Attached files

file filename
EX-32.2 - EX32.2 - TCG BDC, INC.d277543dex322.htm
EX-32.1 - EX-32.1 - TCG BDC, INC.d277543dex321.htm
EX-31.2 - EX-31.2 - TCG BDC, INC.d277543dex312.htm
EX-31.1 - EX-31.1 - TCG BDC, INC.d277543dex311.htm
EX-10.1 - EX-10.1 - TCG BDC, INC.d277543dex101.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 quarterly period ended September 30, 2016

OR

 

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

For the transition period                      to                     

Commission File No. 000-54899

 

 

CARLYLE GMS FINANCE, INC.

(Exact name of Registrant as specified in its charter)

 

 

 

Maryland   80-0789789

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification Number)

520 Madison Avenue, 38th Floor, New York, NY 10022

(Address of principal executive office) (Zip Code)

(212) 813-4900

(Registrant’s telephone number, including area code)

 

 

N/A

(Former name, former address and former fiscal year, if changed since last report)

 

 

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

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

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

 

Large accelerated filer

 

¨

  

Accelerated filer

 

¨

Non-accelerated filer

 

x  (Do not check if a smaller reporting company)

  

Smaller reporting company

 

¨

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

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

 

Class

 

Outstanding at November 10, 2016

Common stock, $0.01 par value   39,796,190

 

 

 


Table of Contents

CARLYLE GMS FINANCE, INC.

INDEX

 

Part I.

 

Financial Information

  

Item 1.

 

Financial Statements

  
 

Consolidated Statements of Assets and Liabilities as of  September 30, 2016 (unaudited) and December 31, 2015

     3   
 

Consolidated Statements of Operations for the three month and nine month periods ended September 30, 2016 (unaudited) and September 30, 2015 (unaudited)

     4   
 

Consolidated Statements of Changes in Net Assets for the nine month periods ended September 30, 2016 (unaudited) and September 30, 2015 (unaudited)

     5   
 

Consolidated Statements of Cash Flows for the nine month periods ended September 30, 2016 (unaudited) and September 30, 2015 (unaudited)

     6   
 

Consolidated Schedules of Investments as of September 30, 2016 (unaudited) and
December 31, 2015

     7   
 

Notes to Consolidated Financial Statements (unaudited)

     22   

Item 2.

 

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

     56   

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

     79   

Item 4.

 

Controls and Procedures

     80   

Part II.

  Other Information   

Item 1.

 

Legal Proceedings

     81   

Item 1A.

 

Risk Factors

     81   

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

     81   

Item 3.

 

Defaults Upon Senior Securities

     81   

Item 4.

 

Mine Safety Disclosures

     81   

Item 5.

 

Other Information

     82   

Item 6.

 

Exhibits

     82   
 

Signatures

     83   

 

2


Table of Contents

CARLYLE GMS FINANCE, INC.

CONSOLIDATED STATEMENTS OF ASSETS AND LIABILITIES

(dollar amounts in thousands, except per share data)

 

     September 30,
2016
    December 31,
2015
 
     (unaudited)        

ASSETS

    

Investments, at fair value

    

Investments—non-controlled/non-affiliated, at fair value (amortized cost of $1,333,671 and $1,079,720, respectively)

   $ 1,324,856      $ 1,052,666   

Investments—controlled/affiliated, at fair value (amortized cost of $55,801 and $0, respectively)

     57,758        —     
  

 

 

   

 

 

 

Total investments, at fair value (amortized cost of $1,389,472 and $1,079,720, respectively)

     1,382,614        1,052,666   

Cash and cash equivalents

     49,841        41,837   

Receivable for investment sold

     13,019        1,987   

Deferred financing costs

     3,471        3,877   

Interest receivable from non-controlled/non-affiliated investments

     3,840        3,279   

Interest and dividend receivable from controlled/affiliated investments

     686        —     

Prepaid expenses and other assets

     256        386   
  

 

 

   

 

 

 

Total assets

   $ 1,453,727      $ 1,104,032   
  

 

 

   

 

 

 

LIABILITIES

    

Payable for investments purchased

   $ 19,800      $ —     

Secured borrowings (Note 6)

     395,016        234,313   

2015-1 Notes payable, net of unamortized debt issuance costs of $2,202 and $2,356, respectively (Note 7)

     270,798        270,644   

Due to Investment Adviser

     140        189   

Interest and credit facility fees payable (Notes 6 and 7)

     3,277        2,577   

Dividend payable (Note 9)

     15,917        18,284   

Base management and incentive fees payable (Note 4)

     16,142        5,277   

Administrative service fees payable (Note 4)

     127        97   

Other accrued expenses and liabilities

     1,272        925   
  

 

 

   

 

 

 

Total liabilities

     722,489        532,306   
  

 

 

   

 

 

 

Commitments and contingencies (Notes 8 and 11)

    

NET ASSETS

    

Common stock, $0.01 par value; 200,000,000 shares authorized; 39,791,482 shares and 31,524,083 shares issued and outstanding at September 30, 2016 and December 31, 2015, respectively

     398        315   

Paid-in capital in excess of par value

     764,157        613,944   

Offering costs

     (74     (74

Accumulated net investment income (loss), net of cumulative dividends of $109,048 and $65,851 at September 30, 2016 and December 31, 2015, respectively

     (14,919     (12,994

Accumulated net realized gain (loss)

     (11,466     (2,411

Accumulated net unrealized appreciation (depreciation)

     (6,858     (27,054
  

 

 

   

 

 

 

Total net assets

   $ 731,238      $ 571,726   
  

 

 

   

 

 

 

NET ASSETS PER SHARE

   $ 18.38      $ 18.14   
  

 

 

   

 

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

3


Table of Contents

CARLYLE GMS FINANCE, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(dollar amounts in thousands, except per share data)

(unaudited)

 

    For the three month periods ended     For the nine month periods ended  
    September 30,
2016
    September 30,
2015
    September 30,
2016
    September 30,
2015
 

Investment income:

       

Interest income from non-controlled/non-affiliated investments

  $ 26,362      $ 19,405      $ 72,551      $ 47,836   

Other income from non-controlled/non-affiliated investments

    1,909        196        4,578        669   

Interest income from controlled/affiliated investments

    336        —          336        —     

Dividend income from controlled/affiliated investments

    350        —          350        —     
 

 

 

   

 

 

   

 

 

   

 

 

 

Total investment income

    28,957        19,601        77,815        48,505   
 

 

 

   

 

 

   

 

 

   

 

 

 

Expenses:

       

Base management fees (Note 4)

    4,699        3,679        13,184        9,482   

Incentive fees (Note 4)

    3,962        2,584        10,318        6,190   

Professional fees

    568        453        1,574        1,302   

Administrative service fees (Note 4)

    180        152        526        452   

Interest expense (Notes 6 and 7)

    4,051        2,658        11,475        6,567   

Credit facility fees (Note 6)

    682        522        2,139        1,396   

Directors’ fees and expenses

    146        109        410        316   

Other general and administrative

    390        337        1,312        1,202   
 

 

 

   

 

 

   

 

 

   

 

 

 

Total expenses

    14,678        10,494        40,938        26,907   

Waiver of base management fees (Note 4)

    1,567        1,227        4,395        3,161   
 

 

 

   

 

 

   

 

 

   

 

 

 

Net expenses

    13,111        9,267        36,543        23,746   
 

 

 

   

 

 

   

 

 

   

 

 

 

Net investment income (loss)

    15,846        10,334        41,272        24,759   

Net realized gain (loss) and net change in unrealized appreciation (depreciation) on investments:

       

Net realized gain (loss) on investments—non-controlled/non-affiliated

    544        823        (9,055     1,152   

Net change in unrealized appreciation (depreciation) on investments—non-controlled/non-affiliated

    10,536        (1,504     18,239        2,745   

Net change in unrealized appreciation (depreciation) on investments—controlled/affiliated

    2,244        —          1,957        —     
 

 

 

   

 

 

   

 

 

   

 

 

 

Net realized gain (loss) and net change in unrealized appreciation (depreciation) on investments

    13,324        (681     11,141        3,897   
 

 

 

   

 

 

   

 

 

   

 

 

 

Net increase (decrease) in net assets resulting from operations

  $ 29,170      $ 9,653      $ 52,413      $ 28,656   
 

 

 

   

 

 

   

 

 

   

 

 

 

Basic and diluted earnings per common share (Note 9)

  $ 0.78      $ 0.35      $ 1.51      $ 1.23   
 

 

 

   

 

 

   

 

 

   

 

 

 

Weighted-average shares of common stock outstanding—Basic and Diluted (Note 9)

    37,489,297        27,219,231        34,623,225        23,314,654   
 

 

 

   

 

 

   

 

 

   

 

 

 

Dividends declared per common share (Note 9)

  $ 0.40      $ 0.42      $ 1.20      $ 1.16   

The accompanying notes are an integral part of these consolidated financial statements.

 

4


Table of Contents

CARLYLE GMS FINANCE, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS

(dollar amounts in thousands)

(unaudited)

 

     For the nine month periods ended  
     September 30,
2016
    September 30,
2015
 

Increase (decrease) in net assets resulting from operations:

    

Net investment income (loss)

   $ 41,272      $ 24,759   

Net realized gain (loss) on investments

     (9,055     1,152   

Net change in unrealized appreciation (depreciation) on investments

     20,196        2,745   
  

 

 

   

 

 

 

Net increase (decrease) in net assets resulting from operations

     52,413        28,656   
  

 

 

   

 

 

 

Capital transactions:

    

Common stock issued

     150,102        193,092   

Reinvestment of dividends

     194        84   

Dividends declared (Note 12)

     (43,197     (29,405
  

 

 

   

 

 

 

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

     107,099        163,771   
  

 

 

   

 

 

 

Net increase (decrease) in net assets

     159,512        192,427   
  

 

 

   

 

 

 

Net assets at beginning of period

     571,726        338,257   
  

 

 

   

 

 

 

Net assets at end of period

   $ 731,238      $ 530,684   
  

 

 

   

 

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

5


Table of Contents

CARLYLE GMS FINANCE, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(dollar amounts in thousands)

(unaudited)

 

    For the nine month periods ended  
    September 30,
2016
    September 30,
2015
 

Cash flows from operating activities:

   

Net increase (decrease) in net assets resulting from operations

  $ 52,413      $ 28,656   

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

   

Amortization of deferred financing costs

    1,180        782   

Net accretion of discount on investments

    (3,605     (2,224

Net realized (gain) loss on investments

    9,055        (1,152

Net change in unrealized (appreciation) depreciation on investments

    (20,196     (2,745

Cost of investments purchased and change in payable for investments purchased

    (562,916     (524,723

Proceeds from sales and repayments of investments and change in receivable for investments sold

    256,482        198,431   

Changes in operating assets:

   

Interest receivable

    (897     1,693   

Dividend receivable

    (350     —     

Prepaid expenses and other assets

    130        80   

Changes in operating liabilities:

   

Due to Investment Adviser

    (49     7   

Interest and credit facility fees payable

    700        1,438   

Base management and incentive fees payable

    10,865        2,580   

Administrative service fees payable

    30        27   

Other accrued expenses and liabilities

    347        404   
 

 

 

   

 

 

 

Net cash provided by (used in) operating activities

    (256,811     (296,746
 

 

 

   

 

 

 

Cash flows from financing activities:

   

Proceeds from issuance of common stock

    150,102        193,092   

Borrowings on Revolving Credit Facility and Facility

    411,435        320,200   

Repayments of Revolving Credit Facility and Facility

    (250,732     (449,183

Proceeds from issuance of 2015-1 Notes

    —          273,000   

Debt issuance costs paid

    (620     (2,507

Dividends paid in cash

    (45,370     (23,927
 

 

 

   

 

 

 

Net cash provided by (used in) financing activities

    264,815        310,675   
 

 

 

   

 

 

 

Net increase (decrease) in cash and cash equivalents

    8,004        13,929   

Cash and cash equivalents, beginning of period

    41,837        8,754   
 

 

 

   

 

 

 

Cash and cash equivalents, end of period

  $ 49,841      $ 22,683   
 

 

 

   

 

 

 

Supplemental disclosures:

   

Offering expenses and debt issuance costs due

  $ —        $ 60   

Interest paid during the period

  $ 10,700      $ 5,080   

Dividends declared during the period

  $ 43,197      $ 29,405   

Reinvestment of dividends

  $ 194      $ 84   

The accompanying notes are an integral part of these consolidated financial statements.

 

6


Table of Contents

CARLYLE GMS FINANCE, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS

As of September 30, 2016

(dollar amounts in thousands)

(unaudited)

 

Investments—non-controlled/non-affiliated (1)

 

Industry

  Interest
Rate
    Maturity
Date
    Par/
Principal
Amount
    Amortized
Cost (6)
    Fair
Value (7)
    Percentage
of
Net Assets
 

First Lien Debt (80.61%)

             

Access CIG, LLC (2) (3) (4) (13)

  Business Services     6.00     10/17/2021      $ 18,382      $ 18,263      $ 18,349        2.51

AF Borrower LLC (Accuvant) (2) (3) (4) (13)

  High Tech Industries     6.25        1/28/2022        16,154        15,956        16,181        2.21   

Alpha Packaging Holdings, Inc. (2) (3) (4) (13)

  Containers, Packaging & Glass     5.25        5/12/2020        11,351        11,342        11,336        1.55   

Anaren, Inc. (2) (3) (4) (13)

  Telecommunications     5.50        2/18/2021        10,897        10,824        10,543        1.44   

Audax AAMP Holdings, Inc. (2) (3) (4) (13)

  Durable Consumer Goods     7.00        6/24/2017        10,725        10,688        10,616        1.45   

BAART Programs, Inc. (2) (4)

  Healthcare & Pharmaceuticals     8.49        10/9/2021        7,425        7,372        7,539        1.03   

Blue Bird Body Company (2) (3) (4) (8) (13)

  Transportation: Consumer     6.50        6/26/2020        7,872        7,599        7,872        1.08   

Brooks Equipment Company, LLC (2) (3) (4) (13)

  Construction & Building     6.00        8/29/2020        6,768        6,728        6,747        0.92   

Capstone Logistics Acquisition, Inc. (2) (3) (4) (13)

  Transportation: Cargo     5.50        10/7/2021        19,478        19,331        19,040        2.60   

Captive Resources Midco, LLC (2) (3) (4) (5) (9) (13)

  Banking, Finance, Insurance & Real Estate     6.75        6/30/2020        29,125        28,735        29,180        3.99   

Castle Management Borrower LLC (Highgate Hotels L.P.) (2) (3) (4) (13)

  Hotel, Gaming & Leisure     5.50        9/18/2020        9,504        9,444        9,487        1.30   

Central Security Group, Inc. (2) (3) (4) (5) (13)

  Consumer Services     6.63        10/6/2020        28,731        28,353        28,630        3.92   

CIP Revolution Holdings, LLC (2) (3) (5) (22)

  Media: Advertising, Printing & Publishing     7.00        8/19/2021        16,500        16,316        16,475        2.25   

Colony Hardware Corporation (2) (3) (4) (5) (13)

  Construction & Building     7.00        10/23/2021        17,081        16,838        17,039        2.33   

Datapipe, Inc. (2) (3) (5)

  Telecommunications     5.75        3/15/2019        9,775        9,681        9,762        1.33   

Dent Wizard International Corporation (2) (3) (4) (13)

  Automotive     5.75        4/7/2020        7,622        7,594        7,622        1.04   

Derm Growth Partners III, LLC (Dermatology Associates) (2) (3) (4) (5) (13) (18)

  Healthcare & Pharmaceuticals     7.50        5/31/2022        32,090        31,531        32,078        4.39   

Dimensional Dental Management, LLC (2) (3) (5) (12) (15)

  Healthcare & Pharmaceuticals     8.00        2/12/2021        18,000        17,584        18,035        2.47   

DTI Holdco, Inc. (2) (3) (5)

  High Tech Industries     6.25        9/23/2023        20,000        19,800        19,776        2.70   

Emerging Markets Communications, LLC (2) (3) (4) (8) (13)

  Telecommunications     6.75        7/1/2021        17,775        16,280        17,498        2.39   

EP Minerals, LLC (2) (3) (4) (13)

  Metals & Mining     5.50        8/20/2020        10,290        10,256        10,266        1.40   

EIP Merger Sub, LLC (Evolve IP) (2) (3) (4) (5) (12)

  Telecommunications     7.25        6/7/2021        23,750        23,079        23,679        3.24   

FCX Holdings Corp. (2) (3) (4) (13)

  Capital Equipment     5.50        8/4/2020        9,863        9,858        9,863        1.35   

Genex Holdings, Inc. (2) (3) (13)

  Banking, Finance, Insurance & Real Estate     5.25        5/30/2021        4,211        4,197        4,162        0.57   

Global Software, LLC (2) (3) (4) (13)

  High Tech Industries     6.50        5/2/2022        16,207        15,912        16,190        2.21   

Green Energy Partners/Stonewall LLC (2) (3) (5) (13)

  Energy: Electricity     6.50        11/13/2021        16,600        16,470        16,548        2.26   

Hummel Station LLC (2) (3) (5) (13)

  Energy: Electricity     7.00        10/27/2022        21,000        20,245        20,196        2.76   

Imagine! Print Solutions, LLC (2) (3) (4) (5) (13)

  Media: Advertising, Printing & Publishing     7.00        3/30/2022        18,507        18,249        18,692        2.56   

Imperial Bag & Paper Co. LLC (2) (3) (4) (5) (13)

  Forest Products & Paper     7.00        1/7/2022        21,277        21,001        21,466        2.94   

Indra Holdings Corp. (Totes Isotoner) (2) (3) (5) (13)

  Non-durable Consumer Goods     5.25        5/1/2021        14,285        14,187        13,124        1.79   

International Medical Group, Inc. (2) (3) (5) (12)

  Banking, Finance, Insurance & Real Estate     7.50        10/30/2020        30,000        29,482        30,042        4.11   

 

The accompanying notes are an integral part of these consolidated financial statements.

