portfolio Company   Industry   Interest   Maturity     Par Amount     Cost     Fair Value  

Investments at Fair Value – 156.98%#

  

     

Corporate Debt(1) – 146.85%

  

     

1st Lien/Senior Secured Debt – 61.00%

  

     

Artesyn Embedded Technologies, Inc.(2)

  Electronic Equipment, Instruments & Components   9.75%     10/15/2020      $ 20,000      $ 20,000      $ 18,700   

Data Driven Delivery Systems, LLC(++)

  Health Care Technology   L + 7.00% (1.00% Floor)     05/31/2019        70,500        68,202        70,500   

Dispensing Dynamics International(2)

  Building Products   12.50%     01/01/2018        24,000        24,685        23,304   

Heligear Acquisition Co.(2)

  Aerospace & Defense   10.25%     10/15/2019        17,500        17,229        18,550   

Infinity Sales Group(+)

  Media   L + 10.50% (1.00% Floor)     11/21/2018        33,727        33,284        32,630   

Iracore International Holdings, Inc.(2)

  Energy Equipment & Services   9.50%     06/01/2018        24,250        20,877        15,763   

Kawa Solar Holdings Limited(3)

  Construction & Engineering   F + 8.20%     07/02/2017        15,000        15,000        15,000   

Legacy Buyer Corp.(++)

  Health Care Providers & Services   L + 8.00% (1.00% Floor)     10/24/2019        30,225        29,735        29,847   

Legacy Buyer Corp.(4) (5)

  Health Care Providers & Services   L + 8.00% (1.00% Floor)     10/24/2019        2,500        (40)        (31)   

Madison-Kipp Corporation(+)

  Machinery   L + 9.00% (1.00% Floor)     05/26/2020        37,000        36,330        36,352   

NTS Communications, Inc.(++)

  Diversified Telecommunication Services   L + 9.00% (1.25% Floor)     06/06/2019        44,300        43,641        42,196   

Perfect Commerce, LLC(++)

  Internet Software & Services   L + 8.50% (1.00% Floor)     06/30/2020        39,668        38,789        38,973   

US Med Acquisition, Inc.(+)

  Health Care Equipment & Supplies   L + 9.00% (1.00% Floor)     08/13/2021        30,884        30,292        30,884   

Vexos, Inc.(++)

  Electronic Equipment, Instruments & Components   L + 9.50% (1.00% Floor)     10/09/2019        48,275        47,512        47,430   
         

 

 

   

 

 

 

Total 1st Lien/Senior Secured Debt

  

    425,536        420,098   

1st Lien/Last-Out Unitranche (6) – 44.40%

  

   

Associations, Inc.(++)

  Real Estate Management & Development   L + 7.00% (1.00% Floor)     12/23/2019        75,926        74,669        74,598   

Associations, Inc.(++) (4)

  Real Estate Management & Development   L + 7.00% (1.00% Floor)     12/23/2019        12,955        9,194        9,217   

Avenue Stores, LLC(+)

  Specialty Retail   L + 8.00% (1.00% Floor)     09/19/2019        30,000        29,409        30,300   

Bolttech Mannings, Inc.(+)

  Commercial Services & Supplies   L + 7.75% (1.00% Floor)     12/21/2018        33,000        32,504        31,185   

Bolttech Mannings, Inc.(+)

  Commercial Services & Supplies   L + 7.75% (1.00% Floor)     12/21/2018        3,346        3,297        3,162   

Integrated Practice Solutions, Inc.(++)

  Software   L + 9.10% (1.00% Floor)     08/03/2020        27,156        26,464        26,417   

Mervin Manufacturing, Inc.(++)

  Leisure Equipment & Products   L + 7.50% (1.00% Floor)     10/10/2019        13,584        13,365        12,837   

Pro-Pet, LLC(+)

  Household Products   L + 7.25% (0.75% Floor)     11/21/2019        28,600        28,196        27,170   

The Service Companies Inc.(++)

  Professional Services   L + 10.25% (1.00% Floor)     03/26/2019        47,460        46,773        46,629   

United Road Services, Inc.(+)

  Air Freight & Logistics   L + 7.50% (1.00% Floor)     12/14/2017        44,658        44,237        44,212   
         

 

 

   

 

 

 

Total 1st Lien/Last-Out Unitranche

  

    308,108        305,727   

2nd Lien/Senior Secured Debt – 41.45%

  

   

DiversiTech Corporation(++)

  Building Products   L + 8.00% (1.00% Floor)     11/18/2022        10,000        9,859        9,850   

Extraction Oil & Gas Holdings, LLC

  Oil, Gas & Consumable Fuels   11.00%     05/29/2019        15,000        14,833        15,187   

Extraction Oil & Gas Holdings, LLC

  Oil, Gas & Consumable Fuels   10.00%     05/29/2019        8,412        8,314        8,286   

Global Tel*Link Corporation(++)

  Diversified Telecommunication Services   L + 7.75% (1.25% Floor)     11/23/2020        28,000        27,588        16,800   

Highwinds Capital, Inc.(+)

  Internet Software & Services   L + 12.25% (1.25% Floor)     01/29/2019        59,050        58,429        59,050   

Hunter Defense Technologies, Inc.(++)

  Aerospace & Defense   L + 10.00% (1.00% Floor)     02/05/2020        28,000        26,866        26,320   

Hutchinson Technology, Inc.

  Computers & Peripherals   10.88%     01/15/2017        12,200        12,004        13,298   

iFly Holdings LLC(++)

  Leisure Equipment & Products   L + 9.00% (1.00% Floor)     07/08/2019        25,000        24,595        25,000   

The accompanying notes are part of these unaudited consolidated financial statements.

 

11


Goldman Sachs BDC, Inc.

Consolidated Schedule of Investments as of December 31, 2015 (continued)

(in thousands, except share and per share amounts)

 

Portfolio Company   Industry   Interest   Maturity     Par Amount     Cost     Fair Value  

IHS Intermediate, Inc.(++)

  Health Care Providers & Services   L + 8.25% (1.00% Floor)     07/20/2022      $ 10,000      $ 9,809      $ 9,800   

MPI Products LLC(++)

  Auto Components   L + 9.00% (1.00% Floor)     01/30/2020        20,000        19,761        19,800   

Oasis Outsourcing Holdings, Inc.(+)

  Diversified Financial Services   L + 8.75% (1.00% Floor)     12/26/2022        20,000        19,726        20,000   

P2 Upstream Acquisition Co.(+++)

  Software   L + 8.00% (1.00% Floor)     04/30/2021        10,000        9,922        8,200   

Reddy Ice Corporation(++)

  Food Products   L + 9.50% (1.25% Floor)     11/01/2019        13,500        13,082        8,809   

Securus Technologies Holdings, Inc.(++)

  Diversified Telecommunication Services   L + 7.75% (1.25% Floor)     04/30/2021        20,000        19,828        10,760   

SW Holdings, LLC(+++)

  Media   L + 8.75% (1.00% Floor)     12/30/2021        13,500        13,245        13,230   

Washington Inventory Service(++)

  Professional Services   L + 9.00% (1.25% Floor)     06/20/2019        24,800        24,970        21,080   
         

 

 

   

 

 

 

Total 2nd Lien/Senior Secured Debt

  

    312,831        285,470   
         

 

 

   

 

 

 

Total Corporate Debt

  

    1,046,475        1,011,295   
         

 

 

   

 

 

 

 

Portfolio Company    Industry    Coupon   Shares     Cost     Fair Value  

Preferred Stock(1) – 3.61%

     

Crowley Holdings Preferred LLC(2)

   Marine    12.00% (Includes 2% PIK)     20,823      $ 20,824      $ 20,824   

Lone Pine Resources CDA, Ltd.^ (3) (7) (8)

   Oil, Gas & Consumable Fuels    10.00%     3,745,909        4,791        4,048   
         

 

 

   

 

 

 

Total Preferred Stock

            25,615        24,872   
         

 

 

   

 

 

 

Common Stock(1) – 0.00%

           

Lone Pine Resources CDA, Ltd.^ (3) (8) (9)

   Oil, Gas & Consumable Fuels        972,919        4,446          
         

 

 

   

 

 

 

Total Common Stock

            4,446          
         

 

 

   

 

 

 
Portfolio Company               LLC Interest     Cost     Fair Value  

Investment Funds & Vehicles (1) – 6.52%

  

Senior Credit Fund, LLC^^ (3)

        $ 46,167      $ 46,167      $ 44,897   
         

 

 

   

 

 

 

Total Investment Funds & Vehicles

            46,167        44,897   
         

 

 

   

 

 

 
            Yield   Shares     Cost     Fair Value  

Investments in Affiliated Money Market Fund (1) – 1.47% #

  

Goldman Sachs Financial Square Government Fund

      0.19%(10)     10,116,857      $ 10,117      $ 10,117   
         

 

 

   

 

 

 

Total Investments in Affiliated Money Market Fund

            10,117        10,117   
         

 

 

   

 

 

 

TOTAL INVESTMENTS – 158.45%

          $ 1,132,820      $ 1,091,181   
         

 

 

   

 

 

 

LIABILITIES IN EXCESS OF OTHER ASSETS – (58.45%)

            $ (402,531
           

 

 

 

NET ASSETS – 100.00%

            $ 688,650   
           

 

 

 

 

# 

Percentages are based on net assets

(+) 

The interest rate on these loans is subject to a base rate plus 1 month LIBOR, which as of December 31, 2015 was 0.43%. As the interest rate is subject to a minimum LIBOR floor which was greater than the 1 month LIBOR rate at December 31, 2015, the prevailing rate in effect as of December 31, 2015 was the base rate plus the LIBOR floor.

(++) 

The interest rate on these loans is subject to a base rate plus 3 month LIBOR, which as of December 31, 2015 was 0.61%. As the interest rate is subject to a minimum LIBOR floor which was greater than the 3 month LIBOR rate at December 31, 2015, the prevailing rate in effect as of December 31, 2015 was the base rate plus the LIBOR floor.

(+++) 

The interest rate on these loans is subject to a base rate plus 6 month LIBOR, which as of December 31, 2015 was 0.85%. As the interest rate is subject to a minimum LIBOR floor which was greater than the 6 month LIBOR rate at December 31, 2015, the prevailing rate in effect as of December 31, 2015 was the base rate plus the LIBOR floor.

The accompanying notes are part of these unaudited consolidated financial statements.

 

12


Goldman Sachs BDC, Inc.

Consolidated Schedule of Investments as of December 31, 2015 (continued)

(in thousands, except share and per share amounts)

 

^ 

As defined in the Investment Company Act of 1940, the investment is deemed to be an “affiliated person” of the Company because the Company owns, either directly or indirectly, 5% or more of the portfolio company’s outstanding voting securities. See Note 3 “Significant Agreements and Related Parties”.

^^ 

As defined in the Investment Company Act of 1940, the investment is deemed to be a “controlled affiliated person” of the Company because the Company owns, either directly or indirectly, 25% or more of the portfolio company’s outstanding voting securities or has the power to exercise control over management or policies of such portfolio company. See Note 3 “Significant Agreements and Related Parties”.

(1) 

Assets are pledged as collateral for the Revolving Credit Facility. See Note 6 “Debt”.

(2) 

Security exempt from registration pursuant to Rule 144A under the Securities Act of 1933. These securities may be sold in certain transactions (normally to qualified institutional buyers) and remain exempt from registration. As of December 31, 2015, the aggregate fair value of these securities is $97,141 or 14.11% of the Company’s net assets.

(3) 

The investment is not a qualifying asset under Section 55(a) of the Investment Company Act of 1940. The Company may not acquire any non-qualifying asset unless, at the time of acquisition is made, qualifying assets represent at least 70% of the Company’s total assets.

(4) 

Position or portion thereof is an unfunded loan commitment, and no interest is being earned on the unfunded portion. The unfunded loan commitment may be subject to a commitment termination date that may expire prior to the maturity date stated. See Note 7 “Commitments and Contingencies”.

(5) 

The negative cost is the result of the capitalized discount being greater than the principal amount outstanding on the loan. The negative fair value is the result of the capitalized discount on the loan.

(6) 

In addition to the interest earned based on the stated rate of this loan, the Company may be entitled to receive additional interest as a result of its arrangement with other lenders in a syndication.

(7) 

In addition, the Company holds 3,745,909 shares of voting securities in an affiliated entity with zero cost and zero value.

(8) 

Non-income producing security.

(9) 

In addition, the Company holds 972,919 shares of voting securities in an affiliated entity with zero cost and zero value.

(10) 

The rate shown is the annualized seven-day yield as of December 31, 2015.

F –

Federal Funds Rate (which as of December 31, 2015 was 0.25%)

L –

LIBOR

PIK –

Payment-In-Kind

The accompanying notes are part of these unaudited consolidated financial statements.

 

13


Goldman Sachs BDC, Inc.

Notes to the Consolidated Financial Statements

(in thousands, except share and per share amounts)

(Unaudited)

1.        ORGANIZATION

Goldman Sachs BDC, Inc. (the “Company,” which term refers to either Goldman Sachs BDC, Inc. or Goldman Sachs BDC, Inc. together with its consolidated subsidiary, as the context may require) was initially established as Goldman Sachs Liberty Harbor Capital, LLC, a single member Delaware limited liability company (“SMLLC”), on September 26, 2012 and commenced operations on November 15, 2012 with Goldman Sachs Group, Inc. (“Group Inc.”) as its sole member. On March 29, 2013, the Company elected to be regulated as a business development company (“BDC”) under the Investment Company Act of 1940, as amended (the “Investment Company Act”). Effective April 1, 2013, the Company converted from a SMLLC to a Delaware corporation (the “Conversion”). In addition, the Company has elected to be treated as a regulated investment company (“RIC”) under Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”), commencing with its taxable year ended December 31, 2013.

The Company’s investment objective is to generate current income and, to a lesser extent, capital appreciation primarily through direct originations of secured debt, including first lien, first lien/last-out unitranche and second lien debt, and unsecured debt, including mezzanine debt, as well as through select equity investments.

Goldman Sachs Asset Management, L.P. (“GSAM”), a Delaware limited partnership and an affiliate of Goldman, Sachs & Co., is the investment adviser (the “Investment Adviser”) of the Company. The term “Goldman Sachs” refers to Group Inc., together with Goldman, Sachs & Co., GSAM and its other subsidiaries.

On March 23, 2015, the Company closed its initial public offering (“IPO”), issuing 6,000,000 shares of its common stock at a public offering price of $20.00 per share. Net of offering and underwriting costs, the Company received cash proceeds of $114,568. On March 18, 2015, the Company’s common stock began trading on the New York Stock Exchange (“NYSE”) under the symbol “GSBD”.

In April 2015, the Company issued a total of 900,000 shares of its common stock pursuant to the exercise of the underwriters’ over-allotment option in connection with the IPO. Net of underwriting costs, the Company received additional cash proceeds of $17,271.

In July 2015, the Company invested through a wholly-owned subsidiary, DDDS BL, LLC, which is structured as a Delaware limited liability company.

2.        SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The Company’s functional currency is U.S. dollars and these consolidated financial statements have been prepared in that currency. The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and pursuant to Regulation S-X. This requires the Company to make certain estimates and assumptions that may affect the amounts reported in the consolidated financial statements and accompanying notes. These consolidated financial statements reflect adjustments that in the opinion of the Company are necessary for the fair statement of the results for the periods presented. Actual results may differ from the estimates and assumptions included in the consolidated financial statements.

Certain financial information that is included in annual consolidated financial statements, including certain financial statement disclosures, prepared in accordance with GAAP, is not required for interim reporting purposes and has been condensed or omitted herein. These consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and notes related thereto for the year ended December 31, 2015, included in the Company’s Annual Report on Form 10-K, which was filed with the Securities and Exchange Commission (the “SEC”) on March 2, 2016. The results for the three months ended March 31, 2016 are not necessarily indicative of the results to be expected for the full year, any other interim period or any future year or period.

Certain prior period information has been reclassified to conform to the current period presentation. The reclassification has no effect on the Company’s consolidated financial position or the consolidated results of operations as previously reported.

 

14


As an investment company, the Company applies the accounting and reporting guidance in Accounting Standards Codification (“ASC”) Topic 946, Financial Services – Investment Companies (“ASC 946”).

Basis of Consolidation

As provided under ASC 946, the Company will generally not consolidate its investment in a company other than an investment company subsidiary or a controlled operating company whose business consists of providing services to the Company. Accordingly, the Company consolidated the financial position and results of operations of the Company’s investment in DDDS BL, LLC. All significant intercompany transactions and balances have been eliminated in consolidation.

The Company does not consolidate its equity interest in Senior Credit Fund, LLC (the “Senior Credit Fund”). For further description of the Company’s investment in the Senior Credit Fund, see Note 4 “Investments”.

Revenue Recognition

The Company records its investment transactions on a trade date basis. Realized gains and losses are based on the specific identification method.

Interest income, adjusted for amortization of premium and accretion of discount, is recorded on an accrual basis. Discounts and premiums to par value on investments purchased are accreted and amortized, respectively, into interest income over the life of the respective investment using the effective interest method. Loan origination fees, original issue discount and market discounts or premiums are capitalized and amortized into interest income using the effective interest method or straight-line method, as applicable. Upon prepayment of a loan or debt security, any prepayment premiums, unamortized upfront loan origination fees and unamortized discounts are recorded as interest income. For the three months ended March 31, 2016 and 2015, the Company earned $260 and $575, in prepayment premiums, respectively, and $486 and $222, in accelerated accretion of upfront loan origination fees and unamortized discounts, respectively.

Dividend income on preferred equity investments is recorded on an accrual basis to the extent that such amounts are payable by the portfolio company and are expected to be collected. Dividend income on common equity investments is recorded on the record date for private portfolio companies and on the ex-dividend date for publicly traded portfolio companies. Interest and dividend income are presented net of withholding tax, if any.

Certain investments may have contractual payment-in-kind (“PIK”) interest or dividends. PIK represents accrued interest or accumulated dividends that are added to the loan principal of the investment on the respective interest or dividend payment dates rather than being paid in cash and generally becomes due at maturity or upon being called by the issuer. PIK is recorded as interest or dividend income, as applicable. If at any point the Company believes PIK is not expected to be realized, the investment generating PIK will be placed on non-accrual status. Accrued PIK interest or dividends are generally reversed through interest or dividend income, respectively, when an investment is placed on non-accrual status.

Certain structuring fees and amendment fees are recorded as other income when earned. Administrative agent fees received by the Company are recorded as other income when the services are rendered.

Non-Accrual Loans

Loans or debt securities are placed on non-accrual status when there is reasonable doubt that principal or interest will be collected. Accrued interest generally is reversed when a loan or debt security is placed on non-accrual status. Interest payments received on non-accrual loans or debt securities may be recognized as income or applied to principal depending upon management’s judgment. Non-accrual loans and debt securities are restored to accrual status when past due principal and interest are paid and, in management’s judgment, principal and interest payments are likely to remain current. The Company may make exceptions to this treatment if a loan has sufficient collateral value and is in the process of collection. As of March 31, 2016, the Company had one investment on non-accrual status, which represented 2.3% and 1.2% of the total investments (excluding an investment in a money market fund managed by an affiliate of Group Inc. of $13,445) at amortized cost and at fair value, respectively. As of December 31, 2015, the Company had no investments on non-accrual status.

 

15


Investments

The Company carries its investments in accordance with ASC Topic 820, Fair Value Measurements and Disclosures (“ASC 820”), issued by the Financial Accounting Standards Board (“FASB”), which defines fair value, establishes a framework for measuring fair value and requires disclosures about fair value measurements. Fair value is generally based on quoted market prices provided by independent pricing services, broker or dealer quotations or alternative price sources. In the absence of quoted market prices, broker or dealer quotations or alternative price sources, investments are measured at fair value as determined by the Board of Directors.

Due to the inherent uncertainties of valuation, certain estimated fair values may differ significantly from the values that would have been realized had a ready market for these investments existed, and these differences could be material. See Note 5 “Fair Value Measurement”.

The Company generally invests in illiquid securities, including debt and equity investments, of middle-market companies. The Board of Directors has delegated to the Investment Adviser day-to-day responsibility for implementing and maintaining internal controls and procedures related to the valuation of the Company’s portfolio investments. Under valuation procedures adopted by the Board of Directors, market quotations are generally used to assess the value of the investments for which market quotations are readily available. The Investment Adviser obtains these market quotations from independent pricing services or at the bid prices obtained from at least two brokers or dealers, if available; otherwise from a principal market maker or a primary market dealer. To assess the continuing appropriateness of pricing sources and methodologies, the Investment Adviser regularly performs price verification procedures and issues challenges as necessary to independent pricing services or brokers, and any differences are reviewed in accordance with the valuation procedures. If the Board of Directors or Investment Adviser has a bona fide reason to believe any such market quotation does not reflect the fair value of an investment, it may independently value such investment in accordance with valuation procedures for investments for which market quotations are not readily available.

