Attached files
file | filename |
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EX-32.2 - EX-32.2 - SLR Senior Investment Corp. | d277525dex322.htm |
EX-32.1 - EX-32.1 - SLR Senior Investment Corp. | d277525dex321.htm |
EX-31.2 - EX-31.2 - SLR Senior Investment Corp. | d277525dex312.htm |
EX-31.1 - EX-31.1 - SLR Senior Investment Corp. | d277525dex311.htm |
Table of Contents
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 Quarter Ended September 30, 2016
¨ | Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
Commission File Number: 814-00849
SOLAR SENIOR CAPITAL LTD.
(Exact name of registrant as specified in its charter)
Maryland | 27-4288022 | |
(State of Incorporation) | (I.R.S. Employer Identification No.) | |
500 Park Avenue New York, N.Y. |
10022 | |
(Address of principal executive offices) | (Zip Code) |
(212) 993-1670
(Registrants telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months 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 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, or a non-accelerated filer. See definition of accelerated filer and large accelerated filer in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer | ¨ | Accelerated filer | x | |||
Non-accelerated filer | ¨ | Smaller Reporting Company | ¨ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
The number of shares of the registrants Common Stock, $.01 par value, outstanding as of November 1, 2016 was 16,025,011.
Table of Contents
FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 2016
TABLE OF CONTENTS
PAGE | ||||||
PART I. FINANCIAL INFORMATION | ||||||
Item 1. |
Financial Statements | |||||
3 | ||||||
4 | ||||||
5 | ||||||
6 | ||||||
Consolidated Schedule of Investments as of September 30, 2016 (unaudited) |
7 | |||||
Consolidated Schedule of Investments as of December 31, 2015 |
10 | |||||
13 | ||||||
33 | ||||||
Item 2. |
Managements Discussion and Analysis of Financial Condition and Results of Operations | 34 | ||||
Item 3. |
Quantitative and Qualitative Disclosures About Market Risk | 53 | ||||
Item 4. |
Controls and Procedures | 53 | ||||
PART II. OTHER INFORMATION | ||||||
Item 1. |
Legal Proceedings | 55 | ||||
Item 1A. |
Risk Factors | 55 | ||||
Item 2. |
Unregistered Sales of Equity Securities and Use of Proceeds | 55 | ||||
Item 3. |
Defaults Upon Senior Securities | 55 | ||||
Item 4. |
Mine Safety Disclosures | 55 | ||||
Item 5. |
Other Information | 55 | ||||
Item 6. |
Exhibits | 56 | ||||
Signatures | 58 |
2
Table of Contents
In this Quarterly Report, Solar Senior, Company, Fund, we, us, and our refer to Solar Senior Capital Ltd. unless the context states otherwise.
Item 1. | Financial Statements |
CONSOLIDATED STATEMENTS OF ASSETS AND LIABILITIES
(in thousands, except share amounts)
September 30, 2016 (unaudited) |
December 31, 2015 |
|||||||
Assets |
||||||||
Investments at fair value: |
||||||||
Companies less than 5% owned (cost: $267,355 and $253,373, respectively) |
$ | 261,479 | $ | 242,502 | ||||
Companies 5% to 25% owned (cost: $3,754 and $3,816, respectively) |
1,986 | 2,423 | ||||||
Companies more than 25% owned (cost: $64,347 and $62,423, respectively) |
64,448 | 61,593 | ||||||
|
|
|
|
|||||
Total investments (cost: $335,456 and $319,612, respectively) |
327,913 | 306,518 | ||||||
Cash |
4,336 | 3,070 | ||||||
Cash equivalents (cost: $184,962 and $49,997, respectively) |
184,962 | 49,997 | ||||||
Receivable for investments sold |
17 | 45 | ||||||
Dividends receivable |
1,391 | 526 | ||||||
Interest receivable |
1,151 | 2,040 | ||||||
Prepaid expenses and other assets |
329 | 381 | ||||||
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|
|
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Total assets |
$ | 520,099 | $ | 362,577 | ||||
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|
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Liabilities |
||||||||
Credit facility payable (see notes 6 and 7) |
$ | 43,000 | $ | 116,200 | ||||
Payable for investments and cash equivalents purchased |
204,312 | 54,897 | ||||||
Distributions payable |
1,825 | 1,355 | ||||||
Management fee payable (see note 3) |
852 | 831 | ||||||
Performance-based incentive fee payable (see note 3) |
118 | | ||||||
Interest payable (see note 7) |
224 | 262 | ||||||
Administrative services expense payable (see note 3) |
455 | 534 | ||||||
Other liabilities and accrued expenses |
447 | 194 | ||||||
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|
|
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Total liabilities |
$ | 251,233 | $ | 174,273 | ||||
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Commitments and contingencies (see notes 10 and 11) |
||||||||
Net Assets |
||||||||
Common stock, par value $0.01 per share, 200,000,000 and 200,000,000 common shares authorized, respectively, and 16,025,011 and 11,533,315 issued and outstanding, respectively |
$ | 160 | $ | 115 | ||||
Paid-in capital in excess of par |
286,413 | 211,486 | ||||||
Distributions in excess of net investment income |
(5,185 | ) | (5,185 | ) | ||||
Accumulated net realized loss |
(4,979 | ) | (5,018 | ) | ||||
Net unrealized depreciation |
(7,543 | ) | (13,094 | ) | ||||
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|
|
|||||
Total net assets |
$ | 268,866 | $ | 188,304 | ||||
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|
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Net Asset Value Per Share |
$ | 16.78 | $ | 16.33 | ||||
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|
|
|
See notes to consolidated financial statements.
3
Table of Contents
CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
(in thousands, except share amounts)
Three months ended | Nine months ended | |||||||||||||||
September 30, 2016 |
September 30, 2015 |
September 30, 2016 |
September 30, 2015 |
|||||||||||||
INVESTMENT INCOME: |
||||||||||||||||
Interest: |
||||||||||||||||
Companies less than 5% owned |
$ | 5,165 | $ | 4,948 | $ | 14,456 | $ | 15,265 | ||||||||
Companies 5% to 25% owned |
51 | 55 | 153 | 162 | ||||||||||||
Dividends: |
||||||||||||||||
Companies more than 25% owned |
1,767 | 1,433 | 5,278 | 3,709 | ||||||||||||
Other income: |
||||||||||||||||
Companies less than 5% owned |
1 | 74 | 97 | 163 | ||||||||||||
Companies more than 25% owned |
17 | 10 | 47 | 19 | ||||||||||||
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Total investment income |
7,001 | 6,520 | 20,031 | 19,318 | ||||||||||||
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EXPENSES: |
||||||||||||||||
Management fees (see note 3) |
$ | 852 | $ | 882 | $ | 2,483 | $ | 2,627 | ||||||||
Performance-based incentive fees (see note 3) |
636 | 115 | 1,486 | 272 | ||||||||||||
Interest and other credit facility expenses (see note 7) |
870 | 895 | 2,634 | 3,387 | ||||||||||||
Administrative services expense (see note 3) |
301 | 309 | 895 | 845 | ||||||||||||
Other general and administrative expenses |
324 | 349 | 997 | 1,152 | ||||||||||||
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Total expenses |
2,983 | 2,550 | 8,495 | 8,283 | ||||||||||||
Performance-based incentive fees waived (see note 3) |
(518 | ) | (115 | ) | (1,131 | ) | (272 | ) | ||||||||
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Net expenses |
2,465 | 2,435 | 7,364 | 8,011 | ||||||||||||
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Net investment income |
$ | 4,536 | $ | 4,085 | $ | 12,667 | $ | 11,307 | ||||||||
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REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND CASH EQUIVALENTS: |
||||||||||||||||
Net realized gain on investments and cash equivalents (companies less than 5% owned) |
$ | 8 | $ | 37 | $ | 39 | $ | 86 | ||||||||
Net change in unrealized gain (loss) on investments and cash equivalents |
625 | (5,617 | ) | 5,551 | (5,906 | ) | ||||||||||
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Net realized and unrealized gain (loss) on investments and cash equivalents |
633 | (5,580 | ) | 5,590 | (5,820 | ) | ||||||||||
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NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS |
$ | 5,169 | $ | (1,495 | ) | $ | 18,257 | $ | 5,487 | |||||||
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EARNINGS (LOSS) PER SHARE (see note 5) |
$ | 0.42 | $ | (0.13 | ) | $ | 1.55 | $ | 0.48 | |||||||
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See notes to consolidated financial statements.
4
Table of Contents
CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS
(in thousands, except share amounts)
Nine months ended September 30, 2016 (unaudited) |
Year ended December 31, 2015 |
|||||||
Increase in net assets resulting from operations: |
||||||||
Net investment income |
$ | 12,667 | $ | 15,373 | ||||
Net realized gain |
39 | 18 | ||||||
Net change in unrealized gain (loss) |
5,551 | (14,344 | ) | |||||
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Net increase in net assets resulting from operations |
18,257 | 1,047 | ||||||
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Distributions to stockholders: |
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From net investment income |
(12,667 | ) | (16,262 | ) | ||||
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Capital transactions: |
||||||||
Net proceeds from shares sold |
75,255 | | ||||||
Less common stock offering costs |
(309 | ) | | |||||
Reinvestment of distributions |
26 | | ||||||
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Net increase in net assets resulting from capital transactions |
74,972 | | ||||||
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Total increase (decrease) in net assets |
80,562 | (15,215 | ) | |||||
Net assets at beginning of period |
188,304 | 203,519 | ||||||
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Net assets at end of period(1) |
$ | 268,866 | $ | 188,304 | ||||
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Capital share activity: |
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Common stock sold |
4,490,152 | | ||||||
Common stock issued from reinvestment of distributions |
1,544 | | ||||||
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Net increase from capital share activity |
4,491,696 | | ||||||
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(1) | Includes overdistributed net investment income of ($5,185) and ($5,185), respectively. |
See notes to consolidated financial statements.
5
Table of Contents
CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
(in thousands)
Nine months ended | ||||||||
September 30, 2016 |
September 30, 2015 |
|||||||
Cash Flows from Operating Activities: |
||||||||
Net increase in net assets resulting from operations |
$ | 18,257 | $ | 5,487 | ||||
Adjustments to reconcile net increase in net assets resulting from operations to net cash (used in) provided by operating activities: |
||||||||
Net realized gain on investments and cash equivalents |
(39 | ) | (86 | ) | ||||
Net change in unrealized (gain) loss on investments and cash equivalents |
(5,551 | ) | 5,906 | |||||
(Increase) decrease in operating assets: |
||||||||
Purchase of investments |
(74,812 | ) | (70,716 | ) | ||||
Proceeds from disposition of investments |
59,007 | 65,808 | ||||||
Capitalization of payment-in-kind interest |
| (78 | ) | |||||
Receivable for investments sold |
28 | (62 | ) | |||||
Interest receivable |
889 | (491 | ) | |||||
Dividends receivable |
(865 | ) | (624 | ) | ||||
Prepaid expenses and other assets |
52 | (30 | ) | |||||
Increase (decrease) in operating liabilities: |
||||||||
Payable for investments and cash equivalents purchased |
149,415 | (4,841 | ) | |||||
Management fee payable |
21 | 84 | ||||||
Performance-based incentive fee payable |
118 | | ||||||
Administrative services expense payable |
(79 | ) | (47 | ) | ||||
Interest payable |
(38 | ) | 12 | |||||
Other liabilities and accrued expenses |
253 | 361 | ||||||
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Net Cash Provided by Operating Activities |
146,656 | 683 | ||||||
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Cash Flows from Financing Activities: |
||||||||
Net proceeds from shares sold |
75,255 | | ||||||
Common stock offering costs |
(309 | ) | | |||||
Cash distributions paid |
(12,171 | ) | (12,196 | ) | ||||
Proceeds from borrowings |
61,600 | 34,900 | ||||||
Repayments of borrowings |
(134,800 | ) | (31,300 | ) | ||||
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Net Cash Used in Financing Activities |
(10,425 | ) | (8,596 | ) | ||||
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NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS |
136,231 | (7,913 | ) | |||||
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD |
53,067 | 42,471 | ||||||
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CASH AND CASH EQUIVALENTS AT END OF PERIOD |
$ | 189,298 | $ | 34,558 | ||||
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Supplemental disclosure of cash flow information: |
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Cash paid for interest |
$ | 2,672 | $ | 3,375 | ||||
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Non-cash financing activities consist of the reinvestment of dividends of $26 and $0 for the nine months ended September 30, 2016 and September 30, 2015, respectively. Additionally, during the nine months ended September 30, 2015, $29,584 of investments were transferred from the Company to First Lien Loan Program LLC (see note 11).
See notes to consolidated financial statements.
