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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. 000-54961

 

 

NF INVESTMENT CORP.

(Exact name of Registrant as specified in its charter)

 

Maryland   61-1696304

(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

     8,156,316   

 

 

 


Table of Contents

NF INVESTMENT CORP.

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)      17   
Item 2.    Management’s Discussion and Analysis of Financial Condition and Results of Operations      37   
Item 3.    Quantitative and Qualitative Disclosures About Market Risk      54   
Item 4.    Controls and Procedures      55   
Part II.    Other Information   
Item 1.    Legal Proceedings      56   
Item 1A.    Risk Factors      56   
Item 2.    Unregistered Sales of Equity Securities and Use of Proceeds      56   
Item 3.    Defaults Upon Senior Securities      56   
Item 4.    Mine Safety Disclosures      56   
Item 5.    Other Information      57   
Item 6.    Exhibits      57   
   Signatures      58   

 

2


Table of Contents

NF INVESTMENT CORP.

CONSOLIDATED STATEMENTS OF ASSETS AND LIABILITIES

(dollar amounts in thousands, except per share data)

 

     September 30,
2016
    December 31,
2015
 
     (unaudited)        

ASSETS

    

Investments—non-controlled/non-affiliated, at fair value (amortized cost of $294,146 and $248,159 respectively)

   $ 291,185      $ 244,283   

Cash and cash equivalents

     6,707        7,404   

Receivable for investments sold

     322        —     

Deferred financing costs

     1,193        1,510   

Interest receivable

     791        789   

Prepaid expenses and other assets

     22        14   
  

 

 

   

 

 

 

Total assets

   $ 300,220      $ 254,000   
  

 

 

   

 

 

 

LIABILITIES

    

Payable for investments purchased

   $ 9,706      $ —     

Secured borrowings (Note 5)

     127,621        118,194   

Due to Investment Adviser

     26        35   

Interest and credit facility fees payable (Note 5)

     590        497   

Management fees payable (Note 4)

     179        151   

Dividend payable (Note 7)

     3,589        3,226   

Administrative service fees payable (Note 4)

     30        35   

Other accrued expenses and liabilities

     499        343   
  

 

 

   

 

 

 

Total liabilities

     142,240        122,481   
  

 

 

   

 

 

 

Commitments and contingencies (Notes 6 and 9)

    

NET ASSETS

    

Common stock, $0.01 par value; 200,000,000 shares authorized; 8,156,316 shares and 6,864,244 shares issued and outstanding at September 30, 2016 and December 31, 2015, respectively

     82        69   

Paid-in capital in excess of par value

     160,943        135,956   

Offering costs

     (45     (45

Accumulated net investment income (loss), net of cumulative dividends of $22,203 and $12,208 at September 30, 2016 and December 31, 2015, respectively

     (148     (638

Accumulated net realized gain (loss)

     109        53   

Accumulated net unrealized appreciation (depreciation)

     (2,961     (3,876
  

 

 

   

 

 

 

Total net assets

   $ 157,980      $ 131,519   
  

 

 

   

 

 

 

NET ASSETS PER SHARE

   $ 19.37      $ 19.16   
  

 

 

   

 

 

 

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

 

3


Table of Contents

NF INVESTMENT CORP.

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

  $ 5,497      $ 4,005      $ 14,730      $ 10,453   
 

 

 

   

 

 

   

 

 

   

 

 

 

Total investment income

    5,497        4,005        14,730        10,453   
 

 

 

   

 

 

   

 

 

   

 

 

 

Expenses:

       

Management fees (Note 4)

    179        144        496        396   

Professional fees

    183        126        558        450   

Administrative service fees (Note 4)

    45        45        143        139   

Interest expense (Note 5)

    742        539        2,033        1,446   

Credit facility fees (Note 5)

    245        206        578        666   

Directors’ fees and expenses

    24        63        111        182   

Other general and administrative

    104        94        326        298   
 

 

 

   

 

 

   

 

 

   

 

 

 

Total expenses

    1,522        1,217        4,245        3,577   
 

 

 

   

 

 

   

 

 

   

 

 

 

Net investment income (loss)

    3,975        2,788        10,485        6,876   

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

       

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

    23        1        56        51   

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

    1,521        (23     915        1,042   
 

 

 

   

 

 

   

 

 

   

 

 

 

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

    1,544        (22     971        1,093   
 

 

 

   

 

 

   

 

 

   

 

 

 

Net increase (decrease) in net assets resulting from operations

  $ 5,519      $ 2,766      $ 11,456      $ 7,969   
 

 

 

   

 

 

   

 

 

   

 

 

 

Basic and diluted earnings per common share (Note 7)

  $ 0.70      $ 0.44      $ 1.55      $ 1.39   
 

 

 

   

 

 

   

 

 

   

 

 

 

Weighted-average shares of common stock outstanding—Basic and Diluted (Note 7)

    7,907,105        6,326,307        7,396,124        5,734,473   
 

 

 

   

 

 

   

 

 

   

 

 

 

Dividends declared per common share (Note 7)

  $ 0.44      $ 0.40      $ 1.32      $ 1.05   

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

 

4


Table of Contents

NF INVESTMENT CORP.

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)

   $ 10,485      $ 6,876   

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

     56        51   

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

     915        1,042   
  

 

 

   

 

 

 

Net increase (decrease) in net assets resulting from operations

     11,456        7,969   
  

 

 

   

 

 

 

Capital transactions:

    

Common stock issued

     25,000        35,582   

Dividends declared (Note 10)

     (9,995     (6,399
  

 

 

   

 

 

 

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

     15,005        29,183   
  

 

 

   

 

 

 

Net increase (decrease) in net assets

     26,461        37,152   
  

 

 

   

 

 

 

Net assets at beginning of period

     131,519        89,309   
  

 

 

   

 

 

 

Net assets at end of period

   $ 157,980      $ 126,461   
  

 

 

   

 

 

 

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

 

5


Table of Contents

NF INVESTMENT CORP.

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

   $ 11,456      $ 7,969   

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

     342        282   

Net accretion of discount on investments

     (823     (487

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

     (56     (51

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

     (915     (1,042

Cost of investments purchased and change in payable for investments purchased

     (75,220     (97,124

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

     39,496        32,406   

Changes in operating assets:

    

Interest receivable

     (2     (316

Prepaid expenses and other assets

     (8     (6

Changes in operating liabilities:

    

Due to Investment Adviser

     (9     (1

Interest and credit facility fees payable

     93        144   

Management fees payable

     28        (27

Administrative service fees payable

     (5     10   

Other accrued expenses and liabilities

     156        79   
  

 

 

   

 

 

 

Net cash provided by (used in) operating activities

     (25,467     (58,164
  

 

 

   

 

 

 

Cash flows from financing activities:

    

Proceeds from issuance of common stock

     25,000        35,582   

Borrowings on Revolving Credit Facility and Facility

     31,850        85,700   

Repayments of Revolving Credit Facility and Facility

     (22,423     (55,770

Debt issuance costs paid

     (25     (18

Dividends paid in cash

     (9,632     (5,083
  

 

 

   

 

 

 

Net cash provided by (used in) financing activities

     24,770        60,411   
  

 

 

   

 

 

 

Net increase (decrease) in cash and cash equivalents

     (697     2,247   

Cash and cash equivalents, beginning of period

     7,404        2,548   
  

 

 

   

 

 

 

Cash and cash equivalents, end of period

   $ 6,707      $ 4,795   
  

 

 

   

 

 

 

Supplemental disclosures:

    

Interest paid during the period

   $ 1,920      $ 1,298   

Dividends declared during the period

   $ 9,995      $ 6,399   

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

 

6


Table of Contents

NF INVESTMENT CORP.

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 (94.54%)

             

Access CIG, LLC (2) (3) (5)

    Business Services        6.00     10/17/2021      $ 6,095      $ 6,055      $ 6,084        3.85

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

    High Tech Industries        6.25        1/28/2022        4,038        3,989        4,045        2.56   

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

   

 

Containers, Packaging &

Glass

  

  

    5.25        5/12/2020        3,784        3,781        3,779        2.39   

Anaren, Inc. (2) (3) (4)

    Telecommunications        5.50        2/18/2021        3,178        3,157        3,075        1.95   

APX Group, Inc. (5) (8)

    Consumer Services        6.38        12/1/2019        2,500        2,447        2,547        1.61   

Aquilex LLC (2) (3) (4)

   

 

Environmental

Industries

  

  

    5.00        12/31/2020        3,212        3,209        3,204        2.03   

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

   

 

Durable Consumer

Goods

  

  

    7.00        6/24/2017        2,625        2,616        2,599        1.65   

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

   

 

Transportation:

Consumer

  

  

    6.50        6/26/2020        2,624        2,533        2,624        1.66   

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

    Construction & Building        6.00        8/29/2020        1,692        1,682        1,687        1.07   

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

    Transportation: Cargo        5.50        10/7/2021        4,870        4,833        4,760        3.01   

Captive Resources Midco, LLC (2) (3) (4) (10)

   

 

Banking, Finance,

Insurance & Real Estate

  

  

    6.75        6/30/2020        4,161        4,105        4,168        2.64   

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

   

 

Hotel, Gaming &

Leisure

  

  

    5.50        9/18/2020        2,376        2,362        2,372        1.50   

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

    Consumer Services        6.63        10/6/2020        5,706        5,632        5,686        3.60   

CIBT Holdings, Inc. (2) (3) (4) (14)

   

 

Transportation:

Consumer

  

  

    6.25        6/28/2022        4,211        4,176        4,251        2.69   

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

    Construction & Building        7.00        10/23/2021        2,628        2,591        2,621        1.66   

Cvent, Inc. (2) (3) (4)

    High Tech Industries        6.00        6/30/2023        4,000        3,964        4,006        2.54   

Datapipe, Inc. (2) (3) (5)

    Telecommunications        5.75        3/15/2019        4,888        4,841        4,881        3.09   

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

    Automotive        5.75        4/7/2020        3,564        3,547        3,564        2.26   

Dimensional Dental Management,
LLC (2) (3) (5) (9) (15)

   

 

Healthcare &

Pharmaceuticals

  

  

    8.00        2/12/2021        2,500        2,442        2,505        1.59   

DTI Holdco, Inc. (2) (3) (4)

    High Tech Industries        6.25        9/23/2023        5,000        4,950        4,944        3.13   

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

    Telecommunications        6.75        7/1/2021        1,975        1,809        1,944        1.23   

EP Minerals, LLC (2) (3) (4)

    Metals & Mining        5.50        8/20/2020        3,430        3,419        3,422        2.17   

FCX Holdings Corp. (2) (3) (4)

    Capital Equipment        5.50        8/4/2020        3,674        3,673        3,674        2.33   

Generation Brands Holdings, Inc. (2) (3) (5)

   

 

Durable Consumer

Goods

  

  

    6.00        6/10/2022        4,988        4,940        5,015        3.17   

Genex Holdings, Inc. (2) (3) (4)

   

 

Banking, Finance,

Insurance & Real Estate

  

  

    5.25        5/30/2021        5,020        4,988        4,961        3.14   

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

    Energy: Electricity        6.50        11/13/2021        3,400        3,374        3,390        2.15   