With respect to investments for which market quotations are not readily available, or for which market quotations are deemed not reflective of the fair value, the valuation procedures adopted by the Board of Directors contemplate a multi-step valuation process each quarter, as described below:

 

  (1)

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

 

  (2)

The Board of Directors also engages independent valuation firms (the “Independent Valuation Advisors”) to provide independent valuations of the investments for which market quotations are not readily available, or are readily available but deemed not reflective of the fair value of an investment. The Independent Valuation Advisors independently value such investments using quantitative and qualitative information provided by the investment professionals of the Investment Adviser as well as any market quotations obtained from independent pricing services, brokers, dealers or market dealers. The Independent Valuation Advisors also provide analyses to support their valuation methodology and calculations. The Independent Valuation Advisors provide an opinion on a final range of values on such investments to the Board of Directors or the Audit Committee. The Independent Valuation Advisors define fair value in accordance with ASC 820 and utilize valuation techniques including the market approach, the income approach or both. A portion of the portfolio is reviewed on a quarterly basis, and all investments in the portfolio for which market quotations are not readily available, or are readily available, but deemed not reflective of the fair value of an investment, are reviewed at least annually by an Independent Valuation Advisor;

 

  (3)

The Independent Valuation Advisors’ preliminary valuations are reviewed by the Investment Adviser and the Valuation Oversight Group (“VOG”), a team that is part of the Controllers Department within the Finance Division of Goldman Sachs. The Independent Valuation Advisors’ valuation ranges are compared to the Investment Adviser’s valuations to ensure the Investment Adviser’s valuations are reasonable. VOG presents the valuations to the Private Investment Sub-Committee of the Investment Management Division Valuation Committee, which is comprised of representatives from GSAM who are independent of the investment decision making process;

 

  (4)

The Investment Management Division Valuation Committee ratifies fair valuations and makes recommendations to the Audit Committee of the Board of Directors;

 

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  (5)

The Audit Committee of the Board of Directors reviews valuation information provided by the Investment Management Division Valuation Committee, the Investment Adviser and the Independent Valuation Advisors. The Audit Committee then assesses such valuation recommendations; and

 

  (6)

The Board of Directors discusses the valuations and, within the meaning of the Investment Company Act, determines the fair value of the investments in good faith, based on the inputs of the Investment Adviser, the Independent Valuation Advisors and the Audit Committee.

Money Market Funds

Investments in money market funds are valued at amortized cost, which approximates fair value. See Note 3 “Significant Agreements and Related Parties”.

Cash

Cash consists of deposits held at a custodian bank. As of March 31, 2016 and December 31, 2015, the Company held $11,797 and $22,710, respectively, in cash.

Foreign Currency Translation

Amounts denominated in foreign currencies are translated into U.S. dollars on the following basis: (i) investments and other assets and liabilities denominated in foreign currencies are translated into U.S. dollars based upon currency exchange rates effective on the date of valuation; and (ii) purchases and sales of investments and income and expense items denominated in foreign currencies are translated into U.S. dollars based upon currency exchange rates prevailing on the transaction dates.

The Company does not isolate that portion of the results of operations resulting from changes in foreign exchange rates on investments from fluctuations arising from changes in market prices of securities held. Such fluctuations are included within the net realized and unrealized gain or loss from investments.

Income Taxes

The Company recognizes tax positions in its consolidated financial statements only when it is more likely than not that the position will be sustained upon examination by the relevant taxing authority based on the technical merits of the position. A position that meets this standard is measured at the largest amount of benefit that will more likely than not be realized upon settlement. The Company reports any interest expense related to income tax matters in income tax expense, and any income tax penalties under expenses in the Consolidated Statements of Operations.

The Company’s tax positions have been reviewed based on applicable statutes of limitation for tax assessments, which may vary by jurisdiction, and based on such review, the Company has concluded that no additional provision for income tax is required in the Company’s consolidated financial statements. The Company is subject to potential examination by certain taxing authorities in various jurisdictions. The Company’s tax positions are subject to ongoing interpretation of laws and regulations by taxing authorities.

Effective April 1, 2013, the Company converted from an SMLLC into a corporation for U.S. tax purposes, and elected to be treated as a RIC commencing with its taxable year ended December 31, 2013. So long as the Company maintains its status as a RIC, it will generally not be subject to corporate-level U.S. federal income tax on any ordinary income or capital gains that it distributes at least annually to its stockholders as dividends. As a result, any U.S. federal income tax liability related to income earned and distributed by the Company represents obligations of the Company’s stockholders and will not be reflected in the consolidated financial statements of the Company. The Company’s conversion from an SMLLC to a RIC was considered a taxable event.

To maintain its status as a RIC, the Company must meet specified source-of-income and asset diversification requirements and timely distribute to its stockholders for each taxable year at least 90% of its investment company taxable income (generally, its net ordinary income plus the excess of its realized net short-term capital gains over realized net long-term capital losses, determined without regard to the dividends paid deduction). In order for the Company not to be subject to U.S. federal excise taxes, it must distribute annually an amount at least equal to the sum of (i) 98% of its net ordinary income (taking into account certain deferrals and elections) for the calendar year, (ii) 98.2% of its capital gains in excess of capital losses for the one-year period ending on October 31 of the calendar year and (iii) any net ordinary income and capital gains in excess of capital losses for preceding years that were not distributed during

 

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such years. The Company, at its discretion, may carry forward taxable income in excess of calendar year dividends and pay a 4% nondeductible U.S. federal excise tax on this income. If the Company chooses to do so, this generally would increase expenses and reduce the amount available to be distributed to stockholders. The Company will accrue excise tax on estimated undistributed taxable income as required. For the three months ended March 31, 2016 and 2015, the Company accrued excise tax of $213 and $25, respectively. As of March 31, 2016, $207 of accrued excise taxes remained payable.

Distributions

Distributions from net investment income and net realized capital gains are determined in accordance with U.S. federal income tax regulations, which may differ from those amounts determined in accordance with GAAP. The Company may pay distributions in excess of its taxable net investment income. This excess would be a tax-free return of capital in the period and reduce the stockholder’s tax basis in its shares. These book/tax differences are either temporary or permanent in nature. To the extent these differences are permanent they are charged or credited to paid-in capital in excess of par, accumulated undistributed net investment income or accumulated net realized gain (loss), as appropriate, in the period that the differences arise. Temporary and permanent differences are primarily attributable to differences in the tax treatment of certain loans and the tax characterization of income and non-deductible expenses. These differences are generally determined in conjunction with the preparation of the Company’s annual RIC tax return. Distributions to common stockholders are recorded on the ex-dividend date. The amount to be paid out as a distribution is determined by the Board of Directors each quarter and is generally based upon the earnings estimated by the Investment Adviser. The Company may pay distributions to its stockholders in a year in excess of its net ordinary income and capital gains for that year and, accordingly, a portion of such distributions may constitute a return of capital for U.S. federal income tax purposes. The Company intends to timely distribute to its stockholders substantially all of its annual taxable income for each year, except that the Company may retain certain net capital gains for reinvestment and, depending upon the level of the Company’s taxable income earned in a year, the Company may choose to carry forward taxable income for distribution in the following year and pay any applicable U.S. federal excise tax. The specific tax characteristics of the Company’s distributions will be reported to stockholders after the end of the calendar year. All distributions will be subject to available funds, and no assurance can be given that the Company will be able to declare such distributions in future periods.

The Company has adopted a dividend reinvestment plan that provides for reinvestment of all cash distributions declared by the Board of Directors unless a stockholder elects to “opt out” of the plan. As a result, if the Board of Directors declares a cash distribution, then the stockholders who have not “opted out” of the dividend reinvestment plan will have their cash distributions automatically reinvested in additional shares of common stock, rather than receiving the cash distribution. Stockholders who receive distributions in the form of shares of common stock will generally be subject to the same U.S. federal, state and local tax consequences as if they received cash distributions and, for this purpose, stockholders receiving distributions in the form of stock will generally be treated as receiving distributions equal to the fair market value of the stock received through the plan; however, since their cash distributions will be reinvested, those stockholders will not receive cash with which to pay any applicable taxes. Due to regulatory considerations, Group Inc. has opted out of the dividend reinvestment plan, and Goldman, Sachs & Co. has opted out of the dividend reinvestment plan in respect of shares of the Company’s common stock acquired through its 10b5-1 plan. See Note 3 “Significant Agreements and Related Parties”.

Equity Offering Costs

Equity offering costs consist primarily of fees and expenses incurred in connection with the offering of shares, including legal, underwriting, printing and other costs, as well as costs associated with the preparation and filing of applicable registration statements. Upon the issuance of shares, equity offering costs are offset against proceeds of the offering in paid-in capital in excess of par.

New Accounting Pronouncements

In April 2015, the FASB issued Accounting Standards Update (“ASU”) 2015-03, “Simplifying the Presentation of Debt Issuance Costs.” ASU 2015-03 requires that debt issuance costs be presented as a direct deduction from the carrying amount of the related debt liability, consistent with the presentation of debt discounts. Upon adoption, the standard requires prior period financial statements to be retrospectively adjusted. Prior to the issuance of ASU 2015-03, debt issuance costs were required to be presented as deferred assets, separate from the related debt liability. ASU 2015-03 does not change the recognition and measurement requirements for debt issuance costs. ASU 2015-03 is effective for financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years, with early adoption permitted. The Company has adopted this standard effective January 1, 2016 and determined there to be no impact on its consolidated financial statements.

 

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In January 2016, the FASB issued ASU 2016-01, “Financial Instruments (Topic 825) — Recognition and Measurement of Financial Assets and Financial Liabilities”, which amends certain aspects of recognition, measurement, presentation and disclosure of financial instruments. The new ASU requires an entity to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments. Additionally, the ASU changes the disclosure requirements for financial instruments. ASU 2016-01 is effective for annual reporting periods, and the interim periods within those periods, beginning after December 15, 2017 and early adoption is permitted for certain provisions. The Company is currently evaluating the impact of adopting this ASU on its consolidated financial statements.

3.        SIGNIFICANT AGREEMENTS AND RELATED PARTIES

Investment Management Agreement

The Company has entered into an investment management agreement (as amended and restated as of January 1, 2015, the “Investment Management Agreement”) with the Investment Adviser, pursuant to which the Investment Adviser manages the Company’s investment program and related activities.

Management Fee

The Company pays the Investment Adviser a management fee (the “Management Fee”), accrued and payable quarterly in arrears. The Management Fee is calculated at an annual rate of 1.50% (0.375% per quarter) of the average value of the Company’s gross assets (excluding cash or cash equivalents (such as investments in money market funds), but including assets purchased with borrowed amounts) at the end of each of the two most recently completed calendar quarters (and, in the case of our first quarter, our gross assets as of such quarter-end). The Management Fee for any partial quarter will be appropriately prorated.

For the three months ended March 31, 2016 and 2015, Management Fees charged amounted to $4,126 and $3,472, respectively. As of March 31, 2016, $4,126 remained payable.

Incentive Fee

The incentive fee (the “Incentive Fee”) consists of two components that are determined independent of each other, with the result that one component may be payable even if the other is not. Effective as of January 1, 2015, the Incentive Fee is calculated as follows:

A portion of the Incentive Fee is based on income and a portion is based on capital gains, each as described below. The Investment Adviser is entitled to receive the Incentive Fee based on income if Ordinary Income (as defined below) exceeds a quarterly “hurdle rate” of 1.75%. For this purpose, the hurdle is computed by reference to the Company’s net asset value (“NAV”) and does not take into account changes in the market price of the Company’s common stock.

Beginning with the calendar quarter that commenced on January 1, 2015, the Incentive Fee based on income is determined and paid quarterly in arrears at the end of each calendar quarter by reference to the Company’s aggregate net investment income, as adjusted as described below, from the calendar quarter then ending and the eleven preceding calendar quarters (or if shorter, the number of quarters that have occurred since January 1, 2015) (such period the “Trailing Twelve Quarters”). The Incentive Fee based on capital gains is determined and paid annually in arrears at the end of each calendar year by reference to an “Annual Period,” which means the period beginning on January 1 of each calendar year and ending on December 31 of such calendar year or, in the case of the first and last year, the appropriate portion thereof.

The hurdle amount for the Incentive Fee based on income is determined on a quarterly basis and is equal to 1.75% multiplied by the Company’s NAV at the beginning of each applicable calendar quarter comprising the relevant Trailing Twelve Quarters. The hurdle amount is calculated after making appropriate adjustments for subscriptions (which includes all of the Company’s issuances of shares of its common stock, including issuances pursuant to its dividend reinvestment plan) and distributions that occurred during the relevant Trailing Twelve Quarters. The Incentive Fee for any partial period will be appropriately prorated.

 

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i. Quarterly Incentive Fee Based on Income

For the portion of the Incentive Fee based on income, the Company pays the Investment Adviser a quarterly Incentive Fee based on the amount by which (A) aggregate net investment income (“Ordinary Income”) in respect of the relevant Trailing Twelve Quarters exceeds (B) the hurdle amount for such Trailing Twelve Quarters. The amount of the excess of (A) over (B) described in this paragraph for such Trailing Twelve Quarters is referred to as the “Excess Income Amount”. Ordinary Income is net of all fees and expenses, including the Management Fee but excluding any Incentive Fee.

The Incentive Fee based on income for each quarter is determined as follows:

• No Incentive Fee based on income is payable to the Investment Adviser for any calendar quarter for which there is no Excess Income Amount;

• 100% of the Ordinary Income, if any, that exceeds the hurdle amount, but is less than or equal to an amount, referred to as the “Catch-up Amount,” determined as the sum of 2.1875% multiplied by the Company’s NAV at the beginning of each applicable calendar quarter comprising the relevant Trailing Twelve Quarters is included in the calculation of the Incentive Fee based on income; and

• 20% of the Ordinary Income that exceeds the Catch-up Amount is included in the calculation of the Incentive Fee based on income.

The amount of the Incentive Fee based on income that is paid to the Investment Adviser for a particular quarter equals the excess of the Incentive Fee so calculated minus the aggregate Incentive Fees based on income that were paid in respect of the first eleven calendar quarters (or the portion thereof) included in the relevant Trailing Twelve Quarters but not in excess of the Incentive Fee Cap (as described below).

The Incentive Fee based on income that is paid to the Investment Adviser for a particular quarter is subject to a cap (the “Incentive Fee Cap”). The Incentive Fee Cap for any quarter is an amount equal to (a) 20% of the Cumulative Net Return (as defined below) during the relevant Trailing Twelve Quarters minus (b) the aggregate Incentive Fees based on income that were paid in respect of the first eleven calendar quarters (or the portion thereof) included in the relevant Trailing Twelve Quarters.

“Cumulative Net Return” means (x) the Ordinary Income in respect of the relevant Trailing Twelve Quarters minus (y) any Net Capital Loss, if any, in respect of the relevant Trailing Twelve Quarters. If, in any quarter, the Incentive Fee Cap is zero or a negative value, the Company pays no Incentive Fee based on income to the Investment Adviser for such quarter. If, in any quarter, the Incentive Fee Cap for such quarter is a positive value but is less than the Incentive Fee based on income that is payable to the Investment Adviser for such quarter (before giving effect to the Incentive Fee Cap) calculated as described above, the Company pays an Incentive Fee based on income to the Investment Adviser equal to the Incentive Fee Cap for such quarter. If, in any quarter, the Incentive Fee Cap for such quarter is equal to or greater than the Incentive Fee based on income that is payable to the Investment Adviser for such quarter (before giving effect to the Incentive Fee Cap) calculated as described above, the Company pays an Incentive Fee based on income to the Investment Adviser equal to the Incentive Fee calculated as described above for such quarter without regard to the Incentive Fee Cap.

“Net Capital Loss” in respect of a particular period means the difference, if positive, between (i) aggregate capital losses, whether realized or unrealized, in such period and (ii) aggregate capital gains, whether realized or unrealized, in such period.

ii. Annual Incentive Fee Based on Capital Gains.

The portion of the Incentive Fee based on capital gains is calculated on an annual basis. For each Annual Period, the Company pays the Investment Adviser an amount equal to (A) 20% of the difference, if positive, of the sum of the Company’s aggregate realized capital gains, if any, computed net of the Company’s aggregate realized capital losses, if any, and the Company’s aggregate unrealized capital depreciation, in each case from April 1, 2013 until the end of such Annual Period minus (B) the cumulative amount of Incentive Fees based on capital gains previously paid to the Investment Adviser from April 1, 2013. For the avoidance of doubt, unrealized capital appreciation is excluded from the calculation in clause (A), above.

The Company accrues, but does not pay, a portion of the Incentive Fee based on capital gains with respect to net unrealized appreciation. Under GAAP, the Company is required to accrue an Incentive Fee based on capital gains that includes net realized capital gains and losses and net unrealized capital appreciation and depreciation on investments held at the end of each period. In calculating the accrual for the Incentive Fee based on capital gains, the Company considers the cumulative

 

20


aggregate unrealized capital appreciation in the calculation, since an Incentive Fee based on capital gains 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 payable under the Investment Management Agreement. This accrual is calculated using the aggregate cumulative realized capital gains and losses and aggregate cumulative unrealized capital appreciation or depreciation. If such amount is positive at the end of a period, then the Company records a capital gains incentive fee equal to 20% of such amount, minus the aggregate amount of actual Incentive Fees based on capital gains paid in all prior periods. If such amount is negative, then there is no accrual for such period. There can be no assurance that such unrealized capital appreciation will be realized in the future.

For the three months ended March 31, 2016 and 2015, the Company incurred Incentive Fees based on income of $1,404 and $3,508, respectively. As of March 31, 2016, $1,404 remained payable. For the three months ended March 31, 2016 and 2015, the Company did not accrue any Incentive Fees based on capital gains.

Administration and Custodian Fees

The Company has entered into an administration agreement with State Street Bank and Trust Company (the “Administrator”) under which the Administrator provides various accounting and administrative services to the Company. Administrative services may include maintenance of the Company’s books and records, processing of investor transactions, calculation of the NAV and payments of the Company’s fees and expenses. To the extent that the Administrator outsources any of its functions, the Administrator pays any compensation associated with such functions. The Administrator also serves as the Company’s custodian (the “Custodian”).

For the three months ended March 31, 2016 and 2015, the Company incurred expenses for services provided by the Administrator and the Custodian of $226 and $215, respectively. As of March 31, 2016, $167 remained payable.

Transfer Agent Fees

State Street Bank and Trust Company served as the Company’s transfer agent (“Transfer Agent”) and dividend agent as of March 31, 2016. Prior to the IPO, Goldman, Sachs & Co. was the Transfer Agent and the Company incurred expenses of $3 for the three months ended March 31, 2015. As of March 31, 2016, none remained payable.

Reimbursement from Investment Adviser

In connection with the IPO, the Investment Adviser paid 70% or approximately $5,040 of the sales load. In addition, in April 2015, the Investment Adviser paid 70%, or approximately $756, of the sales load related to the exercise of the underwriters’ over-allotment option.

10b5-1 Plan

Goldman, Sachs & Co. adopted a 10b5-1 plan (the “GS 10b5-1 Plan”) in accordance with Rules 10b5-1 and 10b-18 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), which provided for the purchase by Goldman, Sachs & Co. in the open market up to the lesser of (i) $25,000 in the aggregate of the Company’s common stock and (ii) such amount that would not bring its collective ownership (with Group Inc.) of the Company’s common stock over 19.9%. The GS 10b5-1 Plan expired on March 18, 2016. The GS 10b5-1 Plan required Goldman, Sachs & Co. to purchase shares of the Company’s common stock when the market price per share was below the Company’s most recently reported NAV per share (including any updates, corrections or adjustments publicly announced by the Company to any previously announced NAV per share). The purchase of shares by Goldman, Sachs & Co. pursuant to the GS 10b5-1 Plan was intended to satisfy the conditions of Rules 10b5-1 and 10b-18 under the Exchange Act, and was otherwise subject to applicable law, including Regulation M. Under the GS 10b5-1 Plan, Goldman, Sachs & Co. increased the volume of purchases made anytime the market price per share of the Company’s common stock declined below the most recently reported NAV per share, subject to volume restrictions. Purchases of the Company’s common stock by Goldman, Sachs & Co. under the GS 10b5-1 Plan may have resulted in the price of the Company’s common stock being higher than the price that otherwise might have existed in the open market. For the three months ended March 31, 2016, Goldman, Sachs & Co. purchased 432,638 shares of Company’s common stock pursuant to the GS 10b5-1 Plan.

 

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Common Stock Repurchase Plans

In February 2015, the Company’s Board of Directors approved the common stock repurchase plan (the “Company Repurchase Plan”), which authorized the Company’s purchase of up to $35,000 of its common stock in the open market during open trading periods. No repurchases were made pursuant to the Company Repurchase Plan which expired on March 18, 2016.

In February 2016, the Company’s Board of Directors authorized the Company to repurchase up to $25,000 of the Company’s common stock if the stock trades below the most recently announced NAV per share (including any updates, corrections or adjustments publicly announced by the Company to any previously announced NAV per share), from March 18, 2016 to March 18, 2017, subject to certain limitations. In connection with this authorization, the Company entered into a 10b5-1 plan (the “Company 10b5-1 Plan”). The Company 10b5-1 Plan provides that purchases will be conducted on the open market on a programmatic basis in accordance with Rules 10b5-1 and 10b-18 under the Exchange Act and will otherwise be subject to applicable law, including Regulation M, which may prohibit purchases under certain circumstances. No purchases will be effected pursuant to the Company 10b5-1 Plan if such purchase would (i) cause the aggregate ownership of the Company’s outstanding common stock by Group Inc. and Goldman, Sachs & Co. to equal or exceed 25.0% (due to the reduction in outstanding shares of stock as a result of purchase) or (ii) cause the Company’s debt/equity ratio to exceed 0.75. The Company 10b5-1 Plan took effect on March 18, 2016 (with any purchases to commence after the opening of NYSE trading on March 21, 2016) and expires on March 18, 2017.

The Company’s repurchase of its common stock under the Company 10b5-1 Plan or otherwise may result in the price of the Company’s common stock being higher than the price that otherwise might exist in the open market. For the three months ended March 31, 2016, the Company did not repurchase any stock pursuant to the Company 10b5-1 Plan or otherwise.

Affiliates

As of March 31, 2016 and December 31, 2015, Group Inc. owned 17.86% and 16.67%, respectively, of the outstanding shares of the Company’s common stock.