 

7


Table of Contents

CARLYLE GMS FINANCE, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS (Continued)

As of September 30, 2016

(dollar amounts in thousands)

(unaudited)

 

Investments—non-controlled/non-affiliated (1)

 

Industry

  Interest
Rate
    Maturity
Date
    Par/
Principal
Amount
    Amortized
Cost (6)
    Fair
Value (7)
    Percentage
of
Net Assets
 

First Lien Debt (80.61%) (continued)

             

Jackson Hewitt Inc. (2) (3) (4) (13)

  Retail     8.00     7/30/2020      $ 12,240      $ 12,044      $ 11,720        1.60

Ministry Brands, LLC (2) (3) (5) (10) (23)

  High Tech Industries     8.00        11/20/2021        1,577        1,501        1,574        0.22   

Ministry Brands, LLC (2) (3) (5) (12) (24)

  High Tech Industries     8.00        11/20/2021        26,910        26,488        27,179        3.72   

MSX International, Inc. (2) (3) (4) (13)

  Automotive     6.00        8/21/2020        8,940        8,879        8,849        1.21   

National Technical Systems, Inc. (2) (3) (4) (13) (14)

  Aerospace & Defense     7.25        6/12/2021        25,643        25,358        24,390        3.34   

NES Global Talent Finance US LLC (United Kingdom) (2) (3)
(4) (8) (13)

  Energy: Oil & Gas     6.50        10/3/2019        11,406        11,278        10,948        1.50   

OnCourse Learning Corporation (2) (3) (4) (5) (13) (26)

  Consumer Services     7.50        9/12/2021        25,569        25,181        25,469        3.48   

Paradigm Acquisition Corp. (2) (3) (4) (5) (13)

  Business Services     6.00        6/2/2022        23,305        23,011        23,205        3.17   

Pelican Products, Inc. (2) (3) (4) (13)

  Containers, Packaging & Glass     5.25        4/11/2020        7,643        7,655        7,565        1.03   

Plano Molding Company, LLC (2) (3) (4) (5) (13)

  Hotel, Gaming & Leisure     7.50        5/12/2021        22,317        22,147        21,237        2.90   

Premier Senior Marketing, LLC (2) (3) (5)

  Banking, Finance, Insurance & Real Estate     6.00        7/1/2022        3,750        3,697        3,745        0.51   

Product Quest Manufacturing, LLC (2) (3) (4) (5) (12)

  Containers, Packaging & Glass     6.75        9/9/2020        28,000        27,541        26,485        3.62   

Prowler Acquisition Corp. (Pipeline Supply and Service, LLC) (2) (3) (4)

  Wholesale     5.50        1/28/2020        10,826        10,763        8,144        1.11   

PSC Industrial Holdings Corp (2) (3) (4) (13)

  Environmental Industries     5.75        12/5/2020        11,790        11,705        11,745        1.61   

PSI Services LLC (2) (3) (4) (5) (12)

  Business Services     7.75        2/27/2021        27,927        27,315        28,063        3.84   

PT Intermediate Holdings III, LLC (Parts Town) (2) (3) (4) (5) (13) (27)

  Wholesale     7.50        6/23/2022        17,460        17,249        17,562        2.40   

QW Holding Corporation (Quala) (2) (3) (4) (5)

  Environmental Industries     7.75        8/31/2022        30,000        29,119        29,529        4.04   

Reliant Pro Rehab, LLC (2) (3) (5) (12)

  Healthcare & Pharmaceuticals     11.00        12/29/2017        22,388        22,066        22,388        3.06   

SolAero Technologies Corp. (2) (3) (4) (5)

  Telecommunications     6.25        12/10/2020        19,806        19,663        19,011        2.60   

Superior Health Linens, LLC (2) (3) (4) (5) (13) (28)

  Business Services     7.50        9/30/2021        19,234        18,903        19,133        2.62   

Synarc-Biocore Holdings, LLC (2) (3) (4) (13)

  Healthcare & Pharmaceuticals     5.50        3/10/2021        13,169        13,081        13,169        1.80   

T2 Systems, Inc. (2) (3) (4) (5) (13) (25)

  Transportation: Consumer     7.75        9/28/2022        23,007        22,366        22,706        3.10   

T2 Systems Canada, Inc. (2) (3) (5)

  Transportation: Consumer     7.75        9/28/2022        4,060        3,959        4,013        0.55   

Teaching Strategies, LLC (2) (3) (4) (13)

  Media: Advertising, Printing & Publishing     6.34        10/1/2019        13,464        13,424        13,573        1.86   

The Hilb Group, LLC (2) (3) (5) (12) (19)

  Banking, Finance, Insurance & Real Estate     7.50        6/24/2021        27,177        26,589        27,183        3.72   

The SI Organization, Inc. (2) (3) (4) (13)

  Aerospace & Defense     5.75        11/23/2019        8,597        8,546        8,630        1.18   

The Topps Company, Inc. (2) (3) (4) (13)

  Non-durable Consumer Goods     7.25        10/2/2018        18,757        18,668        18,817        2.57   

TK USA Enterprises, Inc. (2) (3) (5) (20)

  Construction & Building     6.00        4/4/2022        —          (63     47        0.01   

TruckPro, LLC (2) (3) (4) (13)

  Automotive     6.00        8/6/2018        9,390        9,364        9,368        1.28   

TwentyEighty, Inc. (fka Miller Heiman, Inc.) (2) (3) (4) (13)

  Business Services     7.00        9/30/2019        18,719        18,559        11,675        1.60   

U.S. Farathane, LLC (2) (3) (4) (13)

  Automotive     5.75        12/23/2021        1,950        1,919        1,950        0.27   

U.S. TelePacific Holdings Corp. (2) (3) (5)

  Telecommunications     9.50        2/24/2021        30,000        29,108        29,523        4.04   

 

The accompanying notes are an integral part of these consolidated financial statements.

 

8


Table of Contents

CARLYLE GMS FINANCE, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS (Continued)

As of September 30, 2016

(dollar amounts in thousands)

(unaudited)

 

Investments—non-controlled/non-affiliated (1)

 

Industry

  Interest
Rate
    Maturity
Date
    Par/
Principal
Amount
    Amortized
Cost (6)
    Fair
Value (7)
    Percentage
of
Net Assets
 

First Lien Debt (80.61%) (continued)

             

Vetcor Professional Practices, LLC (2) (3) (4) (5) (13) (16)

  Consumer Services     7.25     4/20/2021      $ 22,875      $ 22,515      $ 22,943        3.14

Violin Finco S.A.R.L. (Alexander Mann Solutions) (United Kingdom) (2) (3) (4) (8) (13)

  Business Services     5.75        12/20/2019        10,097        10,040        10,082        1.38   

Vistage Worldwide, Inc. (2) (3) (4) (13)

  Business Services     6.50        8/19/2021        28,757        28,514        28,737        3.93   

Vitera Healthcare Solutions, LLC (2) (3) (4) (13)

  Healthcare & Pharmaceuticals     6.00        11/4/2020        9,365        9,306        9,310        1.27   

Winchester Electronics Corporation (2) (3) (5) (29)

  Capital Equipment     7.50        6/30/2022        27,436        27,004        27,338        3.74   

Zest Holdings, LLC (2) (3) (4) (13)

  Durable Consumer Goods     5.25        8/16/2020        9,530        9,530        9,549        1.31   
         

 

 

   

 

 

   

 

 

 

First Lien Debt Total

          $ 1,117,187      $ 1,114,587        152.42
         

 

 

   

 

 

   

 

 

 

Second Lien Debt (14.20%)

             

AF Borrower LLC (Accuvant) (2) (3) (5)

  High Tech Industries     10.00     1/30/2023      $ 8,000      $ 7,932      $ 7,874        1.08

AIM Group USA Inc. (2) (3) (5) (13)

  Aerospace & Defense     10.00        8/2/2022        23,000        22,691        22,712        3.11   

AmeriLife Group, LLC (2) (3) (5)

  Banking, Finance, Insurance &
Real Estate
    9.75        1/10/2023        20,000        19,647        19,146        2.62   

Argon Medical Devices, Inc. (2) (3) (4) (5)

  Healthcare & Pharmaceuticals     10.50        6/23/2022        24,000        23,346        24,242        3.32   

Berlin Packaging L.L.C. (2) (3) (5) (13)

  Containers, Packaging & Glass     7.75        10/1/2022        9,200        9,144        9,223        1.26   

Charter NEX US Holdings, Inc. (2) (3) (5) (13)

  Chemicals, Plastics & Rubber     9.25        2/5/2023        7,394        7,301        7,468        1.02   

Confie Seguros Holding II Co. (2) (3) (5)

  Banking, Finance, Insurance &
Real Estate
    11.50        5/8/2019        12,000        11,914        11,974        1.64   

Drew Marine Group Inc. (2) (3) (4) (5)

  Chemicals, Plastics & Rubber     8.00        5/19/2021        12,500        12,480        12,246        1.67   

Genex Holdings, Inc. (2) (3) (5)

  Banking, Finance, Insurance &
Real Estate
    8.75        5/30/2022        7,990        7,912        7,940        1.09   

Genoa, a QoL Healthcare Company, LLC (2) (3) (5) (13)

  Retail     8.75        4/28/2023        9,900        9,813        9,917        1.36   

Institutional Shareholder Services Inc. (2) (3) (5) (13)

  Banking, Finance, Insurance &
Real Estate
    8.50        4/29/2022        12,500        12,405        12,369        1.69   

Jazz Acquisition, Inc. (Wencor) (2) (3) (5) (13)

  Aerospace & Defense     7.75        6/19/2022        6,700        6,676        5,766        0.79   

MRI Software, LLC (2) (3) (5)

  Software     9.00        6/23/2022        11,250        11,106        11,151        1.52   

Phillips-Medisize Corporation (2) (3) (5) (13)

  Chemicals, Plastics & Rubber     8.25        6/16/2022        5,000        4,962        5,000        0.68   

Power Stop, LLC (5) (17)

  Automotive     11.00        5/29/2022        10,000        9,826        9,854        1.35   

Prime Security Services Borrower, LLC (Protection One, Inc.)(2) (3) (5)(13)

  Consumer Services     9.75        7/1/2022        3,479        3,435        3,533        0.48   

Prowler Acquisition Corp. (Pipeline Supply and Service,
LLC) (2) (3) (5)

  Wholesale     9.50        7/28/2020        3,000        2,959        997        0.14   

Systems Maintenance Services Holding, Inc. (2) (3) (4)

  High Tech Industries     9.25        10/18/2020        6,000        5,963        6,000        0.82   

Vitera Healthcare Solutions, LLC (2) (3) (4)

  Healthcare & Pharmaceuticals     9.25        11/4/2021        2,000        1,978        1,927        0.26   

Watchfire Enterprises, Inc. (2) (3) (5) (13)

  Media: Advertising, Printing & Publishing     9.00        10/2/2021        7,000        6,930        6,958        0.95   
         

 

 

   

 

 

   

 

 

 

Second Lien Debt Total

          $ 198,420      $ 196,297        26.85
         

 

 

   

 

 

   

 

 

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

9


Table of Contents

CARLYLE GMS FINANCE, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS (Continued)

As of September 30, 2016

(dollar amounts in thousands)

(unaudited)

 

Investments—non-controlled/non-affiliated (1)

  

Industry

   Maturity
Date
     Par
Amount
     Amortized
Cost (6)
     Fair
Value (7)
     Percentage
of
Net Assets
 

Structured Finance Obligations (0.56%) (5) (8) (11)

                 

1776 CLO I, Ltd., Subordinated Notes

   Structured Finance      5/8/2020       $ 11,750       $ 7,020       $ 2,556         0.35

Babson CLO Ltd., 2005-I, Subordinated Notes

   Structured Finance      4/15/2019         7,632         333         85         0.01   

Clydesdale CLO 2005, Ltd., Subordinated Notes

   Structured Finance      12/6/2017         5,750         —           10         0.00   

MSIM Peconic Bay, Ltd., Subordinated Notes

   Structured Finance      7/20/2019         4,500         115         68         0.01   

Nautique Funding Ltd., Income Notes

   Structured Finance      4/15/2020         5,000         2,480         2,163         0.30   

Venture VI CDO Limited, Preference Shares

   Structured Finance      8/3/2020         7,000         3,044         2,870         0.39   
           

 

 

    

 

 

    

 

 

 

Structured Finance Obligations Total

            $ 12,992       $ 7,752         1.06
           

 

 

    

 

 

    

 

 

 

 

Investments—non-controlled/non-affiliated (1)

 

Industry

   Shares/
Units
    
Cost
     Fair
Value (7)
     Percentage of
Net Assets
 

Equity Investments (0.45%) (5)

             

CIP Revolution Investments, LLC

  Media: Advertising, Printing & Publishing      30,000       $ 300       $ 349         0.05

Derm Growth Partners III, LLC (Dermatology Associates)

  Healthcare & Pharmaceuticals      1,000,000         1,000         985         0.13   

GS Holdco LLC (Global Software, LLC)

  High Tech Industries      1,000,000         1,001         1,118         0.15   

Power Stop Intermediate Holdings, LLC

  Automotive      7,150         715         1,194         0.16   

T2 Systems Parent Corporation

  Transportation: Consumer      570,720         556         555         0.08   

THG Acquisition, LLC (The Hilb Group, LLC)

  Banking, Finance, Insurance & Real Estate      1,500,000         1,500         2,019         0.28   
       

 

 

    

 

 

    

 

 

 

Equity Investments Total

        $ 5,072       $ 6,220         0.85
       

 

 

    

 

 

    

 

 

 

Total investments—non-controlled/non-affiliated

        $ 1,333,671       $ 1,324,856         0.85
       

 

 

    

 

 

    

 

 

 

 

Investments—controlled/affiliated

 

Industry

  Interest
Rate
    Maturity
Date
    Par
Amount/

LLC
Interest
   
Cost
    Fair
Value (7)
    Percentage of
Net Assets
 

Investment Fund (4.18%) (8)

             

Middle Market Credit Fund, LLC, Mezzanine Loan (2) (5) (17) (21)

  Investment Fund     10.15     6/24/2017      $ 31,800      $ 31,800      $ 31,800        4.35

Middle Market Credit Fund, LLC, Subordinated Loan and Member’s Interest (5) (21)

  Investment Fund     0.001        3/1/2021        24,001        24,001        25,958        3.55   
         

 

 

   

 

 

   

 

 

 

Investment Fund Total

          $ 55,801      $ 57,758        7.90
         

 

 

   

 

 

   

 

 

 

Total investments—controlled/affiliated

          $ 55,801      $ 57,758        7.90
         

 

 

   

 

 

   

 

 

 

Total investments

          $ 1,389,472      $ 1,382,614        189.08
         

 

 

   

 

 

   

 

 

 
(1) Unless otherwise indicated, issuers of debt and equity investments held by Carlyle GMS Finance, Inc. (“GMS Finance” or the “Company”) are domiciled in the United States and issuers of structured finance obligations are domiciled in the Cayman Islands. Under the Investment Company Act of 1940, as amended (together with the rules and regulations promulgated

 

The accompanying notes are an integral part of these consolidated financial statements.

 

10


Table of Contents

CARLYLE GMS FINANCE, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS (Continued)

As of September 30, 2016

(dollar amounts in thousands)

(unaudited)

 

  thereunder, the “Investment Company Act”), the Company would be deemed to “control” a portfolio company if the Company owned more than 25% of its outstanding voting securities and/or held the power to exercise control over the management or policies of the portfolio company. As of September 30, 2016, the Company does not “control” any of these portfolio companies. Under the Investment Company Act, the Company would be deemed an “affiliated person” of a portfolio company if the Company owns 5% or more of the portfolio company’s outstanding voting securities. As of September 30, 2016, the Company is not an “affiliated person” of any of these portfolio companies.
(2) Variable rate loans to the portfolio companies and variable rate notes of structured finance obligations bear interest at a rate that may be determined by reference to either LIBOR or an alternate base rate (commonly based on the Federal Funds Rate or the Prime Rate), which generally resets quarterly. For each such loan and note, the Company has provided the interest rate in effect as of September 30, 2016.
(3) Loan includes interest rate floor feature.
(4) Denotes that all or a portion of the assets are owned by the Company’s wholly-owned subsidiary, Carlyle GMS Finance SPV LLC (the “Borrower Sub”). The Borrower Sub has entered into a senior secured revolving credit facility (as amended, the “Revolving Credit Facility”). The lenders of the Revolving Credit Facility have a first lien security interest in substantially all of the assets of the Borrower Sub (see Note 6, Borrowings). Accordingly, such assets are not available to creditors of the Company or Carlyle GMS Finance MM CLO 2015-1 LLC (the “2015-1 Issuer”), a wholly-owned and consolidated subsidiary of the Company.
(5) Denotes that all or a portion of the assets are owned by the Company. The Company has entered into a senior secured revolving credit facility (as amended, the “Facility”). The lenders of the Facility have a first lien security interest in substantially all of the portfolio investments held by the Company (see Note 6, Borrowings). Accordingly, such assets are not available to creditors of the Borrower Sub or the 2015-1 Issuer.
(6) Amortized cost represents original cost, including origination fees, adjusted for the accretion/amortization of discounts/premiums, as applicable, on debt investments using the effective interest method. Equity tranche collateralized loan obligation (“CLO”) fund investments, which are referred to as “structured finance obligations”, are recorded at amortized cost using the effective interest method.
(7) Fair value is determined in good faith by or under the direction of the Board of Directors of the Company (see Note 2, Significant Accounting Policies, and Note 3, Fair Value Measurements), pursuant to the Company’s valuation policy.
(8) The Company has determined the indicated investments are non-qualifying assets under Section 55(a) of the Investment Company Act. Under the Investment Company Act, the Company may not acquire any non-qualifying assets unless, at the time such acquisition is made, qualifying assets represent at least 70% of the Company’s total assets.
(9) Captive Resources Midco, LLC has an undrawn delayed draw term loan of $3,125 par value at LIBOR + 5.75%, 1.00% floor, and an undrawn revolver of $1,875 par value at LIBOR + 5.75%, 1.00% floor. An unused rate of 1.25% and 0.50% is charged on the delayed draw term loan and revolver principal, respectively, while undrawn.
(10) The Company receives less than the stated interest rate of this loan as a result of an agreement among lenders. The interest rate reduction is 2.75% on Ministry Brands, LLC. Pursuant to the agreement among lenders in respect of this loan, this investment represents a first lien/first out loan, which has first priority ahead of the first lien/last out loan with respect to principal, interest and other payments.
(11) As of September 30, 2016, the Company has a greater than 25% but less than 50% equity or subordinated notes ownership interest in certain structured finance obligations. These investments have governing documents that preclude the Company from controlling management of the entity and therefore the Company has determined that the issuer of the investment is not a controlled affiliate or a non-controlled affiliate because the investments are not “voting securities”.
(12) In addition to the interest earned based on the stated interest rate of this loan, which is the amount reflected in this schedule, the Company is entitled to receive additional interest as a result of an agreement among lenders as follows: Dimensional Dental Management, LLC (4.60%), EIP Merger Sub, LLC (Evolve IP) (3.82%), International Medical Group, Inc. (4.65%), Ministry Brands, LLC (2.75%), Product Quest Manufacturing, LLC (3.55%), PSI Services LLC (4.27%), Reliant Pro Rehab, LLC (nil) and The Hilb Group, LLC (3.97%). Pursuant to the agreement among lenders in respect of this loan, this investment represents a first lien/last out loan, which has a secondary priority behind the first lien/first out loan with respect to principal, interest and other payments.

 

The accompanying notes are an integral part of these consolidated financial statements.