6
Table of Contents
CONSOLIDATED SCHEDULE OF INVESTMENTS (unaudited)
September 30, 2016
(in thousands, except share/unit amounts)
Description |
Industry |
Spread above Index(3) |
Libor Floor |
Interest Rate(1) |
Acquisition Date |
Maturity Date |
Par Amount |
Cost | Fair Value |
|||||||||||||||||||||||||
Bank Debt/Senior Secured Loans 98.0% |
||||||||||||||||||||||||||||||||||
ABB/Con-Cise Optical Group LLC(2) |
Health Care Supplies | L+500 | 1.00 | % | 6.00 | % | 6/14/2016 | 6/15/2023 | $ | 3,000 | $ | 2,971 | $ | 3,034 | ||||||||||||||||||||
Acrisure, LLC(2) |
Insurance | L+550 | 1.00 | % | 6.50 | % | 5/14/2015 | 5/19/2022 | 4,938 | 4,896 | 4,965 | |||||||||||||||||||||||
Advantage Sales and Marketing, Inc |
Professional Services | L+650 | 1.00 | % | 7.50 | % | 2/14/2013 | 7/25/2022 | 8,000 | 7,953 | 7,633 | |||||||||||||||||||||||
Aegis Toxicology Sciences Corporation |
Health Care Services | L+850 | 1.00 | % | 9.50 | % | 2/20/2014 | 8/24/2021 | 4,000 | 3,956 | 3,500 | |||||||||||||||||||||||
ALG B.V. (Apple Leisure)(2)(4) |
Hotels, Restaurants & Leisure | L+575 | 1.25 | % | 7.00 | % | 2/28/2013 | 2/28/2019 | 2,692 | 2,679 | 2,692 | |||||||||||||||||||||||
ALG USA Holdings, LLC (Apple Leisure)(2) |
Hotels, Restaurants & Leisure | L+575 | 1.25 | % | 7.00 | % | 2/28/2013 | 2/28/2019 | 3,568 | 3,552 | 3,568 | |||||||||||||||||||||||
American Seafoods Group LLC(2) |
Food Products | L+500 | 1.00 | % | 6.00 | % | 8/10/2015 | 8/19/2021 | 4,817 | 4,797 | 4,769 | |||||||||||||||||||||||
American Teleconferencing Services, Ltd. (PGI)(2) |
Communications Equipment | L+650 | 1.00 | % | 7.50 | % | 5/5/2016 | 12/8/2021 | 8,774 | 7,942 | 8,577 | |||||||||||||||||||||||
Asurion, LLC |
Insurance | L+750 | 1.00 | % | 8.50 | % | 2/27/2014 | 3/3/2021 | 2,240 | 2,168 | 2,233 | |||||||||||||||||||||||
Athletico Management, LLC and Accelerated Holdings, LLC(2) |
Health Care Facilities | L+550 | 0.75 | % | 6.34 | % | 12/1/2014 | 12/2/2020 | 9,048 | 8,981 | 9,048 | |||||||||||||||||||||||
Capstone Logistics Acqusition, Inc.(2) |
Professional Services | L+450 | 1.00 | % | 5.50 | % | 10/3/2014 | 10/7/2021 | 8,278 | 8,216 | 8,113 | |||||||||||||||||||||||
Castle Management Borrower LLC (Highgate Hotels)(2) |
Real Estate Management & Development |
L+450 | 1.00 | % | 5.50 | % | 10/10/2014 | 9/18/2020 | 7,601 | 7,548 | 7,487 | |||||||||||||||||||||||
CIBT Holdings, Inc.(2) |
Professional Services | L+525 | 1.00 | % | 6.25 | % | 6/28/2016 | 6/28/2022 | 2,620 | 2,595 | 2,594 | |||||||||||||||||||||||
Confie Seguros Holding II Co.(2) |
Insurance | L+450 | 1.25 | % | 7.00 | % | 11/9/2012 | 11/9/2018 | 10,175 | 10,140 | 10,175 | |||||||||||||||||||||||
ConvergeOne Holdings Corp.(2) |
Communications Equipment | L+500 | 1.00 | % | 6.00 | % | 6/16/2014 | 6/17/2020 | 6,843 | 6,797 | 6,774 | |||||||||||||||||||||||
CT Technologies Intermediate Holdings(2) |
Health Care Technology | L+425 | 1.00 | % | 5.25 | % | 12/1/2014 | 12/1/2021 | 3,402 | 3,384 | 3,368 | |||||||||||||||||||||||
Engineering Solutions & Products, LLC(6) |
Aerospace & Defense | L+600 | 2.00 | % | 8.00 | % | 11/5/2013 | 5/4/2018 | 44 | 44 | 44 | |||||||||||||||||||||||
Engineering Solutions & Products, LLC(6) |
Aerospace & Defense | L+600 | 2.00 | % | 8.00 | % | 11/5/2013 | 11/5/2018 | 2,343 | 2,343 | 1,874 | |||||||||||||||||||||||
Epic Health Services, Inc.(2) |
Health Care Services | L+475 | 1.00 | % | 5.75 | % | 2/20/2015 | 2/17/2021 | 4,803 | 4,773 | 4,755 | |||||||||||||||||||||||
GenMark Diagnostics, Inc(2)(4) |
Health Care Services | | | 6.90 | % | 4/22/2016 | 1/12/2019 | 9,643 | 9,467 | 9,643 | ||||||||||||||||||||||||
Global Tel*Link Corporation(2) |
Communications Equipment | L+375 | 1.25 | % | 5.00 | % | 11/6/2015 | 5/23/2020 | 3,436 | 3,070 | 3,337 | |||||||||||||||||||||||
Global Tel*Link Corporation |
Communications Equipment | L+775 | 1.25 | % | 9.00 | % | 5/21/2013 | 11/23/2020 | 3,000 | 2,962 | 2,856 | |||||||||||||||||||||||
HC Group Holdings III, Inc. (Walgreens)(2) |
Health Care Services | L+500 | 1.00 | % | 6.00 | % | 3/25/2015 | 4/7/2022 | 4,950 | 4,929 | 5,006 | |||||||||||||||||||||||
Hostway Corporation(2) |
Internet Software & Services | L+475 | 1.25 | % | 6.00 | % | 6/27/2014 | 12/13/2019 | 8,901 | 8,876 | 7,121 | |||||||||||||||||||||||
Innovative Xcessories & Services, LLC(2) |
Automotive Retail | L+400 | 1.00 | % | 5.00 | % | 8/21/2014 | 2/21/2020 | 4,442 | 4,413 | 4,409 | |||||||||||||||||||||||
Kellermeyer Bergensons Services, LLC (KBS)(2) |
Commercial Services & Supplies | L+500 | 1.00 | % | 6.00 | % | 10/31/2014 | 10/29/2021 | 4,875 | 4,838 | 4,753 | |||||||||||||||||||||||
LegalZoom.com, Inc.(2) |
Internet Software & Services | L+700 | 1.00 | % | 8.00 | % | 5/13/2015 | 5/13/2020 | 9,850 | 9,681 | 9,948 | |||||||||||||||||||||||
Lumeris Solutions Company, LLC(2) |
Health Care Technology | | | 9.42 | % | 4/22/2016 | 12/27/2017 | 2,495 | 2,513 | 2,520 | ||||||||||||||||||||||||
Material Handling Services, LLC (TFS)(2) |
Air Freight & Logistics | L+500 | 1.00 | % | 6.00 | % | 3/3/2014 | 3/26/2020 | 11,146 | 11,075 | 11,035 | |||||||||||||||||||||||
Mediware Information Systems, Inc.(2) |
Health Care Technology | L+475 | 1.00 | % | 5.75 | % | 9/26/2016 | 9/28/2023 | 5,000 | 4,950 | 4,950 | |||||||||||||||||||||||
Metamorph US 3, LLC (Metalogix)(2) |
Software | L+650 | 1.00 | % | 7.50 | % | 12/1/2014 | 12/1/2020 | 8,063 | 7,914 | 6,450 | |||||||||||||||||||||||
MYI Acquiror Corp. (McLarens Young)(2) |
Insurance | L+450 | 1.25 | % | 5.75 | % | 5/21/2014 | 5/28/2019 | 3,356 | 3,337 | 3,289 | |||||||||||||||||||||||
MYI Acquiror Ltd. (McLarens Young)(2)(4) |
Insurance | L+450 | 1.25 | % | 5.75 | % | 5/21/2014 | 5/28/2019 | 4,282 | 4,258 | 4,197 | |||||||||||||||||||||||
Novavax, Inc(4) |
Pharmaceuticals | | | 12.10 | % | 4/22/2016 | 12/1/2016 | 45 | 45 | 45 | ||||||||||||||||||||||||
Pearl Merger Sub LLC (PetVet)(2) |
Health Care Facilities | L+475 | 1.00 | % | 5.75 | % | 1/29/2015 | 12/17/2020 | 4,421 | 4,355 | 4,388 | |||||||||||||||||||||||
Polycom, Inc.(2) |
Communications Equipment | L+650 | 1.00 | % | 7.50 | % | 9/29/2016 | 9/27/2023 | 15,000 | 14,400 | 14,400 | |||||||||||||||||||||||
Precyse Acquisition Corp.(2) |
Health Care Services | L+550 | 1.00 | % | 6.50 | % | 4/19/2016 | 10/20/2022 | 2,993 | 2,950 | 3,019 | |||||||||||||||||||||||
PSP Group, LLC (Pet Supplies Plus)(2)(7) |
Specialty Retail | L+475 | 1.00 | % | 5.75 | % | 4/2/2015 | 4/6/2021 | 488 | 484 | 485 | |||||||||||||||||||||||
QBS Holding Company, Inc. (Quorum)(2) |
Software | L+475 | 1.00 | % | 5.75 | % | 8/1/2014 | 8/7/2021 | 6,386 | 6,339 | 6,195 | |||||||||||||||||||||||
Richelieu Foods, Inc.(2) |
Food Products | L+475 | 1.00 | % | 5.75 | % | 11/21/2014 | 5/21/2020 | 6,580 | 6,511 | 6,580 | |||||||||||||||||||||||
Salient Partners, L.P.(2) |
Asset Management | L+850 | 1.00 | % | 9.50 | % | 6/10/2015 | 6/9/2021 | 4,305 | 4,234 | 4,219 | |||||||||||||||||||||||
Securus Technologies, Inc |
Communications Equipment | L+775 | 1.25 | % | 9.00 | % | 4/17/2013 | 4/30/2021 | 10,000 | 9,943 | 9,669 | |||||||||||||||||||||||
SHO Holding I Corporation (Shoes for Crews)(2) |
Footwear | L+500 | 1.00 | % | 6.00 | % | 11/20/2015 | 10/27/2022 | 5,955 | 5,903 | 5,955 | |||||||||||||||||||||||
Strategic Partners Acquisition Corp.(2) |
Textiles, Apparel & Luxury Goods | L+525 | 1.00 | % | 6.25 | % | 6/24/2016 | 6/30/2023 | 2,000 | 1,980 | 2,011 | |||||||||||||||||||||||
Stratose Intermediate Holdings II, LLC(2) |
Health Care Services | L+500 | 1.00 | % | 6.00 | % | 1/25/2016 | 1/26/2022 | 4,963 | 4,917 | 4,975 | |||||||||||||||||||||||
The Edelman Financial Center, LLC(2) |
Diversified Financial Services | L+550 | 1.00 | % | 6.50 | % | 12/16/2015 | 12/18/2022 | 4,963 | 4,872 | 4,962 | |||||||||||||||||||||||
The Hilb Group, LLC & Gencorp Insurance Group, Inc.(2) |
Insurance | L+500 | 1.00 | % | 6.00 | % | 3/16/2016 | 6/24/2021 | 3,827 | 3,757 | 3,770 | |||||||||||||||||||||||
Trident USA Health Services(2) |
Health Care Services | L+525 | 1.25 | % | 6.50 | % | 7/29/2013 | 7/31/2019 | 8,818 | 8,776 | 7,230 | |||||||||||||||||||||||
TwentyEighty, Inc. (fka Miller Heiman)(2) |
Professional Services | L+600 | 1.00 | % | 7.00 | % | 9/30/2013 | 9/30/2019 | 6,991 | 6,951 | 5,418 | |||||||||||||||||||||||
Vizient, Inc.(2) |
Health Care Services | L+525 | 1.00 | % | 6.25 | % | 2/9/2016 | 2/13/2023 | 880 | 855 | 889 | |||||||||||||||||||||||
VT Buyer Acquisition Corp. (Veritext)(2) |
Professional Services | L+500 | 1.00 | % | 6.00 | % | 1/29/2016 | 1/29/2022 | 4,492 | 4,452 | 4,470 | |||||||||||||||||||||||
|
|
|
|
|||||||||||||||||||||||||||||||
Total Bank Debt/Senior Secured Loans |
|
$ | 269,742 | $ | 263,397 | |||||||||||||||||||||||||||||
|
|
|
|
|||||||||||||||||||||||||||||||
Common Equity/Equity Interests 24.0% |
Shares/Units | |||||||||||||||||||||||||||||||||
|
|
|||||||||||||||||||||||||||||||||
Engineering Solutions & Products, LLC(6)(8) |
Aerospace & Defense | 11/5/2013 | 133,668 | $ | 1,367 | $ | 68 | |||||||||||||||||||||||||||
First Lien Loan Program LLC(4)(5) |
Asset Management | 2/13/2015 | | 31,508 | 29,198 | |||||||||||||||||||||||||||||
Gemino Healthcare Finance, LLC(4)(5)(9) |
Diversified Financial Services | 9/30/2013 | 32,839 | 32,839 | 35,250 | |||||||||||||||||||||||||||||
|
|
|
|
|||||||||||||||||||||||||||||||
Total Common Equity/Equity Interests |
|
$ | 65,714 | $ | 64,516 | |||||||||||||||||||||||||||||
|
|
|
|
|||||||||||||||||||||||||||||||
Total Investments(10) 122.0% |
|
$ | 335,456 | $ | 327,913 | |||||||||||||||||||||||||||||
Cash Equivalents 68.8% |
Par Amount | |||||||||||||||||||||||||||||||||
|
|
|||||||||||||||||||||||||||||||||
U.S. Treasury Bill |
Government | 9/29/2016 | 11/25/2016 | 185,000 | $ | 184,962 | $ | 184,962 | ||||||||||||||||||||||||||
|
|
|
|
|||||||||||||||||||||||||||||||
Total Investments & Cash Equivalents 190.8% |
|
$ | 520,418 | $ | 512,875 | |||||||||||||||||||||||||||||
Liabilities in Excess of Other Assets (90.8%) |
|
(244,009 | ) | |||||||||||||||||||||||||||||||
|
|
|||||||||||||||||||||||||||||||||
Net Assets 100.0% |
|
$ | 268,866 | |||||||||||||||||||||||||||||||
|
|
See notes to consolidated financial statements.
7
Table of Contents
SOLAR SENIOR CAPITAL LTD.