The Company’s investments in affiliates for the three months ended March 31, 2016 were as follows:

 

     

Fair Value as of

December 31,
2015

     Purchases(3)      Sales(3)    

Change in
Unrealized Gains

(Losses)

    Fair Value as of
March 31, 2016
     Dividend Income      Other Income  

Controlled Affiliates

                  

Senior Credit Fund, LLC(1)

   $ 44,897       $ 8,175       $ -      $ (101   $ 52,971       $ 1,275       $ 107   

Total Controlled Affiliates

   $ 44,897       $ 8,175       $                     -      $ (101   $ 52,971       $ 1,275       $ 107   

Non-Controlled Affiliates

                  
Goldman Sachs Financial Square Government Fund (2)    $ 10,117       $ 112,196       $ (108,868   $ -      $ 13,445       $ 11       $ -   
Lone Pine Resources CDA, Ltd. (Preferred Stock)      4,048         -         -        (395     3,653         -         -   
Lone Pine Resources CDA, Ltd. (Common Stock)      -         -         -        -        -         -         -   

Total Non-Controlled Affiliates

   $ 14,165       $     112,196       $ (108,868   $ (395   $ 17,098       $ 11       $ -   

Total Affiliates

   $ 59,062       $ 120,371       $ (108,868   $ (496   $ 70,069       $ 1,286       $ 107   

(1) Together with The Regents of the University of California (“Cal Regents”, and collectively with the Company, the “Members”), the Company co-invests through the Senior Credit Fund. Although the Company owns more than 25% of the voting securities of the Senior Credit Fund, the Company does not believe that it has control over the Senior Credit Fund (other than for purposes of the Investment Company Act). See Note 4 “Investments”.

(2) Fund advised by an affiliate of Goldman Sachs.

(3) Purchases may include securities received in corporate actions and PIK. Sales may include securities delivered in corporate actions.

 

22


The Company’s investments in affiliates for the year ended December 31, 2015 were as follows:

 

     

Fair Value as of

December 31,

2014

     Purchases(3)      Sales(3)    

Change in

Unrealized Gains

(Losses)

   

Fair Value as of

December 31,

2015

     Dividend Income      Other Income  

Controlled Affiliates

                  

Senior Credit Fund, LLC(1)

   $ 24,627       $ 21,167       $                     -      $ (897   $ 44,897       $ 3,992       $ 681   

Total Controlled Affiliates

   $ 24,627       $ 21,167       $ -      $ (897   $ 44,897       $ 3,992       $ 681   

Non-Controlled Affiliates

                  
Goldman Sachs Financial Square Government Fund (2)    $ 29,568       $ 397,861       $ (417,312   $ -      $ 10,117       $ 3       $ -   
Lone Pine Resources CDA, Ltd. (Preferred Stock)      5,946         -         -        (1,898     4,048         -         -   
Lone Pine Resources CDA, Ltd. (Common Stock)      632         -         -        (632     -         -         -   

Total Non-Controlled Affiliates

   $ 36,146       $     397,861       $ (417,312   $ (2,530   $ 14,165       $ 3       $ -   

Total Affiliates

   $ 60,773       $ 419,028       $ (417,312   $ (3,427   $ 59,062       $ 3,995       $ 681   

(1) Together with The Cal Regents, the Company co-invests through the Senior Credit Fund. Although the Company owns more than 25% of the voting securities of the Senior Credit Fund, the Company does not believe that it has control over the Senior Credit Fund (other than for purposes of the Investment Company Act). See Note 4 “Investments”.

(2) Fund advised by an affiliate of Goldman Sachs.

(3) Purchases may include securities received in corporate actions and PIK. Sales may include securities delivered in corporate actions.

4.        INVESTMENTS

As of the dates indicated, the Company’s investments (excluding an investment in a money market fund managed by an affiliate of Group Inc. of $13,445 and $10,117, respectively) consisted of the following:

 

     March 31, 2016      December 31, 2015  
Investment Type    Cost      Fair Value      Cost      Fair Value  

 

 

1st Lien/Senior Secured Debt

   $ 423,752       $ 413,631       $ 425,536       $ 420,098   

1st Lien/Last-Out Unitranche

     308,762         303,703         308,108         305,727   

2nd Lien/Senior Secured Debt

     327,103         291,787         312,831         285,470   

Preferred Stock

     25,718         24,581         25,615         24,872   

Common Stock

     4,446                 4,446           

Investment Funds & Vehicles1

     54,342         52,971         46,167         44,897   

 

 

Total Investments

   $     1,144,123       $     1,086,673       $     1,122,703       $     1,081,064   

 

 

 

1 

Includes equity investments in the Senior Credit Fund.

 

23


As of the dates indicated, the industry composition of the Company’s portfolio at fair value was as follows:

 

Industry    March 31, 2016   December 31, 2015

Internet Software & Services

   9.0%   9.1%

Real Estate Management & Development

   8.0   7.8

Diversified Telecommunication Services

   7.3   6.4

Software

   6.6   3.2

Health Care Technology

   6.5   6.5

Professional Services

   6.1   6.3

Electronic Equipment, Instruments & Components

   5.9   6.1

Investment Funds & Vehicles

   4.9   4.2

Media

   4.2   4.2

Air Freight & Logistics

   4.0   4.1

Health Care Providers & Services

   3.5   3.7

Machinery

   3.4   3.4

Commercial Services & Supplies

   3.0   3.2

Building Products

   2.9   3.1

Aerospace & Defense

   2.9   4.1

Health Care Equipment & Supplies

   2.8   2.9

Specialty Retail

   2.8   2.8

Oil, Gas & Consumable Fuels

   2.5   2.5

Household Products

   2.5   2.5

Marine

   1.9   1.9

Auto Components

   1.8   1.8

Diversified Financial Services

   1.8   1.8

Energy Equipment & Services

   1.4   1.5

Construction & Engineering

   1.4   1.4

Computers & Peripherals

   1.2   1.2

Leisure Equipment & Products

   0.9   3.5

Food Products

   0.8   0.8

Total

   100.0%   100.0%

As of the dates indicated, the geographic composition of the Company’s portfolio at fair value was as follows:

 

Geographic    March 31, 2016   December 31, 2015

United States

   98.3%   98.2%

Germany

   1.4   1.4

Canada

   0.3   0.4

Total

   100.0%   100.0%

Senior Credit Fund, LLC

The Senior Credit Fund, an unconsolidated Delaware limited liability company, was formed on May 7, 2014 and commenced operations on October 1, 2014. Effective July 18, 2014, the Company agreed to a joint venture with Cal Regents through the Senior Credit Fund. The Senior Credit Fund’s principal purpose is to make investments, either directly or indirectly through its wholly owned subsidiary Senior Credit Fund SPV I, LLC (“SPV I”), primarily in senior secured loans to middle-market companies. Each of the Company and Cal Regents has a 50% economic ownership in the Senior Credit Fund and each has subscribed to fund $100,000. Except under certain circumstances, contributions to the Senior Credit Fund cannot be redeemed. The Senior Credit Fund is managed by a six member board of managers, on which the Company and Cal Regents have equal representation. Investment decisions generally must be unanimously approved by a quorum of the board of managers.

The Senior Credit Fund has entered into a revolving credit facility (the “Subscription Facility”) with Versailles Assets LLC, as lender, and Natixis, New York Branch (“Natixis”) as the facility agent. The Subscription Facility provides for borrowings in an aggregate amount up to $50,000 on a committed basis. The Senior Credit Fund’s obligations to Natixis and the lenders are secured by the unfunded subscriptions of the Company and Cal Regents, proceeds of such subscriptions and certain other assets. SPV I has entered

 

24


into a revolving credit facility (the “SPV I Revolving Credit Facility”) and term loan facility (the “SPV I Term Loan Facility” and, together with the SPV I Revolving Credit Facility, as amended, the “Asset Based Facility”) with various lenders. For the Asset Based Facility, Natixis serves as the facility agent, and State Street Bank and Trust Company serves as the collateral agent. The Asset Based Facility includes a maximum borrowing capacity of $400,000. The SPV I Revolving Credit Facility provides for borrowings in an aggregate amount up to $185,000 on a committed basis. As of March 31, 2016, the SPV I Term Loan Facility consisted of a $115,000 fully drawn term loan.

As of March 31, 2016 and December 31, 2015, the Company and Cal Regents had subscribed to fund and contributed the following to the Senior Credit Fund:

 

     March 31, 2016      December 31, 2015  
Member    Subscribed
to fund
     Contributed      Subscribed
to fund
     Contributed  

 

 

Company

   $ 100,000       $ 54,342       $ 100,000       $ 46,167   

Cal Regents

     100,000       $ 54,342         100,000         46,167   

 

 

Total

   $     200,000       $     108,684       $     200,000       $     92,334   

 

 

As of March 31, 2016 and December 31, 2015, the Senior Credit Fund had total investments in senior secured debt at fair value of $340,532 and $285,586, respectively. As of March 31, 2016 and December 31, 2015, the Senior Credit Fund had no investments on non-accrual status. In addition, as of March 31, 2016 and December 31, 2015, the Senior Credit Fund had an investment in a money market fund managed by an affiliate of Group Inc. with a total fair value of $3,066 and $21,830, respectively.

In October 2014, the Senior Credit Fund purchased seven investments at fair value, as prescribed under the valuation procedures in Note 2 “Significant Accounting Policies”, from the Company for an aggregate purchase price of approximately $97,640. In connection with the transaction, the Company recorded a realized gain of $2.

Below is a summary of the Senior Credit Fund’s portfolio, excluding an investment in a money market fund managed by an affiliate of Group Inc., followed by a listing of the individual loans in the Senior Credit Fund’s portfolio as of March 31, 2016 and December 31, 2015:

 

     As of  
     March 31, 2016      December 31, 2015  

Total senior secured debt (1)

   $                 347,680       $             291,512   

Weighted average current interest rate on senior secured debt (2)

     6.4%         6.3%   

Number of borrowers in the Senior Credit Fund

     26         22   

Largest loan to a single borrower (1)

   $ 23,775       $ 23,820   

(1) At par amount.

(2) Computed as the (a) annual stated interest rate on accruing senior secured debt, divided by (b) total senior secured debt at par amount.

Senior Credit Fund Portfolio as of March 31, 2016

 

 

Portfolio Company   Industry   Interest     Maturity     Par Amount     Cost     Fair Value  

 

 

1st Lien/Senior Secured Debt

           

Affordable Care Holding Corp.(++)

  Health Care Providers & Services     L + 4.75% (1.00% Floor)        10/22/2022      $ 4,988      $ 4,892      $ 4,906   

Aperture Group, LLC(++)

  Diversified Financial Services     L + 6.25% (1.00% Floor)        08/29/2019        17,810        17,624        17,588   

ATX Networks Corp.(++)

  Communications Equipment     L + 6.00% (1.00% Floor)        06/12/2021        14,888        14,753        14,664   

Cengage Learning Acquisitions, Inc.(+)

  Diversified Consumer Services     L + 6.00% (1.00% Floor)        03/31/2020        14,991        14,740        14,905   

ConvergeOne Holdings Corporation(++)(1) (2)

  Communications Equipment     L + 5.00% (1.00% Floor)        06/17/2020        15,927        15,835        15,290   

Crowne Group, LLC(++) (1)

  Auto Components     L + 5.00% (1.00% Floor)        09/30/2020        14,775        14,664        14,036   

DBRS Limited(++)

  Capital Markets     L + 5.25% (1.00% Floor)        03/04/2022        11,880        11,776        11,776   

DiscoverOrg, LLC(++) (3)

  Software     L + 4.50% (1.00% Floor)        06/02/2020        7,460        7,428        7,367   

Edgewood Partners Insurance Center(+)

  Insurance     L + 6.00% (1.00% Floor)        03/16/2023        16,000        15,680        15,840   

 

25


Portfolio Company   Industry   Interest     Maturity     Par Amount     Cost     Fair Value  

Epicor RSG US Inc.(++)

  Internet Software & Services     L + 5.25% (0.75% Floor)        06/23/2022        14,888        14,751        14,739   

eResearchTechnology, Inc.(++)

  Health Care Technology     L + 4.50% (1.00% Floor)        05/08/2022        14,888        14,822        14,860   

GK Holdings, Inc.(++)

  IT Services     L + 5.50% (1.00% Floor)        01/20/2021        17,775        17,678        17,597   

HC Group Holdings III, Inc.(++)

  Health Care Providers & Services     L + 5.00% (1.00% Floor)        04/07/2022        8,955        8,915        8,977   

Help/Systems, LLC(++)

  Software     L + 5.25% (1.00% Floor)        10/08/2021        15,960        15,362        15,621   

Imagine! Print Solutions, Inc.(2)

  Commercial Services & Supplies     L + 6.00% (1.00% Floor)        03/30/2022        4,000        3,940        4,000   

Jill Acquisition LLC(++) (2)

  Textiles, Apparel &
Luxury Goods
    L + 5.00% (1.00% Floor)        05/08/2022        15,925        15,808        15,129   

Lattice Semiconductor Corporation(+++)

  Semiconductors & Semiconductor Equipment     L + 4.25% (1.00% Floor)        03/10/2021        12,136        11,923        11,286   

Liquidnet Holdings, Inc.(++) (1) (2)

  Capital Markets     L + 6.75% (1.00% Floor)        05/22/2019        23,657        23,292        23,006   

Loar Group, Inc.(++)

  Aerospace & Defense     L + 4.75% (1.00% Floor)        01/12/2022        10,000        9,728        9,950   

MB Aerospace Holdings Inc.(++)

  Aerospace & Defense     L + 5.50% (1.00% Floor)        12/15/2022        12,469        12,347        12,282   

PGX Holdings, Inc.(+++) (1)

  Professional Services     L + 4.75% (1.00% Floor)        09/29/2020        14,282        14,198        14,187   

Research Now Group, Inc.(++) (2)

  Professional Services     L + 4.50% (1.00% Floor)        03/18/2021        9,665        9,531        9,423   

SkinnyPop Popcorn LLC(+) (1)

  Food Products     L + 4.50% (1.00% Floor)        07/17/2019        14,072        13,973        14,037   

Veresen Midstream Limited Partnership(++)

  Energy Equipment
& Services
    L + 4.25% (1.00% Floor)        03/31/2022        10,890        10,679        10,060   

Zep Inc.(++)

  Chemicals     L + 4.50% (1.00% Floor)        06/27/2022        5,459        5,434        5,445   
         

 

 

   

 

 

 

Total 1st Lien/Senior Secured Debt

            319,773        316,971   

1st Lien/First-Out Unitranche

           

Infogix, Inc.(++)

  Software     L + 5.00% (1.00% Floor)        12/31/2021        9,940        9,842        9,841   
         

 

 

   

 

 

 

Total 1st Lien/First-Out Unitranche

            9,842        9,841   

2nd Lien/Senior Secured Debt

           

DiscoverOrg, LLC(++) (3)

  Software     L + 9.00% (1.00% Floor)        02/10/2022        8,000        7,844        7,840   

GK Holdings, Inc.(++)

  IT Services     L + 9.50% (1.00% Floor)        01/20/2022        6,000        5,894        5,880   
         

 

 

   

 

 

 

Total 2nd Lien/Senior Secured Debt

            13,738        13,720   
         

 

 

   

 

 

 

Total Corporate Debt

            343,353        340,532   
         

 

 

   

 

 

 
        Yield           Shares     Cost     Fair Value  

 

 

Investments in Affiliated Money Market Fund

         

Goldman Sachs Financial Square Government Fund

    0.26%(4)          3,066,023      $ 3,066      $ 3,066   
         

 

 

   

 

 

 

Total Investments in Affiliated Money Market Fund

            3,066        3,066   
         

 

 

   

 

 

 

TOTAL INVESTMENTS

            $346,419        $343,598   
         

 

 

   

 

 

 

 

(+) 

The interest rate on these loans is subject to a base rate plus 1 month LIBOR, which as of March 31, 2016 was 0.44%. As the interest rate is subject to a minimum LIBOR floor which was greater than the 1 month LIBOR rate at March 31, 2016, the prevailing rate in effect as of March 31, 2016 was the base rate plus the LIBOR floor.

(++) 

The interest rate on these loans is subject to a base rate plus 3 month LIBOR, which as of March 31, 2016 was 0.63%. As the interest rate is subject to a minimum LIBOR floor which was greater than the 3 month LIBOR rate at March 31, 2016, the prevailing rate in effect as of March 31, 2016 was the base rate plus the LIBOR floor.

(+++) 

The interest rate on these loans is subject to a base rate plus 6 month LIBOR, which as of March 31, 2016 was 0.90%. As the interest rate is subject to a minimum LIBOR floor which was greater than the 6 month LIBOR rate at March 31, 2016, the prevailing rate in effect as of March 31, 2016 was the base rate plus the LIBOR floor.

(1) 

Initial investment was purchased at fair value from the Company in October 2014.

(2) 

Position or portion thereof unsettled as of March 31, 2016.

(3) 

The Company also holds a portion of the 2nd lien/senior secured debt in this portfolio company.

(4) 

The rate shown is the annualized seven-day yield as of March 31, 2016.

L - LIBOR

 

26


Senior Credit Fund Portfolio as of December 31, 2015

 

 

Portfolio Company    Industry    Interest     Maturity      Par Amount      Cost      Fair Value  

 

 

1st Lien/Senior Secured Debt

                

Affordable Care Holding Corp.(++)

   Health Care Providers
& Services
     L + 4.75% (1.00% Floor)       10/22/2022       $         5,000       $         4,901       $         4,900   

Aperture Group, LLC(++) (1)

   Diversified Financial
Services
     L + 6.25% (1.00% Floor)        08/29/2019         17,855         17,657         17,623   

ATX Networks Corp.(++)

   Communications
Equipment
     L + 6.00% (1.00% Floor)        06/12/2021         14,925         14,785         14,626   

Cengage Learning Acquisitions, Inc.(+) (1)

   Diversified Consumer
Services
     L + 6.00% (1.00% Floor)        03/31/2020         15,000         14,741         14,588   

ConvergeOne Holdings Corporation(++) (2)

   Communications
Equipment
     L + 5.00% (1.00% Floor)        06/17/2020         14,817         14,745         14,632   

Crowne Group, LLC(++) (2)

   Auto Components      L + 5.00% (1.00% Floor)        09/30/2020         14,813         14,695         14,294   

DBRS Limited(++)

   Capital Markets      L + 5.25% (1.00% Floor)        03/04/2022         11,910         11,802         11,821   

DiscoverOrg, LLC(+)

   Software      L + 4.50% (1.00% Floor)        06/02/2020         7,560         7,526         7,522   

Epicor RSG US Inc.(++)

   Internet Software &
Services
     L + 5.25% (0.75% Floor)        06/23/2022         14,925         14,784         14,776   

eResearchTechnology, Inc.(++)

   Health Care
Technology
     L + 4.50% (1.00% Floor)        05/08/2022         14,925         14,856         14,602   

GK Holdings, Inc.(++)

   IT Services      L + 5.50% (1.00% Floor)        01/20/2021         17,820         17,719         17,464   

HC Group Holdings III, Inc.(++)

   Health Care Providers
& Services
     L + 5.00% (1.00% Floor)        04/07/2022         8,978         8,936         8,910   

Help/Systems, LLC(++)

   Software      L + 5.25% (1.00% Floor)        10/08/2021         15,000         14,410         14,681   

Jill Acquisition LLC(++)

   Textiles, Apparel &
Luxury Goods
     L + 5.00% (1.00% Floor)        05/08/2022         14,963         14,893         14,588   

Lattice Semiconductor Corporation(+++)

   Semiconductors &
Semiconductor
Equipment
     L + 4.25% (1.00% Floor)        03/10/2021         12,166         11,944         11,315   

Liquidnet Holdings, Inc.(++) (2)

   Capital Markets      L + 6.75% (1.00% Floor)        05/22/2019         22,481         22,134         21,694   

MB Aerospace Holdings Inc.(1)

   Aerospace & Defense      L + 5.50% (1.00% Floor)        12/15/2022         12,500         12,375         12,375   

PGX Holdings, Inc.(+++) (2)

   Professional Services      L + 4.75% (1.00% Floor)        09/29/2020         14,263         14,158         14,109   

Research Now Group, Inc.(++)

   Professional Services      L + 4.50% (1.00% Floor)        03/18/2021         4,963         4,940         4,888   

SkinnyPop Popcorn LLC(++) (2)

   Food Products      L + 4.50% (1.00% Floor)        07/17/2019         14,257         14,147         14,221   

Veresen Midstream Limited Partnership(++)

   Energy Equipment &
Services
     L + 4.25% (1.00% Floor)        03/31/2022         10,918         10,698         10,699   

Zep Inc.(++)

   Chemicals      L + 4.75% (1.00% Floor)        06/27/2022         5,473         5,447         5,438   
             

 

 

    

 

 

 

Total 1st Lien/Senior Secured Debt

                282,293         279,766   

2nd Lien/Senior Secured Debt

                

GK Holdings, Inc.(++)

   IT Services      L + 9.50% (1.00% Floor)        01/20/2022         6,000         5,891         5,820   
             

 

 

    

 

 

 

Total 2nd Lien/Senior Secured Debt

                5,891         5,820   
             

 

 

    

 

 

 

Total Corporate Debt

                288,184         285,586   
             

 

 

    

 

 

 
          Yield            Shares      Cost      Fair Value  

 

 

Investments in Affiliated Money Market Fund

                

Goldman Sachs Financial Square Government Fund

        0.19%(3)           21,829,831       $ 21,830       $ 21,830   
             

 

 

    

 

 

 

Total Investments in Affiliated Money Market Fund

             21,830         21,830   
             

 

 

    

 

 

 

TOTAL INVESTMENTS

           $ 310,014       $ 307,416   
             

 

 

    

 

 

 

 

(+) 

The interest rate on these loans is subject to a base rate plus 1 month LIBOR, which as of December 31, 2015 was 0.43%. As the interest rate is subject to a minimum LIBOR floor which was greater than the 1 month LIBOR rate at December 31, 2015, the prevailing rate in effect as of December 31, 2015 was the base rate plus the LIBOR floor.