 

11


Table of Contents

CARLYLE GMS FINANCE, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS (Continued)

As of September 30, 2016

(dollar amounts in thousands)

(unaudited)

 

(13) Denotes that all or a portion of the assets are owned by the 2015-1 Issuer and secure the notes issued in connection with a $400 million term debt securitization completed by the Company on June 26, 2015 (see Note 7, 2015-1 Notes). Accordingly, such assets are not available to the creditors of the Borrower Sub or the Company.
(14) National Technical Systems, Inc. has an undrawn delayed draw term loan of $4,469 par value at LIBOR + 6.25%, 1.00% floor, and an undrawn revolver of $2,031 par value at LIBOR + 6.25%, 1.00% floor. An unused rate of 1.00% and 0.50% is charged on the delayed draw term loan and revolver principal, respectively, while undrawn.
(15) Dimensional Dental Management, LLC has an undrawn last out delayed draw term loan of $2,507 par value at LIBOR + 7.00%, 1.00% floor. An unused rate of 1.00% is charged on the delayed draw term loan principal while undrawn.
(16) Vetcor Professional Practices, LLC has an undrawn delayed draw term loan of $5,241 par value at LIBOR + 6.25%, 1.00% floor. An unused rate of 1.00% is charged on the delayed draw term loan principal while undrawn.
(17) Represents a corporate mezzanine loan, which is subordinated to senior secured term loans of the portfolio company/investment fund.
(18) Dermatology Associates has an undrawn delayed draw term loan of $7,270 par value at LIBOR + 6.50%, 1.00% floor, and an undrawn revolver of $564 par value at LIBOR + 6.50%, 1.00% floor. An unused rate of 1.00% is charged on the delayed draw term loan and 0.50% is charged on the revolver principal while undrawn.
(19) The Hilb Group, LLC has an undrawn last out delayed draw term loan of $6,315 par value at LIBOR + 5.75%, 1.00% floor. An unused rate of 1.00% is charged on the delayed draw term loan principal while undrawn.
(20) TK USA Enterprises, Inc. has an undrawn revolver of $4,750 par value at LIBOR + 5.00%, 1.00% floor. An unused rate of 0.50% is charged on the principal while undrawn.
(21) Under the Investment Company Act, the Company is deemed to be an “affiliated person” of and “control” this investment fund because the Company owns more than 25% of the investment fund’s outstanding voting securities and/or has the power to exercise control over management or policies of such investment fund. See Note 5, Middle Market Credit Fund, LLC, for more details.
(22) CIP Revolution Holdings, LLC has an undrawn delayed draw term loan of $1,331 par value at LIBOR + 6.00%, 1.00% floor, and an undrawn revolver of $1,331 par value at LIBOR + 6.00%, 1.00% floor. An unused rate of 0.75% is charged on the delayed draw term loan and 0.50% is charged on the revolver principal while undrawn.
(23) Ministry Brands, LLC has an undrawn first out delayed draw term loan of $5,800 par value at LIBOR + 7.00%, 1.00% floor. An unused rate of 2.00% is charged on the delayed draw term loan principal while undrawn.
(24) Ministry Brands, LLC has an undrawn last out delayed draw term loan of $5,800 par value at LIBOR + 7.00%, 1.00% floor. An unused rate of 2.00% is charged on the delayed draw term loan principal while undrawn.
(25) T2 Systems, Inc. has an undrawn revolver of $2,933 par value at LIBOR + 6.75%, 1.00% floor. An unused rate of 0.50% is charged on the revolver principal while undrawn.
(26) OnCourse Learning Corporation has an undrawn revolver of $1,431 par value at LIBOR + 6.50%, 1.00% floor. An unused rate of 0.50% is charged on the revolver principal while undrawn.
(27) PT Intermediate Holdings III, LLC has an undrawn revolver of $2,025 par value at LIBOR + 6.50%, 1.00% floor. An unused rate of 0.50% is charged on the revolver principal while undrawn.
(28) Superior Health Linens, LLC has an undrawn revolver of $2,825 par value at LIBOR + 6.50%, 1.00% floor. An unused rate of 0.50% is charged on the revolver principal while undrawn.
(29) Winchester Electronics Corporation has an undrawn delayed draw term loan of $2,500 par value at LIBOR + 6.50%, 1.00% floor. An unused rate of 1.00% is charged on the delayed draw term loan principal while undrawn.

 

The accompanying notes are an integral part of these consolidated financial statements.

 

12


Table of Contents

CARLYLE GMS FINANCE, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS (Continued)

As of September 30, 2016

(dollar amounts in thousands)

(unaudited)

 

As of September 30, 2016, investments at fair value consisted of the following:

 

Type

   Amortized
Cost
     Fair Value      % of Fair Value  

First Lien Debt

   $ 1,117,187       $ 1,114,587         80.61

Second Lien Debt

     198,420         196,297         14.20   

Structured Finance Obligations

     12,992         7,752         0.56   

Equity Investments

     5,072         6,220         0.45   

Investment Fund

     55,801         57,758         4.18   
  

 

 

    

 

 

    

 

 

 

Total

   $ 1,389,472       $ 1,382,614         100.00
  

 

 

    

 

 

    

 

 

 

The industrial composition of investments at fair value as of September 30, 2016 was as follows:

 

Industry

   Amortized
Cost
     Fair Value      % of Fair Value  

Aerospace & Defense

   $ 63,271       $ 61,498         4.45

Automotive

     38,297         38,837         2.81   

Banking, Finance, Insurance & Real Estate

     146,078         147,760         10.68   

Business Services

     144,605         139,244         10.07   

Capital Equipment

     36,862         37,201         2.69   

Chemicals, Plastics & Rubber

     24,743         24,714         1.79   

Construction & Building

     23,503         23,833         1.72   

Consumer Services

     79,484         80,575         5.83   

Containers, Packaging & Glass

     55,682         54,609         3.95   

Durable Consumer Goods

     20,218         20,165         1.46   

Energy: Electricity

     36,715         36,744         2.66   

Energy: Oil & Gas

     11,278         10,948         0.79   

Environmental Industries

     40,824         41,274         2.99   

Forest Products & Paper

     21,001         21,466         1.55   

Healthcare & Pharmaceuticals

     127,264         129,673         9.38   

High Tech Industries

     94,553         95,892         6.94   

Hotel, Gaming & Leisure

     31,591         30,724         2.22   

Investment Fund

     55,801         57,758         4.18   

Media: Advertising, Printing & Publishing

     55,219         56,047         4.05   

Metals & Mining

     10,256         10,266         0.74   

Non-durable Consumer Goods

     32,855         31,941         2.31   

Retail

     21,857         21,637         1.56   

Software

     11,106         11,151         0.81   

Structured Finance

     12,992         7,752         0.56   

Telecommunications

     108,635         110,016         7.96   

Transportation: Cargo

     19,331         19,040         1.38   

Transportation: Consumer

     34,480         35,146         2.54   

Wholesale

     30,971         26,703         1.93   
  

 

 

    

 

 

    

 

 

 

Total

   $ 1,389,472       $ 1,382,614         100.00
  

 

 

    

 

 

    

 

 

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

13


Table of Contents

CARLYLE GMS FINANCE, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS (Continued)

As of September 30, 2016

(dollar amounts in thousands)

(unaudited)

 

The geographical composition of investments at fair value as of September 30, 2016 was as follows:

 

Geography

   Amortized
Cost
     Fair Value      % of Fair Value  

Cayman Islands

   $ 12,992       $ 7,752         0.56

United Kingdom

     21,318         21,030         1.52   

United States

     1,355,162         1,353,832         97.92   
  

 

 

    

 

 

    

 

 

 

Total

   $ 1,389,472       $ 1,382,614         100.00
  

 

 

    

 

 

    

 

 

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

14


Table of Contents

CARLYLE GMS FINANCE, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS

As of December 31, 2015

(dollar amounts in thousands)

 

Investments—non-controlled/non-affiliated (1)

 

Industry

  Interest
Rate
    Maturity
Date
    Par/
Principal
Amount
    Amortized
Cost (6)
    Fair
Value (7)
    Percentage of
Net Assets
 

First Lien Debt (75.53%)

             

Access CIG, LLC (2) (3) (4) (13)

  Business Services     6.00     10/17/2021      $ 18,522      $ 18,388      $ 18,291        3.20

AF Borrower LLC (Accuvant) (2) (3) (5) (13)

  High Tech Industries     6.25        1/28/2022        16,277        16,055        15,829        2.77   

Alpha Packaging Holdings, Inc. (2) (3) (4) (13)

  Containers, Packaging & Glass     5.25        5/12/2020        11,409        11,398        11,180        1.96   

Anaren, Inc. (2) (3) (4) (13)

  Telecommunications     5.50        2/18/2021        10,981        10,898        10,759        1.88   

APX Group, Inc. (5) (8)

  Consumer Services     6.38        12/1/2019        10,000        9,749        9,575        1.67   

Audax AAMP Holdings, Inc. (2) (3) (4) (13)

  Durable Consumer Goods     6.50        6/24/2017        11,025        10,954        10,885        1.90   

BAART Programs, Inc. (2) (4)

  Healthcare & Pharmaceuticals     8.07        10/9/2021        7,481        7,422        7,556        1.32   

Blue Bird Body Company (2) (3) (4) (8) (13)

  Transportation: Consumer     6.50        6/26/2020        9,491        9,110        9,361        1.64   

Brooks Equipment Company, LLC (2) (3) (4) (13)

  Construction & Building     6.35        8/29/2020        7,209        7,160        7,097        1.24   

Capstone Logistics Acquisition, Inc. (2) (3) (4) (13)

  Transportation: Cargo     5.50        10/7/2021        19,750        19,582        19,134        3.35   

Captive Resources Midco, LLC (2) (3) (4) (9) (13)

  Banking, Finance, Insurance & Real Estate     6.75        6/30/2020        29,350        28,890        28,900        5.05   

Castle Management Borrower LLC (Highgate Hotels L.P.) (2) (3) (4) (13)

  Hotel, Gaming & Leisure     5.50        9/18/2020        9,878        9,807        9,535        1.67   

Central Security Group, Inc. (2) (3) (4) (13)

  Consumer Services     6.25        10/6/2020        24,750        24,444        23,884        4.18   

Colony Hardware Corporation (2) (3) (5) (13)

  Construction & Building     7.00        10/23/2021        13,000        12,787        12,861        2.25   

CRCI Holdings Inc. (CLEAResult Consulting, Inc.) (2) (3) (4) (13)

  Utilities: Electric     5.25        7/10/2019        5,910        5,892        5,704        1.00   

Dent Wizard International Corporation (2) (3) (4) (13)

  Automotive     5.75        4/7/2020        7,809        7,775        7,591        1.33   

Emerging Markets Communications, LLC (2) (3) (4) (13)

  Telecommunications     6.75        7/1/2021        17,910        16,225        16,882        2.95   

EP Minerals, LLC (2) (3) (4) (13)

  Metals & Mining     5.50        8/20/2020        10,369        10,329        10,168        1.78   

FCX Holdings Corp. (2) (3) (4) (13)

  Capital Equipment     5.50        8/4/2020        10,047        10,041        9,862        1.72   

Genex Holdings, Inc. (2) (3) (13)

  Banking, Finance, Insurance &
Real Estate
    5.25        5/30/2021        4,243        4,227        4,164        0.73   

Green Energy Partners/Stonewall LLC (2) (3) (5) (13)

  Energy: Electricity     6.50        11/13/2021        16,600        16,456        16,354        2.86   

Hummel Station LLC (2) (3) (5)

  Energy: Electricity     7.00        10/27/2022        21,000        20,174        20,553        3.59   

Indra Holdings Corp. (Totes Isotoner) (2) (3) (5) (13)

  Non-durable Consumer Goods     5.25        5/1/2021        14,285        14,173        13,818        2.42   

International Medical Group, Inc.(2) (3) (5) (12)

  Banking, Finance, Insurance &
Real Estate
    5.75        10/30/2020        30,000        29,415        30,276        5.30   

Jackson Hewitt Inc. (2) (3) (4) (13)

  Retail     8.00        7/30/2020        14,800        14,526        14,600        2.55   

Language Line, LLC (2) (3) (4) (13)

  Telecommunications     6.50        7/7/2021        23,896        23,675        23,697        4.14   

Ministry Brands, LLC (2) (3) (5) (10) (18)

  High Tech Industries     8.00        11/20/2021        936        926        901        0.16   

Ministry Brands, LLC (2) (3) (5) (12) (19)

  High Tech Industries     8.00        11/20/2021        17,471        17,190        17,371        3.04   

MSX International, Inc. (2) (3) (4) (13)

  Automotive     6.00        8/21/2020        9,499        9,424        9,218        1.61   

National Technical Systems, Inc. (2) (3) (4) (5) (13) (14)

  Aerospace & Defense     7.00        6/12/2021        25,935        25,609        24,919        4.36   

NES Global Talent Finance US LLC (United Kingdom) (2) (3) (4) (8) (13)

  Energy: Oil & Gas     6.50        10/3/2019        11,875        11,715        11,327        1.98   

Paradigm Acquisition Corp. (2) (3) (5) (13)

  Business Services     6.00        6/2/2022        23,482        23,154        22,984        4.02   

 

The accompanying notes are an integral part of these consolidated financial statements.

 

15


Table of Contents

CARLYLE GMS FINANCE, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS (Continued)

As of December 31, 2015

(dollar amounts in thousands)

 

Investments—non-controlled/non-affiliated (1)

 

Industry

  Interest
Rate
    Maturity
Date
    Par/
Principal
Amount
    Amortized
Cost (6)
    Fair
Value (7)
    Percentage of
Net Assets
 

First Lien Debt (75.53%) (continued)

             

Pelican Products, Inc. (2) (3) (4) (13)

  Containers, Packaging & Glass     5.25     4/11/2020      $ 7,817      $ 7,832      $ 7,444        1.30

Plano Molding Company, LLC (2) (3) (5) (13)

  Hotel, Gaming & Leisure     7.00        5/12/2021        22,487        22,294        21,779        3.81   

Product Quest Manufacturing, LLC (2) (3) (4) (5) (12)

  Containers, Packaging & Glass     6.75        9/9/2020        28,000        27,477        27,810        4.86   

Prowler Acquisition Corp. (Pipeline Supply and Service, LLC) (2) (3) (4)

  Wholesale     5.50        1/28/2020        10,911        10,836        9,736        1.70   

PSC Industrial Holdings Corp (2) (3) (4) (13)

  Environmental Industries     5.75        12/5/2020        11,880        11,782        11,622        2.03   

PSI Services LLC (2) (3) (4) (5) (12)

  Business Services     8.00        2/27/2021        23,471        22,885        23,933        4.19   

SolAero Technologies Corp. (2) (3) (4)

  Telecommunications     5.75        12/10/2020        10,827        10,744        10,511        1.84   

SolAero Technologies Corp. (2) (3) (13)

  Telecommunications     6.25        12/10/2020        9,104        9,023        8,887        1.55   

Synarc-Biocore Holdings, LLC (2) (3) (4) (13)

  Healthcare & Pharmaceuticals     5.50        3/10/2021        13,264        13,162        12,599        2.20   

Systems Maintenance Services Holding, Inc. (2) (3) (13)

  High Tech Industries     5.00        10/18/2019        2,193        2,187        2,155        0.38   

TASC, Inc. (2) (3) (4) (8) (13)

  Aerospace & Defense     7.00        5/23/2020        18,351        17,713        17,916        3.13   

Teaching Strategies, LLC (2) (3) (4) (13)

  Media: Advertising, Printing & Publishing     6.00        10/1/2019        13,953        13,904        13,844        2.42   

The Hilb Group, LLC (2) (3) (5) (12) (13) (15)

  Banking, Finance, Insurance & Real Estate     6.75        6/24/2021        23,458        22,850        23,555        4.12   

The Hygenic Corporation (Performance Health) (2) (3) (4) (13)

  Non-durable Consumer Goods     6.00        10/11/2020        15,920        15,721        15,368        2.69   

The SI Organization, Inc. (2) (3) (4) (13)

  Aerospace & Defense     5.75        11/23/2019        8,778        8,716        8,724        1.53   

The Topps Company, Inc. (2) (3) (4) (13)

  Non-durable Consumer Goods     7.25        10/2/2018        11,395        11,326        11,395        1.99   

TruckPro, LLC (2) (3) (4) (13)

  Automotive     6.00        8/6/2018        9,683        9,648        9,546        1.67   

TwentyEighty, Inc. (fka Miller Heiman, Inc.) (2) (3) (4) (13)

  Business Services     6.75        9/30/2019        19,094        18,901        16,904        2.96   

U.S. Farathane, LLC (2) (3) (4) (13)

  Automotive     6.75        12/23/2021        15,818        15,535        15,586        2.73   

Vetcor Professional Practices, LLC (2) (3) (4) (5) (13) (16)

  Consumer Services     7.00        4/20/2021        11,085        10,983        11,034        1.93   

Violin Finco S.A.R.L. (Alexander Mann Solutions)

             

(United Kingdom) (2) (3) (4) (8) (13)

  Business Services     5.75        12/20/2019        11,252        11,176        11,241        1.97   

Vistage Worldwide, Inc. (2) (3) (4) (13)

  Business Services     6.50        8/19/2021        29,813        29,529        29,505        5.16   

Vitera Healthcare Solutions, LLC (2) (3) (4) (13)

  Healthcare & Pharmaceuticals     6.00        11/4/2020        9,437        9,369        9,107        1.59   

Zest Holdings, LLC (2) (3) (4)(13)

  Durable Consumer Goods     5.00        8/16/2020        9,694        9,694        9,597        1.69   
         

 

 

   

 

 

   

 

 

 

First Lien Debt Total

          $ 800,857      $ 795,034        139.06
         

 

 

   

 

 

   

 

 

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

16


Table of Contents

CARLYLE GMS FINANCE, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS (Continued)

As of December 31, 2015

(dollar amounts in thousands)

 

Investments—non-controlled/non-affiliated (1)

 

Industry

  Interest
Rate
    Maturity
Date
    Par/
Principal
Amount
    Amortized
Cost (6)
    Fair
Value (7)
    Percentage of
Net Assets
 

Second Lien Debt (19.98%)

             

AF Borrower LLC (Accuvant) (2) (3) (5)

  High Tech Industries     10.00     1/30/2023      $ 8,000      $ 7,927      $ 7,666        1.34

Allied Security Holdings LLC (2) (3) (5) (13)

  Business Services     8.00        8/13/2021        8,000        7,948        7,460        1.30   

AmeriLife Group, LLC (2) (3) (5)

  Banking, Finance, Insurance &
Real Estate
    9.75        1/10/2023        20,000        19,619        19,598        3.44   

Argon Medical Devices, Inc. (2) (3) (4) (5)

  Healthcare & Pharmaceuticals     12.00        6/23/2022        24,000        23,294        23,354        4.09   

Berlin Packaging L.L.C. (2) (3) (5) (13)

  Containers, Packaging & Glass     7.75        10/1/2022        9,200        9,139        8,694        1.52   

Charter NEX US Holdings, Inc. (2) (3) (5) (13)

  Chemicals, Plastics & Rubber     9.25        2/5/2023        10,000        9,864        9,459        1.65   

Confie Seguros Holding II Co. (2) (3) (5)

  Banking, Finance, Insurance &
Real Estate
    10.25        5/8/2019        12,000        11,896        11,820        2.07   

Creganna Finance (US) LLC (Ireland) (2) (3) (5) (8)

  Healthcare & Pharmaceuticals     9.00        6/1/2022        9,900        9,814        9,740        1.70   

DiversiTech Corporation (2) (3) (5) (13)

  Capital Equipment     9.00        11/19/2022        8,400        8,294        8,131        1.42   

Drew Marine Group Inc. (2) (3) 4) (5)

  Chemicals, Plastics & Rubber     8.00        5/19/2021        12,500        12,478        11,743        2.05   

Genex Holdings, Inc. (2) (3) (5)

  Banking, Finance, Insurance &
Real Estate
    8.75        5/30/2022        7,990        7,906        7,390        1.29   

Genoa, a QoL Healthcare Company, LLC (2) (3) (5) (13)

  Retail     8.75        4/28/2023        9,900        9,807        9,523        1.67   

Institutional Shareholder Services Inc. (2) (3) (5) (13)

  Banking, Finance, Insurance &
Real Estate
    8.50        4/30/2022        12,500        12,397        12,014        2.10   