CONSOLIDATED SCHEDULE OF INVESTMENTS (unaudited) (continued)
September 30, 2016
(in thousands)
(1) | Floating rate debt investments typically bear interest at a rate determined by reference to either the London Interbank Offered Rate (LIBOR or L) index rate or the prime index rate (PRIME or P), and which typically reset monthly, quarterly or semi-annually. For each debt investment we have provided the current interest rate in effect as of September 30, 2016. |
(2) | Indicates an investment that is wholly or partially held by Solar Senior Capital Ltd. through its wholly-owned financing subsidiary SUNS SPV LLC. Such investments are pledged as collateral under the Senior Secured Revolving Credit Facility (see Note 7 to the consolidated financial statements) and are not generally available to creditors, if any, of Solar Senior Capital Ltd. The respective par amount for the investment that is partially held through SUNS SPV LLC is $4,821 for Genmark Diagnostics, Inc. The par balance in excess of this stated amount is held directly by Solar Senior Capital Ltd. |
(3) | Floating rate instruments accrue interest at a predetermined spread relative to an index, typically the LIBOR or PRIME rate. These instruments are typically subject to a LIBOR or PRIME rate floor. |
(4) | Indicates assets that the Company believes may not represent qualifying assets under Section 55(a) of the Investment Company Act of 1940 (1940 Act), as amended. If we fail to invest a sufficient portion of our assets in qualifying assets, we could be prevented from making follow-on investments in existing portfolio companies or could be required to dispose of investments at inappropriate times in order to comply with the 1940 Act. As of September 30, 2016, on a fair value basis, non-qualifying assets in the portfolio represented 15.6% of the total assets of the Company. |
(5) | Denotes investments in which we are deemed to exercise a controlling influence over the management or policies of a company, as defined in the 1940 Act, due to beneficially owning, either directly or through one or more controlled companies, more than 25% of the outstanding voting securities of the investment. Transactions during the nine months ended September 30, 2016 in these controlled investments are as follows: |
Name of Issuer |
Fair Value at December 31, 2015 |
Gross Additions |
Gross Reductions |
Realized Gain (Loss) |
Dividend/Other Income |
Fair Value at September 30, 2016 |
||||||||||||||||||
First Lien Loan Program LLC |
$ | 27,593 | $ | 1,924 | $ | | $ | | $ | 2,370 | $ | 29,198 | ||||||||||||
Gemino Healthcare Finance, LLC |
34,000 | | | | 2,955 | 35,250 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
$ | 61,593 | $ | 1,924 | $ | | $ | | $ | 5,325 | $ | 64,448 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
(6) | Denotes investments in which we are an Affiliated Person but not exercising a controlling influence, as defined in the 1940 Act, due to beneficially owning, either directly or through one or more controlled companies, more than 5% but less than 25% of the outstanding voting securities of the investment. Transactions during the nine months ended September 30, 2016 in these affiliated investments are as follows: |
Name of Issuer |
Fair Value at December 31, 2015 |
Gross Additions |
Gross Reductions |
Realized Gain (Loss) |
Interest Income |
Fair Value at September 30, 2016 |
||||||||||||||||||
Engineering Solutions & Products, LLC (1st lien) |
$ | 106 | $ | 289 | $ | 352 | $ | | $ | 10 | $ | 44 | ||||||||||||
Engineering Solutions & Products, LLC (2nd lien) |
2,249 | | | | 143 | 1,874 | ||||||||||||||||||
Engineering Solutions & Products, LLC (equity interests) |
68 | | | | | 68 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
$ | 2,423 | $ | 289 | $ | 352 | $ | | $ | 153 | $ | 1,986 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
(7) | PSP Group, LLC, PSP Service Newco, Inc., PSP Subco, LLC, PSP Stores, LLC, and PSP Distribution, LLC are co-borrowers. |
(8) | Our equity investment in Engineering Solutions & Products, LLC is held through ESP SSC Corp., a taxable consolidated subsidiary. |
(9) | Investment represents the operating company after consolidation of the holding company Gemino Senior Secured Healthcare LLC. |
(10) | Aggregate net unrealized depreciation for federal income tax purposes is $10,875; aggregate gross unrealized appreciation and depreciation for federal tax purposes is $3,211 and $14,086, respectively, based on a tax cost of $338,788. |
| Non-income producing security. |
See notes to consolidated financial statements.
8
Table of Contents
SOLAR SENIOR CAPITAL LTD.
CONSOLIDATED SCHEDULE OF INVESTMENTS (unaudited) (continued)
September 30, 2016
Industry Classification |
Percentage of Total Investments (at fair value) as of September 30, 2016 |
|||
Communications Equipment |
13.9 | % | ||
Diversified Financial Services |
12.3 | % | ||
Health Care Services |
11.9 | % | ||
Asset Management |
10.2 | % | ||
Insurance |
8.7 | % | ||
Professional Services |
8.6 | % | ||
Internet Software & Services |
5.2 | % | ||
Health Care Facilities |
4.1 | % | ||
Software |
3.9 | % | ||
Food Products |
3.5 | % | ||
Air Freight & Logistics |
3.4 | % | ||
Health Care Technology |
3.3 | % | ||
Real Estate Management & Development |
2.3 | % | ||
Hotels, Restaurants & Leisure |
1.9 | % | ||
Footwear |
1.8 | % | ||
Commercial Services & Supplies |
1.4 | % | ||
Automotive Retail |
1.3 | % | ||
Health Care Supplies |
0.9 | % | ||
Textile, Apparel & Luxury Goods |
0.6 | % | ||
Aerospace & Defense |
0.6 | % | ||
Specialty Retail |
0.2 | % | ||
Pharmaceuticals |
0.0 | % | ||
|
|
|||
Total Investments |
100.0 | % | ||
|
|
See notes to consolidated financial statements.
9
Table of Contents
CONSOLIDATED SCHEDULE OF INVESTMENTS
December 31, 2015
(in thousands, except share/unit amounts)
Description |
Industry |
Spread above Index(3) |
Libor Floor |
Interest Rate(1) |
Acquisition Date |
Maturity Date |
Par Amount |
Cost | Fair Value |
|||||||||||||||||||||
Bank Debt/Senior Secured Loans 128.1% |
||||||||||||||||||||||||||||||
Acrisure, LLC(2) |
Insurance | L+550 | 1.00 | % | 6.50 | % | 5/14/2015 | 5/19/2022 | $ 4,975 | $ | 4,929 | $ | 4,782 | |||||||||||||||||
Advantage Sales and Marketing, Inc |
Professional Services | L+650 | 1.00 | % | 7.50 | % | 2/14/2013 | 7/25/2022 | 8,000 | 7,948 | 7,217 | |||||||||||||||||||
Aegis Toxicology Sciences Corporation |
Health Care Services | L+850 | 1.00 | % | 9.50 | % | 2/20/2014 | 8/24/2021 | 4,000 | 3,951 | 3,600 | |||||||||||||||||||
ALG B.V. (Apple Leisure)(2)(4) |
Hotels, Restaurants & Leisure | L+575 | 1.25 | % | 7.00 | % | 2/28/2013 | 2/28/2019 | 2,708 | 2,692 | 2,681 | |||||||||||||||||||
ALG USA Holdings, LLC (Apple Leisure)(2) |
Hotels, Restaurants & Leisure | L+575 | 1.25 | % | 7.00 | % | 2/28/2013 | 2/28/2019 | 3,589 | 3,568 | 3,553 | |||||||||||||||||||
American Seafoods Group LLC(2) |
Food Products | L+500 | 1.00 | % | 6.00 | % | 8/10/2015 | 8/19/2021 | 4,988 | 4,964 | 4,888 | |||||||||||||||||||
Aperture Group, LLC (Trade Monster)(2) |
Capital Markets | L+625 | 1.00 | % | 7.25 | % | 9/2/2014 | 8/29/2019 | 3,950 | 3,935 | 3,911 | |||||||||||||||||||
Asurion, LLC |
Insurance | L+750 | 1.00 | % | 8.50 | % | 2/27/2014 | 3/3/2021 | 3,300 | 3,206 | 2,840 | |||||||||||||||||||
Athletico Management, LLC and Accelerated Holdings, LLC(2) |
Health Care Facilities | L+550 | 0.75 | % | 6.25 | % | 12/1/2014 | 12/2/2020 | 9,448 | 9,368 | 9,306 | |||||||||||||||||||
Blue Ribbon, LLC (Pabst)(2) |
Beverages | L+450 | 1.00 | % | 5.50 | % | 11/5/2014 | 11/13/2021 | 1,367 | 1,356 | 1,367 | |||||||||||||||||||
Capstone Logistics Acqusition, Inc.(2) |
Professional Services | L+450 | 1.00 | % | 5.50 | % | 10/3/2014 | 10/7/2021 | 8,394 | 8,322 | 8,331 | |||||||||||||||||||
Castle Management Borrower LLC (Highgate Hotels)(2) |
Real Estate Management & Development | L+450 | 1.00 | % | 5.50 | % | 10/10/2014 | 9/18/2020 | 7,900 | 7,835 | 7,624 | |||||||||||||||||||
CGSC of Delaware Holdings Corp. (Cooper Gay) |
Insurance | L+700 | 1.25 | % | 8.25 | % | 4/5/2013 | 10/16/2020 | 4,000 | 3,962 | 3,600 | |||||||||||||||||||
Confie Seguros Holding II Co.(2) |
Insurance | L+450 | 1.25 | % | 5.75 | % | 11/9/2012 | 11/9/2018 | 10,255 | 10,196 | 10,127 | |||||||||||||||||||
ConvergeOne Holdings Corp.(2) |
Communications Equipment | L+500 | 1.00 | % | 6.00 | % | 6/16/2014 | 6/17/2020 | 6,895 | 6,841 | 6,809 | |||||||||||||||||||
CT Technologies Intermediate Holdings(2) |
Health Care Technology | L+425 | 1.00 | % | 5.25 | % | 12/1/2014 | 12/1/2021 | 7,438 | 7,383 | 7,205 | |||||||||||||||||||
Engineering Solutions & Products, LLC(6) |
Aerospace & Defense | L+600 | 2.00 | % | 8.00 | % | 11/5/2013 | 5/4/2018 | 106 | 106 | 106 | |||||||||||||||||||
Engineering Solutions & Products, LLC(6) |
Aerospace & Defense | L+600 | 2.00 | % | 8.00 | % | 11/5/2013 | 11/5/2018 | 2,343 | 2,343 | 2,249 | |||||||||||||||||||
Epic Health Services, Inc.(2) |
Health Care Services | L+475 | 1.00 | % | 5.75 | % | 2/20/2015 | 2/17/2021 | 4,818 | 4,783 | 4,721 | |||||||||||||||||||
Filtration Group Corp. |
Industrial Conglomerates | L+725 | 1.00 | % | 8.25 | % | 11/15/2013 | 11/21/2021 | 524 | 519 | 511 | |||||||||||||||||||
Global Tel*Link Corporation |
Communications Equipment | L+375 | 1.25 | % | 5.00 | % | 11/6/2015 | 5/23/2020 | 1,089 | 850 | 801 | |||||||||||||||||||
Global Tel*Link Corporation |
Communications Equipment | L+775 | 1.25 | % | 9.00 | % | 5/21/2013 | 11/23/2020 | 3,000 | 2,956 | 2,115 | |||||||||||||||||||
HC Group Holdings III, Inc. (Walgreens)(2) |
Health Care Services | L+500 | 1.00 | % | 6.00 | % | 3/25/2015 | 4/7/2022 | 4,988 | 4,964 | 4,969 | |||||||||||||||||||
Hostway Corporation(2) |
Internet Software & Services | L+475 | 1.25 | % | 6.00 | % | 6/27/2014 | 12/13/2019 | 9,276 | 9,244 | 8,720 | |||||||||||||||||||
Innovative Xcessories & Services, LLC(2) |
Automotive Retail | L+425 | 1.00 | % | 5.25 | % | 8/21/2014 | 2/21/2020 | 4,625 | 4,589 | 4,556 | |||||||||||||||||||
Kellermeyer Bergensons Services, LLC |
Commercial Services & Supplies | L+500 | 1.00 | % | 6.00 | % | 10/31/2014 | 10/29/2021 | 4,950 | 4,907 | 4,727 | |||||||||||||||||||
Landslide Holdings, Inc |
Software | L+725 | 1.00 | % | 8.25 | % | 2/25/2014 | 2/25/2021 | 3,310 | 3,306 | 3,111 | |||||||||||||||||||
LegalZoom.com, Inc.(2) |
Internet Software & Services | L+700 | 1.00 | % | 8.00 | % | 5/13/2015 | 5/13/2020 | 9,925 | 9,725 | 9,677 | |||||||||||||||||||
Material Handling Services, LLC (TFS)(2) |
Air Freight & Logistics | L+475 | 1.00 | % | 5.75 | % | 3/3/2014 | 3/26/2020 | 11,416 | 11,329 | 11,244 | |||||||||||||||||||
Metamorph US 3, LLC (Metalogix)(2) |
Software | L+550 | 1.00 | % | 6.50 | % | 12/1/2014 | 12/1/2020 | 9,750 | 9,543 | 8,970 | |||||||||||||||||||
MYI Acquiror Corp. (McLarens Young)(2) |
Insurance | L+450 | 1.25 | % | 5.75 | % | 5/21/2014 | 5/28/2019 | 3,456 | 3,432 | 3,387 | |||||||||||||||||||
MYI Acquiror Ltd. (McLarens Young)(2)(4) |
Insurance | L+450 | 1.25 | % | 5.75 | % | 5/21/2014 | 5/28/2019 | 4,338 | 4,307 | 4,251 | |||||||||||||||||||
Pearl Merger Sub LLC (PetVet)(2) |
Health Care Facilities | L+450 | 1.00 | % | 5.50 | % | 1/29/2015 | 12/17/2020 | 4,455 | 4,378 | 4,366 | |||||||||||||||||||
PSP Group, LLC (Pet Supplies Plus)(2)(7) |
Specialty Retail | L+475 | 1.00 | % | 5.75 | % | 4/2/2015 | 4/6/2021 | 496 | 492 | 486 | |||||||||||||||||||
QBS Holding Company, Inc. (Quorum)(2) |
Software | L+475 | 1.00 | % | 5.75 | % | 8/1/2014 | 8/7/2021 | 6,435 | 6,381 | 6,242 | |||||||||||||||||||
RCPSI Corporation (Pet Supermarket)(2) |
Specialty Retail | L+575 | 1.00 | % | 6.75 | % | 4/22/2015 | 4/16/2021 | 9,453 | 9,367 | 9,263 | |||||||||||||||||||
Richelieu Foods, Inc.(2) |
Food Products | L+475 | 1.00 | % | 5.75 | % | 11/21/2014 | 5/21/2020 | 6,720 | 6,637 | 6,552 | |||||||||||||||||||
Salient Partners, L.P.(2) |
Asset Management | L+650 | 1.00 | % | 7.50 | % | 6/10/2015 | 6/9/2021 | 4,433 | 4,350 | 4,277 | |||||||||||||||||||
Securus Technologies, Inc |