(++) 

The interest rate on these loans is subject to a base rate plus 3 month LIBOR, which as of December 31, 2015 was 0.61%. As the interest rate is subject to a minimum LIBOR floor which was greater than the 3 month LIBOR rate at December 31, 2015, the prevailing rate in effect as of December 31, 2015 was the base rate plus the LIBOR floor.

(+++) 

The interest rate on these loans is subject to a base rate plus 6 month LIBOR, which as of December 31, 2015 was 0.85%. As the interest rate is subject to a minimum LIBOR floor which was greater than the 6 month LIBOR rate at December 31, 2015, the prevailing rate in effect as of December 31, 2015 was the base rate plus the LIBOR floor.

(1) 

Position or portion thereof unsettled as of December 31, 2015.

(2)  Initial investment was purchased at fair value from the Company in October 2014.  
(3)  The rate shown is the annualized seven-day yield as of December 31, 2015.
L - LIBOR

 

27


Below is selected balance sheet information for the Senior Credit Fund as of March 31, 2016 and December 31, 2015:

 

     As of  
       March 31,
2016  
       December 31,
  2015
 

Selected Balance Sheet Information

     

Total investments, at fair value

   $             343,598       $             307,416   

Cash and other assets

     8,180         7,579   

 

 

Total assets

   $ 351,778       $ 314,995   

 

 

Debt (1)

   $ 232,245       $ 184,983   

Other liabilities

     13,591         40,218   

 

 

Total liabilities

   $ 245,836       $ 225,201   

 

 

Members’ equity

     105,942         89,794   

 

 

Total liabilities and members’ equity

   $ 351,778       $ 314,995   

 

 
(1)  Net of deferred financing costs for the SPV I Term Loan Facility as of March 31, 2016 and December 31, 2015 were in the amount of $958 and $567, respectively.

Below is selected statements of operations information for the Senior Credit Fund for the three months ended March 31, 2016 and 2015:

 

     For the Three Months Ended  
       March 31, 2016       March 31, 2015  

Selected Statements of Operations Information:

    

Total investment income

   $             5,000      $             2,352   

Expenses

    

Interest and credit facility expense

     2,105        1,015   

Excess loan origination and structuring fees

     126        -   

Professional fees

     107        75   

Administration and custodian fees

     79        72   

Other expenses

     12        29   

 

 

Total expenses

     2,429        1,191   

 

 

Total net income

     2,571        1,161   

Net realized gain (loss) on investments

     -        -   

Net change in unrealized appreciation (depreciation) on investments

     (223     1,351   

 

 

Net increase (decrease) in members’ equity

   $ 2,348      $ 2,512   

 

 

Loan Origination and Structuring Fees

If the loan origination and structuring fees earned by the Senior Credit Fund (including directly or indirectly through SPV I or another vehicle) during a period exceed the Senior Credit Fund’s expenses (excluding interest and credit facility expenses), such excess is paid as a fee to the Member(s) responsible for the origination of the loans pro rata in accordance with the total loan origination and structuring fees earned by the Senior Credit Fund with respect to the loans originated by such Member. The loan origination and structuring fee is accrued quarterly and payable annually. For the three months ended March 31, 2016, the Company accrued income of $107 based on loan origination and structuring fees payable from the Senior Credit Fund to the Company, which is included in other income from controlled affiliated investments on the Consolidated Statements of Operations. There was no such income for the three months ended March 31, 2015.

5.         FAIR VALUE MEASUREMENT

The fair value of a financial instrument is the amount that would be received to sell an asset or would be paid to transfer a liability in an orderly transaction between market participants at the measurement date (i.e., the exit price).

The fair value hierarchy under ASC 820 prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The levels used for classifying investments are not necessarily an indication of the risk associated with investing in these securities. The three levels of the fair value hierarchy are as follows:

 

28


Basis of Fair Value Measurement

Level 1 - Inputs to the valuation methodology are quoted prices available in active markets for identical instruments as of the reporting date. The types of financial instruments included in Level 1 include unrestricted securities, including equities and derivatives, listed in active markets.

Level 2 - Inputs to the valuation methodology are other than quoted prices in active markets, which are either directly or indirectly observable as of the reporting date. The types of financial instruments in this category include less liquid and restricted securities listed in active markets, securities traded in other than active markets, government and agency securities and certain over-the-counter derivatives where the fair value is based on observable inputs.

Level 3 - Inputs to the valuation methodology are unobservable and significant to overall fair value measurement. The inputs into the determination of fair value require significant management judgment or estimation. Financial instruments that are included in this category include investments in privately held entities and certain over-the-counter derivatives where the fair value is based on unobservable inputs.

A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Note 2 “Significant Accounting Policies” should be read in conjunction with the information outlined below.

The table below presents the valuation techniques and the nature of significant inputs generally used in determining the fair value of Level 2 Instruments.

 

Level 2 Instruments    Valuation Techniques and Significant Inputs

 

Equity and Fixed

    Income

  

The types of instruments that trade in markets that are not considered to be active but are valued based on quoted market prices, broker or dealer quotations or alternative pricing sources with reasonable levels of price transparency include commercial paper, most government agency obligations, most corporate debt securities, certain mortgage-backed securities, certain bank loans, less liquid publicly listed equities, certain state and municipal obligations, certain money market instruments and certain loan commitments.

 

Valuations of Level 2 Equity and Fixed Income instruments can be verified to quoted prices, broker or dealer quotations or alternative pricing sources with reasonable levels of price transparency. Consideration is given to the nature of the quotations (e.g. indicative or firm) and the relationship of recent market activity to the prices provided from alternative pricing sources.

 

 

The table below presents the valuation techniques and the nature of significant inputs generally used in determining the fair values of Level 3 Instruments.

 

Level 3 Instruments    Valuation Techniques and Significant Inputs

 

Bank Loans, Corporate Debt, and Other Debt Obligations   

Valuations are generally based on discounted cash flow techniques, for which the significant inputs are the amount and timing of expected future cash flows, market yields and recovery assumptions. The significant inputs are generally determined based on relative value analyses, which incorporate comparisons both to credit default swaps that reference the same underlying credit risk and to other debt instruments for the same issuer for which observable prices or broker quotes are available. Other valuation methodologies are used as appropriate including market comparables, transactions in similar instruments and recovery/liquidation analysis.

 

Equity

  

Recent third-party investments or pending transactions are considered to be the best evidence for any change in fair value. When these are not available, the following valuation methodologies are used, as appropriate and available:

•    Transactions in similar instruments;

•    Discounted cash flow techniques;

•    Third party appraisals; and

•    Industry multiples and public comparables.

Evidence includes recent or pending reorganizations (for example, merger proposals, tender offers and debt restructurings) and significant changes in financial metrics, including:

•    Current financial performance as compared to projected performance;

•    Capitalization rates and multiples; and

•    Market yields implied by transactions of similar or related assets.

 

 

29


The tables below present the ranges of significant unobservable inputs used to value the Company’s Level 3 assets and liabilities as of March 31, 2016 and December 31, 2015. These ranges represent the significant unobservable inputs that were used in the valuation of each type of instrument, but they do not represent a range of values for any one instrument. For example, the lowest yield in 1st Lien/Senior Secured is appropriate for valuing that specific debt investment, but may not be appropriate for valuing any other debt investments in this asset class. Accordingly, the ranges of inputs presented below do not represent uncertainty in, or possible ranges of, fair value measurements of the Company’s Level 3 assets and liabilities.

 

Level 3 Instruments   

Level 3 Assets as of

March 31, 20161

  

Significant Unobservable

Inputs by Valuation

Techniques2

  

Rangeof Significant Unobservable

Inputs (Weighted Average4)

as of

March 31, 2016

Bank Loans, Corporate Debt, and Other Debt Obligations

  

1st Lien/Senior Secured Debt  

$360,003

  

Discounted cash flows:  

• Discount Rate

  

 

8.4% - 13.2% (10.6%)

  

1st Lien/Last-Out Unitranche

$303,703

  

Discounted cash flows:

• Discount Rate

  

 

10.0% - 13.9% (11.7%)

    

2nd Lien/Senior Secured Debt

$160,903

  

Discounted cash flows:

• Discount Rate

Comparable multiples:

• EV/EBITDA5

  

 

2.1% - 13.6% (11.0%)

 

4.0x - 15.5x  (7.0x)

Equity

  

Preferred Stock

$24,581

  

Discounted cash flows:

• Discount Rate

Comparable multiples:

• EV/EBITDA5

• EV/Production6

  

 

10.0% - 12.0% (11.8%)

 

5.1x - 9.6x (6.3x)

$17 - $49 ($25)

 

  1 

Included within Level 3 Assets of $927,440 is an amount of $78,250 for which the Investment Adviser did not develop the unobservable inputs (examples include single source broker quotations, third party pricing, and prior transactions).

  2 

The fair value of any one instrument may be determined using multiple valuation techniques. For example, market comparable and discounted cash flows may be used together to determine fair value. Therefore, the Level 3 balance encompasses both of these techniques.

  3 

The range for an asset category consisting of a single investment represents the relevant market data considered in determining the fair value of the investment.

  4 

Weighted average for an asset category consisting of multiple investments is calculated by weighting the significant unobservable input by the relative fair value of the investment. Weighted average for an asset category consisting of a single investment represents the significant unobservable input used in the fair value of the investment.

  5 

Enterprise value of portfolio company as a multiple of earnings before interest, taxes, depreciation and amortization.

  6 

Enterprise value of portfolio company as a multiple of oil and gas production (barrels of oil equivalent per day).

 

30


Level 3 Instruments   

Level 3 Assets as of

December 31, 20151

  

Significant Unobservable

Inputs by Valuation

Techniques2

  

Rangeof Significant Unobservable

Inputs (Weighted Average4)
as of

December 31, 2015

Bank Loans, Corporate Debt,

and Other Debt Obligations

  

1st Lien/Senior Secured Debt

$362,331

  

Discounted cash flows:  

• Discount Rate

   8.4% - 13.5% (10.9%)
    

1st Lien/Last-Out Unitranche

$305,727

  

Discounted cash flows:

• Discount Rate

   10.5% - 12.7% (11.8%)
    

2nd Lien/Senior Secured Debt

$199,821

  

Discounted cash flows:

• Discount Rate

   2.1% - 14% (11.6%)

Equity

  

Preferred Stock

$24,872

  

Discounted cash flows:

• Discount Rate

Comparable multiples:

• EV/EBITDA5

• EV/Production6

  

 

10% - 12% (11.8%)

 

3.8x - 7.1x (4.9x)

$13 - $40 ($27)

 

1 

Included within Level 3 Assets of $950,631 is an amount of $57,880 for which the Investment Adviser did not develop the unobservable inputs (examples include single source broker quotations, third party pricing, and prior transactions).

2 

The fair value of any one instrument may be determined using multiple valuation techniques. For example, market comparable and discounted cash flows may be used together to determine fair value. Therefore, the Level 3 balance encompasses both of these techniques.

3 

The range for an asset category consisting of a single investment represents the relevant market data considered in determining the fair value of the investment.

4 

Weighted average for an asset category consisting of multiple investments is calculated by weighting the significant unobservable input by the relative fair value of the investments. Weighted average for an asset category consisting of a single investment represents the significant unobservable input used in the fair value of the investment.

5 

Enterprise value of portfolio company as a multiple of earnings before interest, taxes, depreciation and amortization.

6 

Enterprise value of portfolio company as a multiple of oil and gas production (barrels of oil equivalent per day).

As noted above, the income and market approaches were used in the determination of fair value of certain Level 3 assets as of March 31, 2016 and December 31, 2015. The significant unobservable inputs used in the income approach are the discount rate or market yield used to discount the estimated future cash flows expected to be received from the underlying investment, which include both future principal and interest payments. An increase in the discount rate or market yield would result in a decrease in the fair value. Included in the consideration and selection of discount rates is risk of default, rating of the investment, call provisions and comparable company investments. The significant unobservable inputs used in the market approach are based on market comparable transactions and market multiples of publicly traded comparable companies. Increases or decreases in market multiples would result in an increase or decrease, respectively, in the fair value.

The following is a summary of the Company’s assets categorized within the fair value hierarchy as of March 31, 2016:

 

Assets    Level 1      Level 2      Level 3      Total  

 

 

1st Lien/Senior Secured Debt

   $       $ 53,628       $ 360,003       $ 413,631     

1st Lien/Last-Out Unitranche

                     303,703         303,703     

2nd Lien/Senior Secured Debt

             52,634         239,153         291,787     

Preferred Stock

                     24,581         24,581     

Common Stock

                     —           —     

Affiliated Money Market Fund

     13,445                 —           13,445     

 

 

Subtotal

   $         13,445       $         106,262       $         927,440       $         1,047,147     

 

 

Investments measured at NAV1

              52,971     

 

 

Total

            $ 1,100,118     

 

 
1  Includes equity investments in the Senior Credit Fund.

 

31


The following is a summary of the Company’s assets categorized within the fair value hierarchy as of December 31, 2015:

 

Assets    Level 1      Level 2      Level 3      Total  

 

 

1st Lien/Senior Secured Debt

   $       $ 57,767       $ 362,331       $ 420,098     

1st Lien/Last-Out Unitranche

                     305,727         305,727     

2nd Lien/Senior Secured Debt

             27,769         257,701         285,470     

Preferred Stock

                     24,872         24,872     

Common Stock

                             –     

Affiliated Money Market Fund

     10,117                         10,117     

 

 

Subtotal

   $         10,117       $         85,536       $         950,631       $         1,046,284     

 

 

Investments measured at NAV1

              44,897     

 

 

Total

            $ 1,091,181     

 

 
1  Includes equity investments in the Senior Credit Fund.

The following is a reconciliation of Level 3 assets for the three months ended March 31, 2016:

 

Level 3    Beginning
Balance
as of
January 1,
2016
     Purchases(1)      Net
realized
gain
(loss)
     Net change in
unrealized
appreciation
(depreciation)(2)
    Sales and
Settlements(1)
   

Net
Amortization
of Premium/

Discount

     Transfers
In
     Transfers
Out
    Ending
Balance
as of
March 31,
2016
 

 

 

1st Lien/Senior Secured Debt

   $ 362,331       $       $       $ (366   $ (2,311   $ 349       $       $      $ 360,003   

1st Lien/Last-Out Unitranche

     305,727         3,511                 (2,678     (3,207     350                        303,703   

2nd Lien/Senior Secured Debt

     257,701         38,710                 (15,975     (25,070     587                 (16,800     239,153   

Preferred Stock

     24,872         104                 (395                                   24,581   

Common Stock

                                                                    

 

 

Total assets

   $ 950,631       $ 42,325       $       $ (19,414   $ (30,588   $ 1,286       $       $ (16,800   $ 927,440   

 

 

 

(1) Purchases may include securities received in corporate actions and PIK. Sales and Settlements may include securities delivered in corporate actions.
(2) 

Change in unrealized appreciation (depreciation) relating to assets still held at March 31, 2016 totaled $(19,010), consisting of the following: 1st Lien/Senior Secured Debt $(366), 1st Lien/Last-Out Unitranche $(2,678), 2nd Lien/Senior Secured Debt $(15,571), Preferred Stock $(395), and Common Stock $0.

The following is a reconciliation of Level 3 assets for the three months ended March 31, 2015:

 

Level 3    Beginning
Balance
as of
January 1,
2015
     Purchases(1)      Net
realized
gain
(loss)
     Net change in
unrealized
appreciation
(depreciation)(2)
    Sales and
Settlements(1)
   

Net
Amortization
of Premium/

Discount

     Transfers
In
     Transfers
Out
    Ending
Balance
as of
March 31,
2015
 

 

 

1st Lien/Senior Secured Debt

   $ 176,931       $ 500       $       $ (205   $ (839   $ 202       $       $      $ 176,589   

1st Lien/Last-Out Unitranche

     275,567                         80        (220     255                        275,682   

2nd Lien/Senior Secured Debt

     304,541         4,900                 (249     (11,440     193                 (34,191     263,754   

Preferred Stock

     26,358         102                 (968                                   25,492   

Common Stock

     632                         (447                                   185   

 

 

Total assets

   $ 784,029       $ 5,502       $       $ (1,789   $ (12,499   $ 650       $       $ (34,191   $ 741,702   

 

 

 

(1)

Purchases may include securities received in corporate actions and PIK. Sales and Settlements may include securities delivered in corporate actions.

(2) 

Change in unrealized appreciation (depreciation) relating to assets still held at March 31, 2015 totaled $(1,789), consisting of the following: 1st Lien/Senior Secured Debt $(205), 1st Lien/Last-Out Unitranche $80, 2nd Lien/Senior Secured Debt $(249), Preferred Stock $(968), and Common Stock $(447).

 

32


Transfers between levels of the fair value hierarchy are reported at the beginning of the reporting period in which they occur. For the three months ended March 31, 2016 and 2015, transfers from Level 3 to Level 2 were due to increased price transparency.

Debt

The fair value of the Company’s debt, which is categorized as Level 3 within the fair value hierarchy as of March 31, 2016 and December 31, 2015, approximates its carrying value.

6.        DEBT

In accordance with the Investment Company Act, with certain exceptions, the Company is only allowed to borrow amounts such that its asset coverage ratio, as defined in the Investment Company Act, is at least 2 to 1 after such borrowing. As of March 31, 2016 and December 31, 2015, the Company’s outstanding borrowings were $428,050 and $419,000, respectively, and the Company’s asset coverage ratio was 2.58 to 1 and 2.64 to 1, respectively.

Revolving Credit Facility

On September 19, 2013, the Company entered into a revolving credit facility (as amended, the “Revolving Credit Facility”) with various lenders. SunTrust Bank serves as administrative agent and Bank of America N.A. serves as syndication agent under the Revolving Credit Facility.

On October 3, 2014, the Company amended and restated the Revolving Credit Facility to, among other things:

 

   

increase the aggregate borrowing amount of $340,000 to $485,000 on a committed basis;

 

   

increase the total borrowing capacity from a maximum of $500,000 to $900,000;

 

   

extend the maturity date from September 19, 2017 to October 3, 2019; and

 

   

reduce the applicable margin of borrowings with respect to (i) any loan bearing interest at a rate determined by reference to the alternate base rate from 1.50% to 1.25% and (ii) any loan bearing interest at a rate determined by reference to the adjusted LIBOR rate from 2.50% to 2.25%.

On January 16, 2015, the Company exercised the right under the accordion feature and increased the size of the Revolving Credit Facility to $535,000, on a committed basis.

On March 27, 2015, the Company exercised the right under the accordion feature and increased the size of the Revolving Credit Facility to $560,000, on a committed basis.

On November 3, 2015, the Company further amended the Revolving Credit Facility to, among other things:

 

   

increase the aggregate borrowing amount to $570,000 on a committed basis;

 

   

increase the total borrowing capacity to a maximum of $1,000,000;

 

   

extend the final maturity date to November 4, 2020; and

 

   

reduce the applicable margin of borrowings with respect to (i) any loan bearing interest at a rate determined by reference to the alternate base rate from 1.25% to 0.75% or 1.00%, subject to borrowing base conditions, and (ii) any loan bearing interest at a rate determined by reference to the adjusted LIBOR rate from 2.25% to 1.75% or 2.00%, subject to borrowing base conditions.

Borrowings under the Revolving Credit Facility, including amounts drawn in respect of letters of credit, bear interest (at the Company’s election) of either LIBOR plus an applicable margin or an applicable margin plus the higher of the Prime Rate, Federal Funds Rate plus 0.5% or overnight LIBOR plus 1.0%. Interest is payable quarterly in arrears. The Company pays a fee of 0.375% per annum on committed but undrawn amounts under the Revolving Credit Facility, payable quarterly in arrears. Any amounts borrowed under the Revolving Credit Facility will mature, and all accrued and unpaid interest will be due and payable, on November 4, 2020.

 

33


The Company’s obligations to the lenders under the Revolving Credit Facility are secured by a first priority security interest in substantially the Company’s entire portfolio of investments and cash. The Revolving Credit Facility contains certain covenants, including: (i) maintaining a minimum stockholder’s equity of $458,090, subject to increase pending certain equity sales, (ii) maintaining an asset coverage ratio of at least 2 to 1, (iii) maintaining a minimum liquidity test of at least 10% of the covered debt amount during any period when the adjusted covered debt balance is greater than 90% of the adjusted borrowing base, as defined in the Revolving Credit Facility, and (iv) complying with restrictions on industry concentrations in the Company’s investment portfolio. As of March 31, 2016, the Company was in compliance with these covenants.

Costs of $8,247 were incurred in connection with obtaining and amending the Revolving Credit Facility, which have been recorded as deferred financing costs on the Consolidated Statements of Assets and Liabilities and are being amortized over the life of the Revolving Credit Facility using the straight-line method.

The summary information of the Revolving Credit Facility for the three months ended March 31, 2016 and 2015 were as follows:

 

     Three Months
Ended
March 31, 2016
     Three Months
Ended
March 31, 2015
 

 

 

Borrowing Interest Expense

   $ 2,587       $ 2,016   

Facility fees

     146         189   

Amortization of financing costs

     302         281   

 

 

Total

   $ 3,035       $ 2,486   

 

 

Weighted average interest rate

     2.47%         2.46%   

Average outstanding balance

   $ 421,946       $ 332,511   

 

 

7.        COMMITMENTS AND CONTINGENCIES

Commitments

The Company may enter into commitments to fund investments. The Company had the following unfunded commitments by investment types through the dates indicated:

 

     March 31, 2016     December 31, 2015  
     Commitment
Expiration
Date (1)
     Unfunded
Commitment(2)
     Fair
Value(3)
    Commitment
Expiration
Date (1)
     Unfunded
Commitment(2)
    

Fair

Value(3)

 

 

 

1st Lien/Senior Secured Debt

                

Legacy Buyer Corp.