Jazz Acquisition, Inc. (Wencor) (2) (3) (5) (13)

  Aerospace & Defense     7.75        6/19/2022        6,700        6,674        5,759        1.01   

Landslide Holdings, Inc. (LANDesk Software) (2) (3) (13)

  Software     8.25        2/25/2021        3,500        3,480        3,113        0.54   

MRI Software, LLC (2) (3) (5)

  Software     9.00        6/23/2022        11,250        11,093        10,890        1.91   

Phillips-Medisize Corporation (2) (3) (5) (13)

  Chemicals, Plastics & Rubber     8.25        6/16/2022        5,000        4,958        4,700        0.82   

Power Stop, LLC (5) (17)

  Automotive     11.00        5/29/2022        10,000        9,811        10,080        1.76   

Prime Security Services Borrower, LLC (Protection One, Inc.) (2) (3) (5)

  Consumer Services     9.75        7/1/2022        6,700        6,607        6,271        1.10   

Prowler Acquisition Corp. (Pipeline Supply and Service, LLC) (2) (3) (5)

  Wholesale     9.50        7/28/2020        3,000        2,953        2,493        0.44   

Systems Maintenance Services Holding, Inc. (2) (3) (4)

  High Tech Industries     9.25        10/18/2020        6,000        5,959        5,860        1.02   

TASC, Inc. (5) (8)

  Aerospace & Defense     12.00        5/21/2021        6,000        5,891        6,075        1.06   

Vitera Healthcare Solutions, LLC (2) (3) (4) (13)

  Healthcare & Pharmaceuticals     9.25        11/4/2021        2,000        1,976        1,784        0.31   

Watchfire Enterprises, Inc. (2) (3) (5) (13)

  Media: Advertising, Printing & Publishing     9.00        10/2/2021        7,000        6,923        6,779        1.19   
         

 

 

   

 

 

   

 

 

 

Second Lien Debt Total

          $ 216,708      $ 210,396        36.80
         

 

 

   

 

 

   

 

 

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

17


Table of Contents

CARLYLE GMS FINANCE, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS (Continued)

As of December 31, 2015

(dollar amounts in thousands)

 

Investments—non-controlled/non-affiliated (1)

  

Industry

   Maturity
Date
     Par/
Principal
Amount
     Amortized
Cost (6)
     Fair
Value (7)
     Percentage of
Net Assets
 

Structured Finance Obligations (4.26%) (5) (8) (11)

                 

1776 CLO I, Ltd., Subordinated Notes

   Structured Finance      5/8/2020       $ 11,750       $ 8,079       $ 3,347         0.59

AIMCO CLO, Series 2014-A, Class F, 5.47% (2)

   Structured Finance      7/20/2026         2,700         2,369         1,701         0.30   

AIMCO CLO, Series 2014-A, Subordinated Notes

   Structured Finance      7/20/2026         11,500         8,369         5,779         1.00   

Ares XXVIII CLO Ltd., Subordinated Notes

   Structured Finance      10/17/2024         7,000         4,416         3,255         0.57   

Babson CLO Ltd. 2005-I, Subordinated Notes

   Structured Finance      4/15/2019         7,632         333         86         0.02   

CIFC Funding 2007-III, Ltd., Income Notes

   Structured Finance      7/26/2021         6,500         2,902         2,453         0.43   

Clydesdale CLO 2005, Ltd., Subordinated Notes

   Structured Finance      12/6/2017         5,750         —           11         0.00   

Flagship VII Limited, Subordinated Notes

   Structured Finance      1/20/2026         7,000         4,781         3,184         0.56   

ING IM CLO 2012-1 LLC, Preferred Shares

   Structured Finance      3/14/2022         7,610         4,637         3,789         0.66   

ING IM CLO 2012- 1 LLC, Subordinated Notes

   Structured Finance      3/14/2022         2,500         1,523         1,245         0.22   

MSIM Peconic Bay, Ltd., Subordinated Notes

   Structured Finance      7/20/2019         4,500         1,112         923         0.16   

Nautique Funding Ltd., Income Notes

   Structured Finance      4/15/2020         5,000         2,760         2,275         0.40   

Steele Creek CLO 2014-I, LLC, Subordinated Notes

   Structured Finance      8/21/2026         18,000         13,453         12,241         2.14   

Venture VI CDO Limited, Preference Shares

   Structured Finance      8/3/2020         7,000         3,488         3,203         0.56   

Westwood CDO I, Ltd., Subordinated Notes

   Structured Finance      3/25/2021         4,000         1,718         1,320         0.23   
           

 

 

    

 

 

    

 

 

 

Structured Finance Obligations Total

         $ 59,940       $ 44,812         7.84
           

 

 

    

 

 

    

 

 

 

 

Investments—non-controlled/non-affiliated (1)

   Industry      Units      Cost      Fair
Value (7)
     Percentage of
Net Assets
 

Equity Investments (0.23%) (5)

              

Power Stop Intermediate Holdings, LLC

     Automotive         7,150       $ 715       $ 788         0.14

THG Acquisition, LLC (The Hilb Group, LLC)

    
 
Banking, Finance, Insurance &
Real Estate
  
  
     1,500,000         1,500         1,636         0.28   
        

 

 

    

 

 

    

 

 

 

Equity Investments Total

         $ 2,215       $ 2,424         0.42
        

 

 

    

 

 

    

 

 

 

Total Investments—non-controlled/non-affiliated

         $ 1,079,720       $ 1,052,666         184.12

 

(1) Unless otherwise indicated, issuers of debt and equity investments held by GMS Finance are domiciled in the United States and issuers of structured finance obligations are domiciled in the Cayman Islands. Under the Investment Company Act, the Company would be deemed to “control” a portfolio company if the Company owned more than 25% of its outstanding voting securities and/or held the power to exercise control over the management or policies of the portfolio company. As of December 31, 2015, the Company does not “control” any of these portfolio companies. Under the Investment Company Act, the Company would be deemed an “affiliated person” of a portfolio company if the Company owns 5% or more of the portfolio company’s outstanding voting securities. As of December 31, 2015, the Company is not an “affiliated person” of any of these portfolio companies.

 

The accompanying notes are an integral part of these consolidated financial statements.

 

18


Table of Contents

CARLYLE GMS FINANCE, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS (Continued)

As of December 31, 2015

(dollar amounts in thousands)

 

(2) Variable rate loans to the portfolio companies and variable rate notes of structured finance obligations bear interest at a rate that may be determined by reference to either LIBOR or an alternate base rate (commonly based on the Federal Funds Rate or the Prime Rate), which generally resets quarterly. For each such loan and note, the Company has provided the interest rate in effect as of December 31, 2015.
(3) Loan includes interest rate floor feature.
(4) Denotes that all or a portion of the assets are owned by the Borrower Sub. The Borrower Sub has entered into the Revolving Credit Facility. The lenders of the Revolving Credit Facility have a first lien security interest in substantially all of the assets of the Borrower Sub (see Note 6, Borrowings). Accordingly, such assets are not available to creditors of the Company or the 2015-1 Issuer.
(5) Denotes that all or a portion of the assets are owned by the Company. The Company has entered into the Facility. The lenders of the Facility have a first lien security interest in substantially all of the portfolio investments held by the Company (see Note 6, Borrowings). Accordingly, such assets are not available to creditors of the Borrower Sub or the 2015-1 Issuer.
(6) Amortized cost represents original cost, including origination fees, adjusted for the accretion/amortization of discounts/premiums, as applicable, on debt investments using the effective interest method. Equity tranche CLO fund investments, which are referred to as “structured finance obligations”, are recorded at amortized cost using the effective interest method.
(7) Fair value is determined in good faith by or under the direction of the Board of Directors of the Company (see Note 2, Significant Accounting Policies, and Note 3, Fair Value Measurements), pursuant to the Company’s valuation policy.
(8) The Company has determined the indicated investments are non-qualifying assets under Section 55(a) of the Investment Company Act. Under the Investment Company Act, the Company may not acquire any non-qualifying assets unless, at the time such acquisition is made, qualifying assets represent at least 70% of the Company’s total assets.
(9) Captive Resources Midco, LLC has an undrawn delayed draw term loan of $3,125 par value at LIBOR + 5.75%, 1.00% floor, and an undrawn revolver of $1,875 par value at LIBOR + 5.75%, 1.00% floor. An unused rate of 1.25% and 0.50% is charged on the delayed draw term loan and revolver principal, respectively, while undrawn.
(10) The Company receives less than the stated interest rate of this loan as a result of an agreement among lenders. Pursuant to the agreement among lenders in respect of this loan, this investment represents a first lien/first out loan, which has first priority ahead of the first lien/last out loan with respect to principal, interest and other payments.
(11) As of December 31, 2015, the Company has a greater than 25% but less than 50% equity or subordinated notes ownership interest in certain structured finance obligations. These investments have governing documents that preclude the Company from controlling management of the entity and therefore the Company has determined that the issuer of the investment is not a controlled affiliate or a non-controlled affiliate because the investments are not “voting securities”.
(12) In addition to the interest earned based on the stated interest rate of this loan, which is the amount reflected in this schedule, the Company is entitled to receive additional interest as a result of an agreement among lenders. Pursuant to the agreement among lenders in respect of this loan, this investment represents a first lien/last out loan, which has a secondary priority behind the first lien/first out loan with respect to principal, interest and other payments.
(13) Denotes that all or a portion of the assets are owned by the 2015-1 Issuer and secure the notes issued in connection with a $400 million term debt securitization completed by the Company on June 26, 2015 (see Note 7, 2015-1 Notes). Accordingly, such assets are not available to the creditors of the Borrower Sub or the Company.
(14) National Technical Systems, Inc. has an undrawn delayed draw term loan of $4,469 par value at LIBOR + 6.00%, 1.00% floor, and an undrawn revolver of $2,031 par value at LIBOR + 6.00%, 1.00% floor. An unused rate of 1.00% and 0.50% is charged on the delayed draw term loan and revolver principal, respectively, while undrawn.
(15) The Hilb Group, LLC has an undrawn delayed draw term loan of $10,034 par value at LIBOR + 5.75%, 1.00% floor. An unused rate of 1.00% is charged on the principal while undrawn.
(16) Vetcor Professional Practices LLC has an undrawn delayed draw term loan of $1,473 par value at LIBOR + 6.00%, 1.00% floor. An unused rate of 1.00% is charged on the principal while undrawn.
(17) Represents a corporate mezzanine loan, which is subordinated to senior secured term loans of the portfolio company.
(18) Ministry Brands, LLC has an undrawn first out delayed draw term loan of $64 par value at LIBOR + 7.00%, 1.00% floor. An unused rate of 1.00% is charged on the delayed draw term loan principal while undrawn.
(19) Ministry Brands, LLC has an undrawn last out delayed draw term loan of $1,530 par value at LIBOR + 7.00%, 1.00% floor. An unused rate of 1.00% is charged on the delayed draw term loan principal while undrawn.

 

The accompanying notes are an integral part of these consolidated financial statements.

 

19


Table of Contents

CARLYLE GMS FINANCE, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS (Continued)

As of December 31, 2015

(dollar amounts in thousands)

 

As of December 31, 2015, investments at fair value consisted of the following:

 

Type

   Amortized
Cost
     Fair Value      % of Fair
Value
 

First Lien Debt

   $ 800,857       $ 795,034         75.53

Second Lien Debt

     216,708         210,396         19.98   

Structured Finance Obligations

     59,940         44,812         4.26   

Equity Investments

     2,215         2,424         0.23   
  

 

 

    

 

 

    

 

 

 

Total

   $ 1,079,720       $ 1,052,666         100.00
  

 

 

    

 

 

    

 

 

 

The industrial composition of investments at fair value as of December 31, 2015 was as follows:

 

Industry

   Amortized
Cost
     Fair Value      % of Fair
Value
 

Aerospace & Defense

   $ 64,603       $ 63,393         6.02

Automotive

     52,908         52,809         5.02   

Banking, Finance, Insurance & Real Estate

     138,700         139,353         13.24   

Business Services

     131,981         130,318         12.38   

Capital Equipment

     18,335         17,993         1.71   

Chemicals, Plastics & Rubber

     27,300         25,902         2.46   

Construction & Building

     19,947         19,958         1.90   

Consumer Services

     51,783         50,764         4.82   

Containers, Packaging & Glass

     55,846         55,128         5.24   

Durable Consumer Goods

     20,648         20,482         1.94   

Energy: Electricity

     36,630         36,907         3.51   

Energy: Oil & Gas

     11,715         11,327         1.08   

Environmental Industries

     11,782         11,622         1.10   

Healthcare & Pharmaceuticals

     65,037         64,140         6.09   

High Tech Industries

     50,244         49,782         4.73   

Hotel, Gaming & Leisure

     32,101         31,314         2.97   

Media: Advertising, Printing & Publishing

     20,827         20,623         1.96   

Metals & Mining

     10,329         10,168         0.97   

Non-durable Consumer Goods

     41,220         40,581         3.85   

Retail

     24,333         24,123         2.29   

Software

     14,573         14,003         1.33   

Structured Finance

     59,940         44,812         4.26   

Telecommunications

     70,565         70,736         6.72   

Transportation: Cargo

     19,582         19,134         1.82   

Transportation: Consumer

     9,110         9,361         0.89   

Utilities: Electric

     5,892         5,704         0.54   

Wholesale

     13,789         12,229         1.16   
  

 

 

    

 

 

    

 

 

 

Total

   $ 1,079,720       $ 1,052,666         100.00
  

 

 

    

 

 

    

 

 

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

20


Table of Contents

CARLYLE GMS FINANCE, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS (Continued)

As of December 31, 2015

(dollar amounts in thousands)

 

The geographical composition of investments at fair value as of December 31, 2015 was as follows:

 

Geography

   Amortized
Cost
     Fair Value      % of Fair
Value
 

Cayman Islands

   $ 59,940       $ 44,812         4.26

Ireland

     9,814         9,740         0.93   

United Kingdom

     22,891         22,568         2.14   

United States

     987,075         975,546         92.67   
  

 

 

    

 

 

    

 

 

 

Total

   $ 1,079,720       $ 1,052,666         100.00
  

 

 

    

 

 

    

 

 

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

21


Table of Contents

CARLYLE GMS FINANCE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

As of September 30, 2016

(dollar amounts in thousands, except per share data)

1. ORGANIZATION

Carlyle GMS Finance, Inc. (“GMS Finance” or the “Company”) is a Maryland corporation formed on February 8, 2012, and structured as an externally managed, non-diversified closed-end investment company. GMS Finance has elected to be regulated as a business development company (“BDC”) under the Investment Company Act of 1940, as amended (together with the rules and regulations promulgated thereunder, the “Investment Company Act”). GMS Finance has elected to be treated, and intends to continue to comply with the requirements to qualify annually, as a regulated investment company (“RIC”) under Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”).

GMS Finance’s investment objective is to generate current income and capital appreciation primarily through debt investments in U.S. middle market companies, which the Company defines as companies with approximately $10 million to $100 million of earnings before interest, taxes, depreciation and amortization (“EBITDA”). GMS Finance seeks to achieve its investment objective by investing primarily in first lien senior secured loans (which may include stand-alone first lien loans; first lien/last out loans, which are loans that have a secondary priority behind first lien/first out loans; “unitranche” loans, which are loans that combine features of first lien, second lien or subordinated loans, generally in a first lien position; and secured corporate bonds with features similar to the features of these categories of first lien loans) and second lien senior secured loans (which may include senior secured loans, and, to a lesser extent, secured corporate bonds, with a secondary priority behind first lien loans) (collectively, “Middle Market Senior Loans”). The Middle Market Senior Loans are generally made to private U.S. middle market companies that are, in many cases, controlled by private equity firms. Depending on market conditions, GMS Finance expects that between 70% and 80% of the value of its assets will be invested in Middle Market Senior Loans, with the balance invested in higher-yielding investments, which may include middle market junior loans such as corporate mezzanine loans, equity co-investments, broadly syndicated first lien and second lien senior secured loans, high-yield bonds, structured finance obligations and/or other opportunistic investments. GMS Finance expects that the composition of its portfolio will change over time given Carlyle GMS Investment Management L.L.C.’s (the “Investment Adviser”) view on, among other things, the economic and credit environment (including with respect to interest rates) in which the Company is operating.

On May 2, 2013, GMS Finance completed its initial closing of capital commitments (the “Initial Closing”) and subsequently commenced substantial investment operations. If GMS Finance has not consummated an initial public offering of its common stock that results in an unaffiliated public float of at least 15% of the aggregate capital commitments received prior to the date of such initial public offering (a “Qualified IPO”) by May 2, 2018, then GMS Finance (subject to any necessary stockholder approvals and applicable requirements of the Investment Company Act) will use its best efforts to wind down and/or liquidate and dissolve.

GMS Finance is an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012. GMS Finance will remain an emerging growth company for up to five years following an initial public offering, although if the market value of the common stock that is held by non-affiliates exceeds $700 million as of any June 30 before that time, GMS Finance would cease to be an emerging growth company as of the following December 31.

GMS Finance is externally managed by the Investment Adviser, an investment adviser registered under the Investment Advisers Act of 1940, as amended. Carlyle GMS Finance Administration L.L.C. (the “Administrator”) provides the administrative services necessary for GMS Finance to operate. Both the Investment Adviser and the Administrator are wholly-owned subsidiaries of Carlyle Investment Management L.L.C., a subsidiary of The Carlyle Group L.P. “Carlyle” refers to The Carlyle Group L.P., its affiliates and its

 

22


Table of Contents

consolidated subsidiaries, a global alternative asset manager publicly traded on NASDAQ Global Select Market under the symbol “CG”. Refer to the sec.gov website for further information on Carlyle.

Carlyle GMS Finance SPV LLC (the “Borrower Sub”) is a Delaware limited liability company that was formed on January 3, 2013. The Borrower Sub invests in first and second lien senior secured loans. The Borrower Sub is a wholly-owned subsidiary of the Company and is consolidated in these consolidated financial statements commencing from the date of its formation, January 3, 2013.

On June 26, 2015, the Company completed a $400 million term debt securitization (the “2015-1 Debt Securitization”). The notes offered in the 2015-1 Debt Securitization (the “2015-1 Notes”) were issued by Carlyle GMS Finance MM CLO 2015-1 LLC (the “2015-1 Issuer”), a wholly-owned and consolidated subsidiary of the Company, and are secured by a diversified portfolio of the 2015-1 Issuer consisting primarily of first and second lien senior secured loans. Refer to Note 7 for details. The 2015-1 Issuer is consolidated in these consolidated financial statements commencing from the date of its formation, May 8, 2015.

On February 29, 2016, the Company and Credit Partners USA LLC (“Credit Partners”) entered into an amended and restated limited liability company agreement (as amended, the “Limited Liability Company Agreement”) to co-manage Middle Market Credit Fund, LLC (“Credit Fund”). Credit Fund primarily invests in first lien loans of middle-market companies. Credit Fund is managed by a six-member board of managers, on which the Company and Credit Partners each have equal representation. The Company and Credit Partners each have 50% economic ownership of Credit Fund and have commitments to fund, from time to time, capital of up to $400,000 each. Refer to Note 5, Middle Market Credit Fund, LLC, for details.

As a BDC, GMS Finance is required to comply with certain regulatory requirements. As part of these requirements, the Company must not acquire any assets other than “qualifying assets” specified in the Investment Company Act unless, at the time the acquisition is made, at least 70% of its total assets are qualifying assets (with certain limited exceptions).