Hummel Station LLC. (2) (3) (5)

    Energy: Electricity        7.00        10/27/2022        4,000        3,856        3,847        2.43   

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

   

 

Media: Advertising,

Printing & Publishing

  

  

    7.00        3/30/2022        2,388        2,355        2,412        1.53   

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

    Forest Products & Paper        7.00        1/7/2022        3,546        3,500        3,578        2.26   

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

   

 

Non-durable Consumer

Goods

  

  

    5.25        5/1/2021        4,762        4,728        4,375        2.77   

Integro Parent Inc (2) (3) (4)

   

 

Banking, Finance,

Insurance & Real Estate

  

  

    6.75        10/30/2022        4,964        4,838        4,832        3.06   

International Medical Group, Inc.(2) (3) (5) (9)

   

 

Banking, Finance,

Insurance & Real Estate

  

  

    7.50        10/30/2020        5,000        4,914        5,007        3.17   

Jackson Hewitt Inc. (2) (3) (4)

    Retail        8.00        7/30/2020        1,820        1,790        1,742        1.10   

Ministry Brands, LLC (2) (3) (4) (5) (11)

    High Tech Industries        8.00        11/20/2021        5,316        5,255        5,313        3.36   

Ministry Brands, LLC (2) (3) (5) (9)

    High Tech Industries        8.00        11/20/2021        1,571        1,551        1,585        1.00   

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

    Automotive        6.00        8/21/2020        1,962        1,949        1,942        1.23   

National Technical Systems, Inc. (2) (3) (12)

    Aerospace & Defense        7.25        6/12/2021        5,918        5,851        5,628        3.56   

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

    Energy: Oil & Gas        6.50        10/3/2019        3,194        3,157        3,065        1.94   

Netsmart Technologies, Inc. (2) (3) (5)

    High Tech Industries        5.75        4/19/2023        4,589        4,545        4,619        2.92   

OnCourse Learning Corporation (2) (3) (4) (16)

    Consumer Services        7.50        9/15/2021        2,841        2,798        2,829        1.79   

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

    Business Services        6.00        6/2/2022        4,345        4,290        4,326        2.74   

 

7


Table of Contents

NF INVESTMENT CORP.

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 (94.54%) (continued)

             

Pasternack Enterprises (2) (3) (4)

    Capital Equipment        6.00     5/27/2022      $ 2,992      $ 2,967      $ 2,999        1.90

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

   
 
Containers, Packaging &
Glass
  
  
    5.25        4/11/2020        2,924        2,914        2,894        1.83   

Phillips-Medisize Corporation (2) (3) (4)

   
 
Chemicals, Plastics &
Rubber
  
  
    4.75        6/16/2021        2,444        2,426        2,444        1.55   

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

    Hotel, Gaming &Leisure        7.50        5/12/2021        4,345        4,312        4,135        2.62   

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

   
 
Banking, Finance,
Insurance & Real Estate
  
  
    6.00        7/1/2022        3,750        3,698        3,745        2.37   

Product Quest Manufacturing, LLC (2) (3) (4) (9)

   
 
Containers, Packaging &
Glass
  
  
    6.75        9/9/2020        5,000        4,919        4,730        2.99   

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

    Wholesale        5.50        1/28/2020        4,282        4,257        3,221        2.04   

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

   
 
Environmental
Industries
  
  
    5.75        12/5/2020        2,948        2,926        2,936        1.86   

PSI Services LLC (2) (3) (4) (9)

    Business Services        7.75        2/27/2021        5,126        5,010        5,151        3.26   

PT Intermediate Holdings III, LLC
(Parts Town) (2) (3) (4) (5) (17)

    Wholesale        7.50        6/23/2022        1,940        1,916        1,951        1.23   

Reliant Pro Rehab, LLC (2) (3) (5) (9)

   
 
Healthcare &
Pharmaceuticals
  
  
    11.00        12/29/2017        2,487        2,452        2,488        1.57   

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

    Telecommunications        6.25        12/10/2020        2,984        2,960        2,864        1.81   

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

    Telecommunications        6.25        12/10/2020        3,586        3,562        3,442        2.18   

Superior Health Linens, LLC (2) (3) (4) (5) (18)

    Business Services        7.50        9/30/2021        1,982        1,948        1,972        1.25   

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

   
 
Healthcare &
Pharmaceuticals
  
  
    5.50        3/10/2021        4,390        4,360        4,390        2.78   

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

   
 
Media: Advertising,
Printing, & Publishing
  
  
    6.34        10/1/2019        4,486        4,473        4,522        2.86   

The SI Organization, Inc. (2) (3) (4)

    Aerospace & Defense        5.75        11/23/2019        5,894        5,858        5,917        3.74   

The Topps Company, Inc. (2) (3) (4)

   
 
Non-durable Consumer
Goods
  
  
    7.25        10/2/2018        4,689        4,666        4,704        2.98   

Transilwrap Company, Inc. (2) (3) (4)

   
 
Chemicals, Plastics &
Rubber
  
  
    5.50        11/22/2019        1,766        1,758        1,766        1.12   

Transilwrap Company, Inc. (2) (3) (4)

   
 
Chemicals, Plastics &
Rubber
  
  
    5.00        11/22/2019        4,841        4,836        4,841        3.06   

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

    Business Services        7.00        9/30/2019        6,433        6,379        4,013        2.54   

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

   
 
Healthcare &
Pharmaceuticals
  
  
    6.00        5/15/2021        5,970        5,928        5,964        3.78   

U.S. Farathane, LLC (2) (3) (4)

    Automotive        5.75        12/23/2021        5,014        4,965        5,014        3.17   

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

   
 
Chemicals, Plastics &
Rubber
  
  
    5.50        2/5/2021        4,489        4,456        4,488        2.84   

Vetcor Professional Practices, LLC (2) (3) (13)

    Consumer Services        7.25        4/20/2021        4,357        4,288        4,370        2.77   

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

    Business Services        5.75        12/20/2019        2,827        2,811        2,823        1.79   

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

    Business Services        6.50        8/19/2021        4,793        4,752        4,789        3.03   

Vitera Healthcare Solutions, LLC (2) (3) (5)

   
 
Healthcare &
Pharmaceuticals
  
  
    6.00        11/4/2020        3,278        3,257        3,259        2.06   

W/S Packaging Group, Inc. (2) (3) (4)

   
 
Containers, Packaging &
Glass
  
  
    6.00        8/9/2019        4,058        4,049        3,819        2.42   

Watchfire Enterprises, Inc. (2) (3) (4)

   
 
Media: Advertising,
Printing & Publishing
  
  
    5.00        10/2/2020        3,342        3,334        3,342        2.12   

Winchester Electronics
Corporation (2) (3) (5) (19)

    Capital Equipment        7.50        6/30/2022        4,572        4,500        4,556        2.88   

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

   
 
Healthcare &
Pharmaceuticals
  
  
    6.00        8/12/2022        2,000        1,983        1,996        1.26   

Zest Holdings, LLC (2) (3) (4)

   
 
Durable Consumer
Goods
  
  
    5.25        8/16/2020        4,822        4,818        4,832        3.06   
         

 

 

   

 

 

   

 

 

 

First Lien Debt Total

          $ 278,230      $ 275,285        174.25
         

 

 

   

 

 

   

 

 

 

 

8


Table of Contents

NF INVESTMENT CORP.

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
 

Second Lien Debt (5.46%)

             

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

    High Tech Industries        10.00     1/30/2023      $ 2,000      $ 1,983      $ 1,968        1.25

AmeriLife Group, LLC (2) (3) (5)

   

 

Banking, Finance,

Insurance & Real Estate

  

  

    9.75        1/10/2023        2,000        1,965        1,915        1.21   

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

   

 

Healthcare &

Pharmaceuticals

  

  

    10.50        6/23/2022        1,000        973        1,010        0.64   

Berlin Packaging L.L.C (2) (3) (5)

   

 

Containers, Packaging &

Glass

  

  

    7.75        10/1/2022        1,800        1,789        1,805        1.14   

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

   

 

Chemicals, Plastics &

Rubber

  

  

    9.25        2/5/2023        1,479        1,460        1,494        0.95   

Genex Holdings, Inc. (2) (3) (4)

   

 

Banking, Finance,

Insurance & Real Estate

  

  

    8.75        5/30/2022        1,000        989        994        0.63   

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

    Retail        8.75        4/28/2023        2,100        2,082        2,104        1.33   

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

    Aerospace & Defense        7.75        6/19/2022        800        797        688        0.44   

MRI Software, LLC (2) (3) (4)

    Software        9.00        6/23/2022        1,250        1,234        1,239        0.78   

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

   

 

Chemicals, Plastics &

Rubber

  

  

    8.25        6/16/2022        1,500        1,488        1,500        0.95   

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

    Consumer Services        9.75        7/1/2022        675        666        686        0.43   

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

   

 

Chemicals, Plastics &

Rubber

  

  

    9.75        2/5/2022        500        490        497        0.31   
         

 

 

   

 

 

   

 

 

 

Second Lien Debt Total

          $ 15,916      $ 15,900        10.06
         

 

 

   

 

 

   

 

 

 

Total Investments—non-controlled/non-affiliated

          $ 294,146      $ 291,185        184.31
       

 

 

   

 

 

   

 

 

 

 

(1) Unless otherwise indicated, issuers of debt investments held by NF Investment Corp. (“NFIC” or the “Company”) are domiciled in the United States. Under the Investment Company Act of 1940, as amended (together with the rules and regulations promulgated 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 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, 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, NFIC 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 5, Borrowings). Accordingly, such assets are not available to creditors 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 lender of the Facility has a first lien security interest in substantially all of the portfolio investments held by the Company (see Note 5, Borrowings). Accordingly, such assets are not available to creditors of the Borrower Sub.
(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.
(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) 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%), International Medical Group, Inc. (4.65%), Ministry Brands, LLC (2.75%), Product Quest Manufacturing LLC (3.55%), PSI Services LLC (4.27%) and Reliant Pro Rehab, LLC (nil). 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.

 

9


Table of Contents

NF INVESTMENT CORP.