Communications Equipment | L+775 | 1.25 | % | 9.00 | % | 4/17/2013 | 4/30/2021 | 10,000 | 9,934 | 5,660 | |||||||||||||||||||
SHO Holding I Corporation (Shoes for |
Footwear | L+500 | 1.00 | % | 6.00 | % | 11/20/2015 | 10/27/2022 | 6,000 | 5,941 | 5,940 | |||||||||||||||||||
Skinnypop Popcorn, LLC(2) |
Food Products | L+450 | 1.00 | % | 5.50 | % | 7/17/2014 | 7/17/2019 | 4,752 | 4,717 | 4,705 | |||||||||||||||||||
Stratose Intermediate Holdings II, LLC(2) |
Health Care Services | L+450 | 1.00 | % | 5.50 | % | 6/2/2015 | 6/30/2021 | 6,965 | 6,900 | 6,965 | |||||||||||||||||||
The Edelman Financial Center, LLC(2) |
Diversified Financial Services | L+550 | 1.00 | % | 6.50 | % | 12/16/2015 | 12/18/2022 | 5,000 | 4,900 | 4,900 | |||||||||||||||||||
Trident USA Health Services(2) |
Health Care Services | L+525 | 1.25 | % | 6.50 | % | 7/29/2013 | 7/31/2019 | 8,893 | 8,839 | 8,537 | |||||||||||||||||||
TwentyEighty, Inc. (fka Miller Heiman)(2) |
Professional Services | L+575 | 1.00 | % | 6.75 | % | 9/30/2013 | 9/30/2019 | 7,131 | 7,081 | 6,454 | |||||||||||||||||||
Varsity Brands Holdings Co., Inc.(2) |
Diversified Consumer Services | L+400 | 1.00 | % | 5.00 | % | 12/10/2014 | 12/11/2021 | 4,941 | 4,902 | 4,904 | |||||||||||||||||||
|
|
|
|
|||||||||||||||||||||||||||
Total Bank Debt/Senior Secured Loans |
$ | 252,178 | $ | 241,207 | ||||||||||||||||||||||||||
|
|
|
|
|||||||||||||||||||||||||||
Unsecured Notes 1.9% |
||||||||||||||||||||||||||||||
Apollo Investment Corporation(4) |
Diversified Financial Services | | | 5.75 | % | 11/10/2011 | 1/15/2016 | $3,650 | $ | 3,644 | $ | 3,650 | ||||||||||||||||||
|
|
|
|
|||||||||||||||||||||||||||
Common Equity/Equity Interests 32.8% |
Shares/Units | |||||||||||||||||||||||||||||
Engineering Solutions & Products, LLC(6)(8) |
Aerospace & Defense | 11/5/2013 | 133,668 | $ | 1,367 | $ | 68 | |||||||||||||||||||||||
First Lien Loan Program LLC(4)(5) |
Asset Management | 2/13/2015 | | 29,584 | 27,593 | |||||||||||||||||||||||||
Gemino Healthcare Finance, LLC(4)(5)(9) |
Diversified Financial Services | 9/30/2013 | 32,839 | 32,839 | 34,000 | |||||||||||||||||||||||||
|
|
|
|
|||||||||||||||||||||||||||
Total Common Equity/Equity Interests |
$ | 63,790 | $ | 61,661 | ||||||||||||||||||||||||||
|
|
|
|
|||||||||||||||||||||||||||
Total Investments(10) 162.8% |
$ | 319,612 | $ | 306,518 | ||||||||||||||||||||||||||
Cash Equivalents 26.5% |
Par Amount | |||||||||||||||||||||||||||||
U.S. Treasury Bill |
Government | 12/28/2015 | 1/21/2016 | 50,000 | $ | 49,997 | $ | 49,997 | ||||||||||||||||||||||
|
|
|
|
|||||||||||||||||||||||||||
Total Investments & Cash Equivalents 189.3% |
$ | 369,609 | $ | 356,515 | ||||||||||||||||||||||||||
Liabilities in Excess of Other Assets (89.3%) |
(168,211 | ) | ||||||||||||||||||||||||||||
|
|
|||||||||||||||||||||||||||||
Net Assets 100.0% |
$ | 188,304 | ||||||||||||||||||||||||||||
|
|
See notes to consolidated financial statements.
10
Table of Contents
SOLAR SENIOR CAPITAL LTD.
CONSOLIDATED SCHEDULE OF INVESTMENTS (continued)
December 31, 2015
(in thousands)
(1) | Floating rate debt investments typically bear interest at a rate determined by reference to either the London Interbank Offered Rate (LIBOR or L) index rate or the prime index rate (PRIME or P), and which typically reset monthly, quarterly or semi-annually. For each debt investment we have provided the current interest rate in effect as of December 31, 2015. |
(2) | Indicates an investment that is wholly held by Solar Senior Capital Ltd. through its wholly-owned financing subsidiary SUNS SPV LLC. Such investments are pledged as collateral under the Senior Secured Revolving Credit Facility (see Note 7 to the consolidated financial statements) and are not generally available to creditors, if any, of Solar Senior Capital Ltd. |
(3) | Floating rate instruments accrue interest at a predetermined spread relative to an index, typically the LIBOR or PRIME rate. These instruments are typically subject to a LIBOR or PRIME rate floor. |
(4) | Indicates assets that the Company believes may not represent qualifying assets under Section 55(a) of the Investment Company Act of 1940 (1940 Act), as amended. If we fail to invest a sufficient portion of our assets in qualifying assets, we could be prevented from making follow-on investments in existing portfolio companies or could be required to dispose of investments at inappropriate times in order to comply with the 1940 Act. As of December 31, 2015, on a fair value basis, non-qualifying assets in the portfolio represented 19.9% of the total assets of the Company. |
(5) | Denotes investments in which we are deemed to exercise a controlling influence over the management or policies of a company, as defined in the 1940 Act, due to beneficially owning, either directly or through one or more controlled companies, more than 25% of the outstanding voting securities of the investment. Transactions during the year ended December 31, 2015 in these controlled investments are as follows: |
Name of Issuer |
Fair Value at December 31, 2014 |
Gross Additions |
Gross Reductions |
Realized Gain (Loss) |
Dividend/Other Income |
Fair Value at December 31, 2015 |
||||||||||||||||||
First Lien Loan Program LLC |
$ | | $ | 29,584 | $ | | $ | | $ | 1,794 | $ | 27,593 | ||||||||||||
Gemino Healthcare Finance, LLC |
34,421 | | | | 3,510 | 34,000 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
$ | 34,421 | $ | 29,584 | $ | | $ | | $ | 5,304 | $ | 61,593 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
(6) | Denotes investments in which we are an Affiliated Person but not exercising a controlling influence, as defined in the 1940 Act, due to beneficially owning, either directly or through one or more controlled companies, more than 5% but less than 25% of the outstanding voting securities of the investment. Transactions during the year ended December 31, 2015 in these affiliated investments are as follows: |
Name of Issuer |
Fair Value at December 31, 2014 |
Gross Additions |
Gross Reductions |
Realized Gain (Loss) |
Interest Income |
Fair Value at December 31, 2015 |
||||||||||||||||||
Engineering Solutions & Products, LLC |
$ | 324 | $ | | $ | 218 | $ | | $ | 24 | $ | 106 | ||||||||||||
Engineering Solutions & Products, LLC |
2,343 | | | | 190 | 2,249 | ||||||||||||||||||
Engineering Solutions & Products, LLC |
956 | | | | | 68 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
$ | 3,623 | $ | | $ | 218 | $ | | $ | 214 | $ | 2,423 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
(7) | PSP Group, LLC, PSP Service Newco, Inc., PSP Subco, LLC, PSP Stores, LLC, and PSP Distribution, LLC are co-borrowers. |
(8) | Our equity investment in Engineering Solutions & Products, LLC is held through ESP SSC Corp., a taxable subsidiary. |
(9) | Investment represents the operating company after consolidation of the holding company Gemino Senior Secured Healthcare LLC. |
(10) | Aggregate net unrealized depreciation for federal income tax purposes is $15,316; aggregate gross unrealized appreciation and depreciation for federal tax purposes is $1,172 and $16,488, respectively, based on a tax cost of $321,834. |
| Non-income producing security. |
See notes to consolidated financial statements.
11
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SOLAR SENIOR CAPITAL LTD.
CONSOLIDATED SCHEDULE OF INVESTMENTS (continued)
December 31, 2015
Industry Classification |
Percentage of Total Investments (at fair value) as of December 31, 2015 |
|||
Diversified Financial Services |
13.9 | % | ||
Asset Management |
10.4 | % | ||
Insurance |
9.5 | % | ||
Health Care Services |
9.3 | % | ||
Professional Services |
7.2 | % | ||
Internet Software & Services |
6.0 | % | ||
Software |
6.0 | % | ||
Food Products |
5.3 | % | ||
Communications Equipment |
5.0 | % | ||
Health Care Facilities |
4.5 | % | ||
Air Freight & Logistics |
3.7 | % | ||
Specialty Retail |
3.2 | % | ||
Real Estate Management & Development |
2.5 | % | ||
Health Care Technology |
2.3 | % | ||
Hotels, Restaurants & Leisure |
2.0 | % | ||
Footwear |
1.9 | % | ||
Diversified Consumer Services |
1.6 | % | ||
Commercial Services & Supplies |
1.5 | % | ||
Automotive Retail |
1.5 | % | ||
Capital Markets |
1.3 | % | ||
Aerospace & Defense |
0.8 | % | ||
Beverages |
0.4 | % | ||
Industrial Conglomerates |
0.2 | % | ||
|
|
|||
Total Investments |
100.0 | % | ||
|
|
See notes to consolidated financial statements.
12
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
September 30, 2016
(in thousands, except share amounts)
Note 1. Organization
Solar Senior Capital Ltd. (Solar Senior, the Company, SUNS, we, us, or our), a Maryland corporation formed on December 16, 2010, is a closed-end, externally managed, non-diversified management investment company that has elected to be treated as a business development company (BDC) under the Investment Company Act of 1940 (the 1940 Act). Furthermore, as the Company is an investment company, it continues to apply the guidance in the Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 946. In addition, for tax purposes, we have elected to be treated as a regulated investment company (RIC), under the Internal Revenue Code of 1986, as amended (the Code).
On January 28, 2011, Solar Senior was capitalized with initial equity of $2 and commenced operations. On February 24, 2011, Solar Senior priced its initial public offering, selling 9.0 million shares, including the underwriters over-allotment, at a price of $20.00 per share. Concurrent with this offering, our senior management team purchased an additional 500,000 shares through a private placement, also at $20.00 per share.
The Companys investment objective is to seek to maximize current income consistent with the preservation of capital. We seek to achieve our investment objective by directly or indirectly investing primarily in senior secured loans, including first lien and second lien debt instruments, made primarily to leveraged private middle-market companies whose debt is rated below investment grade, which the Company refers to collectively as senior loans. From time to time, we may also invest in public companies that are thinly traded. Under normal market conditions, at least 80% of the value of the Companys net assets (including the amount of any borrowings for investment purposes) will be invested in senior loans.
Note 2. Significant Accounting Policies
The accompanying consolidated financial statements have been prepared on the accrual basis of accounting in conformity with U.S. generally accepted accounting principles (GAAP), and include the accounts of the Company and its wholly-owned subsidiaries. The consolidated financial statements reflect all adjustments and reclassifications which, in the opinion of management, are necessary for the fair presentation of the results of the operations and financial condition for the periods presented. All significant intercompany balances and transactions have been eliminated. Certain prior period amounts may have been reclassified to conform to current period presentation.
Interim consolidated financial statements are prepared in accordance with GAAP for interim financial information and pursuant to the requirements for reporting on Form 10-Q and Regulation S-X, as appropriate. Accordingly, they may not include all of the information and notes required by GAAP for annual consolidated financial statements. GAAP requires management to make estimates and assumptions that affect the reported amount of assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reported periods. Changes in the economic environment, financial markets and any other parameters used in determining these estimates could cause actual results to differ materially. The current periods results of operations will not necessarily be indicative of results that ultimately may be achieved for the fiscal year ending on December 31, 2016.
In the opinion of management, all adjustments which are of a normal recurring nature considered necessary for the fair presentation of financial statements, have been included.