GMS Finance has elected to be treated, and intends to continue to comply with the requirements to qualify annually, as a RIC under the Code, and operates in a manner so as to qualify for the tax treatment applicable to RICs. To qualify as a RIC, GMS Finance must, among other things, meet certain source-of-income and asset diversification requirements and timely distribute to its stockholders generally at least 90% of its investment company taxable income, as defined by the Code, for each year. Pursuant to this election, GMS Finance generally does not have to pay corporate level taxes on any income that it distributes to stockholders, provided that GMS Finance satisfies those requirements.

2. SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The consolidated financial statements have been prepared on the accrual basis of accounting in accordance with accounting principles generally accepted in the United States (“US GAAP”). The Company is an investment company for the purposes of accounting and financial reporting in accordance with Accounting Standards Update (“ASU”) 2013-08, Financial Services—Investment Companies (“ASU 2013-08”): Amendments to the Scope, Measurement and Disclosure Requirements. The consolidated financial statements include the accounts of GMS Finance and its wholly-owned subsidiaries, the Borrower Sub and the 2015-1 Issuer. All significant intercompany balances and transactions have been eliminated. US GAAP for an investment company requires investments to be recorded at fair value. The carrying value for all other assets and liabilities approximates their fair value.

The interim financial statements have been prepared in accordance with US GAAP for interim financial information and pursuant to the requirements for reporting on Form 10-Q and Articles 6 and 10 of Regulation S-X. Accordingly, certain disclosures accompanying the annual consolidated financial statements prepared in

 

23


Table of Contents

accordance with US GAAP are omitted. In the opinion of management, all adjustments considered necessary for the fair presentation of consolidated financial statements for the interim period presented have been included. These adjustments are of a normal, recurring nature. This Form 10-Q should be read in conjunction with the Company’s annual report on Form 10-K for the year ended December 31, 2015. The results of operations for the three month and nine month periods ended September 30, 2016 are not necessarily indicative of the operating results to be expected for the full year.

Use of Estimates

The preparation of consolidated financial statements in conformity with US GAAP requires management to make assumptions and estimates that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Management’s estimates are based on historical experiences and other factors, including expectations of future events that management believes to be reasonable under the circumstances. It also requires management to exercise judgment in the process of applying the Company’s accounting policies. Assumptions and estimates regarding the valuation of investments and their resulting impact on base management and incentive fees involve a higher degree of judgment and complexity and these assumptions and estimates may be significant to the consolidated financial statements. Actual results could differ from these estimates and such differences could be material.

Investments

Investment transactions are recorded on the trade date. Realized gains or losses are measured by the difference between the net proceeds from the repayment or sale and the amortized cost basis of the investment using the specific identification method without regard to unrealized appreciation or depreciation previously recognized, and includes investments charged off during the period, net of recoveries. Net change in unrealized appreciation or depreciation on investments as presented in the accompanying Consolidated Statements of Operations reflects the net change in the fair value of investments, including the reversal of previously recorded unrealized appreciation or depreciation when gains or losses are realized. See Note 3 for further information about fair value measurements.

Cash and Cash Equivalents

Cash and cash equivalents consist of demand deposits and highly liquid investments (e.g., money market funds, U.S. treasury notes) with original maturities of three months or less. Cash equivalents are carried at amortized cost, which approximates fair value. The Company’s cash and cash equivalents are held with two large financial institutions and cash held in such financial institutions may, at times, exceed the Federal Deposit Insurance Corporation insured limit.

Revenue Recognition

Interest from Investments and Realized Gain/Loss on Investments

Interest income is recorded on an accrual basis and includes the accretion of discounts and amortization of premiums. Discounts from and premiums to par value on debt investments purchased are accreted/amortized into interest income over the life of the respective security using the effective interest method. The amortized cost of debt investments represents the original cost, including origination fees, adjusted for the accretion of discounts and amortization of premiums, if any. At time of exit, the realized gain or loss on an investment is the difference between the amortized cost at time of exit and the cash received at exit using the specific identification method.

The Company may have loans in its portfolio that contain payment-in-kind (“PIK”) provisions. PIK represents interest that is accrued and recorded as interest income at the contractual rates, increases the loan

 

24


Table of Contents

principal on the respective capitalization dates, and is generally due at maturity. As of September 30, 2016 and December 31, 2015 and for the three month and nine month periods ended September 30, 2016 and 2015, no loans in the portfolio contained PIK provisions.

Interest income from investments in the “equity” class of collateralized loan obligation (“CLO”) funds, which are included in “structured finance obligations”, is recorded based upon an estimation of an effective yield to expected maturity utilizing assumed cash flows in accordance with Accounting Standards Codification (“ASC”) 325-40, Beneficial Interests in Securitized Financials Assets. We monitor the expected cash inflows from our CLO equity investments, including the expected residual payments and the effective yield is determined and updated at least quarterly. In estimating these cash flows, there are a number of assumptions that are subject to uncertainties, including the amount and timing of principal payments which are impacted by prepayments, repurchases, defaults, delinquencies and liquidations of or within the CLO funds. These uncertainties are difficult to predict and are subject to future events that could have impacted the Company’s estimates if the information was known at the time. As a result, actual results may differ significantly from these estimates.

Other Income

Other income may include income such as consent, waiver, amendment, and syndication fees associated with the Company’s investment activities as well as any fees for managerial assistance services rendered by the Company to portfolio companies. Such fees are recognized as income when earned or the services are rendered. The Company may receive fees for guaranteeing the outstanding debt of a portfolio company. Such fees will be amortized into other income over the life of the guarantee. The unamortized amount, if any, is included in other assets in the accompanying Consolidated Statements of Assets and Liabilities. For the three month and nine month periods ended September 30, 2016, the Company earned $1,909 and $4,578, respectively, in other income. For the three month and nine month periods ended September 30, 2015, the Company earned $196 and $669, respectively, in other income.

Non-Accrual Income

Loans are generally placed on non-accrual status when principal or interest payments are past due 30 days or more or when there is reasonable doubt that principal or interest will be collected in full. Accrued and unpaid interest is generally reversed when a loan is placed on non-accrual status. Interest payments received on non-accrual loans may be recognized as income or applied to principal depending upon management’s judgment regarding collectability. Non-accrual loans are restored to accrual status when past due principal and interest are paid current and, in management’s judgment, are likely to remain current. Management may not place a loan on non-accrual status if the loan has sufficient collateral value and is in the process of collection. As of September 30, 2016 and December 31, 2015 and for the three month and nine month periods ended September 30, 2016 and 2015, no loans in the portfolio were on non-accrual status.

Revolving Credit Facility, Facility and 2015-1 Notes Related Costs, Expenses and Deferred Financing Costs (See Note 6, Borrowings, and Note 7, 2015-1 Notes)

Interest expense and unused commitment fees on the Revolving Credit Facility and Facility are recorded on an accrual basis. Unused commitment fees are included in credit facility fees in the accompanying Consolidated Statements of Operations.

The Revolving Credit Facility and Facility are recorded at carrying value, which approximates fair value.

Deferred financing costs include capitalized expenses related to the closing of the Revolving Credit Facility and Facility. Amortization of deferred financing costs for each credit facility is computed on the straight-line basis over the respective term of each credit facility, except for a portion that was accelerated in connection with the amendment of the Revolving Credit Facility as described in Note 6. The amortization of such costs is included in credit facility fees in the accompanying Consolidated Statements of Operations.

 

25


Table of Contents

Deferred financing costs also include capitalized expenses including structuring and arrangement fees related to the offering of the 2015-1 Notes. These costs are presented as a direct deduction to the carrying amount of the 2015-1 Notes. Amortization of deferred financing costs for the 2015-1 Notes is computed on the effective yield method over the term of the 2015-1 Notes. The amortization of such costs is included in interest expense in the accompanying Consolidated Statements of Operations.

The 2015-1 Notes are recorded at carrying value, which approximates fair value.

Organization and Offering Costs

The Company agreed to reimburse the Investment Adviser for initial organization and offering costs incurred on behalf of GMS Finance up to $1,500. As of September 30, 2016 and December 31, 2015, $1,500 of organization and offering costs had been incurred by GMS Finance and $57 of excess organization and offering costs had been incurred by the Investment Adviser since inception. The $1,500 of incurred organization and offering costs are allocated to all stockholders based on their respective capital commitment and are re-allocated amongst all stockholders at the time of each capital drawdown subsequent to the Initial Closing. The Company’s organization costs incurred are expensed and the offering costs are charged against equity when incurred.

Income Taxes

For federal income tax purposes, GMS Finance has elected to be treated as a RIC under the Code, and intends to make the required distributions to its stockholders as specified therein. In order to qualify as a RIC, GMS Finance must meet certain minimum distribution, source-of-income and asset diversification requirements. If such requirements are met, then GMS Finance is generally required to pay income taxes only on the portion of its taxable income and gains it does not distribute.

The minimum distribution requirements applicable to RICs require GMS Finance to distribute to its stockholders at least 90% of its investment company taxable income (“ICTI”), as defined by the Code, each year. Depending on the level of ICTI earned in a tax year, GMS Finance may choose to carry forward ICTI in excess of current year distributions into the next tax year. Any such carryover ICTI must be distributed before the end of that next tax year through a dividend declared prior to filing the final tax return related to the year which generated such ICTI.

In addition, based on the excise distribution requirements, GMS Finance is subject to a 4% nondeductible federal excise tax on undistributed income unless GMS Finance distributes in a timely manner an amount at least equal to the sum of (1) 98% of its ordinary income for each calendar year, (2) 98.2% of capital gain net income (both long-term and short-term) for the one-year period ending October 31 in that calendar year and (3) any income realized, but not distributed, in the preceding year. For this purpose, however, any ordinary income or capital gain net income retained by GMS Finance that is subject to corporate income tax is considered to have been distributed. GMS Finance intends to make sufficient distributions each taxable year to satisfy the excise distribution requirements.

The Company evaluates tax positions taken or expected to be taken in the course of preparing its consolidated financial statements to determine whether the tax positions are “more-likely than not” to be sustained by the applicable tax authority. All penalties and interest associated with income taxes, if any, are included in income tax expense.

The Borrower Sub and the 2015-1 Issuer are disregarded entities for tax purposes and are consolidated with the tax return of GMS Finance.

Capital Calls and Dividends and Distributions to Common Stockholders

The Company records the shares issued in connection with capital calls as of the effective date of the capital call. To the extent that the Company has taxable income available, the Company intends to make quarterly

 

26


Table of Contents

distributions to its common stockholders. Dividends and distributions to common stockholders are recorded on the record date. The amount to be distributed is determined by the Board of Directors each quarter and is generally based upon the taxable earnings estimated by management and available cash. Net realized capital gains, if any, are generally distributed at least annually, although the Company may decide to retain such capital gains for investment.

The Company has adopted a dividend reinvestment plan that provides for reinvestment of any distributions on behalf of its stockholders, for those who have elected to participate in the plan. As a result of adopting such a plan, if the Board of Directors authorizes, and GMS Finance declares, a cash dividend or distribution, the stockholders who have elected to participate in the dividend reinvestment plan would have their cash dividends or distributions automatically reinvested in additional shares of the Company’s common stock, rather than receiving cash. Prior to a Qualified IPO, the Company intends to use primarily newly issued shares of its common stock to implement the plan issued at the net asset value per share most recently determined by the Board of Directors. After a Qualified IPO, the Company intends to use primarily newly issued shares to implement the plan so long as the market value per share is equal to or greater than the net asset value per share as of the close of business on the relevant payment date for such dividend or distribution. If the market value per share is less than the net asset value per share as of the close of business on the relevant payment date, the plan administrator would purchase the common stock on behalf of participants in the open market, unless the Company instructs the plan administrator otherwise.

Functional Currency

The functional currency of the Company is the U.S. Dollar and all transactions were in U.S. Dollars.

Recent Accounting Standards Updates

On April 7, 2015, the Financial Accounting Standards Board issued ASU 2015-3, Interest—Imputation of Interest (Subtopic 835-30) Simplifying the Presentation of Debt Issuance Costs (“ASU 2015-3”). ASU 2015-3 requires debt issuance costs related to a recognized debt liability to be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts and premiums. This guidance was effective for the Company on January 1, 2016 and the ASU requires the guidance to be applied on a retrospective basis. The Company adopted this guidance on January 1, 2016 and reclassified $2,356 of debt issuance costs from deferred financing costs to 2015-1 Notes payable in the accompanying Consolidated Statement of Assets and Liabilities as of December 31, 2015.

In May 2015, the Financial Accounting Standards Board issued ASU 2015-7, Fair Value Measurement (Topic 820)—Disclosures for Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent) (“ASU 2015-7”). ASU 2015-7 provides amended guidance on the disclosures for investments in certain entities that calculate net asset value per share (or its equivalent). The amendments remove the requirement to categorize within the fair value hierarchy all investments for which fair value is measured using the net asset value per share practical expedient. The amendments also remove the requirement to make certain disclosures for all investments that are eligible to be measured at fair value using the net asset value per share practical expedient. Rather, those disclosures are limited to investments for which the entity has elected to measure the fair value using that practical expedient. The guidance is effective for the Company on January 1, 2016. The Company adopted the new accounting guidance on January 1, 2016 and presented the fair value disclosures accordingly.

In August 2015, the Financial Accounting Standards Board issued ASU 2015-15, Interest—Imputation of Interest (Sub-topic 835-30): Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements (“ASU 2015-15”). ASU 2015-03 does not address presentation or subsequent measurement of debt issuance costs related to line-of-credit arrangements. In accordance with ASU 2015-15, an entity may defer and present debt issuance costs as an asset and subsequently amortize the deferred debt issuance

 

27


Table of Contents

costs ratably over the term of the line-of-credit arrangement, regardless of whether there are any outstanding borrowings on the line-of-credit arrangement. This guidance was effective for the Company on January 1, 2016. The Company adopted the new accounting guidance and it did not have a material impact on the Company’s consolidated financial statements.

3. FAIR VALUE MEASUREMENTS

The Company applies fair value accounting in accordance with the terms of Financial Accounting Standards Board ASC Topic 820, Fair Value Measurement (“ASC 820”). ASC 820 defines fair value as the amount that would be exchanged to sell an asset or transfer a liability in an orderly transfer between market participants at the measurement date. The Company values securities/instruments traded in active markets on the measurement date by multiplying the closing price of such traded securities/instruments by the quantity of shares or amount of the instrument held. The Company may also obtain quotes with respect to certain of its investments, such as its securities/instruments traded in active markets and its liquid securities/instruments that are not traded in active markets, from pricing services, brokers, or counterparties (i.e., “consensus pricing”). When doing so, the Company determines whether the quote obtained is sufficient according to US GAAP to determine the fair value of the security. The Company may use the quote obtained or alternative pricing sources may be utilized including valuation techniques typically utilized for illiquid securities/instruments.

Securities/instruments that are illiquid or for which the pricing source does not provide a valuation or methodology or provides a valuation or methodology that, in the judgment of the Investment Adviser or GMS Finance’s Board of Directors, does not represent fair value shall each be valued as of the measurement date using all techniques appropriate under the circumstances and for which sufficient data is available. These valuation techniques may vary by investment and include comparable public market valuations, comparable precedent transaction valuations and/or discounted cash flow analyses. The process generally used to determine the applicable value is as follows: (i) the value of each portfolio company or investment is initially reviewed by the investment professionals responsible for such portfolio company or investment and, for non-traded investments, a standardized template designed to approximate fair market value based on observable market inputs, updated credit statistics and unobservable inputs is used to determine a preliminary value, which is also reviewed alongside consensus pricing, where available; (ii) preliminary valuation conclusions are documented and reviewed by a valuation committee comprised of members of senior management; (iii) the Board of Directors engages a third-party valuation firm to provide positive assurance on portions of the Middle Market Senior Loans and equity investments portfolio each quarter (such that each non-traded investment other than Credit Fund and the 2015-1 Issuer is reviewed by a third-party valuation firm at least once on a rolling twelve month basis) including a review of management’s preliminary valuation and conclusion on fair value; (iv) the Audit Committee of the Board of Directors (the “Audit Committee”) reviews the assessments of the Investment Adviser and the third-party valuation firm and provides the Board of Directors with any recommendations with respect to changes to the fair value of each investment in the portfolio; and (v) the Board of Directors discusses the valuation recommendations of the Audit Committee and determines the fair value of each investment in the portfolio in good faith based on the input of the Investment Adviser and, where applicable, the third-party valuation firm.

All factors that might materially impact the value of an investment are considered, including, but not limited to the assessment of the following factors, as relevant:

 

    the nature and realizable value of any collateral;

 

    call features, put features and other relevant terms of debt;

 

    the portfolio company’s leverage and ability to make payments;

 

    the portfolio company’s public or private credit rating;

 

    the portfolio company’s actual and expected earnings and discounted cash flow;

 

28


Table of Contents
    prevailing interest rates and spreads for similar securities and expected volatility in future interest rates;

 

    the markets in which the portfolio company does business and recent economic and/or market events; and

 

    comparisons to comparable transactions and publicly traded securities.

Investment performance data utilized are the most recently available financial statements and compliance certificates received from the portfolio companies as of the measurement date which in many cases may reflect a lag in information.

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 Company’s investments may fluctuate from period to period. Because of the inherent uncertainty of valuation, these estimated values may differ significantly from the values that would have been reported had a ready market for the investments existed, and it is reasonably possible that the difference could be material.

In addition, changes in the market environment and other events that may occur over the life of the investments may cause the realized gains or losses on investments to be different from the net change in unrealized appreciation or depreciation currently reflected in the consolidated financial statements as of September 30, 2016 and December 31, 2015.

US GAAP establishes a hierarchical disclosure framework which ranks the level of observability of market price inputs used in measuring investments at fair value. The observability of inputs is impacted by a number of factors, including the type of investment and the characteristics specific to the investment and state of the marketplace, including the existence and transparency of transactions between market participants. Investments with readily available quoted prices or for which fair value can be measured from quoted prices in active markets generally have a higher degree of market price observability and a lesser degree of judgment applied in determining fair value.

Investments measured and reported at fair value are classified and disclosed based on the observability of inputs used in determination of fair values, as follows:

 

    Level I—inputs to the valuation methodology are quoted prices available in active markets for identical investments as of the reporting date. The types of financial instruments in Level I generally include unrestricted securities, including equities and derivatives, listed in active markets. The Company does not adjust the quoted price for these investments, even in situations where the Company holds a large position and a sale could reasonably impact the quoted price.

 

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

 

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

In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, an investment’s level within the fair value hierarchy is based on the lowest level of input that is significant to the overall fair value measurement. The Investment Adviser’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the investment.

 

29


Table of Contents

Transfers between levels, if any, are recognized at the beginning of the quarter in which the transfers occur. For the three month and nine month periods ended September 30, 2016 and 2015, there were no transfers between levels.