CONSOLIDATED SCHEDULE OF INVESTMENTS (continued)

As of September 30, 2016

(dollar amounts in thousands)

(unaudited)

 

(10) Captive Resources Midco, LLC has an undrawn delayed draw term loan of $446 par value at LIBOR + 5.75%, 1.00% floor, and an undrawn revolver of $268 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. The delayed draw term loan and revolver are both owned by the Company as indicated in note (5) above.
(11) 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.
(12) National Technical Systems, Inc. has an undrawn delayed draw term loan of $1,031 par value at LIBOR + 6.25%, 1.00% floor, and an undrawn revolver of $469 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. The delayed draw term loan and revolver are both owned by the Company as indicated in note (5) above. The term loan of $5,918 par value is owned by the Borrower Sub as indicated in note (4) above.
(13) Vetcor Professional Practices LLC has an undrawn delayed draw term loan of $998 par value at LIBOR + 6.25%, 1.00% floor. An unused rate of 1.00% is charged on the principal while undrawn. The undrawn delayed draw term loan and the drawn delayed draw term loan of $976 par value are owned by the Company as indicated in note (5) above. The term loan of $3,381 par value is owned by the Borrower Sub as indicated in note (4) above.
(14) CIBT Holdings, Inc. has an undrawn delayed draw term loan of $778 par value at LIBOR + 5.25%, 1.00% floor. An unused rate of 1.00% is charged on the principal while undrawn. The delayed draw term loan is owned by the Company as indicated in note (5) above.
(15) Dimensional Dental Management, LLC has an undrawn last out delayed draw term loan of $350 par value at LIBOR + 7.00%, 1.00% floor. An unused rate of 1.00% is charged on the principal while undrawn. The delayed draw term loan and the term loan of $2,500 par value are owned by the Company as indicated in note (5) above.
(16) OnCourse Learning has an undrawn revolver of $159 par value at LIBOR +6.50%, 1.00% floor. An unused rate of 0.50% is charged on the revolver principal, respectively, while undrawn. The revolver is owned by the Company as indicated in note (5) above.
(17) PT Intermediate Holdings III, LLC has an undrawn revolver of $225 par value at LIBOR +6.50%, 1.00% floor. An unused rate of 0.50% is charged on the revolver principal while undrawn. The revolver is owned by the Company as indicated in note (5) above.
(18) Superior Health Linens, LLC has an undrawn revolver of $291 par value at LIBOR +6.50%, 1.00% floor. An unused rate of 0.50% is charged on the revolver principal while undrawn. The revolver is owned by the Company as indicated in note (5) above.
(19) Winchester Electronics Corporation has an undrawn delayed draw term loan of $417 par value at LIBOR + 6.50%, 1.00% floor. An unused rate of 1.00% is charged on the delayed draw term loan principal, respectively, while undrawn. The delayed draw term loan is owned by the Company as indicated in note (5) above.

As of September 30, 2016, investments—non-controlled/non-affiliated, at fair value consisted of the following:

 

Type

   Amortized Cost      Fair Value      % of Fair Value  

First Lien Debt

   $ 278,230       $ 275,285         94.54 % 

Second Lien Debt

     15,916         15,900         5.46   
  

 

 

    

 

 

    

 

 

 

Total

   $ 294,146       $ 291,185         100.00 % 
  

 

 

    

 

 

    

 

 

 

 

10


Table of Contents

NF INVESTMENT CORP.

CONSOLIDATED SCHEDULE OF INVESTMENTS (continued)

As of September 30, 2016

(dollar amounts in thousands)

(unaudited)

 

The industrial composition of investments—non-controlled/non-affiliated at fair value as of September 30, 2016 was as follows:

 

Industry

   Amortized Cost      Fair Value      % of Fair Value  

Aerospace & Defense

   $ 12,506       $ 12,233         4.20

Automotive

     10,461         10,520         3.61   

Banking, Finance, Insurance & Real Estate

     25,497         25,622         8.80   

Business Services

     31,245         29,158         10.01   

Capital Equipment

     11,140         11,229         3.86   

Chemicals, Plastics & Rubber

     16,914         17,030         5.85   

Construction & Building

     4,273         4,308         1.48   

Consumer Services

     15,831         16,118         5.54   

Containers, Packaging & Glass

     17,452         17,027         5.85   

Durable Consumer Goods

     12,374         12,446         4.27   

Energy: Electricity

     7,230         7,237         2.48   

Energy: Oil & Gas

     3,157         3,065         1.05   

Environmental Industries

     6,135         6,140         2.11   

Forest Products & Paper

     3,500         3,578         1.23   

Healthcare & Pharmaceuticals

     21,395         21,612         7.42   

High Tech Industries

     26,237         26,480         9.09   

Hotel, Gaming & Leisure

     6,674         6,507         2.23   

Media: Advertising, Printing & Publishing

     10,162         10,276         3.53   

Metals & Mining

     3,419         3,422         1.18   

Non-durable Consumer Goods

     9,394         9,079         3.12   

Retail

     3,872         3,846         1.32   

Software

     1,234         1,239         0.43   

Telecommunications

     16,329         16,206         5.57   

Transportation: Cargo

     4,833         4,760         1.63   

Transportation: Consumer

     6,709         6,875         2.36   

Wholesale

     6,173         5,172         1.78   
  

 

 

    

 

 

    

 

 

 

Total

   $ 294,146       $ 291,185         100.00
  

 

 

    

 

 

    

 

 

 

The geographical composition of investments – non-controlled/non-affiliated at fair value as of September 30, 2016 was as follows:

 

Geography

   Amortized Cost      Fair Value      % of Fair Value  

United Kingdom

   $ 5,968       $ 5,888         2.02

United States

     288,178         285,297         97.98   
  

 

 

    

 

 

    

 

 

 

Total

   $ 294,146       $ 291,185         100.00
  

 

 

    

 

 

    

 

 

 

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

 

11


Table of Contents

NF INVESTMENT CORP.

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 (90.62%)

             

Access CIG, LLC (2) (3) (5)

  Business Services     6.00     10/17/2021      $ 6,141      $ 6,095      $ 6,064        4.61

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

  High Tech Industries     6.25        1/28/2022        4,069        4,014        3,957        3.01   

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

  Containers, Packaging &
Glass
    5.25        5/12/2020        3,803        3,800        3,727        2.83   

Anaren, Inc. (2) (3) (4)

  Telecommunications     5.50        2/18/2021        3,203        3,178        3,138        2.39   

APX Group, Inc. (5) (8)

  Consumer Services     6.38        12/1/2019        2,500        2,437        2,394        1.82   

Aquilex LLC (2) (3) (4)

  Environmental
Industries
    5.00        12/31/2020        3,430        3,426        3,328        2.53   

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

  Durable Consumer
Goods
    6.50        6/24/2017        2,699        2,682        2,665        2.03   

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

  Transportation:
Consumer
    6.50        6/26/2020        3,164        3,037        3,120        2.37   

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

  Construction & Building     6.35        8/29/2020        1,802        1,790        1,774        1.35   

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

  Transportation: Cargo     5.50        10/7/2021        4,938        4,896        4,783        3.64   

Captive Resources Midco
LLC (2) (3) (4) (10)

  Banking, Finance,
Insurance & Real Estate
    6.75        6/30/2020        4,193        4,127        4,128        3.14   

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

  Hotel, Gaming &
Leisure
    5.50        9/18/2020        2,470        2,452        2,384        1.81   

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

  Consumer Services     6.25        10/6/2020        4,950        4,889        4,777        3.63   

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

  Construction & Building     7.00        10/23/2021        2,000        1,968        1,979        1.50   

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

  Utilities: Electric     5.25        7/10/2019        1,970        1,964        1,901        1.44   

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

  Automotive     5.75        4/7/2020        3,651        3,631        3,549        2.70   

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

  Telecommunications     6.75        7/1/2021        1,990        1,803        1,876        1.43   

EP Minerals, LLC (2) (3) (4)

  Metals & Mining     5.50        8/20/2020        3,456        3,443        3,389        2.58   

FCX Holdings Corp. (2) (3) (4)

  Capital Equipment     5.50        8/4/2020        3,743        3,741        3,674        2.79   

Genex Holdings, Inc. (2) (3) (4)

  Banking, Finance,
Insurance & Real Estate
    5.25        5/30/2021        2,652        2,641        2,602        1.98   

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

  Energy: Electricity     6.50        11/13/2021        3,400        3,370        3,350        2.54   

Hummel Station LLC (2) (3) (5)

  Energy: Electricity     7.00        10/27/2022        4,000        3,843        3,915        2.98   

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

  Non-durable Consumer
Goods
    5.25        5/1/2021        4,762        4,724        4,606        3.50   

International Medical Group,
Inc. (2) (3) (5) (9)

  Banking, Finance,
Insurance & Real Estate
    5.75        10/30/2020        5,000        4,903        5,046        3.84   

Integro Parent Inc (2) (3) (4)

  Banking, Finance,
Insurance & Real Estate
    6.75        10/30/2022        5,000        4,815        4,839        3.68   

InterWrap Corp.
(Canada) (2) (3) (4) (8)

  Construction & Building     5.25        11/1/2018        1,910        1,900        1,877        1.43   

Jackson Hewitt Inc. (2) (3) (4)

  Retail     8.00        7/30/2020        2,200        2,159        2,170        1.65   

Language Line, LLC (2) (3) (4)

  Telecommunications     6.50        7/7/2021        4,779        4,735        4,739        3.60   

Ministry Brands, LLC (2) (3) (11) (14)

  High Tech Industries     8.00        11/20/2021        3,742        3,703        3,607        2.74   

Ministry Brands, LLC (2) (3) (9) (15)

  High Tech Industries     8.00        11/20/2021        919        905        915        0.70   

MSX International, Inc. (2) (3) (4)

  Automotive     6.00        8/21/2020        2,085        2,069        2,023        1.54   

National Technical Systems,
Inc.(2) (3) (12)

  Aerospace & Defense     7.00        6/12/2021        5,985        5,909        5,751        4.37   

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

  Energy: Oil & Gas     6.50        10/3/2019        3,325        3,280        3,172        2.41   

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

  Business Services     6.00        6/2/2022        4,378        4,316        4,285        3.26   

Pelican Products, Inc. (2) (3) (4)

  Containers, Packaging &
Glass
    5.25        4/11/2020        2,990        2,979        2,848        2.16   

Phillips-Medisize
Corporation (2) (3) (4)

  Chemicals, Plastics &
Rubber
    4.75        6/16/2021        2,463        2,442        2,392        1.82   

 

12


Table of Contents

NF INVESTMENT CORP.

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 (90.62%) (continued)

             

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

  Hotel, Gaming & Leisure     7.00     5/12/2021      $ 4,378      $ 4,340      $ 4,240        3.22

Product Quest Manufacturing
LLC (2) (3) (4) (9)

  Containers, Packaging &
Glass
    6.75        9/9/2020        5,000        4,907        4,966        3.78   

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

  Wholesale     5.50        1/28/2020        4,315        4,286        3,850        2.93   

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

  Environmental Industries     5.75        12/5/2020        2,970        2,945        2,906        2.21   

PSI Services LLC (2) (3) (4) (9)

  Business Services     8.00        2/27/2021        4,600        4,482        4,691        3.57   

RCHP, Inc. (Regionalcare) (2) (3) (4)

  Healthcare &
Pharmaceuticals
    6.00        4/23/2019        6,537        6,489        6,406        4.87   

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

  Telecommunications     5.75        12/10/2020        3,609        3,582        3,504        2.66   

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

  Telecommunications     6.25        12/10/2020        3,002        2,976        2,931        2.23   

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

  Healthcare &
Pharmaceuticals
    5.50        3/10/2021        4,421        4,387        4,200        3.19   

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

  High Tech Industries     5.00        10/18/2019        3,197        3,189        3,142        2.39   

TASC, Inc. (2) (3) (4) (8)

  Aerospace & Defense     7.00        5/23/2020        4,588        4,428        4,479        3.41   

Teaching Strategies, LLC (2) (3) (4)

  Media: Advertising,
Printing & Publishing
    6.00        10/1/2019        4,681        4,665        4,645        3.53   

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

  Non-durable Consumer
Goods
    6.00        10/11/2020        3,980        3,930        3,842        2.92   

The SI Organization, Inc (2) (3) (4)