     10/24/2019       $ 2,500       $ (31     10/24/2019       $ 2,500       $ (31

 

 

Total 1st Lien/Senior Secured Debt

              2,500         (31              2,500         (31

1st Lien/Last-Out Unitranche

                

Associations, Inc.

     -         -         -        12/22/2018         3,511         (61

 

 

Total 1st Lien/Last-Out Unitranche

              -         -                 3,511         (61

Total

            $ 2,500       $ (31            $ 6,011       $ (92

 

(1) 

Commitments are generally subject to borrowers meeting certain criteria such as compliance with covenants and certain operational metrics. These amounts may remain outstanding until the commitment period of an applicable loan expires, which may be shorter than its maturity.

(2) 

Net of capitalized fees, expenses, and original issue discounts.

(3) 

A negative fair value was reflected as investments, at fair value in the Consolidated Statements of Assets and Liabilities. The negative fair value is the result of the capitalized discount on the loan.

Contingencies

In the normal course of business, the Company enters into contracts that provide a variety of general indemnifications. Any exposure to the Company under these arrangements could involve future claims that may be made against the Company. Currently, no such claims exist or are expected to arise and, accordingly, the Company has not accrued any liability in connection with such indemnifications.

 

34


8.         NET ASSETS

Equity Issuances

On March 23, 2015, the Company completed its IPO, issuing 6,000,000 shares at $20.00 per share. Net of offering and underwriting costs, the Company received cash proceeds of $114,568.

In April 2015, the Company issued a total of 900,000 shares of its common stock pursuant to the exercise of the underwriters’ over-allotment option in connection with the IPO. Net of underwriting costs, the Company received additional cash proceeds of $17,271.

Distributions

The following table reflects the distributions declared on shares of the Company’s common stock for the three months ended March 31, 2016:

 

Date Declared    Record Date    Payment Date        Amount Per Share    

 

February 25, 2016

   March 31, 2016    April 15, 2016    $0.45

The following table reflects the distributions declared on shares of the Company’s common stock for the three months ended March 31, 2015:

 

Date Declared    Record Date    Payment Date    Amount Per Share

 

February 25, 2015

   March 31, 2015    April 30, 2015    $0.45

Dividend Reinvestment Plan

Concurrent with the IPO, the Company adopted a dividend reinvestment plan that provides for reinvestment of all cash distributions declared by the Board of Directors, unless a stockholder elects to “opt out” of the plan. As a result, if the Board of Directors declares a cash distribution, then the stockholders who have not “opted out” of the dividend reinvestment plan will have their cash distributions automatically reinvested in additional shares of common stock, rather than receiving the cash distribution. The following table summarizes shares distributed pursuant to the dividend reinvestment plan during the three months ended March 31, 2016 to stockholders who had not opted out of the dividend reinvestment plan.

 

Date Declared    Record Date    Payment Date    Shares

 

November 3, 2015

   December 31, 2015    January 28, 2016    8,206

For the three months ended March 31, 2015, no shares were distributed pursuant to the dividend reinvestment plan.

9.     EARNINGS PER SHARE

The following information sets forth the computation of basic and diluted earnings per share for the three months ended March 31, 2016 and 2015.

 

      Three Months
Ended
March 31, 2016
     Three Months
Ended
March 31, 2015
 
Numerator for basic and diluted earnings per share - increase in net assets resulting from operations    $ 5,401       $ 14,033   
Denominator for basic and diluted earnings per share - weighted average shares outstanding      36,306,881         30,314,460   

Basic and diluted earnings per share

   $ 0.15       $ 0.46   

Diluted earnings per share equals basic earnings per share because there were no common stock equivalents outstanding during the periods presented.

 

35


10.     FINANCIAL HIGHLIGHTS

Below is the schedule of financial highlights of the Company for the three months ended March 31, 2016 and 2015:

 

     For the Three Months
Ended

March 31, 2016
     For the Three Months
Ended

March 31, 2015
 

Per Share Data:(1)

  

Net asset value, beginning of period

   $ 18.97       $ 19.56   

Net investment income (loss)

     0.58         0.52   

Net realized and unrealized gains (losses)

     (0.43)         (0.12)   
  

 

 

    

 

 

 

Net increase (decrease) in net assets resulting from operations

     0.15         0.40   
  

 

 

    

 

 

 

Cost of issuance of common stock, net of underwriting and offering costs

             (0.08)   

Distributions declared from net investment income(2)

     (0.45)         (0.45)   
  

 

 

    

 

 

 

Total increase (decrease) in net assets

     (0.30)         (0.13)   
  

 

 

    

 

 

 

Net asset value, end of period

   $ 18.67       $ 19.43   
  

 

 

    

 

 

 

Market price, end of period

   $ 19.60       $ 20.66   

Shares outstanding, end of period

     36,306,880         35,381,127   

Total return based on net asset value(3)

     0.75%         1.59%   

Total return based on market value(4)

     5.60%         5.65%   

Ratio/Supplemental Data (all amounts in thousands except ratios):

     

Net assets, end of period

   $ 677,713       $ 687,559   

Ratio of expenses (without incentive fees and interest and credit facility expenses) to average net assets(5)

     3.21%         2.96%   

Ratio of interest and credit facility expenses to average net assets(6)

     1.79%         1.70%   

Ratio of incentive fees to average net assets(6)

     0.83%         2.41%   

Ratio of total expenses to average net assets(5)

     5.83%         7.07%   

Ratio of net investment income to average net assets(5)

     12.58%         11.01%   

Portfolio turnover

     3%         1%   

 

(1) 

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

(2) 

The per share data for distributions declared reflects the actual amount of distributions declared per share for the applicable period.

(3) 

Total return based on net asset value is calculated as the change in net asset value per share during the respective periods, assuming dividends and distributions, if any, are reinvested in accordance with the Company’s dividend reinvestment plan.

(4) 

Total return based on market value is calculated as the change in market value per share during the respective periods, assuming dividends and distributions, if any, are reinvested in accordance with the Company’s dividend reinvestment plan. The beginning market value per share for the three months ended March 31, 2015 is based on the initial public offering price of $20.00 per share on March 17, 2015.

(5) 

Annualized except for certain operating expenses.

(6) 

Annualized.

11.     SUBSEQUENT EVENTS

Subsequent events after the Consolidated Statements of Assets and Liabilities date have been evaluated through the date the unaudited consolidated financial statements were available to be issued. Other than the items discussed below, the Company has concluded that there is no impact requiring adjustment or disclosure in the consolidated financial statements.

In April 2016, the Company and Cal Regents each contributed $4,140 to the Senior Credit Fund, a controlled affiliated investment.

Effective May 2, 2016, the Company entered into a transfer agency and services agreement pursuant to which Computershare Trust Company, N.A. serves as the Company’s transfer agent and registrar. In connection with the Company’s entry into the agreement, the Company amended and restated the dividend reinvestment plan to reflect Computershare Trust Company, N.A. as the administrator of the dividend reinvestment plan.

On May 3, 2016, the Company’s Board of Directors declared a quarterly distribution of $0.45 per share payable on or about July 15, 2016 to holders of record as of June 30, 2016.

 

36


ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and other parts of this report contain forward-looking information that involves risks and uncertainties. The discussion and analysis contained in this section refers to our financial condition, results of operations and cash flows. The information contained in this section should be read in conjunction with the consolidated financial statements and notes thereto appearing elsewhere in this report. Please see “Cautionary Statement Regarding Forward-Looking Statements” for a discussion of the uncertainties, risks and assumptions associated with this discussion and analysis. Our actual results could differ materially from those anticipated by such forward-looking information due to factors discussed under “Cautionary Statement Regarding Forward-Looking Statements” appearing elsewhere in this report.

OVERVIEW

We are a specialty finance company focused on lending to middle-market companies. We are a closed-end management investment company that has elected to be regulated as a business development company (“BDC”) under the Investment Company Act of 1940, as amended (the “Investment Company Act”). In addition, we have elected to be treated as a regulated investment company (“RIC”) under Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”), commencing with our taxable year ended December 31, 2013. From our formation in 2012 through March 31, 2016, we originated more than $1.60 billion in aggregate principal amount of debt and equity investments prior to any subsequent exits and repayments. We seek to generate current income and, to a lesser extent, capital appreciation primarily through direct originations of secured debt, including first lien, unitranche and second lien debt, and unsecured debt, including mezzanine debt, as well as through select equity investments.

We invest primarily in U.S. middle-market companies, which we believe are underserved by traditional providers of capital such as banks and the public debt markets. In this report, we generally use the term “middle market companies” to refer to companies with earnings before interest, taxes, depreciation and amortization (“EBITDA”) of between $5 million and $75 million annually. However, we may from time to time invest in larger or smaller companies. We generate revenues primarily through receipt of interest income from the investments we hold. In addition, we generate income from various loan origination and other fees, dividends on direct equity investments and capital gains on the sales of investments. The companies in which we invest use our capital for a variety of purposes, including to support organic growth, fund acquisitions, make capital investments or to refinance indebtedness.

Our origination strategy focuses on leading the negotiation and structuring of the loans or securities in which we invest and holding the investments in our portfolio to maturity. In many cases, we are the sole investor in the loan or security in our portfolio. Where there are multiple investors, we generally seek to control or obtain significant influence over the rights of investors in the loan or security. We generally seek to make investments that have maturities between three and ten years and range in size between $10 million and $75 million, although we may make larger or smaller investments on occasion. In addition, part of our strategy involves a joint venture with the Regents of the University of California (“Cal Regents”) through the Senior Credit Fund, LLC (the “Senior Credit Fund”). The Senior Credit Fund’s principal purpose is to make investments, either directly or indirectly through its wholly owned subsidiary, Senior Credit Fund SPV I, LLC (“SPV I”), primarily in senior secured loans to middle-market companies.

KEY COMPONENTS OF OPERATIONS

Investments

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

As a BDC, we may not acquire any assets other than “qualifying assets” specified in the Investment Company Act, unless, at the time the acquisition is made, at least 70% of our total assets are qualifying assets (with certain limited exceptions). Qualifying assets include investments in “eligible portfolio companies.” Pursuant to rules adopted by the Securities and Exchange Commission (the “SEC”), “eligible portfolio companies” include certain companies that do not have any securities listed on a national securities exchange and public companies whose securities are listed on a national securities exchange but whose market capitalization is less than $250 million.

 

37


Revenues

We generate revenue in the form of interest income on debt investments and, to a lesser extent, capital gains and distributions, if any, on equity securities that we may acquire in portfolio companies. Some of our investments may provide for deferred interest payments or payment-in-kind (“PIK”) interest. The principal amount of the debt investments and any accrued but unpaid interest generally becomes due at the maturity date.

In addition, we may generate revenue in the form of commitment, origination, structuring or diligence fees, fees for providing managerial assistance and consulting fees. Loan origination fees, original issue discount and market discount or premium are capitalized, and we accrete or amortize such amounts into income over the life of the loan. We record contractual prepayment premiums on loans and debt securities as interest income.

Dividend income on preferred equity investments is recorded on an accrual basis to the extent that such amounts are payable by the portfolio company and are expected to be collected. Dividend income on common equity investments is recorded on the record date for private portfolio companies and on the ex-dividend date for publicly traded portfolio companies. Interest and dividend income are presented net of withholding tax, if any.

Expenses

Our primary operating expenses include the payment of the Management Fee and the Incentive Fee to our investment adviser, legal and professional fees, interest and credit facility expenses and other operating and overhead related expenses. The Management Fee and Incentive Fee compensate our investment adviser for its work in identifying, evaluating, negotiating, closing and monitoring our investments. We bear all other costs and expenses of our operations and transactions in accordance with our Investment Management Agreement and Administration Agreement, including those relating to:

 

   

our operational and organizational expenses;

 

   

fees and expenses, including travel expenses, incurred by our investment adviser or payable to third parties related to our investments, including, among others, professional fees (including the fees and expenses of consultants and experts) and fees and expenses from evaluating, monitoring, researching and performing due diligence on investments and prospective investments;

 

   

interest payable on debt, if any, incurred to finance our investments;

 

   

fees and expenses incurred by us in connection with membership in investment company organizations;

 

   

brokers’ commissions;

 

   

fees and expenses associated with calculating our net asset value (“NAV”) (including the costs and expenses of any independent valuation firm);

 

   

legal, auditing or accounting expenses;

 

   

taxes or governmental fees;

 

   

the fees and expenses of our administrator, transfer agent or sub-transfer agent;

 

   

the cost of preparing stock certificates or any other expenses, including clerical expenses of issue, redemption or repurchase of our shares;

 

   

the fees and expenses of our directors who are not affiliated with our investment adviser;

 

   

the cost of preparing and distributing reports, proxy statements and notices to our stockholders, the SEC and other regulatory authorities;

 

   

costs of holding stockholder meetings;

 

   

listing fees;

 

   

the fees or disbursements of custodians of our assets, including expenses incurred in the performance of any obligations enumerated by our certificate of incorporation or bylaws insofar as they govern agreements with any such custodian;

 

   

insurance premiums; and

 

   

costs incurred in connection with any claim, litigation, arbitration, mediation, government investigation or dispute in connection with our business and the amount of any judgment or settlement paid in connection therewith, or the enforcement of our rights against any person and indemnification or contribution expenses payable by us to any person and other extraordinary expenses not incurred in the ordinary course of our business.

 

38


We expect our general and administrative expenses to be relatively stable or decline as a percentage of total assets during periods of asset growth and to increase during periods of asset declines. Incentive Fees and costs relating to future offerings of securities would be incremental.

We also incur interest and credit facility expenses in connection with our senior secured revolving credit agreement (as amended, the “Revolving Credit Facility”) with SunTrust Bank as the administrative agent and Bank of America, N.A. as the syndication agent. Interest and credit facility expenses under our Revolving Credit Facility consist of interest expenses, amortization of financing costs and commitment fees on the unused portion of the Revolving Credit Facility.

Leverage

Our Revolving Credit Facility allows us to borrow money and lever our investment portfolio, subject to the limitations of the Investment Company Act, with the objective of increasing our yield. This is known as “leverage” and could increase or decrease returns to our stockholders. The use of leverage involves significant risks. As a BDC, with certain limited exceptions, we are only permitted to borrow amounts such that our asset coverage ratio, as defined in the Investment Company Act, equals at least 2 to 1 after such borrowing. Certain trading practices and investments, such as reverse repurchase agreements, may be considered borrowings or involve leverage and thus may be subject to Investment Company Act restrictions. In accordance with applicable SEC staff guidance and interpretations, when we engage in such transactions, instead of maintaining an asset coverage ratio of at least 2 to 1, we may segregate or earmark liquid assets, or enter into an offsetting position, in an amount at least equal to our exposure, on a mark-to-market basis, to such transactions (as calculated pursuant to requirements of the SEC). Short-term credits necessary for the settlement of securities transactions and arrangements with respect to securities lending will not be considered borrowings for these purposes. Practices and investments that may involve leverage but are not considered borrowings are not subject to the Investment Company Act’s asset coverage requirement and we will not otherwise segregate or earmark liquid assets or enter into offsetting positions for such transactions. The amount of leverage that we employ will depend on our investment adviser’s and our Board of Directors’ assessment of market conditions and other factors at the time of any proposed borrowing.

PORTFOLIO AND INVESTMENT ACTIVITY

As of March 31, 2016 and December 31, 2015, our portfolio (excluding our investment in a money market fund managed by an affiliate of the Goldman Sachs Group, Inc. (“Group Inc.”) of $13.45 million and $10.12 million, respectively) consisted of the following:

 

     As of  
     March 31, 2016      December 31, 2015  
     Amortized
Cost
     Fair
Value
     Percentage
of Total
Portfolio at
Fair Value
     Amortized
Cost
     Fair
Value
     Percentage
of Total
Portfolio at
Fair Value
 
     ($ in millions)             ($ in millions)         

First Lien/Senior Secured Debt

    $ 423.75         $ 413.63          38.0%        $ 425.53         $ 420.10          38.9%   

First Lien/Last-Out Unitranche

     308.76          303.70          27.9            308.10          305.72          28.3      

Second Lien/Senior Secured Debt

     327.10          291.79          26.9            312.83          285.47          26.4      

Preferred Stock

     25.72          24.58          2.3            25.62          24.87          2.3      

Common Stock

     4.45          –          –            4.45          –          –      

Investment Funds & Vehicles

     54.34          52.97          4.9            46.17          44.90          4.1      
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total Investments

    $ 1,144.12         $ 1,086.67          100.0%        $ 1,122.70         $ 1,081.06          100.0%    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

39


As of March 31, 2016 and December 31, 2015, the weighted average yield on our portfolio (excluding our investment in a money market fund managed by an affiliate of Group Inc.), at cost and fair value, were as follows:

 

     As of  
     March 31, 2016      December 31, 2015  
     Amortized
Cost
     Fair
Value
     Amortized
Cost
     Fair
Value
 

Weighted Average Yield

           

First Lien/Senior Secured Debt(1)

     10.6%         11.8%         10.6%         11.2%   

First Lien/Last-Out Unitranche(1)

     10.8%         11.5%         10.9%         11.2%   

Second Lien/Senior Secured Debt(1)

     10.0%         12.0%         11.1%         13.0%   

Preferred Stock(1)

     9.8%         10.2%         9.8%         10.0%   

Common Stock(1)

     0.0%         0.0%         0.0%         0.0%   

Investment Funds & Vehicles(2)

     13.2%         13.3%         13.0%         13.0%   

Total Portfolio(1)

     10.6%         11.8%         10.9%         11.7%   

 

    (1)

Computed based on the (a) annual stated interest rate or yield earned plus amortization of fees and discounts on the performing debt and other income producing investments, divided by (b) the total investments (including investments on non-accrual and non-income producing investments) at amortized cost or fair value, respectively.

    (2)

Computed based on the net investment income earned from the Senior Credit Fund for the respective trailing twelve months ended on the measurement date, which may include dividend income and loan origination and structuring fees divided by our average member’s equity at cost and fair value, adjusted for equity contributions.

The following table presents certain selected information regarding our investment portfolio (excluding our investment in a money market fund managed by an affiliate of Group Inc.) as of March 31, 2016 and December 31, 2015:

 

     As of  
         March 31, 2016              December 31, 2015      

Number of portfolio companies

     39         39   

Percentage of performing debt bearing a floating rate(1)

     87.3%         87.0%   

Percentage of performing debt bearing a fixed rate(1)(2)

     12.7%         13.0%   

Weighted average leverage (net debt/EBITDA)(3)

     4.5x         4.3x   

Weighted average interest coverage(3)

     3.0x         3.1x   

Median EBITDA(3)

   $       26.00 million       $       28.02 million   

 

    (1)

Measured on a fair value basis. Excludes investments, if any, placed on non-accrual.

    (2) Includes income producing preferred stock investments.
    (3)

For a particular portfolio company, EBITDA typically represents net income before net interest expense, income tax expense, depreciation and amortization. The weighted average net debt to EBITDA represents the last dollar attachment point of our debt investments (net of cash) in our portfolio companies as a multiple of EBITDA. Weighted average net debt to EBITDA and median EBITDA have been calculated as a percentage of debt investments and income producing preferred investments, including the underlying debt investments in the Senior Credit Fund and excluding collateral loans where net debt to EBITDA may not be the appropriate measure of credit risk. The weighted average interest coverage ratio (EBITDA to total interest expense) of our portfolio companies reflects our performing portfolio companies’ EBITDA as a multiple of interest expense and has been calculated as a percentage of performing debt investments and income producing preferred investments, including the underlying debt investments in the Senior Credit Fund and excluding collateral loans. Portfolio company statistics are derived from the most recently available financial statements of each portfolio company as of the respective reported end date. Portfolio company statistics have not been independently verified by us and may reflect a normalized or adjusted amount.

Our investment adviser monitors our portfolio companies on an ongoing basis. It monitors the financial trends of each portfolio company to determine if they are meeting their respective business plans and to assess the appropriate course of action for each company. Our investment adviser has several methods of evaluating and monitoring the performance and fair value of our investments, which may include the following:

 

   

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

 

   

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

 

   

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

 

   

attendance at and participation in board meetings or presentations by portfolio companies; and

 

   

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

As part of the monitoring process, our investment adviser also employs an investment rating system to categorize our investments. In addition to various risk management and monitoring tools, our investment adviser grades the credit risk of all investments on a scale of 1 to 4. This system is intended primarily to reflect the underlying risk of a portfolio investment relative to our initial cost basis in respect of such portfolio investment (i.e., at the time of origination or acquisition), although it may also take into account the performance of the portfolio company’s business, the collateral coverage of the investment and other relevant factors. The grading system is as follows:

 

   

investments with a grade of 1 involve the least amount of risk to our initial cost basis. The trends and risk factors for this investment since origination or acquisition are generally favorable, which may include the performance of the portfolio company or a potential exit;

 

40


   

investments graded 2 involve a level of risk to our initial cost basis that is similar to the risk to our initial cost basis at the time of origination or acquisition. This portfolio company is generally performing as expected and the risk factors to our ability to ultimately recoup the cost of our investment are neutral to favorable. All investments or acquired investments in new portfolio companies are initially assessed a grade of 2;

 

   

investments graded 3 indicate that the risk to our ability to recoup the initial cost basis of such investment has increased materially since origination or acquisition, including as a result of factors such as declining performance and non-compliance with debt covenants; however, payments are generally not more than 120 days past due; and

 

   

an investment grade of 4 indicates that the risk to our ability to recoup the initial cost basis of such investment has substantially increased since origination or acquisition, and the portfolio company likely has materially declining performance. For debt investments with an investment grade of 4, most or all of the debt covenants are out of compliance and payments are substantially delinquent. For investments graded 4, it is anticipated that we will not recoup our initial cost basis and may realize a substantial loss of our initial cost basis upon exit.