The following tables summarize the Company’s investments measured at fair value on a recurring basis by the above fair value hierarchy levels as of September 30, 2016 and December 31, 2015:

 

     September 30, 2016  
     Level I      Level II      Level III      Total  

Assets

           

First Lien Debt

   $ —         $ —         $ 1,114,587       $ 1,114,587   

Second Lien Debt

     —           —           196,297         196,297   

Structured Finance Obligations

     —           —           7,752         7,752   

Equity Investments

     —           —           6,220         6,220   

Investment Fund

           

Mezzanine Loan

     —           —           31,800         31,800   
  

 

 

    

 

 

    

 

 

    

 

 

 

Subtotal

   $ —         $ —         $ 1,356,656       $ 1,356,656   
  

 

 

    

 

 

    

 

 

    

 

 

 

Investments measured at net asset value (1)

            $ 25,958   
  

 

 

 

Total

            $ 1,382,614   
  

 

 

 

 

     December 31, 2015  
     Level I      Level II      Level III      Total  

Assets

           

First Lien Debt

   $ —         $ 9,575       $ 785,459       $ 795,034   

Second Lien Debt

     —           —           210,396         210,396   

Structured Finance Obligations

     —           —           44,812         44,812   

Equity Investments

     —           —           2,424         2,424   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ —         $ 9,575       $ 1,043,091       $ 1,052,666   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(1) Amount represents the Company’s subordinated loan and member’s interest investments in Credit Fund. The fair value of these investments has been estimated using the net asset value of the Company’s ownership interests in Credit Fund.

 

30


Table of Contents

The changes in the Company’s investments at fair value for which the Company has used Level III inputs to determine fair value and net change in unrealized appreciation (depreciation) included in earnings for Level III investments still held are as follows:

 

                 Financial Assets
For the three month period ended September 30, 2016
 
     First Lien
Debt
    Second
Lien Debt
    Structured
Finance
Obligations
    Equity
Investments
     Investment
Fund -
Mezzanine
Loan
    Total  

Balance, beginning of period

   $ 944,494      $ 219,383        $8,040      $ 4,703       $ 1,000      $ 1,177,620   

Purchases

     244,501        —          —          856         53,200        298,557   

Sales

     (13,342     (8,274     —          —           (22,400     (44,016

Paydowns

     (65,764     (20,969     (1,432     —           —          (88,165

Accretion of discount

     1,591        288        —          —           —          1,879   

Net realized gains (losses)

     (99     221        (1     —           —          121   

Net change in unrealized appreciation (depreciation)

     3,206        5,648        1,145        661         —          10,660   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Balance, end of period

   $ 1,114,587      $ 196,297        $7,752      $ 6,220       $ 31,800      $ 1,356,656   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Net change in unrealized appreciation (depreciation) included in earnings related to investments still held as of September 30, 2016 included in net change in unrealized appreciation (depreciation) on investments non-controlled/non-affiliated on the Consolidated Statements of Operations

   $ 4,051      $ 5,507        $1,145      $ 661         —       $ 11,364   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

 

           Financial Assets
For the three month period ended September 30, 2015
 
     First Lien
Debt
    Second
Lien Debt
    Structured
Finance
Obligations
    Equity
Investments
     Total  

Balance, beginning of period

   $ 651,606      $ 177,811      $ 71,170      $ 2,215       $ 902,802   

Purchases

     113,246        21,612        —          —           134,858   

Sales

     (5,610     —          (11,509     —           (17,119

Paydowns

     (52,547     —          (2,282     —           (54,829

Accretion of discount

     930        52        6        —           988   

Net realized gains (losses)

     (11     —          834        —           823   

Net change in unrealized appreciation (depreciation)

     3,034        (187     (4,394     156         (1,391
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Balance, end of period

   $ 710,648      $ 199,288      $ 53,825      $ 2,371       $ 966,132   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Net change in unrealized appreciation (depreciation) included in earnings related to investments still held as of September 30, 2015 included in net change in unrealized appreciation (depreciation) on investments non-controlled/non-affiliated on the Consolidated Statements of Operations

   $ 4,110      $ (187   $ (4,463   $ 156       $ (1,384
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

 

31


Table of Contents
                Financial Assets
For the nine month period ended September 30, 2016
 
    First Lien
Debt
    Second
Lien Debt
    Structured
Finance
Obligations
    Equity
  Investments  
      Investment  
Fund -
Mezzanine
Loan
      Total    

Balance, beginning of period

  $ 785,459      $ 210,396      $ 44,812      $ 2,424        —        $ 1,043,091   

Purchases

    468,155        33,488        —          2,857        54,200        558,700   

Sales

    (54,641     (19,109     (30,457     —          (22,400     (126,607

Paydowns

    (90,540     (33,462     (6,689     —          —          (130,691

Accretion of discount

    3,033        574        (31     —          —          3,576   

Net realized gains (losses)

    72        221        (9,771     —          —          (9,478

Net change in unrealized appreciation (depreciation)

    3,049        4,189        9,888        939        —          18,065   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance, end of period

  $ 1,114,587      $ 196,297      $ 7,752      $ 6,220      $ 31,800      $ 1,356,656   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net change in unrealized appreciation (depreciation) included in earnings related to investments still held as of September 30, 2016 included in net change in unrealized appreciation (depreciation) on investments non-controlled/non-affiliated on the Consolidated Statements of Operations

  $ 2,713      $ 3,281      $ 687      $ 939        —       $ 7,620   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

           Financial Assets
For the nine month period ended September 30, 2015
 
     First Lien
Debt
    Second
Lien Debt
     Structured
Finance
Obligations
    Equity
Investments
     Total  

Balance, beginning of period

   $ 505,212      $ 107,874       $ 76,001      $ —         $ 689,087   

Purchases

     367,222        89,884         10,059        2,215         469,380   

Sales

     (15,467     —           (19,930     —           (35,397

Paydowns

     (155,623     —           (7,411     —           (163,034

Accretion of discount

     2,047        113         16        —           2,176   

Net realized gains (losses)

     196        —           956        —           1,152   

Net change in unrealized appreciation (depreciation)

     7,061        1,417         (5,866     156         2,768   
  

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Balance, end of period

   $ 710,648      $ 199,288       $ 53,825      $ 2,371       $ 966,132   
  

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Net change in unrealized appreciation (depreciation) included in earnings related to investments still held as of September 30, 2015 included in net change in unrealized appreciation (depreciation) on investments non-controlled/non-affiliated on the Consolidated Statements of Operations

   $ 5,728      $ 1,417       $ (6,073   $ 156       $ 1,228   
  

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

 

32


Table of Contents

The Company generally uses the following framework when determining the fair value of investments that are categorized as Level III:

Investments in debt securities are initially evaluated to determine whether the enterprise value of the portfolio company is greater than the applicable debt. The enterprise value of the portfolio company is estimated using a market approach and an income approach. The market approach utilizes market value (EBITDA) multiples of publicly traded comparable companies and available precedent sales transactions of comparable companies. The Company carefully considers numerous factors when selecting the appropriate companies whose multiples are used to value its portfolio companies. These factors include, but are not limited to, the type of organization, similarity to the business being valued, relevant risk factors, as well as size, profitability and growth expectations. The income approach typically uses a discounted cash flow analysis of the portfolio company.

Investments in debt securities that do not have sufficient coverage through the enterprise value analysis are valued based on an expected probability of default and discount recovery analysis.

Investments in debt securities with sufficient coverage through the enterprise value analysis are generally valued using a discounted cash flow analysis of the underlying security. Projected cash flows in the discounted cash flow typically represent the relevant security’s contractual interest, fees and principal payments plus the assumption of full principal recovery at the security’s expected maturity date. The discount rate to be used is determined using an average of two market-based methodologies. Investments in debt securities may also be valued using consensus pricing.

Investments in structured finance obligations are generally valued using a discounted cash flow and/or consensus pricing.

Investments in equities are generally valued using a market approach and/or an income approach. The market approach utilizes EBITDA multiples of publicly traded comparable companies and available precedent sales transactions of comparable companies. The income approach typically uses a discounted cash flow analysis of the portfolio company.

Investments in the subordinated loan and member’s interest of the investment fund are valued using the net asset value of the Company’s ownership interest in the investment fund and investments in the mezzanine loan of the investment fund are valued using the expected repayment rate.

 

33


Table of Contents

The following tables summarize the quantitative information related to the significant unobservable inputs for Level III instruments which are carried at fair value as of September 30, 2016 and December 31, 2015:

 

    Fair Value as
of September 30,
2016
   

Valuation Techniques

 

Significant

Unobservable
Inputs

  Range     Weighted
Average
 
          Low     High    

Investments in First Lien Debt

  $ 979,495      Discounted Cash Flow   Discount Rate     4.67     15.31     8.09
    123,417      Consensus Pricing   Indicative Quotes     95.75        100.38        98.17   
    11,675      Income Approach   Discount Rate     14.87     14.87     14.87
    Market Approach   Comparable Multiple     4.93x        5.42x        5.17x   
 

 

 

           

Total First Lien Debt

    1,114,587             
 

 

 

           

Investments in Second Lien Debt

    163,670      Discounted Cash Flow   Discount Rate     6.90     11.26     9.70
    31,630      Consensus Pricing   Indicative Quotes     98.42        101.56        99.85   
    997      Income Approach   Discount Rate     14.07     14.07     14.07
    Market Approach   Comparable Multiple     7.63x        8.29x        7.96x   
 

 

 

           

Total Second Lien Debt

    196,297             
 

 

 

           

Investments in Structured Finance Obligations

    7,589      Discounted Cash Flow   Discount Rate     17.30     19.90     18.40
      Default Rate     0.50        1.46        0.82   
      Prepayment Rate     30.00        35.00        33.11   
      Recovery Rate     65.00        70.00        66.42   
    163      Consensus Pricing   Indicative Quotes     0.18        1.50        1.22   
 

 

 

           

Total Structured Finance Obligations

    7,752             
 

 

 

           

Investments in Equity

    6,220      Income Approach   Discount Rate     8.10     10.06     9.06
    Market Approach   Comparable Multiple     7.40x        14.05x        11.15x   
 

 

 

           

Total Equity Investments

    6,220             
 

 

 

           

Investments in Investment Fund—Mezzanine Loan

    31,800      Income Approach   Repayment Rate     100.00     100.00     100.00
 

 

 

           
    31,800             
 

 

 

           

Total Level III Investments

  $ 1,356,656             
 

 

 

           

 

34


Table of Contents
    Fair Value as
of December 31,
2015
   

Valuation Techniques

 

Significant

Unobservable
Inputs

  Range     Weighted
Average
 
          Low     High    

Investments in First Lien Debt

  $ 618,172      Discounted Cash Flow   Discount Rate     5.57     13.37     8.19
    167,287      Consensus Pricing   Indicative Quotes     96.50        99.38        97.97   
 

 

 

           

Total First Lien Debt

    785,459             
 

 

 

           

Investments in Second Lien Debt

    161,907      Discounted Cash Flow   Discount Rate     9.37     15.44     10.56
    48,489      Consensus Pricing   Indicative Quotes     93.25        101.25        96.86   
 

 

 

           

Total Second Lien Debt

    210,396             
 

 

 

           

Investments in Structured Finance Obligations

    43,016      Discounted Cash Flow   Discount Rate     13.00     17.50     14.05
      Default Rate     0.19        1.56        1.09   
      Prepayment Rate     18.16        40.00        22.09   
      Recovery Rate     69.27        75.00        74.36   
    1,796      Consensus Pricing   Indicative Quotes     0.18        63.00        59.69   
 

 

 

           

Total Structured Finance Obligations

    44,812             
 

 

 

           

Investments in Equity

    2,424      Income Approach   Discount Rate     10.19     10.90     10.42
    Market Approach   Comparable Multiple     9.94x        11.09x        10.71x   
 

 

 

           

Total Equity Investments

    2,424             
 

 

 

           

Total Level III Investments

  $ 1,043,091             
 

 

 

           

The significant unobservable inputs used in the fair value measurement of the Company’s investments in first and second lien debt securities are discount rates and indicative quotes. Significant increases in discount rates would result in a significantly lower fair value measurement. Significant decreases in indicative quotes in isolation may result in a significantly lower fair value measurement.

The significant unobservable inputs used in the fair value measurement of the Company’s investments in structured finance obligations are discount rates, default rates, prepayment rates, recovery rates and indicative quotes. Significant increases in discount rates, default rates or prepayment rates in isolation would result in a significantly lower fair value measurement, while a significant increase in recovery rates in isolation would result in a significantly higher fair value. Significant decreases in indicative quotes in isolation may result in a significantly lower fair value measurement.

The significant unobservable inputs used in the fair value measurement of the Company’s investments in equities are discount rates and comparable EBITDA multiples. Significant increases in discount rates would result in a significantly lower fair value measurement. Significant decreases in comparable EBITDA multiples would result in a significantly lower fair value measurement.

Financial instruments disclosed but not carried at fair value

The following table presents the carrying value and fair value of the Company’s secured borrowings disclosed but not carried at fair value as of September 30, 2016 and December 31, 2015:

 

     September 30, 2016      December 31, 2015  
     Carrying Value      Fair Value      Carrying Value      Fair Value  

Secured borrowings

   $ 395,016       $ 395,016       $ 234,313       $ 234,313   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 395,016       $ 395,016       $ 234,313       $ 234,313   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

35


Table of Contents

The carrying values of the secured borrowings approximate their respective fair values and are categorized as Level III within the hierarchy. Secured borrowings are valued generally using discounted cash flow analysis. The significant unobservable inputs used in the fair value measurement of the Company’s secured borrowings are discount rates. Significant increases in discount rates would result in a significantly lower fair value measurement.

The following table represents the carrying values (before debt issuance costs) and fair values of the Company’s 2015-1 Notes disclosed but not carried at fair value as of September 30, 2016 and December 31, 2015:

 

     September 30, 2016      December 31, 2015  
     Carrying Value      Fair Value      Carrying Value      Fair Value  

Aaa/AAA Class A-1A Notes

   $ 160,000       $ 158,800       $ 160,000       $ 157,200   

Aaa/AAA Class A-1B Notes

     40,000         39,900         40,000         39,700   

Aaa/AAA Class A-1C Notes

     27,000         27,171         27,000         26,823   

Aa2 Class A-2 Notes

     46,000         45,095         46,000         45,122   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 273,000       $ 270,966       $ 273,000       $ 268,845   
  

 

 

    

 

 

    

 

 

    

 

 

 

The fair value determination of the Company’s 2015-1 Notes was based on the market quotation(s) received from broker/dealer(s). These fair value measurements were based on significant inputs not observable and thus represent Level III measurements as defined in the accounting guidance for fair value measurement.

The carrying value of other financial assets and liabilities approximates their fair value based on the short term nature of these items.

4. RELATED PARTY TRANSACTIONS

Investment Advisory Agreement

On April 3, 2013, the Company’s Board of Directors, including a majority of the directors who are not “interested persons” as defined in Section 2(a)(19) of the Investment Company Act (the “Independent Directors”), approved an investment advisory agreement (the “Investment Advisory Agreement”) between the Company and the Investment Adviser in accordance with, and on the basis of an evaluation satisfactory to such directors as required by, Section 15(c) of the Investment Company Act. The initial term of the Investment Advisory Agreement is two years from April 3, 2013 and, unless terminated earlier, the Investment Advisory Agreement will renew automatically for successive annual periods, provided that such continuance is specifically approved at least annually by the vote of the Board of Directors and by the vote of a majority of the Independent Directors. On March 10, 2016, the Company’s Board of Directors, including a majority of the Independent Directors, approved the continuance of the Advisory Agreement for a one year period. The Investment Advisory Agreement will automatically terminate in the event of an assignment and may be terminated by either party without penalty upon at least 60 days’ written notice to the other party. Subject to the overall supervision of the Board of Directors, the Investment Adviser provides investment advisory services to the Company. For providing these services, the Investment Adviser receives fees from the Company consisting of two components—a base management fee and an incentive fee.

Prior to a Qualified IPO, the base management fee is calculated and payable quarterly in arrears at an annual rate of 1.50% of the average daily gross assets of the Company for the period adjusted for share issuances or repurchases, excluding any cash and cash equivalents and including assets acquired with leverage from use of the Revolving Credit Facility, Facility and 2015-1 Notes (see Note 6, Borrowings, and Note 7, 2015-1 Notes). For purposes of this calculation, cash and cash equivalents include any temporary investments in cash-equivalents, U.S. government securities and other high quality investment grade debt investments that mature in 12 months or less from the date of investment. Base management fees for any partial quarter are prorated. The Investment

 

36


Table of Contents

Adviser contractually waived one-third (0.50%) of the base management fee prior to a Qualified IPO (with no right of recapture). The fee waiver will terminate if and when a Qualified IPO has been consummated.

The incentive fee has two parts. The first part is calculated and payable quarterly in arrears based on the pre-incentive fee net investment income for the immediately preceding calendar quarter. The second part is determined and payable in arrears based on capital gains as of the end of each calendar year.

Pre-incentive fee net investment income means interest income, dividend income and any other income (including any other fees (other than fees for providing managerial assistance), such as commitment, origination, structuring, diligence and consulting fees or other fees that the Company receives from portfolio companies) accrued during the calendar quarter, minus the operating expenses accrued for the quarter (including the base management fee, expenses payable under the administration agreement, and any interest expense or fees on any credit facilities or outstanding debt and dividends paid on any issued and outstanding preferred stock, but excluding the incentive fee). Pre-incentive fee net investment income does not include, in the case of investments with a deferred interest feature (such as original issue discount, debt instruments with pay-in-kind interest

and zero coupon securities), accrued income that the Company has not yet received in cash. Pre-incentive fee net investment income does not include any realized capital gains, realized capital losses or unrealized capital appreciation or depreciation.

Prior to any Qualified IPO of the Company’s common stock, pre-incentive fee net investment income, expressed as a rate of return on the average daily Hurdle Calculation Value (as defined below) throughout the immediately preceding calendar quarter, is compared to a “hurdle rate” of 1.50% per quarter (6% annualized). “Hurdle Calculation Value” means, on any given day, the sum of (x) the value of net assets as of the end of the calendar quarter immediately preceding such day plus (y) the aggregate amount of capital drawn from investors (or reinvested in the Company pursuant to a dividend reinvestment plan) from the beginning of the current quarter to such day minus (z) the aggregate amount of distributions (including share repurchases) made by the Company from the beginning of the current quarter to such day but only to the extent such distributions were not declared and accounted for on the books and records in a previous quarter.

GMS Finance pays its Investment Adviser an incentive fee with respect to its pre-incentive fee net investment income in each calendar quarter as follows:

 

    no incentive fee based on pre-incentive fee net investment income in any calendar quarter in which its pre-incentive fee net investment income does not exceed the hurdle of 1.50%;

 

    100% 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 1.875% in any calendar quarter (7.50% annualized). The Company refers to this portion of the pre-incentive fee net investment income (which exceeds the hurdle but is less than 1.875%) as the “catch-up.” The “catch-up” is meant to provide the Investment Adviser with approximately 20% of the Company’s pre-incentive fee net investment income as if a hurdle did not apply if this net investment income exceeds 1.875% in any calendar quarter; and

 

    20% of the amount of pre-incentive fee net investment income, if any, that exceeds 1.875% in any calendar quarter (7.50% annualized) will be payable to the Investment Adviser. This reflects that once the hurdle is reached and the catch-up is achieved, 20% of all pre-incentive fee investment income thereafter is allocated 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 equals 20% of realized capital gains, if any, on a cumulative basis from inception through the date of determination, computed net of all realized capital losses on a cumulative basis and unrealized capital depreciation, less the aggregate amount of any previously paid capital gain incentive fees, provided that, the incentive fee determined at the end

 

37


Table of Contents

of the first calendar year of operations may be calculated for a period of shorter than twelve calendar months to take into account any realized capital gains computed net of all realized capital losses on a cumulative basis and unrealized capital depreciation.