  Aerospace & Defense     5.75        11/23/2019        4,389        4,358        4,362        3.32   

The Topps Company, Inc.(2) (3) (4)

  Non-durable Consumer
Goods
    7.25        10/2/2018        3,988        3,964        3,988        3.03   

Transilwrap Company, Inc. (2) (3) (4)

  Chemicals, Plastics &
Rubber
    5.00        11/22/2019        4,879        4,872        4,783        3.64   

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

  Business Services     6.75        9/30/2019        6,562        6,497        5,810        4.42   

U.S. Farathane, LLC (2) (3) (4)

  Automotive     6.75        12/23/2021        3,183        3,126        3,135        2.38   

Vetcor Professional Practices
LLC (2) (3) (4) (13)

  Consumer Services     7.00        4/20/2021        2,111        2,092        2,101        1.60   

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

  Business Services     5.75        12/20/2019        3,151        3,129        3,147        2.39   

Vistage Worldwide, Inc. (2) (3) (4)

  Business Services     6.50        8/19/2021        4,969        4,922        4,918        3.74   

Vitera Healthcare Solutions
LLC. (2) (3) (5)

  Healthcare &
Pharmaceuticals
    6.00        11/4/2020        3,303        3,279        3,187        2.42   

W/S Packaging Group, Inc. (2) (3) (4)

  Containers, Packaging &
Glass
    5.00        8/9/2019        4,091        4,080        3,996        3.04   

Watchfire Enterprises, Inc(2) (3) (4)

  Media: Advertising,
Printing & Publishing
    5.00        10/2/2020        3,421        3,412        3,348        2.55   

Zest Holdings, LLC (2) (3) (4)

  Durable Consumer
Goods
    5.00        8/16/2020        4,091        4,091        4,050        3.08   
         

 

 

   

 

 

   

 

 

 

First Lien Debt Total

          $ 224,494      $ 221,371        168.32
         

 

 

   

 

 

   

 

 

 

Second Lien Debt (9.38%)

             

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

  High Tech Industries     10.00     1/30/2023      $ 2,000      $ 1,982      $ 1,917        1.46

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

  Business Services     8.00        8/13/2021        2,000        1,987        1,865        1.42   

AmeriLife Group, LLC (2) (3) (5)

  Banking, Finance,
Insurance & Real Estate
    9.75        1/10/2023        2,000        1,962        1,960        1.49   

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

  Healthcare &
Pharmaceuticals
    12.00        6/23/2022        1,000        971        973        0.74   

Berlin Packaging L.L.C (2) (3) (5)

  Containers, Packaging &
Glass
    7.75        10/1/2022        1,800        1,788        1,701        1.29   

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

  Chemicals, Plastics &
Rubber
    9.25        2/5/2023        2,000        1,973        1,892        1.44   

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

  Healthcare &
Pharmaceuticals
    9.00        6/1/2022        2,100        2,082        2,066        1.57   

 

13


Table of Contents

NF INVESTMENT CORP.

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 (9.38%) (continued)

             

DiversiTech Corporation (2) (3) (5)

    Capital Equipment        9.00        11/19/2022      $ 1,600      $ 1,580      $ 1,549        1.18   

Genex Holdings, Inc. (2) (3) (4)

   
 
Banking, Finance,
Insurance & Real Estate
  
  
    8.75        5/30/2022        1,000        988        925        0.70   

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

    Retail        8.75        4/28/2023        2,100        2,080        2,020        1.54   

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

    Aerospace & Defense        7.75        6/19/2022        800        796        688        0.52   

MRI Software LLC (2) (3) (4)

    Software        9.00        6/23/2022        1,250        1,233        1,210        0.92   

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

   
 
Chemicals, Plastics &
Rubber
  
  
    8.25        6/16/2022        1,500        1,488        1,410        1.07   

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

    Consumer Services        9.75        7/1/2022        1,300        1,282        1,217        0.93   

TASC, Inc. (4) (8)

    Aerospace & Defense        12.00        5/21/2021        1,500        1,473        1,519        1.15   
         

 

 

   

 

 

   

 

 

 

Second Lien Debt Total

          $ 23,665      $ 22,912        17.42
         

 

 

   

 

 

   

 

 

 

Total Investments—non-controlled/non-affiliated

        $ 248,159      $ 244,283        185.74
       

 

 

   

 

 

   

 

 

 

 

(1) Unless otherwise indicated, issuers of debt investments held by NFIC are domiciled in the United States. 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.
(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, 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 5, Borrowings). Accordingly, such assets are not available to creditors of the Company.
(5) Denotes that all or a portion of the assets are owned by the Company. The Company has entered into the Facility. The lender of the Facility has a first lien security interest in substantially all of the portfolio investments held by the Company (see Note 5, Borrowings). Accordingly, such assets are not available to creditors of the Borrower Sub.
(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.
(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) 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.
(10) Captive Resources Midco, LLC has an undrawn delayed draw term loan of $446 par value at LIBOR + 5.75%, 1.00% floor, and an undrawn revolver of $268 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. The delayed draw term loan and revolver are both owned by the Company as indicated in note (5) above.
(11) 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.
(12) National Technical Systems, Inc. has an undrawn delayed draw term loan of $1,031 par value at LIBOR + 6.00%, 1.00% floor, and an undrawn revolver of $469 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. The delayed draw term loan and revolver are both owned by the Company as indicated in note (5) above. The term loan of $5,985 par value is owned by the Borrower Sub as indicated in note (4) above.
(13) Vetcor Professional Practices LLC has an undrawn delayed draw term loan of $281 par value at LIBOR + 6.00%, 1.00% floor. An unused rate of 1.00% is charged on the principal while undrawn. The delayed draw term loan of $519 par value is owned by the Company as indicated in note (5) above. The term loan of $1,592 par value is owned by the Borrower Sub as indicated in note (4) above.

 

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Table of Contents

NF INVESTMENT CORP.

CONSOLIDATED SCHEDULE OF INVESTMENTS (continued)

As of December 31, 2015

(dollar amounts in thousands)

 

(14) Ministry Brands, LLC has an undrawn first out delayed draw term loan of $258 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 first out delayed draw term loan of $942 par value is owned by the Company as indicated in note (5) above. The first out term loan of $2,800 par value is owned by the Borrower Sub as indicated in note (4) above.
(15) Ministry Brands, LLC has an undrawn last out delayed draw term loan of $81 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 last out delayed draw term loan of $294 par value and last out term loan of $625 par value are both owned by the Company as indicated in note (5) above.

As of December 31, 2015, investments—non-controlled/non-affiliated, at fair value consisted of the following:

 

Type

   Amortized Cost      Fair Value      % of Fair Value  

First Lien Debt

   $ 224,494       $ 221,371         90.62

Second Lien Debt

     23,665         22,912         9.38   
  

 

 

    

 

 

    

 

 

 

Total

   $ 248,159       $ 244,283         100.00
  

 

 

    

 

 

    

 

 

 

The industrial composition of investments—non-controlled/non-affiliated at fair value as of December 31, 2015 was as follows:

 

Industry

   Amortized Cost      Fair Value      % of Fair Value  

Aerospace & Defense

   $ 16,964       $ 16,799         6.88

Automotive

     8,826         8,707         3.56   

Banking, Finance, Insurance & Real Estate

     19,436         19,500         7.98   

Business Services

     31,428         30,780         12.60   

Capital Equipment

     5,321         5,223         2.14   

Chemicals, Plastics & Rubber

     10,775         10,477         4.29   

Construction & Building

     5,658         5,630         2.30   

Consumer Services

     10,700         10,489         4.29   

Containers, Packaging & Glass

     17,554         17,238         7.06   

Durable Consumer Goods

     6,773         6,715         2.75   

Energy: Electricity

     7,213         7,265         2.97   

Energy: Oil & Gas

     3,280         3,172         1.30   

Environmental Industries

     6,371         6,234         2.55   

Healthcare & Pharmaceuticals

     17,208         16,832         6.89   

High Tech Industries

     13,793         13,538         5.54   

Hotel, Gaming & Leisure

     6,792         6,624         2.71   

Media: Advertising, Printing & Publishing

     8,077         7,993         3.27   

Metals & Mining

     3,443         3,389         1.39   

Non-durable Consumer Goods

     12,618         12,436         5.09   

Retail

     4,239         4,190         1.71   

Software

     1,233         1,210         0.50   

Telecommunications

     16,274         16,188         6.63   

Transportation: Cargo

     4,896         4,783         1.96   

Transportation: Consumer

     3,037         3,120         1.28   

Utilities: Electric

     1,964         1,901         0.78   

Wholesale

     4,286         3,850         1.58   
  

 

 

    

 

 

    

 

 

 

Total

   $ 248,159       $ 244,283         100.00
  

 

 

    

 

 

    

 

 

 

 

15


Table of Contents

NF INVESTMENT CORP.

CONSOLIDATED SCHEDULE OF INVESTMENTS (continued)

As of December 31, 2015

(dollar amounts in thousands)

 

The geographical composition of investments—non-controlled/non-affiliated at fair value as of December 31, 2015 was as follows:

 

Geography

   Amortized Cost      Fair Value      % of Fair Value  

Canada

   $ 1,900       $ 1,877         0.77

Ireland

     2,082         2,066         0.84

United Kingdom

     6,409         6,319         2.59

United States

     237,768         234,021         95.80
  

 

 

    

 

 

    

 

 

 

Total

   $ 248,159       $ 244,283         100.00
  

 

 

    

 

 

    

 

 

 

 

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

 

16


Table of Contents

NF INVESTMENT CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

As of September 30, 2016

(dollar amounts in thousands, except per share data)

1. ORGANIZATION

NF Investment Corp. (“NFIC” or the “Company”) is a Maryland corporation formed on November 1, 2012, and structured as an externally managed, non-diversified closed-end investment company. NFIC 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”). NFIC 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”).

NFIC’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”). NFIC 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”), subject to, in the case of second lien senior secured loans, a limit of 10% of NFIC’s total assets. 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. In addition, NFIC may invest up to 10% of its total assets in high yield securities whose risk profile, as determined at the sole discretion of Carlyle GMS Investment Management L.L.C. (the “Investment Adviser”), is similar to or better than the risk profile of Middle Market Senior Loans. NFIC expects that the composition of its portfolio will change over time given the Investment Adviser’s view on, among other things, the economic and credit environment (including with respect to interest rates) in which the Company is operating.

On August 6, 2013, NFIC completed its initial closing of capital commitments (the “Initial Closing”) and subsequently commenced substantial investment operations.

NFIC is an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012. NFIC expects to remain an emerging growth company because it does not intend to pursue an initial public offering.

NFIC SPV LLC (the “Borrower Sub”) is a Delaware limited liability company that was formed on June 18, 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, June 18, 2013.

NFIC 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 NFIC 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 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.

 

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Table of Contents

Upon the earlier of August 6, 2018 and the completion of an initial public offering by Carlyle GMS Finance, Inc. (“Carlyle GMS Finance”) (the other BDC managed by the Investment Adviser) that results in an unaffiliated public float of at least 15% of its aggregate capital commitments (a “Qualified IPO”), the Board of Directors (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 the Company. These efforts may include cash tender offers from time to time as proceeds become available. Refer to sec.gov website for further information on Carlyle GMS Finance.