The significant accounting policies consistently followed by the Company are:
(a) | Investment transactions are accounted for on the trade date; |
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SOLAR SENIOR CAPITAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (continued)
September 30, 2016
(in thousands, except share amounts)
(b) | The Company conducts the valuation of its assets in accordance with GAAP and the 1940 Act. The Company generally values its assets on a quarterly basis, or more frequently if required. Investments for which market quotations are readily available on an exchange are valued at the closing price on the date of valuation. The Company may also obtain quotes with respect to certain of its investments from pricing services or brokers or dealers in order to value assets. When doing so, management determines whether the quote obtained is sufficient according to GAAP to determine the fair value of the investment. If determined adequate, the Company uses the quote obtained. Debt investments with maturities of 60 days or less shall each be valued at cost plus accreted discount, or minus amortized premium, which is expected to approximate fair value, unless such valuation, in the judgment of Solar Capital Partners, LLC (the Investment Adviser), does not represent fair value, in which case such investments shall be valued at fair value as determined in good faith by or under the direction of the Companys board of directors (the Board). |
Investments for which reliable market quotations are not readily available or for which the pricing sources do not provide a valuation or methodology or provide a valuation or methodology that, in the judgment of the Investment Adviser or the Board does not represent fair value, shall be valued as follows: (i) each portfolio company or investment is initially valued by the investment professionals responsible for the portfolio investment; (ii) preliminary valuations are discussed with senior management of the Investment Adviser; (iii) independent valuation firms engaged by, or on behalf of, the Board will conduct independent appraisals and review the Investment Advisers preliminary valuations and make their own independent assessment for (a) each portfolio investment that, when taken together with all other investments in the same portfolio company, exceeds 10% of estimated total assets, plus available borrowings, as of the end of the most recently completed fiscal quarter, and (b) each portfolio investment that is presently in payment default; (iv) the Board will discuss the valuations and determine the fair value of each investment in our portfolio in good faith based on the input of the Investment Adviser and, where appropriate, the respective independent valuation firm.
The recommendation of fair value generally considers the following factors among others, as relevant: applicable market yields; the nature and realizable value of any collateral; the portfolio companys ability to make payments; the portfolio companys earnings and discounted cash flow; the markets in which the issuer does business; and comparisons to publicly traded securities, among others.
When an external event such as a purchase transaction, public offering or subsequent equity sale occurs, the Company will consider the pricing indicated by the external event to corroborate the valuation. Due to the inherent uncertainty of determining the fair value of investments that do not have a readily available market value, the fair value of the investments may differ significantly from the values that would have been used had a readily available market value existed for such investments, and the differences could be material.
Investments are valued utilizing a market approach, an income approach, or both approaches, as appropriate. However, in accordance with ASC 820-10, certain investments that qualify as investment companies in accordance with ASC 946, may be valued using net asset value as a practical expedient for fair value. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities (including a business). The income approach uses valuation techniques to convert future amounts (for example, cash flows or earnings) to a single present amount (discounted). The measurement is based on the value indicated by current market expectations about those future amounts. In following these approaches, the types of factors that we may take into account in fair value pricing our investments include, as relevant: available current market data, including relevant and applicable market trading and transaction comparables,
14
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SOLAR SENIOR CAPITAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (continued)
September 30, 2016
(in thousands, except share amounts)
applicable market yields and multiples, security covenants, call protection provisions, the nature and realizable value of any collateral, the portfolio companys ability to make payments, its earnings and discounted cash flows, the markets in which the portfolio company does business, comparisons of financial ratios of peer companies that are public, M&A comparables, and enterprise values, among other factors. When available, broker quotations and/or quotations provided by pricing services are considered as an input in the valuation process. Escrow receivables, if any, included in the receivables for investments sold in the Consolidated Statements of Assets and Liabilities are reviewed quarterly and the value of the receivable is adjusted as necessary. For the nine months ended September 30, 2016, there has been no change to the Companys valuation techniques and the nature of the related inputs considered in the valuation process.
ASC Topic 820 classifies the inputs used to measure these fair values into the following hierarchy:
Level 1: Quoted prices in active markets for identical assets or liabilities, accessible by the Company at the measurement date.
Level 2: Quoted prices for similar assets or liabilities in active markets, or quoted prices for identical or similar assets or liabilities in markets that are not active, or other observable inputs other than quoted prices.
Level 3: Unobservable inputs for the asset or liability.
In all cases, the level in the fair value hierarchy within which the fair value measurement in its entirety falls is determined based on the lowest level of input that is significant to the fair value measurement. Our assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to each investment. The exercise of judgment is based in part on our knowledge of the asset class and our prior experience.
(c) | Gains or losses on investments are calculated by using the specific identification method. |
(d) | The Company records dividend income and interest, adjusted for amortization of premium and accretion of discount, on an accrual basis. Loan origination fees, original issue discount, and market discounts are capitalized and we amortize such amounts into income using the effective interest method or on a straight-line basis, as applicable. Upon the prepayment of a loan, any unamortized loan origination fees are recorded as interest income. We record call premiums on loans repaid as interest income when we receive such amounts. Capital structuring fees, amendment fees, consent fees, and any other non-recurring fee income as well as management fee and other fee income for services rendered, if any, are recorded as other income when earned. |
(e) | The Company intends to comply with the applicable provisions of the Internal Revenue Code pertaining to regulated investment companies to make distributions of taxable income sufficient to relieve it of substantially all U.S. federal income taxes. The Company, at its discretion, may carry forward taxable income in excess of calendar year distributions and pay a 4% excise tax on this income. The Company will accrue excise tax on such estimated excess taxable income as appropriate. |
(f) | Book and tax basis differences relating to stockholder distributions and other permanent book and tax differences are typically reclassified among the Companys capital accounts annually. In addition, the character of income and gains to be distributed is determined in accordance with income tax regulations that may differ from GAAP. |
(g) | Distributions to common stockholders are recorded as of the record date. The amount to be paid out as a distribution is determined by the Board. Net realized capital gains, if any, are generally distributed or deemed distributed at least annually. |
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SOLAR SENIOR CAPITAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (continued)
September 30, 2016
(in thousands, except share amounts)
(h) | In accordance with Regulation S-X and ASC Topic 810Consolidation, the Company consolidates its interest in investment company subsidiaries, financing subsidiaries and certain wholly-owned holding companies that serve to facilitate investment in portfolio companies. In addition, the Company may also consolidate any controlled operating companies substantially all of whose business consists of providing services to the Company. |
(i) | The accounting records of the Company are maintained in U.S. dollars. Any assets and liabilities denominated in foreign currencies are translated into U.S. dollars based on the rate of exchange of such currencies against the U.S. dollar on the date of valuation. The Company will not isolate that portion of the results of operations resulting from changes in foreign exchange rates on investments from the fluctuations arising from changes in market prices of securities held. Such fluctuations would be included with the net unrealized gain or loss from investments. The Companys investments in foreign securities, if any, may involve certain risks, including without limitation: foreign exchange restrictions, expropriation, taxation or other political, social or economic risks, all of which could affect the market and/or credit risk of the investment. In addition, changes in the relationship of foreign currencies to the U.S. dollar can significantly affect the value of these investments in terms of U.S. dollars and therefore the earnings of the Company. |
(j) | The Company has made an irrevocable election to apply the fair value option of accounting to its senior secured revolving credit facility (the Credit Facility), in accordance with ASC 825-10. The Company uses an independent third-party valuation firm to assist in measuring its fair value. |
(k) | In accordance with ASC 835-30, the Company records origination and other expenses related to certain debt issuances, if any, as a direct deduction from the carrying amount of the debt liability. These expenses are deferred and amortized using either the effective interest method or the straight-line method over the stated life. The straight-line method may be used on revolving facilities and when it approximates the effective yield method. |
(l) | The Company records expenses related to shelf registration statements and applicable equity offering costs as prepaid assets. These expenses are typically charged as a reduction of capital upon utilization, in accordance with ASC 946-20-25. Certain subsequent costs are expensed per the AICPA Audit & Accounting Guide for Investment Companies. |
(m) | Investments that are expected to pay regularly scheduled interest in cash are generally placed on non-accrual status when principal or interest cash payments are past due 30 days or more and/or when it is no longer probable that principal or interest cash payments will be collected. Such non-accrual investments are restored to accrual status if past due principal and interest are paid in cash, and in managements judgment, are likely to continue timely payment of their remaining principal and interest obligations. Cash interest payments received on such investments may be recognized as income or applied to principal depending on managements judgment. |
(n) | The Company defines cash equivalents as securities that are readily convertible into known amounts of cash and so near their maturity that they present insignificant risk of changes in value because of changes in interest rates. Generally, only securities with a maturity of three months or less would qualify, with limited exceptions. The Company believes that certain U.S. Treasury bills, repurchase agreements and other high-quality, short-term debt securities would qualify as cash equivalents. |
Recent Accounting Pronouncements
In February 2015, the FASB issued Accounting Standards Update (ASU) 2015-02, Consolidation (Topic 810)Amendments to the Consolidation Analysis. The update changes the analysis that a
16
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SOLAR SENIOR CAPITAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (continued)
September 30, 2016
(in thousands, except share amounts)
reporting entity must perform to determine whether it should consolidate certain types of legal entities. Public companies are required to apply ASU 2015-02 for interim and annual reporting periods beginning after December 15, 2015. Accordingly, the Company has evaluated the impact of ASU 2015-02 on its consolidated financial statements and determined that the adoption of ASU 2015-02 has not had a material impact on our consolidated financial statements.
In April 2015, the FASB issued ASU 2015-03, InterestImputation of Interest (Subtopic 835-30)Simplifying the Presentation of Debt Issuance Costs. The update requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. Public companies are required to apply ASU 2015-03 retrospectively for interim and annual reporting periods beginning after December 15, 2015. Accordingly, the Company has evaluated the impact of ASU 2015-03 on its consolidated financial statements and determined that the adoption of ASU 2015-03 has not had a material impact on our consolidated financial statements.
In May 2015, the FASB issued ASU 2015-07, Disclosures for Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent). The update eliminates the requirement to categorize investments in the fair value hierarchy if their fair value is measured at net asset value (NAV) per share (or its equivalent) using the practical expedient in the FASBs fair value measurement guidance. Public companies are required to apply ASU 2015-07 retrospectively for interim and annual reporting periods beginning after December 15, 2015. Accordingly, the Company has evaluated the impact of ASU 2015-07 on its consolidated financial statements and determined that the adoption of ASU 2015-07 has not had a material impact on our consolidated financial statements.
Note 3. Agreements
Solar Senior has an Advisory Agreement with the Investment Adviser, under which the Investment Adviser manages the day-to-day operations of, and provides investment advisory services to, Solar Senior. For providing these services, the Investment Adviser receives a fee from Solar Senior, consisting of two componentsa base management fee and an incentive fee. The base management fee is calculated at an annual rate of 1.00% of gross assets. For services rendered under the Advisory Agreement, the base management fee is payable quarterly in arrears. The base management fee is calculated based on the average value of our gross assets at the end of the two most recently completed calendar quarters. Base management fees for any partial month or quarter will be appropriately pro-rated. For purposes of computing the base management fee, gross assets exclude temporary assets acquired at the end of each fiscal quarter for purposes of preserving investment flexibility in the next fiscal quarter. Temporary assets include, but are not limited to, U.S. treasury bills, other short-term U.S. government or government agency securities, repurchase agreements or cash borrowings.
The incentive fee has two parts, as follows: one is calculated and payable quarterly in arrears based on our pre-incentive fee net investment income for the immediately preceding calendar quarter. For this purpose, pre-incentive fee net investment income means interest income, dividend income and any other income (other than fees for providing managerial assistance) accrued during the calendar quarter, minus our operating expenses for the quarter (excluding the incentive fee). Pre-incentive fee net investment income includes, in the case of investments, if any, with a deferred interest feature (such as original issue discount, debt instruments with pay-in-kind interest and zero-coupon securities), accrued income that we have not yet received in cash. Pre-incentive fee net investment income does not include any realized capital gains or losses or unrealized capital appreciation or depreciation. Pre-incentive fee net investment income, expressed as a rate of return on the value of our net assets at the end of the immediately preceding calendar quarter, is compared to a hurdle of 1.75% per quarter (7.00%
17
Table of Contents
SOLAR SENIOR CAPITAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (continued)
September 30, 2016
(in thousands, except share amounts)
annualized). The Company pays the Investment Adviser an incentive fee with respect to pre-incentive fee net investment income for each calendar quarter as follows:
| no incentive fee in any calendar quarter in which our pre-incentive fee net investment income does not exceed the hurdle of 1.75%; |
| 50% of pre-incentive fee net investment income with respect to that portion of such pre-incentive fee net investment income, if any, that exceeds the hurdle but is less than 2.9167% in any calendar quarter (11.67% annualized); |
and
| 20% of the amount of pre-incentive fee net investment income, if any, that exceeds 2.9167% in any calendar quarter (11.67% annualized) will be payable to the Investment Adviser. |
The second part of the incentive fee is determined and payable in arrears as of the end of each calendar year (or upon termination of the Investment Advisory Agreement, as of the termination date) and will equal 20% of the Companys cumulative realized capital gains less cumulative realized capital losses, unrealized capital depreciation (unrealized depreciation on a gross investment-by-investment basis at the end of each calendar year) and all net capital gains upon which prior performance-based capital gains incentive fee payments were previously made to the Investment Adviser. For financial statement purposes, the second part of the incentive fee is accrued based upon 20% of cumulative net realized gains and net unrealized capital appreciation. No accrual was required for the three and nine months ended September 30, 2016 and 2015.
For the three and nine months ended September 30, 2016, the Company recognized $852 and $2,483, respectively, in base management fees and $636 and $1,486, respectively, in performance-based incentive fees. For the three and nine months ended September 30, 2016, $518 and $1,131, respectively, of such performance-based incentive fees were waived. For the three and nine months ended September 30, 2015, the Company recognized $882 and $2,627, respectively, in base management fees and $115 and $272, respectively, in performance-based incentive fees. For the three and nine months ended September 30, 2015, $115 and $272, respectively, of such performance-based incentive fees were waived. The voluntary fee waiver for the three and nine months ended September 30, 2016 was made at the Investment Advisers discretion and is subject to recapture by the Investment Adviser and reimbursement by the Company should net investment income during and/or for fiscal 2016 equal or exceed distributions declared in fiscal 2016. The voluntary fee waiver for the three and nine months ended September 30, 2015 was made at the Investment Advisers discretion and was not subject to recapture by the Investment Adviser or reimbursement by the Company.