Our investment adviser grades the investments in our portfolio at least quarterly and it is possible that the grade of a portfolio investment may be reduced or increased over time. For investments graded 3 or 4, our investment adviser enhances its level of scrutiny over the monitoring of such portfolio company. The following table shows the composition of our portfolio (excluding our investment in a money market fund managed by an affiliate of Group Inc.) on the 1 to 4 grading scale as of March 31, 2016 and December 31, 2015.

 

     As of  
     March 31, 2016      December 31, 2015  

Investment

Performance Rating

   Fair Value      Percentage
of Total
Portfolio
at Fair
Value
     Fair Value      Percentage
of Total
Portfolio
at Fair
Value
 
     (in
millions)
            (in
millions)
        

Grade 1

    $ 113.83          10.4%        $ 108.80          10.1%   

Grade 2

     772.27          71.1           797.09          73.7      

Grade 3

     187.90          17.3           175.17          16.2      

Grade 4

     12.67          1.2           –          –      
  

 

 

    

 

 

    

 

 

    

 

 

 

Total Investments

    $ 1,086.67          100.0%        $ 1,081.06          100.0%   
  

 

 

    

 

 

    

 

 

    

 

 

 

The following table shows the amortized cost of our performing and non-accrual investments as of March 31, 2016 and December 31, 2015.

 

     As of  
     March 31, 2016      December 31, 2015  
     Amortized
Cost
     Percentage
of Total
Portfolio
at
Amortized
Cost
     Amortized
Cost
     Percentage
of Total
Portfolio
at
Amortized
Cost
 
     (in
millions)
            (in
millions)
        

Performing

    $ 1,117.28          97.7%         $ 1,122.70          100.0%   

Non-accrual

     26.84          2.3             –          –       
  

 

 

    

 

 

    

 

 

    

 

 

 

Total Investments

    $ 1,144.12          100.0%        $ 1,122.70          100.0%   
  

 

 

    

 

 

    

 

 

    

 

 

 

Loans or debt securities are placed on non-accrual status when there is reasonable doubt that principal or interest will be collected. Accrued interest generally is reversed when a loan or debt security is placed on non-accrual status. Interest payments received on non-accrual loans or debt securities may be recognized as income or applied to principal depending upon management’s judgment. Non-accrual loans and debt securities are restored to accrual status when past due principal and interest is paid and, in management’s judgment, are likely to remain current. We may make exceptions to this treatment if the loan has sufficient collateral value and is in the process of collection.

 

41


The following table shows our investment activity for the three months ended March 31, 2016 and 2015 by investment type:

 

     For the Three Months Ended  
     March 31,
2016
    March 31,
2015
 
     ($ in millions)  

Amount of investments committed at cost(1):

    

First Lien/Senior Secured Debt

   $ -      $ -   

First Lien/Last-Out Unitranche

     -        -   

Second Lien/Senior Secured Debt

     38.71        -   

Preferred Stock

     -        -   

Common Stock

     -        -   

Investment Funds & Vehicles

     8.18        3.17   
  

 

 

   

 

 

 

Total

   $ 46.89      $ 3.17   
  

 

 

   

 

 

 

Proceeds from investments sold or repaid:

    

First Lien/Senior Secured Debt

   $ 2.23      $ 0.84   

First Lien/Last-Out Unitranche

     3.21        0.22   

Second Lien/Senior Secured Debt

     25.00        11.00   

Preferred Stock

     -        -   

Common Stock

     -        -   

Investment Funds & Vehicles

     -        -   
  

 

 

   

 

 

 

Total

   $ 30.44      $ 12.06   
  

 

 

   

 

 

 

Net increase (decrease) in portfolio

   $ 16.45      $ (8.89)   
  

 

 

   

 

 

 
    

Number of new investment commitments in new portfolio companies(2)

     1        -   

Total new investment commitment amount in new portfolio companies(2)

   $ 38.71      $ -   

Average new investment commitment amount in new portfolio companies(2)

   $ 38.71      $ -   

Weighted average remaining term for new investment commitments in new portfolio companies (in years)(2)(3)

     5.9        -   

Number of new investment commitments in existing portfolio companies(2)

     1        1   

Total new investment commitment amount in existing portfolio companies(2)

   $ 8.18      $ 3.17   

Percentage of new debt investment commitments in new portfolio companies at floating interest rates(2)

     100.0%        -%   

Percentage of new debt investment commitments in new portfolio companies at fixed interest rates(2)(4)

     -%        -%   

Weighted average stated interest rate of new investment commitments in new portfolio companies(2)

     10.0%        -%   

Weighted average spread over base rate of new floating rate investment commitments in new portfolio companies(2)

     9.0%        -%   

Weighted average stated interest rate on investments sold or paid down

     9.8%        9.6%   

 

(1)  Net of capitalized fees, expenses and original issue discounts.
(2)  May include positions originated during the period but not held at the reporting date.
(3)  Calculated as of the end of the relevant period and the maturity date of the individual investments.
(4)  May include preferred stock investments.

RESULTS OF OPERATIONS

Our operating results for the three months ended March 31, 2016 and 2015 were as follows:

 

    For the Three Months Ended  
    March 31,
2016
    March 31,
2015
 
    (in millions)  

Total investment income

  $ 31.34          $ 26.37       

Net expenses

    (9.92)          (10.60)     
 

 

 

   

 

 

 

Net investment income (loss) before taxes

    21.42            15.77       

Excise tax expense

    (0.21)          (0.03)     
 

 

 

   

 

 

 

Net investment income (loss) after taxes

    21.21            15.74       

Net realized gain (loss) on investments

    –            –       

Net unrealized appreciation (depreciation) on investments

    (15.81)          (1.71)     
 

 

 

   

 

 

 

Net increase in net assets resulting from operations

  $ 5.40          $ 14.03       
 

 

 

   

 

 

 

 

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Net increase in net assets resulting from operations after tax can vary from period to period as a result of various factors, including acquisitions, the level of new investment commitments, the recognition of realized gains and losses and changes in unrealized appreciation and depreciation on the investment portfolio. As a result, comparisons may not be meaningful.

Investment Income

 

    For the Three Months Ended  
    March 31,
2016
    March 31,
2015
 
    (in millions)  

Interest

  $ 29.13        $ 25.08     

Dividend income

    1.91          1.16     

Other income

    0.30          0.13     
 

 

 

   

 

 

 

Total investment income

  $ 31.34        $ 26.37     
 

 

 

   

 

 

 

Interest

Interest from investments, which includes prepayment premiums and accelerated accretion of upfront loan origination fees and unamortized discounts, increased from $25.08 million for the three months ended March 31, 2015 to $29.13 million for the three months ended March 31, 2016, primarily due to an increase in the size of our portfolio. The amortized cost of the portfolio increased from $925.37 million as of March 31, 2015 to $1,144.12 million as of March 31, 2016. Included in interest, for the three months ended March 31, 2016 and 2015, is $0.26 million and $0.58 million, respectively, in prepayment premiums, and $0.49 million and $0.22 million, respectively, in accelerated accretion of upfront loan origination fees and unamortized discounts.

Dividend income

Dividend income increased from $1.16 million for the three months ended March 31, 2015 to $1.91 million for the three months ended March 31, 2016 primarily as a result of distributions by the Senior Credit Fund during the three months ended March 31, 2016. The dividend income from Senior Credit Fund increased from $0.55 million for the three months ended March 31, 2015 to $1.28 million for the three months ended March 31, 2016. See “Senior Credit Fund, LLC” below for further detail.

Other income

Other income increased from $0.13 million for the three months ended March 31, 2015 to $0.30 million for the three months ended March 31, 2016 primarily as a result of excess loan origination fee income earned from the Senior Credit Fund for the three months ended March 31, 2016. In addition, we earned higher administrative agent fees during the three months ended March 31, 2016 as compared to the three months ended March 31, 2015.

 

43


Expenses

 

    For the Three Months Ended  
    March 31,
2016
    March 31,
2015
 
    (in millions)  

Interest and credit facility expense

  $ 3.03        $ 2.49     

Management fees

    4.13          3.47     

Incentive fees

    1.40          3.51     

Professional fees

    0.60          0.59     

Administration and custodian fees

    0.23          0.21     

Directors’ fees

    0.22          0.11     

Other expenses

    0.31          0.22     
 

 

 

   

 

 

 

Total Expenses

  $ 9.92        $ 10.60     
 

 

 

   

 

 

 

Interest and credit facility expense

Interest and credit facility expense increased from $2.49 million for the three months ended March 31, 2015 to $3.03 million for the three months ended March 31, 2016 primarily due to an increase in the average daily borrowings from $332.51 million to $421.95 million.

Management Fees and Incentive Fees

Management Fees increased from $3.47 million for the three months ended March 31, 2015 to $4.13 million for the three months ended March 31, 2016 as the result of an increase in gross assets, excluding cash and investments in a money market fund managed by an affiliate of Group Inc. Incentive Fees decreased from $3.51 million for the three months ended March 31, 2015 to $1.40 million for the three months ended March 31, 2016 as the result of an increase in net change in unrealized (depreciation) on portfolio companies which is offset against incentive fees earned.

Professional fees and other general and administrative expenses

Professional fees increased from $0.59 million for the three months ended March 31, 2015 to $0.60 million for the three months ended March 31, 2016; and other general and administrative expenses increased from $0.54 million for the three months ended March 31, 2015 to $0.76 million for the three months ended March 31, 2016. Both increases were due to the increase in costs associated with servicing a larger investment portfolio.

 

44


Net Realized Gains (Losses)

There were no realized gains and losses on fully exited and partially exited portfolio companies during the three months ended March 31, 2016 and 2015.

Net Change in Unrealized Appreciation (Depreciation) on Investments

Any changes in fair value are recorded in change in unrealized appreciation (depreciation) on investments. For further details on the valuation process, refer to “Critical Accounting Policies—Valuation of Portfolio Investments.” Net change in unrealized appreciation (depreciation) on our portfolio companies for the three months ended March 31, 2016 and 2015 were as follows:

 

     For the Three Months Ended  
     March 31,
2016
     March 31,
2015
 
     (in millions)  

Change in unrealized appreciation

   $ 10.53         $ 2.07     

Change in unrealized depreciation

     (26.34)           (3.78)     
  

 

 

    

 

 

 

Net change in unrealized appreciation (depreciation) on investments

   $ (15.81)         $ (1.71)     
  

 

 

    

 

 

 

The change in unrealized appreciation (depreciation) on portfolio companies for the three months ended March 31, 2016 and 2015 consisted of the following:

 

     For the Three Months Ended  
     March 31,
2016
     March 31,
2015
 
Portfolio Company:    (in millions)  
Artesyn Embedded Technologies, Inc.    $ (1.80)         $ 0.30     

Bolttech Mannings, Inc.

     (1.68)           (0.03)     

Dispensing Dynamics International

     (1.76)           0.40     

Global Tel*Link Corporation

     4.09           (0.11)     

Hunter Defense Technologies, Inc.

     (13.62)           0.10     

Lone Pine Resources CDA, Ltd.

     (0.39)           (1.42)     

P2 Upstream Acquisition Co.

     (1.84)           (0.25)     

Securus Technologies Holdings, Inc.

     5.68           (0.03)     

Washington Inventory Service

     (1.23)           0.04     

Other, net(1)

     (3.26)           (0.71)     
  

 

 

    

 

 

 

Total

   $ (15.81)         $ (1.71)     
  

 

 

    

 

 

 

 

  (1)  For the three months ended March 31, 2016 and 2015, other, net includes gross unrealized appreciation of $0.76 million and $1.23 million, respectively and gross unrealized depreciation of $(4.02) million and $(1.94) million, respectively.

 

45


SENIOR CREDIT FUND, LLC

Overview

The Senior Credit Fund, an unconsolidated Delaware limited liability company, was formed on May 7, 2014 and commenced operations on October 1, 2014. Effective July 18, 2014, we agreed to a joint venture with Cal Regents through the Senior Credit Fund. The Senior Credit Fund’s principal purpose is to make investments, either directly or indirectly through its wholly owned subsidiary, SPV I, primarily in senior secured loans to middle-market companies. Each of us and Cal Regents has a 50% economic ownership in the Senior Credit Fund and each has subscribed to fund $100.00 million. Except under certain circumstances, contributions to the Senior Credit Fund cannot be redeemed. The Senior Credit Fund is managed by a six member board of managers, on which we and Cal Regents have equal representation. Investment decisions generally must be unanimously approved by a quorum of the board of managers. Establishing a quorum for the Senior Credit Fund’s board of managers requires at least four members to be present at a meeting, including at least two of our representatives and two of Cal Regents’ representatives. If there are five members present at a meeting, all three representatives of Cal Regents must be present to constitute a quorum.

Selected Financial Data

As of March 31, 2016 and December 31, 2015, we and Cal Regents had subscribed to fund and contributed the following in the Senior Credit Fund:

 

     March 31, 2016      December 31, 2015  
     Subscribed to
fund
     Contributed      Subscribed
to fund
     Contributed  
    

($ in millions)

    

($ in millions)

 

Company

   $ 100.00       $ 54.34       $ 100.00       $ 46.17   

Cal Regents

     100.00         54.34         100.00         46.17   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 200.00       $ 108.68       $ 200.00       $ 92.34   
  

 

 

    

 

 

    

 

 

    

 

 

 

As of March 31, 2016 and December 31, 2015, the Senior Credit Fund had total investments in senior secured debt at fair value of $340.53 million and $285.59 million, respectively. As of March 31, 2016 and December 31, 2015, the Senior Credit Fund had no investments on non-accrual status. In addition, as of March 31, 2016 and December 31, 2015, the Senior Credit Fund had an investment in a money market fund managed by an affiliate of Group Inc. with a total fair value of $3.07 million and $21.83 million, respectively.

Below is a summary of the Senior Credit Fund’s portfolio (excluding an investment in a money market fund managed by an affiliate of Group Inc.), followed by a listing of the individual loans in the Senior Credit Fund’s portfolio as of March 31, 2016 and December 31, 2015:

 

     As of  
     March 31, 2016      December 31, 2015  

Number of portfolio companies

     26           22     

Total senior secured debt(1)

     $347.68 million           $291.51 million     

Largest loan to a single borrower(1)

     $ 23.77 million           $ 23.82 million     

Weighted average current interest rate on senior secured debt(2)

     6.4%           6.3%     

Percentage of performing debt bearing a floating rate (3)

     100.0%           100.0%     

Percentage of performing debt bearing a fixed rate (3)

     0.0%           0.0%     

Weighted average leverage (net debt/EBITDA)(4)

     3.5x           3.5x     

Weighted average interest coverage(4)

     3.5x           3.7x     

Median EBITDA(4)

     $ 63.38 million           $ 71.89 million     

 

  (1)  At par amount.
  (2)  Computed as the (a) annual stated interest rate on accruing senior secured debt divided by (b) total senior secured debt at par amount.
  (3)  Measured on a fair value basis.
  (4)  For a particular portfolio company, EBITDA typically represents net income before net interest expense, income tax expense, depreciation and amortization. The weighted average net debt to EBITDA represents the last dollar attachment point of the Senior Credit Fund’s debt investments (net of cash) in its portfolio companies as a multiple of EBITDA. Weighted average net debt to EBITDA and median EBITDA have been calculated as a percentage of the Senior Credit Fund’s debt investments and income producing preferred investments, excluding collateral loans where net debt to EBITDA may not be the appropriate measure of credit risk. The weighted average interest coverage ratio (EBITDA to total interest expense) of the Senior Credit Fund’s portfolio companies reflects its performing portfolio companies’ EBITDA as a multiple of interest expense and has been calculated as a percentage of performing debt investments and income producing preferred investments, excluding collateral loans. Portfolio company statistics are derived from the most recently available financial statements of each portfolio company as of the respective reported end date. Portfolio company statistics have not been independently verified by us and may reflect a normalized or adjusted amount.

 

46


Senior Credit Fund Portfolio as of March 31, 2016

 
Portfolio Company       Industry   Interest   Maturity     Par
Amount
    Cost     Fair
Value
 

1st Lien/Senior Secured Debt

           

Affordable Care Holding Corp.(++)

  Health Care Providers & Services   L + 4.75% (1.00% Floor)     10/22/2022      $ 4.99      $ 4.89        $ 4.91     

Aperture Group, LLC(++)

  Diversified Financial Services   L + 6.25% (1.00% Floor)     08/29/2019        17.81        17.62          17.59     

ATX Networks Corp.(++)

  Communications Equipment   L + 6.00% (1.00% Floor)     06/12/2021        14.89        14.75          14.66     

Cengage Learning Acquisitions,

Inc.(+)

  Diversified Consumer Services   L + 6.00% (1.00% Floor)     03/31/2020        14.99        14.74          14.90     

ConvergeOne Holdings

Corporation(++) (1) (2)

  Communications Equipment   L + 5.00% (1.00% Floor)     06/17/2020        15.93        15.84          15.29     

Crowne Group, LLC(++) (1)

  Auto Components   L + 5.00% (1.00% Floor)     09/30/2020        14.77        14.66          14.04     

DBRS Limited(++)

  Capital Markets   L + 5.25% (1.00% Floor)     03/04/2022        11.88        11.78          11.77     

DiscoverOrg, LLC(++)(3)

  Software   L + 4.50% (1.00% Floor)     06/02/2020        7.46        7.43          7.37     

Edgewood Partners Insurance

Center(+)

  Insurance   L + 6.00% (1.00% Floor)     03/16/2023        16.00        15.68          15.84     

Epicor RSG US Inc.(++)

  Internet Software & Services   L + 5.25% (0.75% Floor)     06/23/2022        14.89        14.75          14.74     

eResearchTechnology, Inc.(++)

  Health Care Technology   L + 4.50% (1.00% Floor)     05/08/2022        14.89        14.82          14.86     

GK Holdings, Inc.(++)

  IT Services   L + 5.50% (1.00% Floor)     01/20/2021        17.77        17.68          17.60     

HC Group Holdings III, Inc.(++)

  Health Care Providers & Services   L + 5.00% (1.00% Floor)     04/07/2022        8.96        8.92          8.98     

Help/Systems, LLC(++)

  Software   L + 5.25% (1.00% Floor)     10/08/2021        15.96        15.36          15.62     

Imagine! Print Solutions, Inc.(2)

  Commercial Services & Supplies   L + 6.00% (1.00% Floor)     03/30/2022        4.00        3.94          4.00     

Jill Acquisition LLC(++) (2)

  Textiles, Apparel & Luxury Goods   L + 5.00% (1.00% Floor)     05/08/2022        15.92        15.81          15.13     

Lattice Semiconductor

Corporation(+++)

  Semiconductors & Semiconductor Equipment   L + 4.25% (1.00% Floor)     03/10/2021        12.14        11.92          11.28     

Liquidnet Holdings, Inc.(++) (1) (2)

  Capital Markets   L + 6.75% (1.00% Floor)     05/22/2019        23.66        23.29          23.01     

Loar Group, Inc.(++)

  Aerospace & Defense   L + 4.75% (1.00% Floor)     01/12/2022        10.00        9.73          9.95     

MB Aerospace Holdings Inc.(++)

  Aerospace & Defense   L + 5.50% (1.00% Floor)     12/15/2022        12.47        12.35          12.28     

PGX Holdings, Inc.(+++) (1)

  Professional Services   L + 4.75% (1.00% Floor)     09/29/2020        14.28        14.20          14.19     

Research Now Group, Inc.(++) (2)

  Professional Services   L + 4.50% (1.00% Floor)     03/18/2021        9.66        9.53          9.42     

SkinnyPop Popcorn LLC(+)(1)

  Food Products   L + 4.50% (1.00% Floor)     07/17/2019        14.07        13.97          14.04     

Veresen Midstream Limited Partnership(++)

  Energy Equipment & Services   L + 4.25% (1.00% Floor)     03/31/2022        10.89        10.68          10.06     

Zep Inc.(++)

  Chemicals   L + 4.50% (1.00% Floor)     06/27/2022        5.46        5.43          5.44     
         

 

 

   

 

 

 

Total 1st Lien/Senior Secured Debt

          319.77          316.97     

1st Lien/First-Out Unitranche

           

Infogix, Inc.(++)

  Software   L + 5.00% (1.00% Floor)     12/31/2021        9.94        9.84          9.84     
         

 

 

   

 

 

 

Total 1st Lien/First-Out Unitranche

          9.84          9.84     

2nd Lien/Senior Secured Debt

           

DiscoverOrg, LLC(++) (3)

  Software   L + 9.00% (1.00% Floor)     02/10/2022        8.00        7.85          7.84     

GK Holdings, Inc.(++)

  IT Services   L + 9.50% (1.00% Floor)     01/20/2022        6.00        5.89          5.88     
         

 

 

   

 

 

 

Total 2nd Lien/Senior Secured Debt

          13.74          13.72     
         

 

 

   

 

 

 

Total Corporate Debt

        $ 343.35        $ 340.53     
         

 

 

   

 

 

 

 

(+)  The interest rate on these loans is subject to a base rate plus 1 month LIBOR, which as of March 31, 2016 was 0.44%. As the interest rate is subject to a minimum LIBOR floor which was greater than the 1 month LIBOR rate at March 31, 2016, the prevailing rate in effect as of March 31, 2016 was the base rate plus the LIBOR floor.
(++)  The interest rate on these loans is subject to a base rate plus 3 month LIBOR, which as of March 31, 2016 was 0.63%. As the interest rate is subject to a minimum LIBOR floor which was greater than the 3 month LIBOR rate at March 31, 2016, the prevailing rate in effect as of March 31, 2016 was the base rate plus the LIBOR floor.
(+++)  The interest rate on these loans is subject to a base rate plus 6 month LIBOR, which as of March 31, 2016 was 0.90%. As the interest rate is subject to a minimum LIBOR floor which was greater than the 6 month LIBOR rate at March 31, 2016, the prevailing rate in effect as of March 31, 2016 was the base rate plus the LIBOR floor.
(1)  Initial investment was purchased at fair value from the Company in October 2014.
(2)  Position or portion thereof unsettled as of March 31, 2016.
(3)  We also hold a portion of the 2nd lien/senior secured debt in this portfolio company.
L –  LIBOR