As a BDC, NFIC 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).

NFIC 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, NFIC 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, NFIC generally does not have to pay corporate level taxes on any income that it distributes to stockholders, provided that NFIC 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 NFIC and its wholly-owned subsidiary, the Borrower Sub. 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 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

 

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accounting policies. Assumptions and estimates regarding the valuation of investments and their resulting impact on management 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 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.

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.

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

 

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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 and Facility Related Costs, Expenses and Deferred Financing Costs (See Note 5, Borrowings)

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 5. The amortization of such costs is included in credit facility fees in the accompanying Consolidated Statements of Operations.

Organization and Offering Costs

The Company agreed to reimburse the Investment Adviser for initial organization and offering costs incurred on behalf of NFIC up to $750. As of September 30, 2016 and December 31, 2015, $663 of organization and offering costs had been incurred by NFIC since inception. The $663 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, NFIC 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, NFIC must meet certain minimum distribution, source-of-income and asset diversification requirements. If such requirements are met, then NFIC 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 NFIC 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, NFIC 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, NFIC is subject to a 4% nondeductible federal excise tax on undistributed income unless NFIC 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 NFIC that is subject to corporate income tax is considered to have been distributed. NFIC intends to make sufficient distributions each taxable year to satisfy the excise distribution requirements.

 

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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 is a disregarded entity for tax purposes and is consolidated with the tax return of NFIC.

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 distributions to its common stockholders. Dividends and distributions to common stockholders are recorded on the record date and paid in cash. 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.

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 the new accounting guidance and it did not have a material impact on the Company’s consolidated financial statements.

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 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 Accounting Standards Codification (“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

 

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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 NFIC’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 portfolio each quarter (such that each non-traded investment 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;

 

    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.

 

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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, collateralized loan obligations, 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.

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

     —         $ 2,547       $ 272,738       $ 275,285   

Second Lien Debt

     —           —           15,900         15,900   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

     —         $ 2,547       $ 288,638       $ 291,185   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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     December 31, 2015  
     Level I      Level II      Level III      Total  

Assets

           

First Lien Debt

     —         $ 2,394       $ 218,977       $ 221,371   

Second Lien Debt

     —           —           22,912         22,912   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

     —         $ 2,394       $ 241,889       $ 244,283   
  

 

 

    

 

 

    

 

 

    

 

 

 

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
    Total  

Balance, beginning of period

   $ 251,674      $ 20,588      $ 272,262   

Purchases

     36,140        488        36,628   

Sales

     (322     (1,576     (1,898

Paydowns

     (16,128     (4,124     (20,252

Realized gains (losses)

     28        (5     23   

Accretion of discount

     372        51        423   

Net change in unrealized appreciation (depreciation)

     974        478        1,452   
  

 

 

   

 

 

   

 

 

 

Balance, end of period

   $ 272,738      $ 15,900      $ 288,638   
  

 

 

   

 

 

   

 

 

 

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

   $ 1,171      $ 484      $ 1,655   
  

 

 

   

 

 

   

 

 

 

 

     Financial Assets
For the nine month period ended

September 30, 2016
 
     First Lien
Debt
    Second
Lien Debt
    Total  

Balance, beginning of period

   $ 218,977      $ 22,912      $ 241,889   

Purchases

     84,438        488        84,926   

Sales

     (3,507     (1,576     (5,083

Paydowns

     (27,989     (6,746     (34,735

Realized gains (losses)

     61        (5     56   

Accretion of discount

     723        90        813   

Net change in unrealized appreciation (depreciation)

     35        737        772   
  

 

 

   

 

 

   

 

 

 

Balance, end of period

   $ 272,738      $ 15,900      $ 288,638   
  

 

 

   

 

 

   

 

 

 

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

   $ (212   $ 614      $ 402   
  

 

 

   

 

 

   

 

 

 

 

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     Financial Assets
For the three month period ended

September 30, 2015
 
     First Lien
Debt
    Second
Lien Debt
    Total  

Balance, beginning of period

   $ 199,004      $ 20,736      $ 219,740   

Purchases

     20,485        1,962        22,447   

Paydowns

     (11,138     —          (11,138

Realized gains (losses)

     1        —          1   

Accretion of discount

     196        5        201   

Net change in unrealized appreciation (depreciation)

     157        (152     5   
  

 

 

   

 

 

   

 

 

 

Balance, end of period

   $ 208,705      $ 22,551      $ 231,256   
  

 

 

   

 

 

   

 

 

 

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

   $ 198      $ (152   $ 46   
  

 

 

   

 

 

   

 

 

 

 

     Financial Assets
For the nine month period ended

September 30, 2015
 
     First Lien
Debt
    Second
Lien Debt
     Total  

Balance, beginning of period

   $ 167,354      $ 12,328       $ 179,682   

Purchases

     72,304        10,102         82,406   

Paydowns

     (32,406     —           (32,406

Realized gains (losses)

     51        —           51   

Accretion of discount

     462        13         475   

Net change in unrealized appreciation (depreciation)

     940        108         1,048   
  

 

 

   

 

 

    

 

 

 

Balance, end of period

   $ 208,705      $ 22,551       $ 231,256   
  

 

 

   

 

 

    

 

 

 

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

   $ 835      $ 108       $ 943   
  

 

 

   

 

 

    

 

 

 

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

 

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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.

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        
          Low     High     Weighted
Average
 

Investments in First
Lien Debt

    $228,600      Discounted Cash Flow   Discount Rate     4.67     15.31     7.04
    40,125      Consensus Pricing   Indicative Quotes     95.75     100.38     98.72
    4,013      Income Approach   Discount Rate     14.87     14.87     14.87
    Market Approach   Comparable Multiple     4.93     5.42     5.17
 

 

 

           

Total First Lien Debt

    $272,738             
 

 

 

           

Investments in Second
Lien Debt

    $    9,942      Discounted Cash Flow   Discount Rate     6.90     11.26     9.33
    5,958      Consensus Pricing   Indicative Quotes     98.42     101.56     99.73
 

 

 

           

Total Second Lien Debt

    $  15,900             
 

 

 

           

Total Debt

    $288,638             
 

 

 

           

Total Level III
Investments

    $288,638             
 

 

 

           

 

    Fair Value as of
December 31,
2015
    Valuation Techniques     Significant
Unobservable
Inputs
    Range        
          Low     High     Weighted
Average
 

Investments in First
Lien Debt

    $164,534        Discounted Cash Flow        Discount Rate        5.09     13.37     7.67
    54,443        Consensus Pricing        Indicative Quote        96.50     99.38     98.07
 

 

 

           

Total First Lien Debt

    $218,977             
 

 

 

           

Investments in Second
Lien Debt

    $  14,350        Discounted Cash Flow        Discount Rate        9.37     11.99     10.56
    8,562        Consensus Pricing        Indicative Quotes        93.25     101.25     96.28
 

 

 

           

Total Second Lien Debt

    $  22,912             
 

 

 

           

Total Debt

    $241,889             
 

 

 

           

Total Level III
Investments

    $241,889             
 

 

 

           

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.

 

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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

   $ 127,621       $ 127,621       $ 118,194       $ 118,194   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 127,621       $ 127,621       $ 118,194       $ 118,194   
  

 

 

    

 

 

    

 

 

    

 

 

 

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 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 July 10, 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 July 10, 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 management fees from the Company.

The management fee is calculated and payable quarterly in arrears at an annual rate of 0.25% of the average value of the gross assets of the Company at the end of the two most recently completed fiscal quarters, excluding any cash and cash equivalents and including assets acquired with leverage from use of the Revolving Credit Facility and Facility (see Note 5, Borrowings). 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. The management fee for any partial quarter is prorated.

For the three month and nine month periods ended September 30, 2016, management fees were $179 and $496, respectively. For the three month and nine month periods ended September 30, 2015, management fees were $144 and $396, respectively.

As of September 30, 2016 and December 31, 2015, $179 and $151, respectively, was included in management fees payable in the accompanying Consolidated Statements of Assets and Liabilities.

 

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On July 10, 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 July 10, 2013, the Company’s Board of Directors approved an administration agreement (the “Administration Agreement”) between the Company and the Administrator. Pursuant to the Administration 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 July 10, 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, NFIC incurred $45 and $143, respectively, and for the three month and nine month periods ended September 30, 2015, NFIC incurred $45 and $139, 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, $30 and $35, respectively, was unpaid and included in administrative service fees payable in the accompanying Consolidated Statements of Assets and Liabilities.

Sub-Administration Agreements

On July 10, 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 July 10, 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 $61 and $181, respectively, were included in other general

 

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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 $55 and $141, respectively, were included in other general and administrative in the accompanying Consolidated Statements of Operations. As of September 30, 2016 and December 31, 2015, $60 was unpaid and included in other accrued expenses and liabilities in the accompanying Consolidated Statements of Assets and Liabilities.

Placement Fees

On July 10, 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 and 2015, TCG did not earn or receive any placement fees from NFIC stockholders in connection with the issuance or sale of the Company’s common stock.

Board of Directors

NFIC’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, NFIC incurred $24 and $111, respectively, and for the three month and nine month periods ended September 30, 2015, NFIC incurred $63 and $182, 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 no capital commitments to the Company.

5. 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 223.79% and 211.27%, respectively. During the nine month period ended September 30, 2016, there were secured borrowings of $31,850 under the Revolving Credit Facility and Facility and repayments of $22,423 under the Revolving Credit Facility and Facility. During the nine month period ended September 30, 2015, there were secured borrowings of $85,700 under the Revolving Credit Facility and Facility and repayments of $55,770 under the Revolving Credit Facility and Facility. As of September 30, 2016 and December 31, 2015, there were $127,621 and $118,194, respectively, in secured borrowings outstanding.

Revolving Credit Facility

The Borrower Sub closed on September 12, 2013 on the Revolving Credit Facility, which was subsequently amended on July 25, 2014 and further amended on November 13, 2015 (the “Second Amendment”). Advances under the Revolving Credit Facility first became available once the Borrower Sub held at least $10,500 of minimum equity in its assets. The Revolving Credit Facility provides for secured borrowings during the applicable revolving period up to an amount equal to the lesser of $120,000 (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 $262,500, subject to restrictions imposed on borrowings under the Investment Company Act and certain restrictions and conditions set

 

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forth in the Revolving Credit Facility, including adequate collateral to support such borrowings. The Revolving Credit Facility has a revolving period through the earlier of May 2, 2018 and the completion of a Qualified IPO by Carlyle GMS Finance (with two one-year extension options, subject to the Borrower Sub’s and the lenders’ consent) and a maturity date of the earlier of May 2, 2021 or the completion of a Qualified IPO by Carlyle GMS Finance (extendable in connection with an extension of the revolving period). Base rate 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 1.65% per year during the revolving period, with pre-determined future interest rate increases of 1.25%-2.15% over the three 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 1.00% 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). 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.

Related to the Second Amendment, which reduced the maximum commitments under the Revolving Credit Facility, $167 of deferred financing costs (representing the prorated financing costs related to the reduction in commitments) were immediately expensed on November 13, 2015 in lieu of continuing to amortize over the term of the Revolving Credit Facility.