Solar Senior has also entered into an Administration Agreement with Solar Capital Management, LLC (the Administrator) under which the Administrator provides administrative services for Solar Senior. For providing these services, facilities and personnel, Solar Senior reimburses the Administrator for Solar Seniors allocable portion of overhead and other expenses incurred by the Administrator in performing its obligations under the Administration Agreement, including rent. The Administrator will also provide, on Solar Seniors behalf, managerial assistance to those portfolio companies to which Solar Senior is required to provide such assistance.
For the three and nine months ended September 30, 2016, the Company recognized expenses under the Administration Agreement of $301 and $895, respectively. For the three and nine months ended September 30, 2015, the Company recognized expenses under the Administration Agreement of $309 and $845, respectively. No managerial assistance fees were accrued or collected for the three and nine months ended September 30, 2016 and 2015.
18
Table of Contents
SOLAR SENIOR CAPITAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (continued)
September 30, 2016
(in thousands, except share amounts)
Note 4. Net Asset Value Per Share
At September 30, 2016, the Companys total net assets and net asset value per share were $268,866 and $16.78, respectively. This compares to total net assets and net asset value per share at December 31, 2015 of $188,304 and $16.33, respectively.
Note 5. Earnings Per Share
The following table sets forth the computation of basic and diluted net increase in net assets per share resulting from operations, pursuant to ASC 260-10, for the three and nine months ended September 30, 2016 and 2015:
Three months ended September 30, | Nine months ended September 30, | |||||||||||||||
2016 | 2015 | 2016 | 2015 | |||||||||||||
Earnings (Loss) per share (basic & diluted) |
||||||||||||||||
Numerator net increase (decrease) in net assets resulting from operations: |
$ | 5,169 | $ | (1,495 | ) | $ | 18,257 | $ | 5,487 | |||||||
Denominator weighted average shares: |
12,359,049 | 11,533,315 | 11,810,569 | 11,533,315 | ||||||||||||
Earnings (Loss) per share: |
$ | 0.42 | $ | (0.13 | ) | $ | 1.55 | $ | 0.48 |
Note 6. Fair Value
Fair value is defined 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. GAAP establishes a framework for measuring fair value that includes a hierarchy used to classify the inputs used in measuring fair value. The hierarchy prioritizes the inputs to valuation techniques used to measure fair value into three levels. The level in the fair value hierarchy within which the fair value measurement falls is determined based on the lowest level input that is significant to the fair value measurement. The levels of the fair value hierarchy are as follows:
Level 1. Financial assets and liabilities whose values are based on unadjusted quoted prices for identical assets or liabilities in an active market that the Company has the ability to access.
Level 2. Financial assets and liabilities whose values are based on quoted prices in markets that are not active or model inputs that are observable either directly or indirectly for substantially the full term of the asset or liability. Level 2 inputs include the following:
a) | Quoted prices for similar assets or liabilities in active markets; |
b) | Quoted prices for identical or similar assets or liabilities in non-active markets; |
c) | Pricing models whose inputs are observable for substantially the full term of the asset or liability; and |
d) | Pricing models whose inputs are derived principally from or corroborated by observable market data through correlation or other means for substantially the full term of the asset or liability. |
Level 3. Financial assets and liabilities whose values are based on prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement. These inputs reflect managements and, if applicable, an independent third-party valuation firms own assumptions about the assumptions a market participant would use in pricing the asset or liability.
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Table of Contents
SOLAR SENIOR CAPITAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (continued)
September 30, 2016
(in thousands, except share amounts)
When the inputs used to measure fair value fall within different levels of the hierarchy, the level within which the fair value measurement is categorized is based on the lowest level input that is significant to the fair value measurement in its entirety. For example, a Level 3 fair value measurement may include inputs that are observable (Levels 1 and 2) and unobservable (Level 3).
Gains and losses for assets and liabilities categorized within the Level 3 table below may include changes in fair value that are attributable to both observable inputs (Levels 1 and 2) and unobservable inputs (Level 3).
A review of fair value hierarchy classifications is conducted on a quarterly basis. Changes in the observability of valuation inputs may result in a reclassification for certain financial assets or liabilities. Such reclassifications are reported as transfers in/out of the appropriate category as of the end of the quarter in which the reclassifications occur.
The following tables present the balances of assets and liabilities measured at fair value on a recurring basis, as of September 30, 2016 and December 31, 2015:
Fair Value Measurements
As of September 30, 2016
Level 1 | Level 2 | Level 3 | Measured at Net Asset Value* |
Total | ||||||||||||||||
Assets: |
||||||||||||||||||||
Bank Debt/Senior Secured Loans |
$ | | $ | 44,986 | $ | 218,411 | $ | | $ | 263,397 | ||||||||||
Common Equity/Equity Interests |
| | 35,318 | 29,198 | 64,516 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total Investments |
$ | | $ | 44,986 | $ | 253,729 | $ | 29,198 | $ | 327,913 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Liabilities: |
||||||||||||||||||||
Credit Facility |
$ | | $ | | $ | 43,000 | $ | | $ | 43,000 | ||||||||||
|
|
|
|
|
|
|
|
|
|
* | In accordance with ASC 820-10, certain investments that are measured using the net asset value per share (or its equivalent) as a practical expedient for fair value have not been classified in the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the Consolidated Statements of Assets and Liabilities. |
Fair Value Measurements
As of December 31, 2015
Level 1 | Level 2 | Level 3 | Measured at Net Asset Value* |
Total | ||||||||||||||||
Assets: |
||||||||||||||||||||
Bank Debt/Senior Secured Loans |
$ | | $ | 42,371 | $ | 198,836 | $ | | $ | 241,207 | ||||||||||
Unsecured Notes |
| | 3,650 | | 3,650 | |||||||||||||||
Common Equity/Equity Interests |
| | 34,068 | 27,593 | 61,661 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total Investments |
$ | | $ | 42,371 | $ | 236,554 | $ | 27,593 | $ | 306,518 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Liabilities: |
||||||||||||||||||||
Credit Facility |
$ | | $ | | $ | 116,200 | $ | | $ | 116,200 | ||||||||||
|
|
|
|
|
|
|
|
|
|
* | In accordance with ASC 820-10, certain investments that are measured using the net asset value per share (or its equivalent) as a practical expedient for fair value have not been classified in the fair value hierarchy. |
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SOLAR SENIOR CAPITAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (continued)
September 30, 2016
(in thousands, except share amounts)
The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the Consolidated Statements of Assets and Liabilities. |
The following table provides a summary of the changes in fair value of Level 3 assets and liabilities for the nine months ended September 30, 2016, as well as the portion of gains or losses included in income attributable to unrealized gains or losses related to those assets and liabilities still held at September 30, 2016:
Fair Value Measurements Using Level 3 Inputs
Bank Debt/Senior Secured Loans |
Unsecured Notes | Common Equity/Equity Interests |
||||||||||
Fair value, December 31, 2015 |
$ | 198,836 | $ | 3,650 | $ | 34,068 | ||||||
Total gains or losses included in earnings: |
||||||||||||
Net realized gain (loss) |
(7 | ) | | | ||||||||
Net change in unrealized gain (loss) |
(1,844 | ) | (6 | ) | 1,250 | |||||||
Purchase of investment securities |
59,904 | | | |||||||||
Proceeds from dispositions of investment securities |
(38,478 | ) | (3,644 | ) | | |||||||
Transfers in/out of Level 3 |
| | | |||||||||
|
|
|
|
|
|
|||||||
Fair value, September 30, 2016 |
$ | 218,411 | $ | | $ | 35,318 | ||||||
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|
|
|
|
|
|||||||
Unrealized gains (losses) for the period relating to those Level 3 assets that were still held by the Company at the end of the period: |
||||||||||||
Net change in unrealized gain (loss): |
$ | (2,203 | ) | $ | | $ | 1,250 | |||||
|
|
|
|
|
|
During the nine months ended September 30, 2016, there were no transfers in and out of Levels 1 and 2.
The following table shows a reconciliation of the beginning and ending balances for fair valued liabilities measured using significant unobservable inputs (Level 3) for the nine months ended September 30, 2016:
Beginning fair value at December 31, 2015 |
$ | 116,200 | ||
Borrowings |
61,600 | |||
Repayments |
(134,800 | ) | ||
Transfers in/out of Level 3 |
| |||
|
|
|||
Ending fair value at September 30, 2016 |
$ | 43,000 | ||
|
|
The Company has made an irrevocable election to apply the fair value option of accounting to the Credit Facility, in accordance with ASC 825-10. On September 30, 2016, there were borrowings of $43,000 on the Credit Facility. For the nine months ended September 30, 2016, the Credit Facility had no net change in unrealized (appreciation) depreciation. The Company used an independent third-party valuation firm to assist in measuring the fair value of the Credit Facility.
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SOLAR SENIOR CAPITAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (continued)
September 30, 2016
(in thousands, except share amounts)
The following table provides a summary of the changes in fair value of Level 3 assets and liabilities for the year ended December 31, 2015, as well as the portion of gains or losses included in income attributable to unrealized gains or losses related to those assets and liabilities still held at December 31, 2015:
Fair Value Measurements Using Level 3 Inputs
Bank Debt/Senior Secured Loans |
Unsecured Notes |
Common Equity/Equity Interests |
||||||||||
Fair value, December 31, 2014 |
$ | 251,823 | $ | | $ | 35,377 | ||||||
Total gains or losses included in earnings: |
||||||||||||
Net realized gain (loss) |
39 | | | |||||||||
Net change in unrealized gain (loss) |
(4,272 | ) | | (1,309 | ) | |||||||
Purchase of investment securities |
70,682 | | | |||||||||
Proceeds from dispositions of investment securities |
(114,486 | ) | | | ||||||||
Transfers in/out of Level 3 |
(4,950 | ) | 3,650 | | ||||||||
|
|
|
|
|
|
|||||||
Fair value, December 31, 2015 |
$ | 198,836 | $ | 3,650 | $ | 34,068 | ||||||
|
|
|
|
|
|
|||||||
Unrealized gains (losses) for the period relating to those Level 3 assets that were still held by the Company at the end of the period: |
||||||||||||
Net change in unrealized gain (loss): |
$ | (4,400 | ) | $ | (228 | ) | $ | (1,309 | ) | |||
|
|
|
|
|
|
During the fiscal year ended December 31, 2015, our investment in CT Technologies Intermediate Holdings was transferred from Level 3 to Level 2. The transfer was a result of changes in the quantity and quality of information used as valuation inputs by the Investment Adviser. Our investment in Apollo Investment Corporation was transferred from Level 2 to Level 3 during the fiscal year ended December 31, 2015 as the quote was deemed to be not representative of fair value given the impending maturity. There were no other transfers between levels.
The following table shows a reconciliation of the beginning and ending balances for fair valued liabilities measured using significant unobservable inputs (Level 3) for the year ended December 31, 2015:
Beginning fair value at December 31, 2014 |
$ | 143,200 | ||
Borrowings |
47,700 | |||
Repayments |
(74,700 | ) | ||
Transfers in/out of Level 3 |
| |||
|
|
|||
Ending fair value at December 31, 2015 |
$ | 116,200 | ||
|
|
The Company has made an irrevocable election to apply the fair value option of accounting to the Credit Facility, in accordance with ASC 825-10. On December 31, 2015, there were borrowings of $116,200 on the Credit Facility. For the year ended December 31, 2015, the Credit Facility had no net change in unrealized (appreciation) depreciation. The Company used an independent third-party valuation firm to assist in measuring the fair value of the Credit Facility.
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SOLAR SENIOR CAPITAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (continued)
September 30, 2016
(in thousands, except share amounts)
Quantitative Information about Level 3 Fair Value Measurements
The Company typically determines the fair value of its performing debt investments utilizing a yield analysis. In a yield analysis, a price is ascribed for each investment based upon an assessment of current and expected market yields for similar investments and risk profiles. Additional consideration is given to current contractual interest rates, relative maturities and other key terms and risks associated with an investment. Among other factors, a significant determinant of risk is the amount of leverage used by the portfolio company relative to the total enterprise value of the company, and the rights and remedies of our investment within each portfolio company.
Significant unobservable quantitative inputs typically used in the fair value measurement of the Companys Level 3 assets and liabilities primarily reflect current market yields, including indices, and readily available quotes from brokers, dealers, and pricing services as indicated by comparable assets and liabilities, as well as enterprise values, returns on equity and earnings before income taxes, depreciation and amortization (EBITDA) multiples of similar companies, and comparable market transactions for equity securities.
Quantitative information about the Companys Level 3 asset and liability fair value measurements as of September 30, 2016 is summarized in the table below:
Asset or Liability |
Fair Value at September 30, 2016 |
Principal
Valuation Technique/Methodology |
Unobservable Input | Range (Weighted Average) | ||||||||
Bank Debt / Senior Secured Loans | Asset | $ | 218,411 | Yield Analysis | Market Yield | 5.3% 19.9% (8.1%) | ||||||
Common Equity/Equity Interests |
Asset | $ $ |
68 35,250 |
|
Enterprise Value Enterprise Value |
EBITDA Multiple Return on Equity |
7.7x - 22.8x (22.8x) 6.5% 14.1% (14.1%) | |||||
Credit Facility |
Liability | $ | 43,000 | Yield Analysis | Market Yield | L+1.8% L+4.8% (L+2.0%) |
Significant increases or decreases in any of the above unobservable inputs in isolation, including unobservable inputs used in deriving bid-ask spreads, if applicable, would result in a significantly lower or higher fair value measurement for such assets and liabilities.