The Company will defer payment of any incentive fee otherwise earned by the Investment Adviser if, during the most recent four full calendar quarter periods (or, if less, the number of full calendar quarters completed since the initial drawdown of capital from the stockholders, “Initial Drawdown”) ending on or prior to the date such payment is to be made, the sum of (a) the aggregate distributions to stockholders and (b) the change in net assets (defined as gross assets less indebtedness and before taking into account any incentive fees payable during the period) is less than 6.0% of net assets (defined as gross assets less indebtedness) at the beginning of such period, provided, that such percentage will be appropriately prorated during the four full calendar quarters immediately following the Initial Drawdown. These calculations are adjusted for any share issuances or repurchases. Any deferred incentive fees are carried over for payment in subsequent calculation periods. The Investment Adviser may earn an incentive fee under the Investment Advisory Agreement on the Company’s repurchase of debt issued by the Company at a gain.

Prior to a Qualified IPO, from time to time, CGMSIM intends to pay certain individuals providing services to CGMSIM, including individuals who serve as our executive officer and/or director and individuals who are members of the CGMSIM team managing our investments (the “CGMSIM Investment Team”), a portion of each installment of the gross incentive fees that CGMSIM receives from us in consideration of their services on behalf of CGMSIM, with approximately 25% of the net after-tax amount paid to such members being paid in the form of newly issued shares of common stock purchased from us. In addition, following the completion of a Qualified IPO, from time to time, CGMSIM intends to purchase shares of our common stock in the open market at a purchase price, in the aggregate, equal to approximately 25% of each installment of the net after- tax incentive fees that CGMSIM receives from us, subject to market conditions. CGMSIM may then distribute those shares to individuals eligible for such payment in consideration of their services on behalf of CGMSIM.

For the three month and nine month periods ended September 30, 2016, base management fees were $3,132 and $8,789, respectively (net of waiver of $1,567 and $4,395, respectively), incentive fees related to pre-incentive fee net investment income were $3,962 and $10,318, respectively, and there were no incentive fees related to realized capital gains. For the three month and nine month periods ended September 30, 2015, base management fees were $2,452 and $6,321, respectively (net of waiver of $1,227 and $3,161, respectively), incentive fees related to pre-incentive fee net investment income were $2,584 and $6,190, respectively, and there were no incentive fees related to realized capital gains. For the three month and nine month periods ended September 30, 2016 and 2015, there were no accrued capital gains incentive fees based upon the cumulative net realized and unrealized appreciation (depreciation) as of September 30, 2016 and 2015, respectively. The accrual for any capital gains incentive fee under US GAAP in a given period may result in an additional expense if such cumulative amount is greater than in the prior period or a reduction of previously recorded expense if such cumulative amount is less than in the prior period. If such cumulative amount is negative, then there is no accrual.

As of September 30, 2016 and December 31, 2015, $16,142 and $5,277, respectively, was included in base management and incentive fees payable in the accompanying Consolidated Statements of Assets and Liabilities.

On April 3, 2013, the Investment Adviser entered into a personnel agreement with The Carlyle Group Employee Co., L.L.C. (“Carlyle Employee Co.”), an affiliate of the Investment Adviser, pursuant to which Carlyle Employee Co. provides the Investment Adviser with access to investment professionals.

Administration Agreement

On April 3, 2013, the Company’s Board of Directors approved an administration agreement (the “Administration Agreement”) between the Company and the Administrator. Pursuant to the Administration

 

38


Table of Contents

Agreement, the Administrator provides services and receives reimbursements equal to an amount that reimburses the Administrator for its costs and expenses and the Company’s allocable portion of overhead incurred by the Administrator in performing its obligations under the Administration Agreement, including the Company’s allocable portion of the compensation paid to or compensatory distributions received by the Company’s officers (including the Chief Compliance Officer and Chief Financial Officer) and respective staff who provide services to the Company, operations staff who provide services to the Company, and any internal audit staff, to the extent internal audit performs a role in the Company’s Sarbanes-Oxley Act internal control assessment. Reimbursement under the Administration Agreement occurs quarterly in arrears.

The initial term of the Administration Agreement is two years from April 3, 2013 and, unless terminated earlier, the Administration Agreement will renew automatically for successive annual periods, provided that such continuance is specifically approved at least annually by (i) the vote of the Board of Directors or by a majority vote of the outstanding voting securities of the Company and (ii) the vote of a majority of the Company’s Independent Directors. On March 10, 2016, the Company’s Board of Directors, including a majority of the Independent Directors, approved the continuance of the Administration Agreement for a one year period. The Administration Agreement may not be assigned by a party without the consent of the other party and may be terminated by either party without penalty upon at least 60 days’ written notice to the other party.

For the three month and nine month periods ended September 30, 2016, GMS Finance incurred $180 and $526, respectively, and for the three month and nine month periods ended September 30, 2015, GMS Finance incurred $152 and $452, respectively, in fees under the Administrative Agreement, which were included in administrative service fees in the accompanying Consolidated Statements of Operations. As of September 30, 2016 and December 31, 2015, $127 and $97, respectively, was unpaid and included in administrative service fees payable in the accompanying Consolidated Statements of Assets and Liabilities.

Sub-Administration Agreements

On April 3, 2013, the Administrator entered into sub-administration agreements with Carlyle Employee Co. and CELF Advisors LLP. Pursuant to the agreements, Carlyle Employee Co. and CELF Advisors LLP provide the Administrator with access to personnel.

On April 3, 2013, the Administrator entered into a sub-administration agreement with State Street Bank and Trust Company (as amended, the “Sub-Administration Agreement”). On March 11, 2015, the Company’s Board of Directors, including a majority of the Independent Directors, approved an amendment to the Sub-Administration Agreement. The initial term of the Sub-Administration Agreement ends on April 1, 2017 and, unless terminated earlier, the Sub-Administration Agreement will renew automatically for successive annual periods, provided that such continuance is specifically approved at least annually by (i) the vote of the Board of Directors or by the vote of a majority of the outstanding voting securities of the Company and (ii) the vote of a majority of the Company’s Independent Directors. The Sub-Administration Agreement may be terminated upon at least 60 days’ written notice and without penalty by the vote of a majority of the outstanding securities of the Company, or by the vote of the Board of Directors or by either party to the Sub-Administration Agreement.

For the three month and nine month periods ended September 30, 2016, fees incurred in connection with the Sub-Administration Agreement, which amounted to $154 and $442, respectively, were included in other general and administrative in the accompanying Consolidated Statements of Operations. For the three month and nine month periods ended September 30, 2015, fees incurred in connection with the Sub-Administration Agreement, which amounted to $134 and $353, respectively, were included in other general and administrative in the accompanying Consolidated Statements of Operations. As of September 30, 2016 and December 31, 2015, $153 and $138, respectively, was unpaid and included in other accrued expenses and liabilities in the accompanying Consolidated Statements of Assets and Liabilities.

 

39


Table of Contents

Placement Fees

On April 3, 2013, the Company entered into a placement fee arrangement with TCG Securities, L.L.C. (“TCG”), a licensed broker-dealer and an affiliate of the Investment Adviser, which may require stockholders to pay a placement fee to TCG for TCG’s services.

For the three month and nine month periods ended September 30, 2016, TCG earned placement fees of $2 and $8, respectively, from GMS Finance stockholders in connection with the issuance or sale of the Company’s common stock. For the three month and nine month periods ended September 30, 2015, TCG earned placement fees of $2 and $4, respectively, from GMS Finance stockholders in connection with the issuance or sale of the Company’s common stock.

Board of Directors

GMS Finance’s Board of Directors currently consists of five members, three of whom are Independent Directors. The Board of Directors has established an Audit Committee consisting of its Independent Directors and a Pricing Committee of the Board of Directors (the “Pricing Committee”), and may establish additional committees in the future. For the three month and nine month periods ended September 30, 2016, GMS Finance incurred $146 and $410, respectively and for the three month and nine month periods ended September 30, 2015, GMS Finance incurred $109 and $316 respectively, in fees and expenses associated with its Independent Directors, the Audit Committee and the Pricing Committee. As of September 30, 2016 and December 31, 2015, $0 was unpaid and included in other accrued expenses and liabilities in the accompanying Consolidated Statements of Assets and Liabilities. As of September 30, 2016 and December 31, 2015, current directors had committed $607 in capital commitments to the Company.

Transactions

On May 13, 2016, the Company sold an investment to a wholly-owned subsidiary of Credit Fund for proceeds of $20,038. The Company had no realized gain or loss on this trade. See Note 5, Middle Market Credit Fund, LLC, for further information about Credit Fund.

5. MIDDLE MARKET CREDIT FUND, LLC

Overview

On February 29, 2016, the Company and Credit Partners entered into the Limited Liability Company Agreement to co-manage Credit Fund, an unconsolidated Delaware limited liability company. Credit Fund primarily invests in first lien loans of middle-market companies. Credit Fund is managed by a six-member board of managers, on which the Company and Credit Partners each have equal representation. The Company and Credit Partners each have 50% economic ownership of Credit Fund and have commitments to fund, from time to time, capital of up to $400,000 each. Funding of such commitments generally requires the approval of the board of Credit Fund, including the board members appointed by the Company.

Together with Credit Partners, the Company co-invests through Credit Fund. Portfolio and investment decisions with respect to Credit Fund must be unanimously approved by a quorum of Credit Fund’s investment committee consisting of an equal number of representatives of the Company and Credit Partners. Therefore, although the Company owns more than 25% of the voting securities of Credit Fund, the Company does not believe that it has control over Credit Fund (other than for purposes of the Investment Company Act).

Middle Market Credit Fund SPV, LLC (the “Credit Fund Sub”), a Delaware limited liability company, was formed on April 5, 2016. Credit Fund Sub primarily invests in first lien loans of middle-market companies. Credit Fund Sub is a wholly-owned subsidiary of Credit Fund and is consolidated in Credit Fund’s consolidated financial statements commencing from the date of its formation.

 

40


Table of Contents

Selected Financial Data

Since inception of Credit Fund and through September 30, 2016, the Company and Credit Partners each made capital contributions of $1 in members’ equity and $24,000 in subordinated loans to Credit Fund. Additionally, Credit Fund borrowed $31,800 in mezzanine loans under a revolving credit facility with the Company (the “Credit Fund Facility”). As of September 30, 2016, Credit Fund had subordinated loans and members’ capital of $51,917 and mezzanine loans of $31,800. The Company’s ownership interest in such subordinated loans and members’ capital was $25,958 and in such mezzanine loans was $31,800.

As of September 30, 2016, Credit Fund held cash and cash equivalents totaling $4,076.

As of September 30, 2016, Credit Fund had total investments at fair value of $292,830, which was comprised of first lien senior secured loans and second lien senior secured loans to 20 portfolio companies. As of September 30, 2016 and for the three month and nine month periods ended September 30, 2016, no loans in Credit Fund’s portfolio were on non-accrual status or contained PIK provisions. The portfolio companies in Credit Fund are U.S. middle market companies in industries similar to those in which the Company may invest directly. Additionally, as of September 30, 2016, Credit Fund had commitments to fund various undrawn revolvers and delayed draw investments to its portfolio companies totaling $35,059.

Below is a summary of Credit Fund’s portfolio, followed by a listing of the loans in Credit Fund’s portfolio as of September 30, 2016:

 

     As of
September 30,

2016
 

Senior secured loans (1)

   $ 293,576   

Weighted average yields of senior secured loans based on amortized cost (2)

     6.26

Number of portfolio companies in Credit Fund

     20   

 

(1) At par/principal amount.
(2) Weighted average yields do not include the effect of accretion of discounts and amortization of premiums and are based on interest rates as of September 30, 2016. Actual yields earned over the life of each investment could differ materially from the yields presented above.

 

41


Table of Contents

Consolidated Schedule of Investments as of September 30, 2016 (unaudited)

 

Investments (1)

 

Industry

  Interest
Rate
    Maturity
Date
    Par/
Principal
Amount
    Amortized
Cost (5)
    Fair
Value (6)
 

First Lien Debt (99.32% of fair value)

           

Datapipe, Inc. (2) (3) (4)

  Telecommunications     5.75     3/15/2019      $ 9,775      $ 9,681      $ 9,762   

Diversitech Corporation (2) (3) (4) (9)

  Capital Equipment     7.00        11/19/2021        14,840        14,645        14,780   

DYK Prime Acquisition LLC (2) (3) (4)

  Chemicals, Plastics & Rubber     5.75        4/1/2022        5,850        5,808        5,909   

EIP Merger Sub, LLC
(Evolve IP) (2) (3) (4) (7) (16)

  Telecommunications     7.25        6/7/2021        23,048        22,379        22,811   

Generation Brands Holdings, Inc. (2) (3) (4)

  Durable Consumer Goods     6.00        6/10/2022        19,950        19,754        20,058   

Jensen Hughes, Inc. (2) (3) (4) (8)

  Utilities: Electric     6.00        12/4/2021        21,120        20,883        21,121   

Kestra Financial, Inc. (2) (3) (4)

  Banking, Finance, Insurance & Real Estate     6.25        6/24/2022        19,950        19,671        19,860   

MSHC, Inc. (2) (3) (4) (10)

  Construction & Building     6.00        7/19/2021        13,210        13,083        13,138   

Netsmart Technologies, Inc. (2) (3) (4)

  High Tech Industries     5.75        4/19/2023        12,369        12,252        12,452   

PAI Holdco, Inc.
(Parts Authority) (2) (3) (4)

  Automotive     5.75        12/30/2022        9,975        9,908        9,953   

Pasternack Enterprises, Inc.
(Infinite RF) (2) (3) (4)

  Capital Equipment     6.00        5/27/2022        11,970        11,869        11,996   

QW Holding Corporation (Quala) (2) (3) (4) (12) (15)

  Environmental Industries     7.75        8/31/2022        3,677        3,178        3,363   

RelaDyne Inc. (2) (3) (4) (11)

  Wholesale     6.25        7/22/2022        22,635        22,222        22,520   

T2 Systems Canada, Inc. (2) (3) (4)

  Transportation: Consumer     7.75        9/28/2022        2,707        2,639        2,675   

T2 Systems, Inc. (2) (3) (4) (13)

  Transportation: Consumer     7.75        9/28/2022        15,338        14,911        15,137   

The Original Cakerie, Ltd.
(Canada) (2) (3) (4) (14)

  Beverage, Food & Tobacco     6.00        7/20/2021        7,027        6,960        7,007   

The Original Cakerie, Co.
(Canada) (2) (3) (4)

  Beverage, Food & Tobacco     6.50        7/20/2021        3,630        3,597        3,616   

TK USA Enterprises, Inc. (2) (3) (4)

  Construction & Building     6.00        4/4/2023        19,900        19,620        20,099   

U.S. Acute Care Solutions, LLC (2) (3) (4)

  Health & Pharmaceuticals     6.00        5/15/2021        19,950        19,760        19,930   

Vantage Specialty Chemicals,
Inc. (2) (3) (4)

  Chemicals, Plastics & Rubber     5.50        2/5/2021        17,955        17,824        17,951   

WIRB—Copernicus Group, Inc. (2) (3) (4)

  Health & Pharmaceuticals     6.00        8/12/2022        8,000        7,933        7,986   

Zest Holdings, LLC (2) (3) (4)

  Durable Consumer Goods     5.25        8/16/2020        8,700        8,657        8,717   
         

 

 

   

 

 

 

First Lien Debt Total

          $ 287,234      $ 290,841   
         

 

 

   

 

 

 

Second Lien Debt (0.68% of fair value)

           

Vantage Specialty Chemicals,
Inc. (2) (3) (4)

  Chemicals, Plastics & Rubber     9.75     2/5/2022      $ 2,000      $ 1,961      $ 1,989   
         

 

 

   

 

 

 

Second Lien Debt Total

          $ 1,961      $ 1,989   
         

 

 

   

 

 

 

Total Investments

          $ 289,195      $ 292,830   
         

 

 

   

 

 

 

 

(1) Unless otherwise indicated, issuers of investments held by Credit Fund are domiciled in the United States. As of September 30, 2016, the geographical composition of investments as a percentage of fair value was 3.63% in Canada and 96.37% in the United States.
(2) Variable rate loans to the portfolio companies bear interest at a rate that may be determined by reference to either LIBOR or an alternate base rate (commonly based on the Federal Funds Rate or the Prime Rate), which generally resets quarterly. For each such loan, Credit Fund has provided the interest rate in effect as of September 30, 2016.
(3) Loan includes interest rate floor feature.
(4) Denotes that all or a portion of the assets are owned by Credit Fund Sub. Credit Fund Sub has entered into a revolving credit facility (the “Credit Fund Sub Facility”). The lenders of the Credit Fund Sub Facility have a first lien security interest in substantially all of the assets of Credit Fund Sub. Accordingly, such assets are not available to creditors of Credit Fund.
(5) Amortized cost represents original cost, including origination fees, adjusted for the accretion/amortization of discounts/premiums, as applicable, on debt investments using the effective interest method.

 

42


Table of Contents
(6) Fair value is determined in good faith by or under the direction of the board of managers of Credit Fund, pursuant to Credit Fund’s valuation policy, which is substantially similar to the valuation policy of the Company provided in Note 3, Fair Value Measurements.
(7) Credit Fund receives less than the stated interest rate of this loan as a result of an agreement among lenders. Pursuant to the agreement among lenders, this investment represents a first lien/first out loan, which has first priority ahead of the first lien/last out loan with respect to principal, interest and other payments.
(8) Jensen Hughes, Inc. has an undrawn delayed draw term loan of $1,461 par value at LIBOR + 5.00%, 1.00% floor, and an undrawn revolver of $2,000 par value at LIBOR + 5.00%, 1.00% floor. An unused rate of 0.50% is charged on the delayed draw term loan and the revolver principal while undrawn.
(9) Diversitech Corporation has an undrawn delayed draw term loan of $5,000 par value at LIBOR + 4.50%, 1.00% floor. An unused rate of 1.00% is charged on the delayed draw term loan while undrawn.
(10) MSHC Inc. (Service Logic) has an undrawn delayed draw term loan of $1,790 par value at LIBOR + 5.00%, 1.00% floor. An unused rate of 1.50% is charged on the delayed draw term loan while undrawn.
(11) RelaDyne Inc. has an undrawn delayed draw term loan of $2,703 par value at LIBOR + 5.25%, 1.00% floor, and an undrawn revolver of $2,162 par value at LIBOR + 5.25%, 1.00% floor. An unused rate of 0.50% is charged on the delayed draw term loan and the revolver principal while undrawn.
(12) QW Holding Corporation (Quala) has an undrawn delayed draw term loan of $10,825 par value at LIBOR + 6.75%, 1.00% floor, and an undrawn revolver of $5,498 par value at LIBOR + 6.75%, 1.00% floor. An unused rate of 1.00% is charged on the delayed draw term loan and the revolver principal while undrawn.
(13) T2 Systems, Inc. has an undrawn revolver of $1,955 par value at LIBOR + 6.75%, 1.00% floor. An unused rate of 1.00% is charged on the revolver principal while undrawn.
(14) The Original Cakerie Ltd. (Canada) has an undrawn revolver of $1,665 par value at LIBOR + 5.00%, 1.00% floor. An unused rate of 0.50% is charged on the revolver principal while undrawn.
(15) Denotes that all or a portion of the assets are owned by Credit Fund. Credit Fund has entered into the Credit Fund Facility. The lenders of the Credit Fund Facility have a first lien security interest in substantially all of the assets of Credit Fund. Accordingly, such assets are not available to creditors of Credit Fund Sub.
(16) Credit Fund receives less than the stated interest rate of this loan as a result of an agreement among lenders. The interest rate reduction is 1.25% on EIP Merger Sub, LLC (Evolve IP). Pursuant to the agreement among lenders in respect of this loan, this investment represents a first lien/first out loan, which has first priority ahead of the first lien/last out loan with respect to principal, interest and other payments.