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 27, 2014 on the Facility, which was subsequently amended on August 22, 2014, December 12, 2014 and further amended on August 31, 2016. The maximum principal amount of the Facility is $50,000, subject to availability under the Facility, which is based on certain advance rates multiplied by the value of the Company’s portfolio investments 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 $125,000 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 $10,000 limit for swingline loans and a $5,000 limit for letters of credit. The Company may borrow amounts in U.S. dollars, subject to the satisfaction of certain conditions, including certain collateral quality tests. The availability period under the Facility will terminate on May 2, 2018 or earlier under certain conditions specified in the Facility (the “Commitment Termination Date”) and the Facility will mature on March 27, 2020 (the “Maturity Date”). During the period from the Commitment Termination Date to the Maturity Date, 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. Amounts drawn under the Facility, including amounts drawn in respect of letters of

 

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credit, will bear interest at either (a) LIBOR plus an applicable spread of (i) prior to the Commitment Termination Date, 2.25% and (ii) following the Commitment Termination Date, 2.50%, or (b) 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 (i) prior to the Commitment Termination Date, 1.00% and (ii) following the Commitment Termination Date, 1.50%. 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 0.50% 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.

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 $34,000). The pledge of unfunded investor equity capital commitments was subject to release upon the earlier of (a) the date eligible investments held by the Company are equal to or greater than $62,500 and the Facility’s borrowing base equity test is satisfied and (b) the date the borrower has received equity capital contributions in an amount equal to $34,000. Such eligible investments and shareholder equity thresholds have been satisfied as of September 30, 2016 and December 31, 2015. The Facility includes customary covenants, including certain financial covenants related to asset coverage, shareholders’ equity, liquidity and interest coverage, 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.

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

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

   $ 120,000       $ 88,121       $ 31,879       $ 4,099   

Facility

     50,000         39,500         10,500         10,500   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 170,000       $ 127,621       $ 42,379       $ 14,599   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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

Revolving Credit Facility

   $ 120,000       $ 87,194       $ 32,806       $ 2,753   

Facility

     50,000         31,000         19,000         10,526   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 170,000       $ 118,194       $ 51,806       $ 13,279   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(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, $526 and $417, respectively, of interest expense, $45 and $61, respectively, of unused commitment fees and $19 and $19, 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,

 

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the weighted average interest rate was 2.32% and 2.26%, respectively, and average principal debt outstanding was $124,446 and $117,732, respectively. For the three month and nine month periods ended September 30, 2015, the weighted average interest rate was 1.94% and 1.94%, respectively, and average principal debt outstanding was $108,546 and $98,052, respectively. As of September 30, 2016 and December 31, 2015, the interest rate was 2.40% and 2.04%, 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

  $ 742      $ 539      $ 2,033      $ 1,446   

Facility unused commitment fee

    56        99        185        334   

Amortization of deferred financing costs

    172        89        342        282   

Other fees

    17        18        51        50   
 

 

 

   

 

 

   

 

 

   

 

 

 

Total interest expense and credit facility fees

  $ 987      $ 745      $ 2,611      $ 2,112   
 

 

 

   

 

 

   

 

 

   

 

 

 

Cash paid for interest expense

  $ 690      $ 482      $ 1,920      $ 1,298   

6. COMMITMENTS AND CONTINGENCIES

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

 

     Secured Borrowings  

Payment Due by Period

   September 30, 2016      December 31, 2015  

Less than 1 Year

   $ —         $ —     

1-3 Years

     —           —     

3-5 Years

     127,621         31,000   

More than 5 Years

     —           87,194   
  

 

 

    

 

 

 

Total

   $ 127,621       $ 118,194   
  

 

 

    

 

 

 

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 $190,077 in total capital commitments from stockholders, of which $28,540 and $53,540, respectively, was unfunded. As of September 30, 2016 and December 31, 2015, current directors had no capital commitments to the Company.

Upon the earlier of August 6, 2018 and the completion of a Qualified IPO by Carlyle GMS Finance, investors will be released from any further obligation under their capital commitments to purchase additional shares of common stock, subject to certain exceptions contained in their investment subscription agreements.

 

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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

   $ 4,020       $ 2,097   

Unfunded revolving term loan commitments

     1,412         737   
  

 

 

    

 

 

 

Total unfunded commitments

   $ 5,432       $ 2,834   
  

 

 

    

 

 

 

7. NET ASSETS

The Company has the authority to issue 200,000,000 shares of common stock, $0.01 per share par value.

During the nine month period ended September 30, 2016, the Company issued 1,292,072 shares for $25,000. The following table summarizes capital activity during the nine month period ended September 30, 2016:

 

   

 

 

Common Stock

    Capital
in
Excess
of Par
Value
    Offering
Costs
    Accumulated Net
Investment
Income (Loss)
    Accumulated
Net Realized
Gain (Loss)
on
Investments
    Accumulated Net
Unrealized
Appreciation
(Depreciation) on
Investments
    Total
Net
Assets
 
    Shares     Amount              

Balance, beginning of period

    6,864,244      $ 69      $ 135,956      $ (45   $ (638   $ 53      $ (3,876   $ 131,519   

Common stock issued

    1,292,072        13        24,987        —          —          —          —          25,000   

Net investment income (loss)

    —          —          —          —          10,485        —          —          10,485   

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

    —          —          —          —          —          56        —          56   

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

    —          —          —          —          —          —          915        915   

Dividends declared

    —          —          —          —          (9,995     —          —          (9,995
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance, end of period

    8,156,316      $ 82      $ 160,943      $ (45   $ (148   $ 109      $ (2,961   $ 157,980   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

During the nine month period ended September 30, 2015, the Company issued 1,795,023 shares for $35,582. The following table summarizes capital activity during the nine month period ended September 30, 2015:

 

          Capital
in
Excess
of Par
Value
                Offering
Costs
    Accumulated
Net
Investment
Income
(Loss)
    Accumulated
Net

Realized Gain
(Loss)
on Investments
    Accumulated
Net Unrealized
Appreciation
(Depreciation)
on Investments
    Total
Net
Assets
 
   

 

Common Stock

      Subscribed
But
Unissued
Shares
    Subscriptions
Receivable
           
    Shares     Amount                  

Balance, beginning of period

    4,618,564      $ 46      $ 91,478      $ —        $ —        $ (45   $ (856   $ —        $ (1,314   $ 89,309   

Common stock issued

    1,795,023        18        35,564        —          —          —          —          —          —          35,582   

Net investment income (loss)

    —          —          —          —          —          —          6,876        —          —          6,876   

Subscribed but unissued shares

    —          —          —          5,920        —          —          —          —          —          5,920   

Subscriptions receivable

    —          —          —          —          (5,920     —          —          —          —          (5,920

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

    —          —          —          —          —          —          —          51        —          51   

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

    —          —          —          —          —          —          —          —          1,042        1,042   

Dividends declared

    —          —          —          —          —          —          (6,399     —         —          (6,399
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance, end of period

    6,413,587      $ 64      $ 127,042      $ 5,920      $ (5,920   $ (45   $ (379   $ 51      $ (272   $ 126,461   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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The following table summarizes total shares issued and proceeds received related to capital subscriptions for the Company’s common stock during the nine month period ended September 30, 2016:

 

     Shares Issued      Proceeds Received  

March 11, 2016

     415,364       $ 8,000   

June 24, 2016

     467,290         9,000   

August 26, 2016

     409,418         8,000   
  

 

 

    

 

 

 

Total

     1,292,072       $ 25,000   
  

 

 

    

 

 

 

The following table summarizes total shares issued and proceeds received related to capital subscriptions for the Company’s common stock during the nine month period ended September 30, 2015:

 

     Shares Issued      Proceeds Received  

January 16, 2015

     203,045       $ 4,000   

February 26, 2015

     659,901         13,001   

May 1, 2015

     252,524         5,000   

May 22, 2015

     375,946         7,500   

June 25, 2015

     149,333         3,000   

August 21, 2015

     150,229         3,001   

September 30, 2015

     4,045         80   
  

 

 

    

 

 

 

Total

   $ 1,795,023       $ 35,582   
  

 

 

    

 

 

 

Subscribed but unissued shares are presented in equity with a deduction of subscriptions receivable until cash is received for a subscription. There were no subscribed but unissued shares as of September 30, 2016 and December 31, 2015.

Subscription transactions during the nine month periods ended September 30, 2016 and 2015 were executed at an offering price at a premium to net asset value due to the requirement to use prior quarter net asset value as offering price unless it would result in the Company selling shares of its common stock at a price below the current net asset value and also in order to effect a reallocation of organizational costs to subsequent investors. Such subscription transactions increased net asset value by $0.02 per share and $0.06 per share, respectively, for the nine month periods ended September 30, 2016 and 2015, respectively.

As of September 30, 2016 and December 31, 2015, four stockholders represented 97.3% of total net assets.

The Company computes earnings per common share in accordance with ASC 260, Earnings Per Share. Basic earnings per common share were calculated by dividing net increase (decrease) in net assets resulting from operations attributable to the Company by the weighted-average number of common shares outstanding for the period.

Basic and diluted earnings per common share 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
 

Net increase (decrease) in net assets resulting from operations

  $ 5,519      $ 2,766      $ 11,456      $ 7,969   

Weighted-average common shares outstanding

    7,907,105        6,326,307        7,396,124        5,734,473   
 

 

 

   

 

 

   

 

 

   

 

 

 

Basic and diluted earnings per common share

  $ 0.70      $ 0.44      $ 1.55      $ 1.39   
 

 

 

   

 

 

   

 

 

   

 

 

 

 

 

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The following table summarizes the Company’s dividends declared and payable since inception through September 30, 2016:

 

Date Declared

   Record Date    Payment Date    Per Share
Amount
     Total
Amount
 

March 13, 2014

   March 31, 2014    April 14, 2014    $ 0.04       $ 128   

June 26, 2014

   June 30, 2014    July 14, 2014    $ 0.12       $ 383   

September 12, 2014

   September 18, 2014    October 9, 2014    $ 0.24       $ 825   

December 19, 2014

   December 29, 2014    January 26, 2015    $ 0.27       $ 1,247   

March 11, 2015

   March 13, 2015    April 17, 2015    $ 0.30       $ 1,645   

June 24, 2015

   June 30, 2015    July 22, 2015    $ 0.35       $ 2,191   

September 24, 2015

   September 24, 2015    October 22, 2015    $ 0.40       $ 2,563   

December 29, 2015

   December 29, 2015    January 22, 2016    $ 0.47       $ 3,226   

March 10, 2016

   March 14, 2016    April 22, 2016    $ 0.44       $ 3,203   

June 8, 2016

   June 8, 2016    July 22, 2016    $ 0.44       $ 3,203   

September 28, 2016

   September 28, 2016    October 24, 2016    $ 0.44       $ 3,589   

8. CONSOLIDATED FINANCIAL HIGHLIGHTS

The following is a schedule of consolidated financial highlights for the nine month periods ended September 30, 2016 and 2015:

 

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

Per Share Data:

   

Net asset value per share, beginning of period

  $ 19.16      $ 19.34   

Net investment income (loss) (1)

    1.42        1.20   

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

    0.09        0.17   
 

 

 

   

 

 

 

Net increase (decrease) in net assets resulting from operations

    1.51        1.37   
 

 

 

   

 

 

 

Dividends declared (2)

    (1.32     (1.05

Effect of subscription offering price (3)

    0.02        0.06   
 

 

 

   

 

 

 

Net asset value per share, end of period

  $ 19.37      $ 19.72   
 

 

 

   

 

 

 

Number of shares outstanding, end of period

    8,156,316        6,413,587   

Total return (4)

    7.99     7.39

Net assets, end of period

  $ 157,980      $ 126,461   

Ratio to average net assets (5):

   

Operating expenses

    2.95     3.10

Net investment income (loss)

    7.28     5.95

Interest expense and credit facility fees

    1.81     1.83

Ratios/Supplemental Data:

   

Asset coverage, end of period

    223.79     214.10

Portfolio turnover

    15.33     15.40

Total committed capital, end of period

  $ 190,077      $ 190,077   

Ratio of total contributed capital to total committed capital, end of period

    84.98     67.14

Weighted-average shares outstanding

    7,396,124        5,734,473   

 

(1) Net investment income (loss) per share was calculated as net investment income (loss) for the period divided by the weighted average number of shares outstanding for the period.
(2) Dividends declared per share was calculated as the sum of dividends declared during the period divided by the number of shares outstanding at each respective quarter-end date (refer to Note 7).