Quantitative information about the Companys Level 3 asset and liability fair value measurements as of December 31, 2015 is summarized in the table below:
Asset or Liability |
Fair Value at December 31, 2015 |
Principal
Valuation Technique/Methodology |
Unobservable Input | Range (Weighted Average) | ||||||||
Bank Debt / Senior Secured Loans / Unsecured Notes |
Asset | $ | 202,486 | Yield Analysis | Market Yield | 5.6% 12.0% (7.2%) | ||||||
Common Equity/Equity Interests |
Asset | $ $ |
68 34,000 |
|
Enterprise Value Enterprise Value |
EBITDA Multiple Return on Equity |
9.1x - 16.9x (16.9x) 7.0% - 13.3% (13.3%) | |||||
Credit Facility |
Liability | $ | 116,200 | Yield Analysis | Market Yield | L+0.5% L+4.8% (L+2.0%) |
Significant increases or decreases in any of the above unobservable inputs in isolation, including unobservable inputs used in deriving bid-ask spreads, if applicable, would result in a significantly lower or higher fair value measurement for such assets and liabilities.
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SOLAR SENIOR CAPITAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (continued)
September 30, 2016
(in thousands, except share amounts)
Note 7. Debt
Senior Secured Revolving Credit FacilityOn August 26, 2011, the Company established SUNS SPV, LLC (SUNS SPV) which entered into the $200,000 Credit Facility with Citigroup Global Markets Inc. acting as administrative agent. The Credit Facility was scheduled to mature on August 26, 2016 and generally bore interest at a rate of LIBOR plus 2.25%. The Credit Facility can also be expanded up to $600,000 and is secured by all of the assets held by the SUNS SPV. Under the terms of the Credit Facility, Solar Senior and the SUNS SPV, as applicable, have made certain customary representations and warranties, and are required to comply with various covenants, including leverage restrictions, reporting requirements and other customary requirements for similar credit facilities. The Credit Facility also includes usual and customary events of default for credit facilities of this nature. On November 7, 2012, the Company amended the Credit Facility. As a result of the amendment, the stated interest rate on the Credit Facility was reduced to LIBOR plus 2.00% from LIBOR plus 2.25%, and the Credit Facility continues to have no LIBOR floor requirement. The amendment also provided us greater investment flexibility and extended the final maturity date to November 6, 2017. On February 26, 2014, the Company utilized the Credit Facilitys delayed draw feature, expanding immediately available capital from $150,000 to $200,000, subject to borrowing base limitations. On June 30, 2014, the Company again amended the Credit Facility. As a result of this amendment, commitments under the Credit Facility were reduced by $25,000 to $175,000 and may be expanded up to $600,000 under its accordion feature. This amendment to the Credit Facility also added greater investment flexibility and extended the final maturity date to June 28, 2019. The stated interest rate remains LIBOR plus 2.00% with no LIBOR floor requirement. On May 29, 2015, the Company entered into another amendment to the Credit Facility. This amendment added greater investment flexibility and extended the final maturity date to June 30, 2020.
The Company has made an irrevocable election to apply the fair value option of accounting to the Credit Facility, in accordance with ASC 825-10. We believe accounting for the Credit Facility at fair value better aligns the measurement methodologies of assets and liabilities, which may mitigate certain earnings volatility. ASC 825-10 requires entities to display the fair value of the selected assets and liabilities on the face of the Consolidated Statements of Assets and Liabilities and changes in fair value of the Credit Facility are reported in the Consolidated Statements of Operations.
The average annualized interest cost for all borrowings for the nine months ended September 30, 2016 and the year ended December 31, 2015 was 2.56% and 2.25%, respectively. These costs are exclusive of other credit facility expenses such as unused fees and fees paid to the back-up servicer, if any. During the nine months ended September 30, 2016 and the year ended December 31, 2015, the Company expensed $0 and $829 in conjunction with amendments to the Credit Facility. The maximum amount borrowed on the Credit Facility during the nine months ended September 30, 2016 and the year ended December 31, 2015, was $141,600 and $148,600, respectively.
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SOLAR SENIOR CAPITAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (continued)
September 30, 2016
(in thousands, except share amounts)
Note 8. Financial Highlights and Senior Securities Table
The following is a schedule of financial highlights for the nine months ended September 30, 2016 and for the year ended December 31, 2015:
Nine months ended September 30, 2016 (unaudited) |
Year ended December 31, 2015 |
|||||||
Per Share Data: (a) |
||||||||
Net asset value, beginning of year |
$ | 16.33 | $ | 17.65 | ||||
|
|
|
|
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Net investment income |
1.07 | 1.33 | ||||||
Net realized and unrealized gain (loss) |
0.47 | (1.24 | ) | |||||
|
|
|
|
|||||
Net increase in net assets resulting from operations |
1.54 | 0.09 | ||||||
Distributions to stockholders: |
||||||||
From net investment income |
(1.07 | ) | (1.41 | ) | ||||
Offering costs |
(0.02 | ) | | |||||
|
|
|
|
|||||
Net asset value, end of period |
$ | 16.78 | $ | 16.33 | ||||
|
|
|
|
|||||
Per share market value, end of period |
$ | 16.21 | $ | 14.90 | ||||
Total Return(b) |
16.47 | % | 8.90 | % | ||||
Net assets, end of period |
$ | 268,866 | $ | 188,304 | ||||
Shares outstanding, end of period |
16,025,011 | 11,533,315 | ||||||
|
|
|
|
|||||
Ratios to average net assets(c): |
||||||||
Net investment income |
6.61 | % | 7.63 | % | ||||
|
|
|
|
|||||
Operating expenses |
2.47 | %* | 2.92 | %* | ||||
Interest and other credit facility expenses |
1.37 | % | 2.08 | % | ||||
|
|
|
|
|||||
Total expenses |
3.84 | %* | 5.00 | %* | ||||
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|
|
|
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Average debt outstanding |
$ | 123,429 | $ | 136,900 | ||||
Portfolio turnover ratio |
18.8 | % | 34.0 | % |
(a) | Calculated using the average shares outstanding method. |
(b) | Total return is based on the change in market price per share during the period and takes into account distributions, if any, reinvested in accordance with the dividend reinvestment plan. Total return does not include a sales load. |
(c) | Not annualized for periods less than one year. |
* | The ratio of operating expenses to average net assets and the ratio of total expenses to average net assets is shown net of a voluntary incentive fee waiver (see note 3). For the nine months ended September 30, 2016, the ratios of operating expenses to average net assets and total expenses to average net assets would be 3.06% and 4.43%, respectively, without the voluntary incentive fee waiver. For the year ended December 31, 2015, the ratios of operating expenses to average net assets and total expenses to average net assets would be 3.29% and 5.37%, respectively, without the voluntary incentive fee waiver. |
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SOLAR SENIOR CAPITAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (continued)
September 30, 2016
(in thousands, except share amounts)
Information about our senior securities is shown in the following table as of each year ended December 31 since the Company commenced operations, unless otherwise noted. The indicates information which the SEC expressly does not require to be disclosed for certain types of senior securities.
Class and Year |
Total
Amount Outstanding(1) |
Asset Coverage Per Unit(2) |
Involuntary Liquidating Preference Per Unit(3) |
Average Market Value Per Unit(4) |
||||||||||||
Revolving Credit Facility |
||||||||||||||||
Fiscal 2016 (through September 30, 2016) |
$ | 43,000 | $ | 7,253 | $ | | N/A | |||||||||
Fiscal 2015 |
116,200 | 2,621 | | N/A | ||||||||||||
Fiscal 2014 |
143,200 | 2,421 | | N/A | ||||||||||||
Fiscal 2013 |
61,400 | 4,388 | | N/A | ||||||||||||
Fiscal 2012 |
39,100 | 5,453 | | N/A | ||||||||||||
Fiscal 2011 |
8,600 | 21,051 | | N/A |
(1) | Total amount of each class of senior securities outstanding at the end of the period presented. |
(2) | The asset coverage ratio for a class of senior securities representing indebtedness is calculated as our consolidated total assets, less all liabilities and indebtedness not represented by senior securities, divided by senior securities representing indebtedness. This asset coverage ratio is multiplied by one thousand to determine the Asset Coverage Per Unit. In order to determine the specific Asset Coverage Per Unit for each class of debt, the total Asset Coverage Per Unit was divided based on the amount outstanding at the end of the period for each. As of September 30, 2016, asset coverage was 725.3%. |
(3) | The amount to which such class of senior security would be entitled upon the involuntary liquidation of the issuer in preference to any security junior to it. |
(4) | Not applicable, we do not have senior securities that are registered for public trading. |
Note 9. Gemino Healthcare Finance, LLC
We acquired Gemino Healthcare Finance, LLC (d/b/a Gemino Senior Secured Healthcare Finance) (Gemino) on September 30, 2013. Gemino is a commercial finance company that originates, underwrites, and manages primarily secured, asset-based loans for small and mid-sized companies operating in the healthcare industry. Our initial investment in Gemino was $32,839. The management team of Gemino co-invested in the transaction and continues to lead Gemino.
Concurrent with the closing of the transaction, Gemino entered into a new, four-year, non-recourse, $100,000 credit facility with non-affiliates, which was expandable to $150,000 under its accordion feature. Effective March 31, 2014, the credit facility was expanded to $105,000 and again on June 27, 2014 to $110,000. On May 27, 2016, Gemino entered into a new $125,000 credit facility which replaced the previously existing facility. The new facility has similar terms as compared to the previous facility and includes an accordion feature increase to $200,000 and has a maturity date of May 27, 2020.
On December 31, 2013, we contributed our 32,839 units in Gemino to Gemino Senior Secured Healthcare LLC (Gemino Senior Secured Healthcare). In exchange for this contribution, we received 19,839 units of equity interests and $13,000 in floating rate secured notes of Gemino Senior Secured Healthcare bearing interest at LIBOR plus 7.50%, maturing on December 31, 2018. However, our financial statements, including our schedule of investments, reflect our investments in Gemino Senior Secured Healthcare on a consolidated basis. Geminos management team currently owns approximately 6% of the equity in Gemino. Gemino Senior Secured
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Table of Contents
SOLAR SENIOR CAPITAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (continued)
September 30, 2016
(in thousands, except share amounts)
Healthcare owns approximately 94% of the equity in Gemino and Solar Senior owns 100% of the equity in Gemino Senior Secured Healthcare. Gemino and Gemino Senior Secured Healthcare are treated as pass-through entities for tax purposes.
Gemino currently manages a highly diverse portfolio of directly-originated and underwritten senior-secured commitments. As of September 30, 2016, the portfolio totaled approximately $196,088 of commitments, of which $119,938 were funded, on total assets of $117,281. As of December 31, 2015, the portfolio totaled approximately $188,254 of commitments, of which $130,618 were funded, on total assets of $133,678. At September 30, 2016, the portfolio consisted of 37 issuers with an average balance of approximately $3,242 versus 36 issuers with an average balance of approximately $3,628 at December 31, 2015. All of the commitments in Geminos portfolio are floating-rate, senior-secured, cash-pay loans. Geminos credit facility, which is non-recourse to us, had approximately $82,000 and $98,500 of borrowings outstanding at September 30, 2016 and December 31, 2015, respectively. For the three and nine months ended September 30, 2016, Gemino had net income of $1,027 and $3,415, respectively, on gross income of $3,207 and $10,340, respectively. For the three and nine months ended September 30, 2015, Gemino had net income of $912 and $2,990, respectively, on gross income of $2,963 and $9,237, respectively. Due to timing and non-cash items, there may be material differences between GAAP net income and cash available for distributions.
Note 10. Commitments and Contingencies
The Company had unfunded debt and equity commitments to delayed draw and revolving loans, as well as to Gemino. The total amount of these unfunded commitments as of September 30, 2016 and December 31, 2015 is $8,063 and $6,736, respectively, comprised of the following:
September 30, 2016 |
December 31, 2015 |
|||||||
Gemino Healthcare Finance, LLC |
$ | 5,000 | $ | 5,000 | ||||
Engineering Solutions & Products, LLC |
1,736 | 1,736 | ||||||
VT Buyer Acquisition Corp. (Veritext) |
486 | | ||||||
CIBT Holdings, Inc |
484 | | ||||||
Genmark Diagnostics, Inc. |
357 | | ||||||
|
|
|
|
|||||
Total Commitments* |
$ | 8,063 | $ | 6,736 | ||||
|
|
|
|
* | The Company controls the funding of the Gemino Healthcare Finance, LLC commitment and may cancel it at its discretion. |
As of September 30, 2016 and December 31, 2015, the Company had sufficient cash available and/or liquid securities available to fund its commitments as well as the commitment to FLLP disclosed in Note 11.