 

43


Table of Contents

Below is certain summarized consolidated financial information for Credit Fund as of September 30, 2016 and for the three and nine months ended September 2016. Credit Fund commenced operations in May 2016.

 

     September 30, 2016  
     (unaudited)  

Selected Consolidated Balance Sheet Information

  

ASSETS

  

Investments, at fair value (amortized cost of $289,195)

   $ 292,830   

Cash and other assets

     8,473   
  

 

 

 

Total assets

   $ 301,303   
  

 

 

 

LIABILITIES AND MEMBERS’ EQUITY

  

Secured borrowings

   $ 206,075   

Mezzanine loans

     31,800   

Other liabilities

     11,511   

Subordinated loans and members’ equity

     51,917   
  

 

 

 

Liabilities and members’ equity

   $ 301,303   
  

 

 

 

 

    For the three month
period ended
September 30, 2016
    For the nine month
period ended
September 30, 2016
 
    (unaudited)     (unaudited)  

Selected Consolidated Statement of Operations Information:

   

Total investment income

  $ 3,642      $ 3,658   
 

 

 

   

 

 

 

Expenses

   

Interest and credit facility expenses

    1,798        1,836   

Other expenses

    496        883   
 

 

 

   

 

 

 

Total expenses

    2,294        2,719   
 

 

 

   

 

 

 

Net investment income (loss)

    1,348        939   
 

 

 

   

 

 

 

Net realized gain (loss) on investments

    41        41   

Net change in unrealized appreciation (depreciation) on investments

    3,798        3,634   
 

 

 

   

 

 

 

Net increase (decrease) resulting from operations

  $ 5,187      $ 4,614   
 

 

 

   

 

 

 

Debt

Credit Fund Facility

Credit Fund closed on June 24, 2016 on a revolving credit facility, the Credit Fund Facility, from which Credit Fund may from time to time request mezzanine loans from the Company. The maximum principal amount of the Credit Fund Facility is $100,000.

During the nine month period ended September 30, 2016, there were mezzanine loan borrowings of $54,200 and repayments of $22,400 under the Credit Fund Facility. As of September 30, 2016, there were $31,800 in mezzanine loans outstanding.

Credit Fund Sub Facility

Credit Fund Sub closed on June 24, 2016 on the Credit Fund Sub Facility. The Credit Fund Sub Facility provides for secured borrowings during the applicable revolving period up to an amount equal to $440,000, with

 

44


Table of Contents

an accordion feature that can increase the aggregate maximum credit commitment up to an amount not to exceed $1,400,000. The facility is secured by a first lien security interest in substantially all of the portfolio investments held by Credit Fund Sub and the Company’s and Credit Partners’ unfunded capital commitments.

During the nine month period ended September 30, 2016, there were secured borrowings of $206,075 under the Credit Fund Sub Facility. As of September 30, 2016, there was $206,075 in secured borrowings outstanding.

6. BORROWINGS

In accordance with the Investment Company Act, the Company is only allowed to borrow amounts such that its asset coverage, as defined in the Investment Company Act, is at least 200% after such borrowing. As of September 30, 2016 and December 31, 2015, asset coverage was 209.46%, and 212.70%, respectively. During the nine month period ended September 30, 2016, there were secured borrowings of $411,435 under the Revolving Credit Facility and Facility and repayments of $250,732 under the Revolving Credit Facility and Facility. During the nine month period ended September 30, 2015, there were secured borrowings of $320,200 under the Revolving Credit Facility and Facility and repayments of $449,183 under the Revolving Credit Facility and Facility. As of September 30, 2016 and December 31, 2015, there was $395,016 and $234,313, respectively, in secured borrowings outstanding.

Revolving Credit Facility

The Borrower Sub closed on May 24, 2013 on the Revolving Credit Facility, which was subsequently amended on June 30, 2014, June 19, 2015 and June 9, 2016. The Revolving Credit Facility provides for secured borrowings during the applicable revolving period up to an amount equal to the lesser of $400,000 (the borrowing base as calculated pursuant to the terms of the Revolving Credit Facility) and the amount of net cash proceeds and unpledged capital commitments the Company has received, with an accordion feature that can, subject to certain conditions, increase the aggregate maximum credit commitment up to an amount not to exceed $750,000, subject to restrictions imposed on borrowings under the Investment Company Act and certain restrictions and conditions set forth in the Revolving Credit Facility, including adequate collateral to support such borrowings. The Revolving Credit Facility has a revolving period through May 23, 2019 and a maturity date of May 22, 2021. Borrowings under the Revolving Credit Facility bear interest initially at the applicable commercial paper rate (if the lender is a conduit lender) or LIBOR (or, if applicable, a rate based on the prime rate or federal funds rate) plus 2.00% per year through May 23, 2018, with a pre-determined future interest rate increase of 0.50% during the final year of the revolving period and pre-determined future interest rate increases of 0.875%-1.75% over the two years following the end of the revolving period. The Borrower Sub is also required to pay an undrawn commitment fee of between 0.25% and 0.75% per year depending on the usage of the Revolving Credit Facility. Payments under the Revolving Credit Facility are made quarterly. The lenders have a first lien security interest on substantially all of the assets of the Borrower Sub.

As part of the Revolving Credit Facility, the Borrower Sub is subject to limitations as to how borrowed funds may be used and the types of loans that are eligible to be acquired by the Borrower Sub including, but not limited to, restrictions on sector and geographic concentrations, loan size, payment frequency, tenor and minimum investment ratings (or estimated ratings). In addition, borrowed funds are intended to be used primarily to purchase first lien loan assets, and the Borrower Sub is limited in its ability to purchase certain other assets (including, but not limited to, second lien loans, covenant-lite loans, revolving and delayed draw loans and discount loans) and other assets are not permitted to be purchased (including, but not limited to paid-in-kind loans and structured finance obligations). The Revolving Credit Facility has certain requirements relating to interest coverage, collateral quality and portfolio performance, including limitations on delinquencies and charge offs, certain violations of which could result in the immediate acceleration of the amounts due under the Revolving Credit Facility. The Revolving Credit Facility is also subject to a borrowing base that applies different advance rates to assets held by the Borrower Sub based generally on the fair market value of such assets. Under certain circumstances as set forth in the Revolving Credit Facility, the Company could be obliged to repurchase loans from the Borrower Sub.

 

45


Table of Contents

As of September 30, 2016 and December 31, 2015, the Borrower Sub was in compliance with all covenants and other requirements of the Revolving Credit Facility.

Facility

The Company closed on March 21, 2014 on the Facility, which was subsequently amended on January 8, 2015 and May 25, 2016 (the “Second Facility Amendment”). The maximum principal amount of the Facility is $220,000, subject to availability under the Facility, which is based on certain advance rates multiplied by the value of the Company’s portfolio investments (subject to certain concentration limitations) net of certain other indebtedness that the Company may incur in accordance with the terms of the Facility. Proceeds of the Facility may be used for general corporate purposes, including the funding of portfolio investments. Maximum capacity under the Facility may be increased to $225,000 through the exercise by the Company of an uncommitted accordion feature through which existing and new lenders may, at their option, agree to provide additional financing. The Facility includes a $20,000 limit for swingline loans and a $5,000 limit for letters of credit. The Company may borrow amounts in U.S. dollars or certain other permitted currencies. Amounts drawn under the Facility, including amounts drawn in respect of letters of credit, bear interest at either LIBOR plus an applicable spread of 2.25%, or an “alternative base rate” (which is the highest of a prime rate, the federal funds effective rate plus 0.50%, or one month LIBOR plus 1.00%) plus an applicable spread of 1.25%. The Company may elect either the LIBOR or the “alternative base rate” at the time of drawdown, and loans may be converted from one rate to another at any time, subject to certain conditions. The Company also pays a fee of 0.375% on undrawn amounts under the Facility and, in respect of each undrawn letter of credit, a fee and interest rate equal to the then-applicable margin under the Facility while the letter of credit is outstanding. The availability period under the Facility will terminate on March 21, 2020 and the Facility will mature on March 21, 2021. During the period from March 21, 2020 to March 21, 2021, the Company will be obligated to make mandatory prepayments under the Facility out of the proceeds of certain asset sales, other recovery events and equity and debt issuances.

Subject to certain exceptions, the Facility is secured by a first lien security interest in substantially all of the portfolio investments held by the Company and the Company’s unfunded investor equity capital commitments (provided that the amount of unfunded capital commitments ultimately available to the lenders is limited to $100,000). The pledge of unfunded investor equity capital commitments was subject to release once $100,000 of incremental capital had been called and received by the Company subsequent to January 8, 2015. The pledge of unfunded investor equity capital commitments had been released as of September 30, 2016. The Facility includes customary covenants, including certain financial covenants related to asset coverage, shareholders’ equity and liquidity, certain limitations on the incurrence of additional indebtedness and liens, and other maintenance covenants, as well as usual and customary events of default for senior secured revolving credit facilities of this nature.

Related to the Second Facility Amendment, $380 of deferred financing costs (representing the prorated financing costs related to a departing lender) were immediately expensed on May 25, 2016 in lieu of continuing to amortize over the term of the Facility.

As of September 30, 2016 and December 31, 2015, the Company was in compliance with all covenants and other requirements of the Facility.

 

46


Table of Contents

Summary of Facilities

The facilities of the Company and the Borrower Sub consisted of the following as of September 30, 2016 and December 31, 2015:

 

     September 30, 2016  
     Total Facility      Borrowings
Outstanding
     Unused Portion (1)      Amount
Available (2)
 

Revolving Credit Facility

   $ 400,000       $ 196,016       $ 203,984       $ 11,377   

Facility

     220,000         199,000         21,000         21,000   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 620,000       $ 395,016       $ 224,984       $ 32,377   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

     December 31, 2015  
     Total Facility      Borrowings
Outstanding
     Unused Portion (1)      Amount
Available (2)
 

Revolving Credit Facility

   $ 400,000       $ 170,313       $ 229,687       $ 3,155   

Facility

     150,000         64,000         86,000         86,000   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 550,000       $ 234,313       $ 315,687       $ 89,155   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(1) The unused portion is the amount upon which commitment fees are based.
(2) Available for borrowing based on the computation of collateral to support the borrowings.

As of September 30, 2016 and December 31, 2015, $1,365 and $966, respectively, of interest expense, $250 and $141, respectively, of unused commitment fees and $22 and $22, respectively, of other fees were included in interest and credit facility fees payable. For the three month and nine month periods ended September 30, 2016, the weighted average interest rate was 2.75% and 2.67%, respectively, and average principal debt outstanding was $292,084 and $277,575, respectively. For the three month and nine month periods ended September 30, 2015, the weighted average interest rate was 2.28% and 2.22%, respectively, and average principal debt outstanding was $167,952 and $285,547, respectively. As of September 30, 2016 and December 31, 2015, the interest rate was 2.85% and 2.37%, respectively, based on floating LIBOR rates.

For the three month and nine month periods ended September 30, 2016 and 2015, the components of interest expense and credit facility fees on the facilities were as follows:

 

    For the three month periods
ended
    For the nine month periods
ended
 
   

September 30,

2016

   

September 30,

2015

   

September 30,

2016

   

September 30,

2015

 

Interest expense

  $ 2,071      $ 996      $ 5,661      $ 4,815   

Facility unused commitment fee

    351        282        1,034        587   

Amortization of deferred financing costs

    305        215        1,027        728   

Other fees

    26        25        78        81   
 

 

 

   

 

 

   

 

 

   

 

 

 

Total interest expense and credit facility fees

  $ 2,753      $ 1,518      $ 7,800      $ 6,211   
 

 

 

   

 

 

   

 

 

   

 

 

 

Cash paid for interest expense

  $ 2,023      $ 1,518      $ 5,231      $ 5,080   

7. 2015-1 Notes

On June 26, 2015, the Company completed the 2015-1 Debt Securitization. The 2015-1 Notes were issued by the 2015-1 Issuer, a wholly-owned and consolidated subsidiary of the Company, and are secured by a diversified portfolio of the 2015-1 Issuer consisting primarily of first and second lien senior secured loans. The 2015-1 Debt Securitization was executed through a private placement of the 2015-1 Notes, consisting of $160 million of Aaa/AAA Class A-1A Notes which bear interest at the three-month London Interbank Offered Rate

 

47


Table of Contents

(“LIBOR”) plus 1.85%; $40 million of Aaa/AAA Class A-1B Notes which bear interest at the three-month LIBOR plus 1.75% for the first 24 months and the three-month LIBOR plus 2.05% thereafter; $27 million of Aaa/AAA Class A-1C Notes which bear interest at 3.75%; and $46 million of Aa2 Class A-2 Notes which bear interest at the three month LIBOR plus 2.70%. The 2015-1 Notes were issued at par and are scheduled to mature on July 15, 2027. The Company received 100% of the preferred interests (the “Preferred Interests”) issued by the 2015-1 Issuer on the closing date of the 2015-1 Debt Securitization in exchange for the Company’s contribution to the Issuer of the initial closing date loan portfolio. The Preferred Interests do not bear interest and had a nominal value of $125.9 million at closing. In connection with the contribution, the Company made customary representations, warranties and covenants to the 2015-1 Issuer in the purchase agreement. The Class A-1A, Class A-1B and Class A-1C and Class A-2 Notes are included in the September 30, 2016 consolidated financial statements. The Preferred Interests were eliminated in consolidation.

On the closing date of the 2015-1 Debt Securitization, the 2015-1 Issuer effected a one-time distribution to the Company of a substantial portion of the proceeds of the private placement of the 2015-1 Notes, net of expenses, which distribution was used to repay a portion of certain amounts outstanding under the Revolving Credit Facility and the Facility. As part of the 2015-1 Debt Securitization, certain first and second lien senior secured loans were distributed by the Borrower Sub to the Company pursuant to a distribution and contribution agreement. The Company contributed the loans that comprised the initial closing date loan portfolio (including the loans distributed to the Company from the Borrower Sub) to the 2015-1 Issuer pursuant to a contribution agreement. Future loan transfers from the Company to the 2015-1 Issuer will be made pursuant to a sale agreement and are subject to the approval of the Company’s Board of Directors. Assets of the 2015-1 Issuer are not available to the creditors of the Borrower Sub or the Company. In connection with the issuance and sale of the 2015-1 Notes, the Company made customary representations, warranties and covenants in the purchase agreement.

During the reinvestment period, pursuant to the indenture governing the 2015-1 Notes, all principal collections received on the underlying collateral may be used by the 2015-1 Issuer to purchase new collateral under the direction of Investment Adviser in its capacity as collateral manager of the 2015-1 Issuer and in accordance with the Company’s investment strategy.

The Investment Adviser serves as collateral manager to the 2015-1 Issuer under a collateral management agreement (the “Collateral Management Agreement”). Pursuant to the Collateral Management Agreement, the 2015-1 Issuer pays management fees (comprised of base management fees, subordinated management fees and incentive management fees) (“Management Fees”) to the Investment Adviser for rendering collateral management services. As per the Collateral Management Agreement, for the period the Company retains all of the Preferred Interests, the Investment Adviser does not earn Management Fees for providing such collateral management services. The Company currently retains all of the Preferred Interests, thus the Investment Adviser did not earn any management fees from the 2015-1 Issuer for the three month and nine month periods ended September 30, 2016. Any such waived fees may not be recaptured by the Investment Adviser.

Pursuant to an undertaking by the Company in connection with the 2015-1 Debt Securitization, the Company has agreed to hold on an ongoing basis Preferred Interests with an aggregate dollar purchase price at least equal to 5% of the aggregate outstanding amount of all collateral obligations by the 2015-1 Issuer for so long as any securities of the 2015-1 Issuer remain outstanding. As of September 30, 2016, the Company was in compliance with its undertaking.

The 2015-1 Issuer pays ongoing administrative expenses to the trustee, independent accountants, legal counsel, rating agencies and independent managers in connection with developing and maintaining reports, and providing required services in connection with the administration of the 2015-1 Issuer.

As of September 30, 2016, there were 57 first lien and second lien senior secured loans with a total fair value of approximately $389,197 securing the 2015-1 Notes. The pool of loans in the securitization must meet certain requirements, including asset mix and concentration, term, agency rating, collateral coverage, minimum coupon, minimum spread and sector diversity requirements in the indenture governing the 2015-1 Notes.

 

48


Table of Contents

For the nine months ended September 30, 2016, the effective annualized weighted average interest rate, which includes amortization of debt issuance costs on the 2015-1 Notes, was 2.84% based on floating LIBOR rates.

For the three month and nine month periods ended September 30, 2016 and 2015, the components of interest expense on the 2015-1 Notes were as follows:

 

    For the three month periods ended     For the nine month periods ended  
    September 30, 2016     September 30, 2015     September 30, 2016     September 30, 2015  

Interest expense

  $ 1,929      $ 1,611      $ 5,661      $ 1,698   

Amortization of deferred financing costs

    51        51        153        54   
 

 

 

   

 

 

   

 

 

   

 

 

 

Total interest expense and credit facility fees

  $ 1,980      $ 1,662      $ 5,814      $ 1,752   
 

 

 

   

 

 

   

 

 

   

 

 

 

Cash paid for interest expense

  $ 1,883      $ —        $ 5,469      $ —     

8. COMMITMENTS AND CONTINGENCIES

A summary of significant contractual payment obligations was as follows as of September 30, 2016 and December 31, 2015:

 

       Revolving Credit Facility and Facility        2015-1 Notes  

Payment Due by Period

   September 30, 2016      December 31, 2015      September 30, 2016      December 31, 2015  

Less than 1 Year

   $ —         $ —         $ —         $ —     

1-3 Years

     —           —           —           —     

3-5 Years

     395,016         64,000         —           —     

More than 5 Years

     —           170,313         273,000         273,000   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 395,016       $ 234,313       $ 273,000       $ 273,000   
  

 

 

    

 

 

    

 

 

    

 

 

 

In the ordinary course of its business, the Company enters into contracts or agreements that contain indemnification and warranties. Future events could occur that lead to the execution of these provisions against the Company. The Company believes that the likelihood of such an event is remote; however, the maximum potential exposure is unknown. No accrual has been made in the consolidated financial statements as of September 30, 2016 and December 31, 2015 for any such exposure.

As of September 30, 2016 and December 31, 2015, the Company had $1,210,870 and $1,174,340, respectively, in total capital commitments from stockholders, of which $445,642 and $559,214, respectively, was unfunded. As of September 30, 2016, current directors had committed $608 in capital commitments to the Company.

The Company had the following unfunded commitments to fund delayed draw and revolving senior secured loans as of the indicated dates:

 

    Par Value as of  
    September 30, 2016     December 31, 2015  

Unfunded delayed draw commitments

  $ 44,358      $ 20,695   

Unfunded revolving term loan commitments

    19,765        3,906