 

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(3) Increase is due to offering price of subscriptions during the period (refer to Note 7).
(4) Total return (not annualized) is based on the change in net asset value per share during the period plus the declared dividends, divided by the beginning net asset value for the period. Total return for the nine month periods ended September 30, 2016 and 2015 is inclusive of $0.02 and $0.06, respectively, per share increase in net asset value for the periods related to the offering price of subscriptions. Excluding the effects of the higher offering price of subscriptions, total return (not annualized) would have been 7.88% and 7.08%, respectively (refer to Note 7).
(5) These ratios to average net assets have not been annualized.

9. LITIGATION

The Company may become party to certain lawsuits in the ordinary course of business. The Company does not believe that the outcome of current matters, if any, will materially impact the Company or its consolidated financial statements. As of September 30, 2016 and December 31, 2015, the Company was not subject to any material legal proceedings, nor, to the Company’s knowledge, is any material legal proceeding threatened against the Company.

In addition, portfolio investments of the Company could be the subject of litigation or regulatory investigations in the ordinary course of business. The Company does not believe that the outcome of any current contingent liabilities of its portfolio investments, if any, will materially affect the Company or these consolidated financial statements.

10. TAX

The Company has not recorded a liability for any uncertain tax positions pursuant to the provisions of ASC 740, Income Taxes, as of September 30, 2016 and December 31, 2015.

In the normal course of business, the Company is subject to examination by federal and certain state, local and foreign tax regulators. As of September 30, 2016 and December 31, 2015, the Company had filed tax returns and therefore is subject to examination.

The Company’s taxable income for each period is an estimate and will not be finally determined until the Company files its tax return for each year. Therefore, the final taxable income, and the taxable income earned in each period and carried forward for distribution in the following period, may be different than this estimate. The estimated tax character of dividends declared for the nine month periods ended September 30, 2016 and 2015 was as follows:

 

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

Ordinary income

   $ 9,995       $ 6,399   

Tax return of capital

   $ —         $ —     

11. SUBSEQUENT EVENTS

Subsequent events have been evaluated through the date the consolidated financial statements were issued. There have been no subsequent events that require recognition or disclosure through the date the consolidated financial statements were issued, except as disclosed below.

Subsequent to September 30, 2016, the Company borrowed $3,000 under the Revolving Credit Facility to fund investment acquisitions. The Company also voluntarily repaid $8,493 under the Revolving Credit Facility.

 

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

(dollar amounts in thousands, except per share data, unless otherwise indicated)

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

We have included or incorporated by reference in this Form 10-Q, and from time to time our management may make, “forward-looking statements”. These forward-looking statements are not historical facts, but instead relate to future events or the future performance or financial condition of NF Investment Corp. (“we,” “us,” “our,” “NFIC,” or the “Company”). These statements are based on current expectations, estimates and projections about us, our current or prospective portfolio investments, our industry, our beliefs, and our assumptions. The forward-looking statements contained in this Form 10-Q and the documents incorporated by reference herein involve a number of risks and uncertainties, including statements concerning:

 

    our, or our portfolio companies’, future business, operations, operating results or prospects;

 

    the return or impact of current and future investments;

 

    the impact of a protracted decline in the liquidity of credit markets on our business;

 

    the impact of fluctuations in interest rates on our business;

 

    the impact of changes in laws or regulations (including the interpretation thereof) governing our operations or the operations of our portfolio companies;

 

    the valuation of our investments in portfolio companies, particularly those having no liquid trading market;

 

    our ability to recover unrealized losses;

 

    market conditions and our ability to access alternative debt markets and additional debt and equity capital;

 

    our contractual arrangements and relationships with third parties;

 

    the general economy and its impact on the industries in which we invest;

 

    the financial condition of and ability of our current and prospective portfolio companies to achieve their objectives;

 

    our expected financings and investments;

 

    the adequacy of our cash resources and working capital;

 

    the timing, form and amount of any dividend distributions;

 

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

 

    the ability of our investment adviser to locate suitable investments for us and to monitor and administer our investments; and

 

    our intent to satisfy the requirements of a regulated investment company under Subchapter M of the Internal Revenue Code of 1986, as amended.

We use words such as “anticipates,” “believes,” “expects,” “intends,” “will,” “should,” “may” and similar expressions to identify forward-looking statements, although not all forward-looking statements include these words. Our actual results and condition could differ materially from those implied or expressed in the forward-looking statements for any reason, including the factors set forth in “Risk Factors” in Part I, Item 1A of our annual report on Form 10-K for the year ended December 31, 2015 and Part II, Item 1A of and elsewhere in this Form 10-Q.

We have based the forward-looking statements included in this Form 10-Q on information available to us on the date of this Form 10-Q, and we assume no obligation to update any such forward-looking statements.

 

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Although we undertake no obligation to revise or update any forward-looking statements, whether as a result of new information, future events or otherwise, you are advised to consult any additional disclosures that we may make directly to you or through reports that we have filed or in the future may file with the Securities and Exchange Commission (the “SEC”), including our annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K.

OVERVIEW

Management’s Discussion and Analysis should be read in conjunction with Part I, Item 1 of this Form 10-Q “Financial Statements.” This discussion contains forward-looking statements and involves numerous risks and uncertainties, including, but not limited to those described in Part I, Item 1A of our annual report on Form 10-K for the year ended December 31, 2015 and Part II, Item 1A of this Form 10-Q “Risk Factors.” Actual results may differ materially from those contained in any forward-looking statements.

NF Investment Corp. (“we”, “us”, “our”, “NFIC” or the “Company”) is a Maryland corporation formed on November 1, 2012, and structured as an externally managed, non-diversified closed-end investment company. NFIC 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”). NFIC 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”).

NFIC’s investment objective is to generate current income and capital appreciation primarily through debt investments in U.S. middle market companies, which we define as companies with approximately $10 million to $100 million of earnings before interest, taxes, depreciation and amortization (“EBITDA”). NFIC 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”), subject to, in the case of second lien senior secured loans, a limit of 10% of NFIC’s total assets. 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. In addition, NFIC may invest up to 10% of its total assets in high yield securities whose risk profile, as determined at the sole discretion of Carlyle GMS Investment Management L.L.C. (the “Investment Adviser”), is similar to or better than the risk profile of Middle Market Senior Loans. We expect that the composition of our portfolio will change over time given our Investment Adviser’s view on, among other things, the economic and credit environment (including with respect to interest rates) in which we are operating.

NFIC 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 NFIC 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 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.

Upon the earlier of August 6, 2018 and the completion of an initial public offering by Carlyle GMS Finance, Inc. (“Carlyle GMS Finance”) (the other BDC managed by the Investment Adviser) that results in an unaffiliated public float of at least 15% of its aggregate capital commitments (a “Qualified IPO”), the Board of Directors (subject to any necessary stockholder approvals and applicable requirements of the Investment Company Act)

 

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will use its best efforts to wind down and/or liquidate and dissolve the Company. These efforts may include cash tender offers from time to time as proceeds become available. Refer to sec.gov website for further information on Carlyle GMS Finance.

Investments

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

Revenue

We generate revenue primarily in the form of interest and fee income on debt investments we hold and capital gains, if any, on investments. Our debt investments generally have a stated term of five to eight years and generally bear interest at a floating rate usually determined on the basis of a benchmark such as LIBOR. Interest on these debt investments is generally paid quarterly. In some instances, we receive payments on our debt investments based on scheduled amortization of the outstanding balances. In addition, we receive repayments of some of our debt investments prior to their scheduled maturity date. The frequency or volume of these repayments fluctuates significantly from period to period. Our portfolio activity also reflects the proceeds of sales of securities. We may also generate revenue in the form of commitment, origination, amendment, structuring or due diligence fees, fees for providing managerial assistance and consulting fees.

Expenses

Our primary operating expenses include the payment of: (i) management fees to our Investment Adviser pursuant to an investment advisory agreement (the “Investment Advisory Agreement”) between us and our Investment Adviser; (ii) costs and other expenses and our allocable portion of overhead incurred by the Administrator in performing its administrative obligations under an administration agreement (the “Administration Agreement”) between us and our Administrator; and (iii) other operating expenses as detailed below:

 

    our initial organization costs and offering costs incurred prior to the filing of our election to be regulated as a BDC (the amount in excess of $750 to be paid by our Investment Adviser);

 

    the costs associated with the Private Offering;

 

    the costs of any other offerings of our common stock and other securities, if any;

 

    calculating individual asset values and our net asset value (including the cost and expenses of any independent valuation firms);

 

    expenses, including travel expenses, incurred by the Investment Adviser, or members of the Investment Adviser team managing our investments, or payable to third parties, performing due diligence on prospective portfolio companies and, if necessary, expenses of enforcing our rights;

 

    management fees payable under our Investment Advisory Agreement;

 

    certain costs and expenses relating to distributions paid on our shares;

 

    administration fees payable under our Administration Agreement and sub-administration agreements, including related expenses;

 

    debt service and other costs of borrowings or other financing arrangements;

 

    the allocated costs incurred by the Investment Adviser in providing managerial assistance to those portfolio companies that request it;

 

    amounts payable to third parties relating to, or associated with, making or holding investments;

 

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    the costs associated with subscriptions to data service, research-related subscriptions and expenses and quotation equipment and services used in making or holding investments;

 

    transfer agent and custodial fees;

 

    costs of hedging;

 

    commissions and other compensation payable to brokers or dealers;

 

    federal and state registration fees;

 

    any U.S. federal, state and local taxes, including any excise taxes;

 

    independent director fees and expenses;

 

    costs of preparing financial statements and maintaining books and records, costs of preparing tax returns, costs of Sarbanes-Oxley Act compliance and attestation and costs of filing reports or other documents with the SEC (or other regulatory bodies), and other reporting and compliance costs, including registration and listing fees, and the compensation of professionals responsible for the preparation or review of the foregoing;

 

    the costs of any reports, proxy statements or other notices to our stockholders (including printing and mailing costs), the costs of any stockholders’ meetings and the compensation of investor relations personnel responsible for the preparation of the foregoing and related matters;

 

    the costs of specialty and custom software for monitoring risk, compliance and overall portfolio, including any development costs incurred prior to the filing of our election to be regulated as a BDC;

 

    our fidelity bond;

 

    directors and officers/errors and omissions liability insurance, and any other insurance premiums;

 

    indemnification payments;

 

    direct fees and expenses associated with independent audits, agency, consulting and legal costs; and

 

    all other expenses incurred by us or the Administrator in connection with administering our business, including our allocable share of certain officers and their staff compensation.