Note 11. First Lien Loan Program LLC
On September 10, 2014, the Company entered into a limited liability company agreement to create a First Lien Loan Program (FLLP) with Voya Investment Management LLC (Voya). Voya acts as the investment advisor for several wholly-owned insurance subsidiaries of Voya Financial, Inc. (NYSE: VOYA). The joint venture vehicle, structured as an unconsolidated Delaware limited liability company, is expected to invest primarily in senior secured floating rate term loans to middle market companies predominantly owned by private equity sponsors or entrepreneurs. Solar Senior and Voya have committed to provide $50,750 and $7,250,
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Table of Contents
SOLAR SENIOR CAPITAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (continued)
September 30, 2016
(in thousands, except share amounts)
respectively, of capital to the joint venture. All portfolio decisions and generally all other decisions in respect of the FLLP must be approved by an investment committee of the FLLP consisting of representatives of the Company and Voya (with approval from a representative of each required). On February 13, 2015, FLLP commenced operations. On February 13, 2015, FLLP as transferor and FLLP 2015-1, LLC, a newly formed wholly owned subsidiary of FLLP, as borrower entered into a $75,000 senior secured revolving credit facility (the FLLP Facility) with Wells Fargo Securities, LLC acting as administrative agent. Solar Senior Capital Ltd. acts as servicer under the FLLP Facility. The FLLP Facility was scheduled to mature on February 13, 2020. The FLLP Facility generally bears interest at a rate of LIBOR plus a range of 2.25%-2.50%. FLLP and FLLP 2015-1, LLC, as applicable, have made certain customary representations and warranties, and are required to comply with various covenants, including leverage restrictions, reporting requirements and other customary requirements for similar credit facilities. The FLLP Facility also includes usual and customary events of default for credit facilities of this nature. On August 15, 2016, the FLLP Facility was amended, expanding commitments to $100,000 and extending the maturity date to August 16, 2021. There were $69,893 of borrowings outstanding as of September 30, 2016. As of September 30, 2016 and December 31, 2015, Solar Senior and Voya contributed combined equity capital in the amount of $36,009 and $33,810, respectively. Of the $36,009 of contributed equity capital, the Company contributed $29,584 in the form of investments and $1,924 in the form of cash and Voya contributed $4,501 in the form of cash. As of September 30, 2016, Solar Senior and Voyas remaining commitments totaled $19,242 and $2,749, respectively. The Company, along with Voya, controls the funding of FLLP and FLLP may not call the unfunded commitments without approval of both the Company and Voya.
As of September 30, 2016 and December 31, 2015, FLLP had total assets of $109,914 and $76,788, respectively. For the same periods, FLLPs portfolio consisted of first lien floating rate senior secured loans to 23 and 15 different borrowers, respectively. For the three months ended September 30, 2016, FLLP invested $15,840 across 3 portfolio companies. For the three months ended September 30, 2015, FLLP invested $21,478 across 3 portfolio companies. Investments prepaid totaled $495 for the three months ended September 30, 2016 and $482 for the three months ended September 30, 2015. At September 30, 2016 and 2015, the weighted average yield of FLLPs portfolio was 6.5% and 6.3%, respectively, measured at fair value and 6.4% and 6.2%, respectively, measured at cost.
28
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SOLAR SENIOR CAPITAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (continued)
September 30, 2016
(in thousands, except share amounts)
FLLP Portfolio as of September 30, 2016
Description |
Industry | Spread Above Index(1) |
LIBOR Floor |
Interest Rate(2) |
Maturity Date |
Par Amount |
Cost | Fair Value(3) |
||||||||||||||||||||||
1A Smart Start LLC |
Electronic Equipment, Instruments & Components |
L+475 | 1.00 | % | 5.75 | % | 2/21/22 | $ | 7,940 | $ | 7,872 | $ | 7,920 | |||||||||||||||||
Athletico Management, LLC and Accelerated Holdings, LLC(4) |
Health Care Facilities | L+550 | 0.75 | % | 6.34 | % | 12/2/20 | 4,524 | 4,490 | 4,524 | ||||||||||||||||||||
Capstone Logistics Acquisition, Inc.(4) |
Professional Services | L+450 | 1.00 | % | 5.50 | % | 10/7/21 | 5,361 | 5,319 | 5,254 | ||||||||||||||||||||
Castle Management Borrower LLC (Highgate Hotels)(4) |
Real Estate Management & |
L+450 | 1.00 | % | 5.50 | % | 9/18/20 | 3,800 | 3,772 | 3,743 | ||||||||||||||||||||
CIBT Holdings, Inc.(4) |
Professional Services | L+525 | 1.00 | % | 6.25 | % | 6/28/22 | 2,620 | 2,595 | 2,594 | ||||||||||||||||||||
Confie Seguros Holding II Co.(4) |
Insurance | L+450 | 1.25 | % | 7.00 | % | 11/9/18 | 5,416 | 5,413 | 5,416 | ||||||||||||||||||||
DB Datacenter Holdings, Inc. |
IT Services | L+475 | 1.00 | % | 5.75 | % | 7/13/21 | 5,500 | 5,447 | 5,445 | ||||||||||||||||||||
Innovative Xcessories & Services, LLC(4) |
Automotive Retail | L+400 | 1.00 | % | 5.00 | % | 2/21/20 | 2,401 | 2,401 | 2,383 | ||||||||||||||||||||
Kellermeyer Bergensons Services, LLC (KBS)(4) |
Commercial Services & |
L+500 | 1.00 | % | 6.00 | % | 10/29/21 | 2,438 | 2,418 | 2,377 | ||||||||||||||||||||
MedRisk, LLC |
Health Care Services | L+525 | 1.00 | % | 6.25 | % | 3/1/23 | 3,980 | 3,943 | 3,960 | ||||||||||||||||||||
Metamorph US 3, LLC (Metalogix)(4) |
Software | L+650 | 1.00 | % | 7.50 | % | 12/1/20 | 4,031 | 3,954 | 3,225 | ||||||||||||||||||||
Pearl Merger Sub, LLC (PetVet)(4) |
Health Care Facilities | L+475 | 1.00 | % | 5.75 | % | 12/17/20 | 5,404 | 5,322 | 5,363 | ||||||||||||||||||||
Pet Holdings ULC & Pet Supermarket, Inc. |
Specialty Retail | L+550 | 1.00 | % | 6.50 | % | 7/5/22 | 4,549 | 4,483 | 4,481 | ||||||||||||||||||||
PSP Group, LLC (Pet Supplies Plus)(4) |
Specialty Retail | L+475 | 1.00 | % | 5.75 | % | 4/6/21 | 5,367 | 5,327 | 5,340 | ||||||||||||||||||||
QBS Holding Company, Inc. (Quorum)(4) |
Software | L+475 | 1.00 | % | 5.75 | % | 8/7/21 | 3,439 | 3,411 | 3,336 | ||||||||||||||||||||
Salient Partners, L.P.(4) |
Asset Management | L+850 | 1.00 | % | 9.50 | % | 6/9/21 | 5,262 | 5,175 | 5,156 | ||||||||||||||||||||
Sarnova HC, LLC |
Trading Companies and Distributors |
L+475 | 1.00 | % | 5.75 | % | 1/28/22 | 4,975 | 4,930 | 4,963 | ||||||||||||||||||||
Suburban Broadband, LLC (Jab Wireless, Inc.) |
Wireless Telecommunication |
L+450 | 1.00 | % | 5.50 | % | 3/26/19 | 8,168 | 8,048 | 8,106 | ||||||||||||||||||||
Telular Corporation |
Wireless Telecommunication Services |
L+425 | 1.25 | % | 5.50 | % | 6/24/19 | 5,136 | 5,118 | 5,117 | ||||||||||||||||||||
The Hilb Group, LLC & Gencorp Insurance Group, Inc.(4) |
Insurance | L+500 | 1.00 | % | 6.00 | % | 6/24/21 | 3,827 | 3,757 | 3,770 | ||||||||||||||||||||
Tronair Parent Inc. |
Aerospace & Defense | L+475 | 1.00 | % | 5.75 | % | 9/8/23 | 5,000 | 4,950 | 4,950 | ||||||||||||||||||||
VT Buyer Acquisition Corp. (Veritext)(4) |
Professional Services | L+500 | 1.00 | % | 6.00 | % | 1/29/22 | 4,492 | 4,452 | 4,470 | ||||||||||||||||||||
Wirb-Copernicus Group, Inc. |
Professional Services | L+500 | 1.00 | % | 6.00 | % | 8/12/22 | 5,500 | 5,446 | 5,445 | ||||||||||||||||||||
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$ | 108,043 | $ | 107,338 | |||||||||||||||||||||||||||
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(1) | Floating rate instruments accrue interest at a predetermined spread relative to an index, typically the LIBOR or PRIME rate. These instruments are typically subject to a LIBOR or PRIME rate floor. |
29
Table of Contents
SOLAR SENIOR CAPITAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (continued)
September 30, 2016
(in thousands, except share amounts)
(2) | Floating rate debt investments typically bear interest at a rate determined by reference to either the London Interbank Offered Rate (LIBOR or L) index rate or the prime index rate (PRIME or P), and which typically reset monthly, quarterly or semi-annually. For each debt investment we have provided the current interest rate in effect as of September 30, 2016. |
(3) | Represents the fair value in accordance with ASC Topic 820. The determination of such fair value is not included in the Boards valuation process described elsewhere herein. |
(4) | The Company also holds this security on its Consolidated Statements of Assets and Liabilities. |
FLLP Portfolio as of December 31, 2015 (audited)
Description |
Industry | Interest Rate(1) |
Maturity Date |
Par Amount |
Cost | Fair Value(2) |
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1A Smart Start LLC |
|
Electronic Equipment, Instruments & Components |
|
5.75 | % | 2/21/22 | $ | 8,000 | $ | 7,924 | $ | 7,880 | ||||||||||||
Athletico Management, LLC and Accelerated Holdings, LLC(3) |
Health Care Facilities | 6.25 | % | 12/2/20 | 4,724 | 4,682 | 4,653 | |||||||||||||||||
Capstone Logistics Acquisition, Inc.(3) |
Professional Services | 5.50 | % | 10/7/21 | 5,436 | 5,387 | 5,395 | |||||||||||||||||
Castle Management Borrower LLC (Highgate Hotels)(3) |
|
Real Estate Management & |
|
5.50 | % | 9/18/20 | 3,950 | 3,916 | 3,812 | |||||||||||||||
Confie Seguros Holding II Co.(3) |
Insurance | 5.75 | % | 11/9/18 | 5,458 | 5,454 | 5,390 | |||||||||||||||||
Innovative Xcessories & Services, LLC(3) |
Automotive Retail | 5.25 | % | 2/21/20 | 2,500 | 2,500 | 2,462 | |||||||||||||||||
Kellermeyer Bergensons Services, LLC (KBS)(3) |
|
Commercial Services & |
|
6.00 | % | 10/29/21 | 2,475 | 2,453 | 2,364 | |||||||||||||||
Metamorph US 3, LLC |
Software | 6.50 | % | 12/1/20 | 4,875 | 4,768 | 4,485 | |||||||||||||||||
Pearl Merger Sub, LLC (PetVet)(3) |
Health Care Facilities | 5.50 | % | 12/17/20 | 5,445 | 5,350 | 5,336 | |||||||||||||||||
PSP Group, LLC (Pet Supplies Plus)(3) |
Specialty Retail | 5.75 | % | 4/6/21 | 5,459 | 5,411 | 5,350 | |||||||||||||||||
QBS Holding Company, Inc. (Quorum)(3) |
Software | 5.75 | % | 8/7/21 | 3,465 | 3,434 | 3,361 | |||||||||||||||||
RCPSI Corporation (Pet Supermarket)(3) |
Specialty Retail | 6.75 | % | 4/16/21 | 5,473 | 5,423 | 5,363 | |||||||||||||||||
Salient Partners, L.P.(3) |
Asset Management | 7.50 | % | 6/9/21 | 5,418 | 5,317 | 5,228 | |||||||||||||||||
Suburban Broadband, LLC (Jab Wireless, Inc.) |
|
Wireless Telecommunication |
|
5.50 | % | 3/26/19 | 8,229 | 8,076 | 8,065 | |||||||||||||||
Telular Corporation |
|
Wireless Telecommunication Services |
|
5.50 | % | 6/24/19 | 5,354 | 5,330 | 5,274 | |||||||||||||||
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$ | 75,425 | $ | 74,418 | |||||||||||||||||||||
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(1) | Floating rate debt investments typically bear interest at a rate determined by reference to either the London Interbank Offered Rate (LIBOR or L) index rate or the prime index rate (PRIME or P), and which typically reset monthly, quarterly or semi-annually. For each debt investment we have provided the current interest rate in effect as of December 31, 2015. |
30
Table of Contents
SOLAR SENIOR CAPITAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (continued)
September 30, 2016
(in thousands, except share amounts)
(2) | Represents the fair value in accordance with ASC Topic 820. The determination of such fair value is not included in the Boards valuation process described elsewhere herein. |
(3) | The Company also holds a portion of this position on its Consolidated Statements of Assets and Liabilities. |
Below is certain summarized financial information for FLLP as of September 30, 2016 and December 31, 2015 and for the three and nine months ended September 30, 2016, the three months ended September 30, 2015 and the period from February 13, 2015 (commencement of operations) through September 30, 2015:
September 30, 2016 |
December 31, 2015 (audited) |
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Selected Balance Sheet Information for FLLP: |
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Investments at fair value (cost $108,043 and $75,425, respectively) |
$ | 107,338 | $ | 74,418 | ||||
Cash and other assets |
2,576 | 2,370 | ||||||
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Total assets |
$ | 109,914 | $ | 76,788 | ||||
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Debt outstanding |
$ | 69,893 | $ | 43,998 | ||||
Payable for investments purchased |
4,950 | | ||||||
Distributions payable |
947 | 742 | ||||||
Interest payable |
610 | 400 | ||||||
Accrued expenses and other payables |
145 | 113 | ||||||
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Total liabilities |
$ | 76,545 | $ | 45,253 | ||||
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Members equity |
$ | 33,369 | $ | 31,535 | ||||
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Total liabilities and members equity |
$ | 109,914 | $ | 76,788 | ||||
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Three months ended September 30, 2016 |
Three months ended September 30, 2015 |
Nine months ended September 30, 2016 |
For the
Period February 13, 2015 (commencement of operations) through September 30, 2015 |
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Selected Income Statement Information for FLLP: |
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Interest income |
$ | 1,622 | $ | 1,003 | $ | 4,505 | $ | 1,907 | ||||||||
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Service fees* |
$ | 17 | $ | 10 | $ | 47 | $ | 19 | ||||||||
Interest and other credit facility expenses** |
1,412 | 292 | 2,385 | 1,827 | ||||||||||||
Other general and administrative expenses |
46 | 54 | 132 | 101 | ||||||||||||
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