 

 

47


Senior Credit Fund Portfolio as of December 31, 2015

 
Portfolio Company       Industry   Interest   Maturity     Par
Amount
    Cost     Fair
Value
 
                        (in millions)        

1st Lien/Senior Secured Debt

           

Affordable Care Holding Corp.(++)

  Health Care Providers & Services   L + 4.75% (1.00% Floor)     10/22/2022      $ 5.00      $ 4.90        $ 4.90     

Aperture Group, LLC(++)(1)

  Diversified Financial Services   L + 6.25% (1.00% Floor)     08/29/2019        17.86        17.66          17.62     

ATX Networks Corp.(++)

  Communications Equipment   L + 6.00% (1.00% Floor)     06/12/2021        14.93        14.78          14.63     

Cengage Learning Acquisitions, Inc.(+)(1)

  Diversified Consumer Services   L + 6.00% (1.00% Floor)     03/31/2020        15.00        14.74          14.59     

ConvergeOne Holdings Corporation(++)(2)

  Communications Equipment   L + 5.00% (1.00% Floor)     06/17/2020        14.82        14.75          14.63     

Crowne Group, LLC(++)(2)

  Auto Components   L + 5.00% (1.00% Floor)     09/30/2020        14.81        14.69          14.29     

DBRS Limited(++)

  Capital Markets   L + 5.25% (1.00% Floor)     03/04/2022        11.91        11.80          11.82     

DiscoverOrg, LLC(+)

  Software   L + 4.50% (1.00% Floor)     06/02/2020        7.56        7.53          7.52     

Epicor RSG US Inc.(++)

  Internet Software & Services   L + 5.25% (0.75% Floor)     06/23/2022        14.93        14.78          14.78     

eResearchTechnology, Inc.(++)

  Health Care Technology   L + 4.50% (1.00% Floor)     05/08/2022        14.93        14.86          14.60     

GK Holdings, Inc.(++)

  IT Services   L + 5.50% (1.00% Floor)     01/20/2021        17.82        17.72          17.46     

HC Group Holdings III, Inc.(++)

  Healthcare Providers & Services   L + 5.00% (1.00% Floor)     04/07/2022        8.98        8.94          8.91     

Help/Systems, LLC(++)

  Software   L + 5.25% (1.00% Floor)     10/08/2021        15.00        14.41          14.68     

Jill Acquisition LLC(++)

  Textiles, Apparel & Luxury Goods   L + 5.00% (1.00% Floor)     05/08/2022        14.96        14.89          14.59     

Lattice Semiconductor Corporation(+++)

  Semiconductors & Semiconductor Equipment   L + 4.25% (1.00% Floor)     03/10/2021        12.16        11.94          11.32     

Liquidnet Holdings, Inc.(++)(2)

  Capital Markets   L + 6.75% (1.00% Floor)     05/22/2019        22.48        22.13          21.69     

MB Aerospace Holdings Inc.(1)

  Aerospace & Defense   L + 5.50% (1.00% Floor)     12/15/2022        12.50        12.38          12.38     

PGX Holdings, Inc.(+++)(2)

  Professional Services   L + 4.75% (1.00% Floor)     09/29/2020        14.26        14.16          14.11     

Research Now Group, Inc.(++)

  Professional Services   L + 4.50% (1.00% Floor)     03/18/2021        4.96        4.94          4.89     

SkinnyPop Popcorn LLC(++)(2)

  Food Products   L + 4.50% (1.00% Floor)     07/17/2019        14.25        14.15          14.22     

Veresen Midstream Limited Partnership(++)

  Energy Equipment & Services   L + 4.25% (1.00% Floor)     03/31/2022        10.92        10.70          10.70     

Zep Inc.(++)

  Chemicals   L + 4.75% (1.00% Floor)     06/27/2022        5.47        5.45          5.44     
         

 

 

   

 

 

 

Total 1st Lien/Senior Secured Debt

        282.30          279.77     

2nd Lien/Senior Secured Debt

           

GK Holdings, Inc.(++)

  IT Services   L + 9.50% (1.00% Floor)     01/20/2022        6.00        5.89          5.82     
         

 

 

   

 

 

 

Total 2nd Lien/Senior Secured Debt

        5.89          5.82     
         

 

 

   

 

 

 

Total Corporate Debt

          $ 288.19        $ 285.59     
         

 

 

   

 

 

 

 

(+)  The interest rate on these loans is subject to a base rate plus 1 month LIBOR, which as of December 31, 2015 was 0.43%. As the interest rate is subject to a minimum LIBOR floor which was greater than the 1 month LIBOR rate at December 31, 2015, the prevailing rate in effect as of December 31, 2015 was the base rate plus the LIBOR floor.
(++)  The interest rate on these loans is subject to a base rate plus 3 month LIBOR, which as of December 31, 2015 was 0.61%. As the interest rate is subject to a minimum LIBOR floor which was greater than the 3 month LIBOR rate at December 31, 2015, the prevailing rate in effect as of December 31, 2015 was the base rate plus the LIBOR floor.
(+++)  The interest rate on these loans is subject to a base rate plus 6 month LIBOR, which as of December 31, 2015 was 0.85%. As the interest rate is subject to a minimum LIBOR floor which was greater than the 6 month LIBOR rate at December 31, 2015, the prevailing rate in effect as of December 31, 2015 was the base rate plus the LIBOR floor.
(1)  Position or portion thereof unsettled as of December 31, 2015.
(2)  Initial investment was purchased at fair value from the Company in October 2014.
L    –    LIBOR

PIK  –  Payment-In-Kind

 

48


Below is certain summarized balance sheet information for the Senior Credit Fund as of March 31, 2016 and December 31, 2015:

 

     As of  
             March 31,        
2016
          December 31,     
2015
 
     (in millions)  

Selected Balance Sheet Information

  

Total investments, at fair value

   $ 343.60         $ 307.42     

Cash and other assets

     8.18           7.58     
  

 

 

    

 

 

 

Total assets

   $ 351.78         $ 315.00     
  

 

 

    

 

 

 

Debt(1)

   $ 232.25         $ 184.98     

Other liabilities

     13.59           40.22     
  

 

 

    

 

 

 

Total liabilities

   $ 245.84         $ 225.20     
  

 

 

    

 

 

 

Members’ equity

   $ 105.94         $ 89.80     
  

 

 

    

 

 

 

Total liabilities and members’ equity

   $ 351.78         $ 315.00     
  

 

 

    

 

 

 

 

  (1)  Net of deferred financing costs for the SPV I Term Loan Facility as of March 31, 2016 and December 31, 2015 were in amount of $0.96 and $0.57, respectively.

Below is certain summarized Statement of Operations information for the Senior Credit Fund for the three months ended March 31, 2016 and 2015:

 

     For the Three Months Ended  
             March 31,        
2016
             March 31,        
2015
 
     (in millions)  

Selected Statement of Operations Information

     

Total investment income

   $ 5.00         $ 2.35     

Expenses

     

Interest and credit facility expense

     2.11           1.02     

Excess loan origination and structuring fees

     0.13           —     

Professional fees

     0.11           0.07     

Administration and custodian fees

     0.07           0.07     

Other expenses

     0.01           0.03     
  

 

 

    

 

 

 

Total expenses

     2.43           1.19     
  

 

 

    

 

 

 

Net investment income (loss) after taxes

     2.57           1.16     

Net realized gain (loss) on investments

     —           —     

Net unrealized appreciation (depreciation) on investments

     (0.22)           1.35     
  

 

 

    

 

 

 

Net increase (decrease) in members’ equity

   $ 2.35         $ 2.51     
  

 

 

    

 

 

 

 

49


Debt

The Senior Credit Fund has entered into a revolving credit facility (the “Subscription Facility”) with Versailles Assets LLC as lender, and with Natixis, New York Branch (“Natixis”) as the facility agent. The Subscription Facility provides for borrowings in an aggregate amount up to $50.00 million on a committed basis. The Senior Credit Fund’s obligations to Natixis and the lenders are secured by the unfunded subscriptions of us and Cal Regents, proceeds of such subscriptions and certain other assets. As of March 31, 2016, the Senior Credit Fund’s outstanding borrowings under the Subscription Facility were $30.95 million. The summary information of the Subscription Facility for the three months ended March 31, 2016 and 2015 is as follows:

 

      For the Three Months Ended  
     

March 31,

2016

         

March 31,

2015

 
     ($ in millions)  

Borrowing interest expense

   $ 0.25         $ 0.26   

Facility fees

     0.01             

Amortization of financing costs

     0.03             0.09   

Total

   $ 0.29           $ 0.35   

Weighted average interest rate

     2.40%           2.11%   

Average outstanding balance

   $                           42.33           $                           50.00   

SPV I has entered into a revolving credit facility (the “SPV I Revolving Credit Facility”) and term loan facility (the “SPV I Term Loan Facility” and, together with the SPV I Revolving Credit Facility, as amended, the “Asset Based Facility”) with various lenders. For the Asset Based Facility, Natixis serves as the facility agent, and State Street Bank and Trust Company serves as the collateral agent. The Asset Based Facility includes a maximum borrowing capacity of $400.00 million. As of March 31, 2016, the Senior Credit Fund’s outstanding borrowings under the Asset Based Facility were $202.25 million. The SPV I Revolving Credit Facility provides for borrowings in an aggregate amount up to $185.00 million on a committed basis. As of March 31, 2016, the SPV I Term Loan Facility consisted of a $115.00 million fully drawn term loan. The summary information of the Asset Based Facility for the three months ended March 31, 2016 and 2015 is as follows:

 

      For the Three Months Ended  
     

March 31,

2016

         

March 31,

2015

 
     ($ in millions)  

Borrowing interest expense

   $ 1.23         $ 0.27   

Facility fees

     0.26           0.31   

Amortization of financing costs

     0.33             0.09   

Total

   $ 1.82           $ 0.67   

Weighted average interest rate

     3.10%           2.80%   

Average outstanding balance

   $                           159.80           $                         37.95   

FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES

The primary use of existing funds and any funds raised in the future is expected to be for our investments in portfolio companies, cash distributions to our stockholders or for other general corporate purposes, including paying for operating expenses or debt service to the extent we borrow or issue senior securities.

We expect to generate cash primarily from the net proceeds of any future offerings of securities, future borrowings and cash flows from operations. To the extent we determine that additional capital would allow us to take advantage of additional investment opportunities, if the market for debt financing presents attractively priced debt financing opportunities, or if our Board of Directors otherwise determines that leveraging our portfolio would be in our best interest and the best interests of our stockholders, we may enter into credit facilities in addition to our Revolving Credit Facility as discussed below, or issue senior securities. We would expect any such credit facilities may be secured by certain of our assets and may contain advance rates based upon pledged collateral. The pricing and other terms of any such facilities would depend upon market conditions when we enter into any such facilities as well as the performance of our business, among other factors. In accordance with applicable SEC staff guidance and interpretations, as a BDC, with certain limited exceptions, we are only permitted to borrow amounts such that our asset coverage ratio, as defined in the

 

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Investment Company Act, is at least 2 to 1 after such borrowing. As of March 31, 2016 and December 31, 2015, our asset coverage ratio was 2.58 to 1 and 2.64 to 1, respectively. We may also refinance or repay any of our indebtedness at any time based on our financial condition and market conditions.

As of March 31, 2016, we had cash of approximately $11.80 million, a decrease of $10.91 million from December 31, 2015. In addition, as of March 31, 2016, we had an investment in a money market fund managed by an affiliate of Group Inc. of $13.45 million, an increase of $3.33 million from December 31, 2015. Cash used by operating activities for the three months ended March 31, 2016 was approximately $3.57 million, primarily driven by purchases of investments of $50.40 million and net purchase of investments in the affiliated money market fund of $3.33 million, partially offset by an increase in net assets resulting from operations of $5.40 million, proceeds from sales and principal repayments of $30.59 million, and proceeds from other operating activities of $14.17 million. Cash used by financing activities for the three months ended March 31, 2016 was approximately $7.34 million, which was the result of proceeds from the borrowings on debt of $63.00 million, partially offset by repayments on debt of $53.95 million, distributions paid of $16.34 million, and other financing activities of $0.05 million.

We may raise capital by securitizing certain of our investments, including through the formation of one or more collateralized loan obligations or asset based facilities, while retaining all or most of the exposure to the performance of these investments. This would involve contributing a pool of assets to a special purpose entity, and selling debt interests in such entity on a non-recourse or limited-recourse basis to purchasers. We may also pursue other forms of debt financing, including potentially from the Small Business Administration through a future small business investment company subsidiary.

Equity Issuances

On March 23, 2015, the Company completed its IPO, issuing 6,000,000 shares of common stock at a public offering price of $20.00 per share. Net of offering and underwriting costs, we received cash proceeds of $114.57 million. In connection with the IPO, our investment adviser paid 70%, or approximately $5.04 million, of the sales load.

In April 2015, we issued a total of 900,000 shares of our common stock pursuant to the exercise of the underwriters’ over-allotment option in connection with the IPO. Net of underwriting costs, we received additional total cash proceeds of $17.27 million. In addition, our investment adviser paid 70%, or approximately $0.76 million, of the sales load.

There were no sales of our common stock during the three months ended March 31, 2016.

10b5-1 Plan

Goldman, Sachs & Co. adopted a 10b5-1 plan (the “GS 10b5-1 Plan”) in accordance with Rules 10b5-1 and 10b-18 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), which provided for the purchase by Goldman, Sachs & Co. in the open market of up to the lesser of (i) $25.00 million in the aggregate of the Company’s common stock and (ii) such amount that would not bring its collective ownership (with Group Inc.) of our common stock over 19.9%. The GS 10b5-1 Plan expired on March 18, 2016. The GS 10b5-1 Plan required Goldman, Sachs & Co. to purchase shares of our common stock when the market price per share was below our most recently reported NAV per share (including any updates, corrections or adjustments publicly announced by us to any previously announced NAV per share). The purchase of shares by Goldman, Sachs & Co. pursuant to the GS 10b5-1 Plan was intended to satisfy the conditions of Rules 10b5-1 and 10b-18 under the Exchange Act, and was otherwise subject to applicable law. Under the GS 10b5-1 Plan, Goldman, Sachs & Co. increased the volume of purchases made anytime the market price per share of our common stock declined below the most recently reported NAV per share, subject to volume restrictions. Purchases of our common stock by Goldman, Sachs & Co. under the GS 10b5-1 Plan may have resulted in the price of our common stock being higher than the price that otherwise might have existed in the open market. For the three months ended March 31, 2016, Goldman, Sachs & Co. purchased 432,638 shares of our common stock pursuant to the GS 10b5-1 Plan.

Common Stock Repurchase Plans

In February 2015, our Board of Directors approved a common stock repurchase plan (the “Company Repurchase Plan”), which authorized our purchase of up to $35.00 million of our common stock in the open market during open trading periods. No repurchases were made pursuant to the Company Repurchase Plan which expired on March 18, 2016.

 

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In February 2016, our Board of Directors authorized us to repurchase up to $25.00 million of our common stock if the stock trades below the most recently announced NAV per share (including any updates, corrections or adjustments publicly announced by the Company to any previously announced NAV per share), from March 18, 2016 to March 18, 2017, subject to certain limitations. In connection with this authorization, we entered into a 10b5-1 plan (the “Company 10b5-1 Plan”). The Company 10b5-1 Plan provides that purchases will be conducted on the open market on a programmatic basis in accordance with Rules 10b5-1 and 10b-18 under the Exchange Act and will otherwise be subject to applicable law, including Regulation M, which may prohibit purchases under certain circumstances. No purchases will be effected pursuant to the Company 10b5-1 Plan if such purchase would (i) cause the aggregate ownership of our outstanding stock by Group Inc. and Goldman, Sachs & Co. to equal or exceed 25.0% (due to the reduction in outstanding shares of stock as a result of purchase) or (ii) cause our debt/equity ratio to exceed 0.75. The Company 10b5-1 Plan took effect on March 18, 2016 (with any purchases to commence after the opening of NYSE trading on March 21, 2016) and expires on March 18, 2017.

Repurchases of our common stock under the Company 10b5-1 Plan or otherwise may result in the price of our common stock being higher than the price that otherwise might exist in the open market. For the three months ended March 31, 2016, we did not repurchase any stock pursuant to the Company 10b5-1 Plan or otherwise.

Dividend Reinvestment Plan

Concurrent with the IPO, we adopted a dividend reinvestment plan that provides for reinvestment of all cash distributions declared by the Board of Directors unless a stockholder elects to “opt out” of the plan. As a result, if the Board of Directors declares a cash distribution, then the stockholders who have not “opted out” of the dividend reinvestment plan will have their cash distributions automatically reinvested in additional shares of common stock, rather than receiving the cash distribution. Due to regulatory considerations, Group Inc. has opted out of the dividend reinvestment plan, and Goldman, Sachs & Co. has opted out of the dividend reinvestment plan in respect of any shares of our common stock acquired through the 10b5-1 Plan. The following table summarizes shares distributed pursuant to the dividend reinvestment plan during the three months ended March 31, 2016 to stockholders who had not opted out of the dividend reinvestment plan.

 

 

  Date Declared

         Record Date                Payment Date                 Shares        

  November 3, 2015

   December 31, 2015    January 28, 2016      8,206   

For the three months ended March 31, 2015, no shares were distributed pursuant to the dividend reinvestment plan.

 

Contractual Obligations

We have entered into certain contracts under which we have future commitments. Payments under the Investment Management Agreement, pursuant to which GSAM has agreed to serve as our investment adviser, are equal to (1) a percentage of value of our average gross assets and (2) a two-part Incentive Fee. Under the Administration Agreement, pursuant to which State Street Bank and Trust Company has agreed to furnish us with the administrative services necessary to conduct our day-to-day operations, we pay our administrator such fees as may be agreed between us and our administrator that we determine are commercially reasonable in our sole discretion. Either party may terminate the Investment Management Agreement without penalty on least 60 days’ written notice to the other party. Either party may terminate the Administration Agreement without penalty upon at least 30 days’ written notice to the other party.

 

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The following table shows our contractual obligations as of March 31, 2016:

 

     Payments Due by Period (Millions)  
     Total      Less Than
1 Year
     1 – 3 Years      3 – 5 Years      More Than
5 Years
 

Revolving Credit Facility

   $     428.05        $                   –        $                   –        $           428.05        $                   –    

Revolving Credit Facility

On September 19, 2013, we entered into the Revolving Credit Facility with various lenders. SunTrust Bank serves as administrative agent and Bank of America N.A. serves as syndication agent under the Revolving Credit Facility.

On October 3, 2014, we amended and restated the Revolving Credit Facility to, among other things:

 

   

increase the aggregate borrowing amount of $340.00 million to $485.00 million on a committed basis;

 

   

increase the total borrowing capacity from a maximum of $500.00 million to $900.00 million;

 

   

extend the maturity date from September 19, 2017 to October 3, 2019; and

 

   

reduce the applicable margin of borrowings with respect to (i) any loan bearing interest at a rate determined by reference to the alternate base rate from 1.50% to 1.25% and (ii) any loan bearing interest at a rate determined by reference to the adjusted LIBOR rate from 2.50% to 2.25%.

On January 16, 2015, we exercised the right under the accordion feature and increased the size of the Revolving Credit Facility to $535.00 million, on a committed basis.

On March 27, 2015, we exercised the right under the accordion feature and increased the size of the Revolving Credit Facility to $560.00 million, on a committed basis.

On November 3, 2015, we further amended the Revolving Credit Facility to, among other things:

 

   

increase the aggregate borrowing amount to $570.00 million on a committed basis;

 

   

increase the total borrowing capacity to a maximum of $1,000.00 million;

 

   

extend the final maturity date to November 4, 2020; and

 

   

reduce the applicable margin of borrowings with respect to (i) any loan bearing interest at a rate determined by reference to the alternate base rate from 1.25% to 0.75% or 1.00%, subject to borrowing base conditions and (ii) any loan bearing interest at a rate determined by reference to the adjusted LIBOR rate from 2.25% to 1.75% or 2.00%, subject to borrowing base conditions.

Borrowings under the Revolving Credit Facility, including amounts drawn in respect of letters of credit, bear interest (at the Company’s election) of either LIBOR plus an applicable margin or applicable margin plus the higher of the Prime Rate, Federal Funds Rate plus 0.5% or overnight LIBOR plus 1.0%. Interest is payable quarterly in arrears. We pay a fee of 0.375% per annum on committed but undrawn amounts under the Revolving Credit Facility, payable quarterly in arrears. Any amounts borrowed under the Revolving Credit Facility will mature, and all accrued and unpaid interest will be due and payable, on November 4, 2020.

The Revolving Credit Facility may be guaranteed by certain of our domestic subsidiaries that are formed or acquired by us in the future (collectively, the “Guarantors”). The Senior Credit Fund is not a Guarantor of the Revolving Credit Facility. Proceeds from borrowings may be used for general corporate purposes, including the funding of portfolio investments.

Our obligations to the lenders under the Revolving Credit Facility are secured by a first priority security interest in substantially the entire portfolio of investments and cash held by us and each Guarantor, if any. The Revolving Credit Facility contains certain customary covenants, including: (i) maintaining a minimum shareholder’s equity of $458.09 million, subject to increase from certain equity sales, (ii) maintaining an asset coverage ratio of at least 2 to 1, (iii) maintaining a minimum liquidity test of at least 10% of the “covered debt amount” during any period when the “adjusted covered debt balance” is greater than 90% of the “adjusted borrowing base,” as such quoted terms are defined in the Revolving Credit Facility and (iv) restrictions on industry concentrations in our investment portfolio. As of March 31, 2016, we were in compliance with these covenants.

The Revolving Credit Facility also includes customary representations and warranties, conditions precedent to funding of draws and events of default.

 

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HEDGING

To the extent that any of our loans is denominated in a currency other than U.S. dollars, we may enter into currency hedging contracts to reduce our exposure to fluctuations in currency exchange rates. We may also enter into interest rate hedging agreements. Such hedging activities, which will be subject to compliance with applicable legal requirements, may include the use of futures, options, swaps and forward contracts. Costs incurred in entering into such contracts or in settling them, if any, will be borne by us. Our investment adviser has claimed no-action relief from CFTC registration and regulation as a commodity pool operator pursuant to a CFTC staff no-action letter with respect to our operations, with the result that we will be limited in our ability to use futures contracts or options on futures contracts or engage in swap transactions. As of March 31, 2016, no hedging arrangements were used.

OFF-BALANCE SHEET ARRANGEMENTS

We may become a party to financial instruments with off-balance sheet risk in the normal course of our business to fund investments and to meet the financial needs of our portfolio companies. These instruments may include commitments to extend credit and involve, to varying degrees, elements of liquidity and credit risk in excess of the amount recognized in the balance sheet. As of March 31, 2016 and 2015, our off-balance sheet arrangements consisted of the following:

 

    As of  
            March 31,        
2016
         December 31,     
2015
 
    (in millions)  

Unfunded Commitments

 

First Lien/Senior Secured Debt

  $ 2.50        $ 2.50     

First Lien/Last-Out Unitranche

    –          3.51     
 

 

 

   

 

 

 

Total

  $ 2.50        $ 6.01     
 

 

 

   

 

 

 

RECENT DEVELOPMENTS

In April 2016, the Company and Cal Regents each contributed $4.14 million to the Senior Credit Fund, a controlled affiliated investment.

Effective May 2, 2016, we entered into a transfer agency and services agreement pursuant to which Computershare Trust Company, N.A. serves as the Company’s transfer agent and registrar. In connection with our entry into the agreement, we amended and restated the dividend reinvestment plan to reflect Computershare Trust Company, N.A. as the administrator of the dividend reinvestment plan. Stockholders wishing to opt out of, or opt in to (once an election to opt out has been made), the dividend reinvestment plan may do so by contacting Computershare Trust Company, N.A. at 855-807-2742.

On May 3, 2016, our Board of Directors declared a quarterly distribution of $0.45 per share payable on or about July 15, 2016 to holders of record as of June 30, 2016.

NEW ACCOUNTING PRONOUNCEMENTS

In April 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2015-03, “Simplifying the Presentation of Debt Issuance Costs.” ASU 2015-03 requires that debt issuance costs be presented as a direct deduction from the carrying amount of the related debt liability, consistent with the presentation of debt discounts. Upon adoption, the standard requires prior period financial statements to be retrospectively adjusted. Prior to the issuance of ASU 2015-03, debt issuance costs were required to be presented as deferred assets, separate from the related debt liability. ASU 2015-03 does not change the recognition and measurement requirements for debt issuance costs. ASU 2015-03 is effective for financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years, with early adoption permitted. We have adopted this standard effective January 1, 2016 and determined there to be no impact on our consolidated financial statements.

In January 2016, the FASB issued ASU No. 2016-01, “Financial Instruments (Topic 825) — Recognition and Measurement of Financial Assets and Financial Liabilities”, which amends certain aspects of recognition, measurement, presentation and disclosure of financial instruments. The new ASU requires an entity to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments. Additionally, the ASU changes the disclosure requirements for financial instruments. ASU 2016-01 is effective for annual reporting periods, and the interim periods within those periods, beginning after December 15, 2017 and early adoption is permitted for certain provisions. We are currently evaluating the impact of adopting this ASU on our consolidated financial statements.

 

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CRITICAL ACCOUNTING POLICIES

Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of these consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. Changes in the economic environment, financial markets and any other parameters used in determining such estimates could cause actual results to differ materially. In addition to the discussion below, our critical accounting policies are further described in the notes to the consolidated financial statements.

Valuation of Portfolio Investments

As a BDC, we conduct the valuation of our assets, pursuant to which our NAV is determined, at all times consistent with GAAP and the Investment Company Act. Our Board of Directors, with the assistance of our Audit Committee, determines the fair value of our assets on at least a quarterly basis, in accordance with the terms of FASB Accounting Standards Codification Topic 820, Fair Value Measurement and Disclosures (“ASC 820”). Our valuation procedures are described in more detail below.

ASC 820 defines fair value as 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. Fair value is a market-based measurement, not an entity-specific measurement. For some assets and liabilities, observable market transactions or market information might be available. For other assets and liabilities, observable market transactions and market information might not be available. However, the objective of a fair value measurement in both cases is the same—to estimate the price when an orderly transaction to sell the asset or transfer the liability would take place between market participants at the measurement date under current market conditions (that is, an exit price at the measurement date from the perspective of a market participant that holds the asset or owes the liability).

ASC 820 establishes a hierarchal disclosure framework which ranks the observability of inputs used in measuring financial instruments at fair value. The observability of inputs is impacted by a number of factors, including the type of financial instruments and their specific characteristics. Financial instruments with readily available quoted prices, or for which fair value can be measured from quoted prices in active markets, generally will have a higher degree of market price observability and a lesser degree of judgment applied in determining fair value. The levels used for classifying investments are not necessarily an indication of the risk associated with investing in these securities.

The three-level hierarchy for fair value measurement is defined as follows:

Level 1—inputs to the valuation methodology are quoted prices available in active markets for identical instruments as of the reporting date. The types of financial instruments included in Level 1 include unrestricted securities, including equities and derivatives, listed in active markets.

Level 2—inputs to the valuation methodology are other than quoted prices in active markets, which are either directly or indirectly observable as of the reporting date. The type of financial instruments in this category includes less liquid and restricted securities listed in active markets, securities traded in other than active markets, government and agency securities, and certain over-the-counter derivatives where the fair value is based on observable inputs.

Level 3—inputs to the valuation methodology are unobservable and significant to overall fair value measurement. The inputs into the determination of fair value require significant management judgment or estimation. Financial instruments that are included in this category include investments in privately held entities and certain over-the-counter derivatives where the fair value is based on unobservable inputs.

In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the determination of which category within the fair value hierarchy is appropriate for any given financial instrument 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 requires judgment and considers factors specific to the financial instrument.

Currently, the majority of our investments fall within Level 3 of the fair value hierarchy. We do not expect that there will be readily available market values for most of the investments which are in our portfolio, and we value such investments at fair value as determined in good faith by or under the direction of our Board of Directors using a documented valuation policy, described below, and a consistently applied valuation process. The factors that may be taken into account in pricing our investments at fair value include, as relevant, the nature and realizable value of any collateral, the portfolio company’s ability to make payments and its earnings and discounted cash flow, and the markets in which the portfolio company does business, comparison to publicly traded securities and other relevant factors. Available current market data are considered such as applicable market yields and multiples of publicly traded securities, comparison of financial ratios of peer companies, and changes in the interest rate environment and the credit markets that may affect the price at which similar investments would trade in their principal market, and other relevant factors. When an external event such as a purchase transaction, public offering or subsequent equity sale occurs, we consider the pricing indicated by the external event to corroborate or revise our valuation.

 

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With respect to investments for which market quotations are not readily available, or for which market quotations are deemed not reflective of the fair value, the valuation procedures adopted by our Board of Directors contemplates a multi-step valuation process each quarter, as described below:

 

  (1)

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

 

  (2)

Our Board of Directors also engages independent valuation firms (the “Independent Valuation Advisors”) to provide independent valuations of the investments for which market quotations are not readily available, or are readily available but deemed not reflective of the fair value of an investment. The Independent Valuation Advisors independently value such investments using quantitative and qualitative information provided by the investment professionals of the investment adviser as well as any market quotations obtained from independent pricing services, brokers, dealers or market dealers. The Independent Valuation Advisors also provide analyses to support their valuation methodology and calculations. The Independent Valuation Advisors provide an opinion on a final range of values on such investments to our Board of Directors or the Audit Committee. The Independent Valuation Advisors define fair value in accordance with ASC 820 and utilize valuation techniques including the market approach, the income approach or both. A portion of the portfolio is reviewed on a quarterly basis, and all investments in the portfolio for which market quotations are not readily available, or are readily available, but deemed not reflective of the fair value of an investment, are reviewed at least annually by an Independent Valuation Advisor;

 

  (3)

The Independent Valuation Advisors’ preliminary valuations are reviewed by our investment adviser and the Valuation Oversight Group (“VOG”), a team that is part of the Controllers Department within the Finance Division of Goldman Sachs. The Independent Valuation Advisors’ ranges are compared to our investment adviser’s valuations to ensure our investment adviser’s valuations are reasonable. VOG presents the valuations to the Private Investment Sub-Committee of the Investment Management Division Valuation Committee, which is comprised of representatives from GSAM who are independent of the investment making decision process;

 

  (4)

The Investment Management Division Valuation Committee ratifies fair valuations and makes recommendations to the Audit Committee of the Board of Directors;

 

  (5)

The Audit Committee of our Board of Directors reviews valuation information provided by the Investment Management Division Valuation Committee, our investment adviser and the Independent Valuation Advisors. The Audit Committee then assesses such valuation recommendations; and

 

  (6)

Our Board of Directors discusses the valuations and, within the meaning of the Investment Company Act, determines the fair value of our investments in good faith, based on the input of our investment adviser, the Independent Valuation Advisors and the Audit Committee.

Investment Transactions and Related Investment Income

We record our investment transactions on a trade date basis. Realized gains and losses are based on the specific identification method. Dividend income on common equity investments are recorded on the record date for private portfolio companies or on the ex-dividend date for publicly traded portfolio companies. Interest income and dividend income are presented net of withholding tax, if any. Interest income and expense include accretion of discounts and amortization of premiums are recorded over the life of the underlying instrument using the effective interest method.

Fair value generally is based on quoted market prices, broker or dealer quotations, or alternative price sources. In the absence of quoted market prices, broker or dealer quotations, or alternative price sources, investments in securities are measured at fair value as determined by our investment adviser and/or by one or more independent third parties.

Due to the inherent uncertainties of valuation, certain estimated fair values may differ significantly from the values that would have been realized had a ready market for these investments existed, and these differences could be material. For additional information, see Note 2 “Significant Accounting Policies” to our consolidated financial statements included in this report.

 

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Non-Accrual Status

Loans or debt securities are placed on non-accrual status when there is reasonable doubt that principal or interest will be collected. Accrued interest generally is reversed when a loan or debt security is placed on non-accrual status. Interest payments received on non-accrual loans or debt securities may be recognized as income or applied to principal depending upon management’s judgment. Non-accrual loans and debt securities are restored to accrual status when past due principal and interest is paid and, in management’s judgment, are likely to remain current. We may make exceptions to this treatment if the loan has sufficient collateral value and is in the process of collection.

Distribution Policy

We intend to pay quarterly distributions to our stockholders out of assets legally available for distribution. Future quarterly distributions, if any, will be determined by our Board of Directors. All distributions will be subject to lawfully available funds therefor, and no assurance can be given that we will be able to declare distributions in future periods.

We have elected to be treated, and intend to qualify annually, as a RIC under Subchapter M of the Code, commencing with our taxable year ended December 31, 2013. To obtain and maintain RIC status, we must, among other things, timely distribute to our stockholders at least 90% of our investment company taxable income for each taxable year. We intend to timely distribute to our stockholders substantially all of our annual taxable income for each year, except that we may retain certain net capital gains for reinvestment and, depending upon the level of taxable income earned in a year, we may choose to carry forward taxable income for distribution in the following year and pay any applicable U.S. federal excise tax. The distributions we pay to our stockholders in a year may exceed our net ordinary income and capital gains for that year and, accordingly, a portion of such distributions may constitute a return of capital for U.S. federal income tax purposes. The specific tax characteristics of our distributions will be reported to stockholders after the end of the calendar year. Stockholders should read carefully any written disclosure regarding a distribution from us and should not assume that the source of any distribution is our net ordinary income or capital gains.

We have adopted an “opt out” dividend reinvestment plan for our common stockholders. As a result, if our Board of Directors declares a cash distribution, each stockholder that has not “opted out” of our dividend reinvestment plan will have its distribution automatically reinvested in additional shares of our common stock rather than receiving the cash distribution. Stockholders who receive distributions in the form of shares of common stock will generally be subject to the same U.S. federal, state and local tax consequences as if they received cash distributions and, for this purpose, stockholders receiving distributions in the form of stock will generally be treated as receiving distributions equal to the fair market value of the stock received through the plan; however, since their cash distributions will be reinvested, those stockholders will not receive cash with which to pay any applicable taxes. Due to regulatory considerations, Group Inc. has opted out of the dividend reinvestment plan, and Goldman, Sachs & Co. has opted out of the dividend reinvestment plan in respect of any shares of our common stock acquired through the 10b5-1 Plan.

Federal Income Taxes

As a RIC, we generally will not pay corporate-level U.S. federal income taxes on any net ordinary income or capital gains that we timely distribute to our stockholders as dividends. To maintain our RIC status, we must meet specified source-of-income and asset diversification requirements and timely distribute to our stockholders at least 90% of our investment company taxable income for each year. Depending upon the level of taxable income earned in a year, we may choose to carry forward taxable income for distribution in the following year and pay any applicable U.S. federal excise tax. We generally will be required to pay such U.S. federal excise tax if our distributions during a calendar year do not exceed the sum of (1) 98% of our net ordinary income (taking into account certain deferrals and elections) for the calendar year, (2) 98.2% of our capital gains in excess of capital losses for the one-year period ending on October 31 of the calendar year and (3) any net ordinary income and capital gains in excess of capital losses for preceding years that were not distributed during such years.

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

 

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ITEM 3.    QUANTITATIVE  AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are subject to financial market risks, most significantly changes in interest rates. Interest rate sensitivity refers to the change in our earnings that may result from changes in the level of interest rates. Because we expect to fund a portion of our investments with borrowings, our net investment income is expected to be affected by the difference between the rate at which we invest and the rate at which we borrow. As a result, we can offer no assurance that a significant change in market interest rates will not have a material adverse effect on our net investment income.

As of March 31, 2016, on a fair value basis, approximately 12.7% of our performing debt investments bore interest at a fixed rate (including income producing preferred stock investments), and approximately 87.3% of our performing debt investments bore interest at a floating rate.

We regularly measure our 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 our March 31, 2016 balance sheet, the following table shows the annual impact on net income of base rate changes in interest rates (considering interest rate floors for variable rate instruments) assuming no changes in our investment and borrowing structure:

 

As of March 31, 2016

Basis Point Change

   Interest
Income
     Interest
Expense
     Net
Income
 
($ in millions)                     

Up 300 basis points

     $      20.08         $      (11.98)         $      8.10   

Up 200 basis points

     12.09         (7.99)         4.10   

Up 100 basis points

     4.09         (3.99)         0.10   

Up 75 basis points

     2.13         (2.99)         (0.86)   

Up 50 basis points

     0.55         (2.00)         (1.45)   

Up 25 basis points

     -         (1.00)         (1.00)   

Down 25 basis points

     -         1.00         1.00   

Down 50 basis points

     0.01         1.74         1.75   

Down 75 basis points

     0.01         1.74         1.75   

Down 100 basis points

     0.01         1.74         1.75   

Down 200 basis points

     0.01         1.74         1.75   

Down 300 basis points

     0.01         1.74         1.75   

We may, in the future, hedge against interest rate fluctuations by using standard hedging instruments such as futures, options and forward contracts subject to the requirements of the Investment Company Act. While hedging activities may insulate us against adverse changes in interest rates, they may also limit our ability to participate in benefits of lower interest rates with respect to our portfolio of investments with fixed interest rates.

Inflation

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

 

ITEM 4.    CONTROLS  AND PROCEDURES

Evaluation of Disclosure Controls and Procedures. As of the end of the period covered by this report, our management carried out an evaluation, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) under the Exchange Act). Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our current disclosure controls and procedures are effective in timely alerting them to material information relating to us that is required to be disclosed by us in the reports we file or submit under the Exchange Act. In designing and evaluating our disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives, and management necessarily applies its judgment in evaluating the benefits of possible controls and procedures relative to their costs.

 

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Changes in Internal Control over Financial Reporting. There have been no changes in our internal control over financial reporting that occurred during our most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II – OTHER INFORMATION

Item 1. Legal Proceedings.

From time to time, we may be a party to certain legal proceedings in the ordinary course of business, including proceedings relating to the enforcement of our rights under loans to or other contracts with our portfolio companies. We are not currently subject to any material legal proceedings, nor, to our knowledge, is any material legal proceeding threatened against us.

Item 1A. Risk Factors.

An investment in our securities involves a high degree of risk. Except as set forth below, there have been no material changes to the risk factors previously reported under Item 1A: “Risk Factors” of our Form 10-K for the year ended December 31, 2015, which was filed with the SEC on March 2, 2016. Additional risks and uncertainties not currently known to the Company or that it currently deems to be immaterial may materially affect its business, financial condition and/or operating results.

Purchases of our common stock pursuant to the Company 10b5-1 Plan or otherwise may result in the price of our common stock being higher than the price that otherwise might exist in the open market.

We are authorized to purchase up to $25.00 million of shares of our common stock if the stock trades below the most recently announced net asset value per share (including any updates, corrections or adjustments publicly announced by us to any previously announced net asset value per share), subject to certain limitations, until March 18, 2017. Any such purchases will be conducted in accordance with applicable securities laws. Whether purchases will be made under the Company 10b5-1 Plan or otherwise and how much will be purchased at any time is uncertain, dependent on prevailing market prices and trading volumes, all of which we cannot predict. These activities may have the effect of maintaining the market price of our common stock or retarding a decline in the market price of the common stock, and, as a result, the price of our common stock may be higher than the price that otherwise might exist in the open market.

Purchases of our common stock by us under the Company 10b5-1 Plan or otherwise may result in dilution to our net asset value per share.

We are authorized to repurchase shares of common stock when the market price per share is below the most recently reported net asset value per share (including any updates, corrections or adjustments publicly announced by us to any previously announced net asset value per share), including under the Company 10b5-1 Plan. Because purchases may be made beginning at any price below our most recently reported net asset value per share, if our net asset value per share decreases after the date as of which net asset value per share was last reported, such purchases may result in dilution to our net asset value per share. This dilution would occur because we would repurchase shares at a price above the then-current net asset value per share, which would cause a proportionately smaller increase in our stockholders’ interest in our earnings and assets and their voting interest in us than the decrease in our assets resulting from such repurchase. As a result of any such dilution, our market price per share may decline. The actual dilutive effect will depend on the number of shares of common stock that could be so repurchased, the price and the timing of any repurchases.

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

 

(amounts in thousands, except share

and per share amounts)
Period

  Total Number
of Shares
Purchased
    Average
Price Paid

per Share
    Total Number of Shares
Purchasedas Part of
Publicly Announced Plans
or Programs(1)
    Approximate
Dollar Value
of Shares that May
Yet Be Purchased

Under the Plans
or Programs
 

January 1, 2016 – January 31, 2016

    210,572        18.69        210,572      $ 16,886   

February 1, 2016 – February 29, 2016

    194,152        18.15        194,152        13,363   

March 1, 2016 – March 31, 2016

    27,914        18.64        27,914        12,842   
 

 

 

     

 

 

   

Total

    432,638          432,638     
 

 

 

     

 

 

   

 

(1)  All of the shares reported in the table were purchased by Goldman, Sachs & Co. pursuant to the GS 10b5-1 Plan, which was entered into on March 17, 2015 and expired on March 18, 2016. The 10b5-1 Plan provided for the purchase by Goldman, Sachs & Co. in the open market of up to the lesser of (i) $25.00 million in the aggregate of our common stock and (ii) such amount that would not bring its collective ownership (with Group Inc.) of our common stock over 19.9%.

 

   None of the shares reported in the table were purchased by the Company pursuant to the Company Repurchase Plan, which expired on March 18, 2016, or the Company’s current authorization to repurchase shares, which expires on March 18, 2017.

Item 3. Defaults Upon Senior Securities.

Not applicable.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

Not applicable.

Item 6. Exhibits.

The exhibits filed as part of this Quarterly Report on Form 10-Q are set forth on the Index to Exhibits, which is incorporated herein by reference.

 

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

  

GOLDMAN SACHS BDC, INC.

Date: May 9, 2016

  

/s/ Brendan McGovern

  

Brendan McGovern

Chief Executive Officer and President

(Principal Executive Officer)

Date: May 9, 2016

  

/s/ Jonathan Lamm

  

Jonathan Lamm

Chief Financial Officer and Treasurer

(Principal Financial Officer and Principal Accounting Officer)

 

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INDEX TO EXHIBITS

 

EXHIBIT

NO.

 

EXHIBIT

  3.1  

Certificate of Incorporation (incorporated by reference to Exhibit (a) to Pre-Effective Amendment No. 7 to the Company’s Registration Statement on Form N-2 (file no. 333-187642), filed on March 3, 2015).

  3.2  

Bylaws (incorporated by reference to Exhibit (b) to Pre-effective Amendment No. 7 to the Company’s Registration Statement on Form N-2 (file no. 333-187642), filed on March 3, 2015).

  10.1   Amended and Restated Dividend Reinvestment Plan.
  10.2   Transfer Agency and Service Agreement, effective as of May 2, 2016, by and between Registrant, Computershare Inc. and Computershare Trust Company, N.A.
  31.1   Certification of Chief Executive Officer pursuant to Securities Exchange Act Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
  31.2  

Certification of Chief Financial Officer pursuant to Securities Exchange Act Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

  32  

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

 

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