We expect our general and administrative expenses to be relatively stable or to decline as a percentage of total assets during periods of asset growth and to increase during periods of asset declines.

PORTFOLIO AND INVESTMENT ACTIVITY

The fair value of our investments was approximately $291,185 comprised of 79 portfolio companies as of September 30, 2016. The fair value of our investments was approximately $244,283 comprised of 70 portfolio companies as of December 31, 2015.

 

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The Company’s investment activity for the three month periods ended September 30, 2016 and 2015 is presented below (information presented herein is at amortized cost unless otherwise indicated):

 

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

Investments—non-controlled/non-affiliated:

    

Total investments—non-controlled/non-affiliated, beginning of period

   $ 279,219      $ 222,414   

New investments purchased

     36,628        22,447   

Net accretion of discount on investments

     426        204   

Net realized gain (loss) on investments

     23        1   

Investments sold or repaid

     (22,150     (11,138
  

 

 

   

 

 

 

Total Investments—non-controlled/non-affiliated, end of period

   $ 294,146      $ 233,928   
  

 

 

   

 

 

 

Principal amount of investments funded:

    

First Lien Debt

   $ 36,491      $ 20,941   

Second Lien Debt

     500        2,000   
  

 

 

   

 

 

 

Total

   $ 36,991      $ 22,941   
  

 

 

   

 

 

 

Principal amount of investments sold or repaid:

    

First Lien Debt

   $ (16,370   $ (11,139

Second Lien Debt

     (5,725     —     
  

 

 

   

 

 

 

Total

   $ (22,095   $ (11,139
  

 

 

   

 

 

 

Number of new funded investments

     14        7   

Average new funded investment amount

   $ 2,616      $ 3,207   

Percentage of new funded debt investments at floating rates

     100     100

As of September 30, 2016 and December 31, 2015, investmentsnon-controlled/non-affiliated consisted of the following:

 

     September 30, 2016      December 31, 2015  
     Amortized
Cost
     Fair Value      Amortized
Cost
     Fair Value  

First Lien Debt

   $ 278,230       $ 275,285       $ 224,494       $ 221,371   

Second Lien Debt

     15,916         15,900         23,665         22,912   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 294,146       $ 291,185       $ 248,159       $ 244,283   
  

 

 

    

 

 

    

 

 

    

 

 

 

The weighted average yields (1) for our first and second lien debt, based on the amortized cost and fair value as of September 30, 2016 and December 31, 2015, were as follows:

 

     September 30, 2016     December 31, 2015  
     Amortized
Cost
    Fair Value     Amortized
Cost
    Fair Value  

First Lien Debt (excluding First Lien/Last Out)

     6.19     6.27     6.08     6.19

First Lien/Last Out Unitranche

     11.72     11.63     11.79     11.48
  

 

 

   

 

 

   

 

 

   

 

 

 

First Lien Debt Total

     6.62     6.69     6.47     6.56

Second Lien Debt

     9.18     9.18     9.33     9.64
  

 

 

   

 

 

   

 

 

   

 

 

 

First and Second Lien Debt Total

     6.76     6.82     6.74     6.85

 

(1) 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 and December 31, 2015. Actual yields earned over the life of each investment could differ materially from the yields presented above.

 

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See the Consolidated Schedules of Investments as of September 30, 2016 and December 31, 2015 in our consolidated financial statements in Part I, Item 1 of this Form 10-Q for more information on these investments, including a list of companies and type and amount of investments.

As part of the monitoring process, our Investment Adviser has developed risk policies pursuant to which it regularly assesses the risk profile of each of our debt investments and rates each of them based on the following categories, which we refer to as “Internal Risk Ratings”:

Internal Risk Ratings Definitions

 

Rating

  

Definition

1    Performing—Low Risk: Borrower is operating more than 10% ahead of the Base Case.
2    Performing—Stable Risk: Borrower is operating within 10% of the Base Case (above or below). This is the initial rating assigned to all new borrowers.
3    Performing—Management Notice: Borrower is operating more than 10% below the Base Case. A financial covenant default may have occurred, but there is a low risk of payment default.
4    Watch List: Borrower is operating more than 20% below the Base Case and there is a high risk of covenant default, or it may have already occurred. Payments are current although subject to greater uncertainty, and there is moderate to high risk of payment default.
5    Watch List—Possible Loss: Borrower is operating more than 30% below the Base Case. At the current level of operations and financial condition, the borrower does not have the ability to service and ultimately repay or refinance all outstanding debt on current terms. Payment default is very likely or may have occurred. Loss of principal is possible.
6    Watch List—Probable Loss: Borrower is operating more than 40% below the Base Case, and at the current level of operations and financial condition, the borrower does not have the ability to service and ultimately repay or refinance all outstanding debt on current terms. Payment default is very likely or may have already occurred. Additionally, the prospects for improvement in the borrower’s situation are sufficiently negative that impairment of some or all principal is probable.

Our Investment Adviser’s risk rating model is based on evaluating portfolio company performance in comparison to the Base Case when considering certain credit metrics including, but not limited to, adjusted EBITDA and net senior leverage as well as specific events including, but not limited to, default and impairment.

Our Investment Adviser monitors and, when appropriate, changes the investment ratings assigned to each debt investment in our portfolio. In connection with our quarterly valuation process, our Investment Adviser reviews our investment ratings on a regular basis. The following table summarizes the Internal Risk Ratings as of September 30, 2016 and December 31, 2015:

 

     September 30, 2016     December 31, 2015  
     Fair Value      % of
Fair
Value
    Fair Value      % of
Fair
Value
 
(dollar amounts in millions)                           

Internal Risk Rating 1

   $ 15.6         5.36   $ 15.1         6.16

Internal Risk Rating 2

     223.3         76.68        187.5         76.75   

Internal Risk Rating 3

     25.8         8.86        37.9         15.51   

Internal Risk Rating 4

     22.5         7.73        3.8         1.58   

Internal Risk Rating 5

     4.0         1.37        —           —     

Internal Risk Rating 6

     —           —          —           —     
  

 

 

    

 

 

   

 

 

    

 

 

 

Total

   $ 291.2         100.00   $ 244.3         100.00
  

 

 

    

 

 

   

 

 

    

 

 

 

 

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As of September 30, 2016 and December 31, 2015, the weighted average Internal Risk Rating of our debt investment portfolio was 2.2 and 2.1 respectively.

CONSOLIDATED RESULTS OF OPERATIONS

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

The net increase or decrease in net assets from operations may vary substantially from period to period as a result of various factors, including the recognition of realized gains and losses and net change in unrealized appreciation and depreciation. As a result, quarterly comparisons may not be meaningful.

Investment Income

Interest income for the three month and nine month periods ended September 30, 2016 and 2015 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 income from non-controlled/non-affiliated investments

  $ 5,497      $ 4,005      $ 14,730       $ 10,453   
 

 

 

   

 

 

   

 

 

    

 

 

 

Total investment income

  $ 5,497      $ 4,005      $ 14,730       $ 10,453   
 

 

 

   

 

 

   

 

 

    

 

 

 

The increase in interest income for the three month and nine month periods ended September 30, 2016 from the comparable periods in 2015 was driven by our deployment of capital and increasing invested balance. As of September 30, 2016, the size of our portfolio increased to $294,146 from $233,928 as of September 30, 2015, at amortized cost, and total principal amount of investments outstanding increased to $297,270 from $236,499 as of September 30, 2015. As of September 30, 2016, the weighted average yield of our first and second lien debt increased to 6.76% from 6.51% as of September 30, 2015, on amortized cost.

Interest income on our first and second lien debt investments is dependent on the composition and credit quality of the portfolio. Generally, we expect the portfolio to generate predictable quarterly interest income based on the terms stated in each loan’s credit agreement. As of September 30, 2016 and 2015, all of our first and second lien debt investments were performing and current on their interest payments.

Net investment income for the three month and nine month periods ended September 30, 2016 and 2015 was 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
 

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

   $ 5,497      $ 4,005      $ 14,730      $ 10,453   

Total expenses

     (1,522     (1,217     (4,245     (3,577
  

 

 

   

 

 

   

 

 

   

 

 

 

Net investment income

   $ 3,975      $ 2,788      $ 10,485      $ 6,876   
  

 

 

   

 

 

   

 

 

   

 

 

 

 

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Expenses

 

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

Management fees

   $ 179       $ 144       $ 496       $ 396   

Professional fees

     183         126         558         450   

Administrative service fees

     45         45         143         139   

Interest expense

     742         539         2,033         1,446   

Credit facility fees

     245         206         578         666   

Directors’ fees and expenses

     24         63         111         182   

Other general and administrative

     104         94         326         298   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total expenses

   $ 1,522       $ 1,217       $ 4,245       $ 3,577   
  

 

 

    

 

 

    

 

 

    

 

 

 

Interest expense and credit facility fees for the three month and nine month periods ended September 30, 2016 and 2015 were comprised of the following:

 

     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

   $ 742       $ 539       $ 2,033       $ 1,446   

Facility unused commitment fee

     56         99         185         334   

Amortization of deferred financing costs

     172         89         342         282   

Other fees

     17         18         51         50   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total interest expense and credit facility fees

   $ 987       $ 745       $ 2,611       $ 2,112   
  

 

 

    

 

 

    

 

 

    

 

 

 

Cash paid for interest expense

   $ 690       $ 482       $ 1,920       $ 1,298   

The increase in interest expense for the three month and nine month periods ended September 30, 2016 from the comparable periods in 2015 was driven by increased usage of the Company’s credit facilities and increased deployment of capital to investments. For the three month and nine month periods ended September 30, 2016, the weighted average interest rate under the facilities was 2.32% and 2.26%, respectively, and average principal debt outstanding was $124,446 and $117,732, respectively. For the three month and nine month periods ended September 30, 2015, the weighted average interest rate was 1.94% and 1.94%, respectively, and average principal debt outstanding was $108,546 and $98,052, respectively.

The increase in management fees for the three month and nine month periods ended September 30, 2016 from the comparable periods in 2015 was driven by our deployment of capital and increasing invested balance. See Note 4 to the consolidated financial statements included in Part I, Item 1 of this Form 10-Q for more information on the management fees.

Professional fees include legal, rating agencies, audit, tax, valuation, technology and other professional fees incurred related to the management of the Company. Administrative service fees represent fees paid to the Administrator for our allocable portion of overhead and other expenses incurred by the Administrator in performing its obligations under the administration agreement, including our allocable portion of the cost of certain of our executive officers and their respective staff. Other general and administrative expenses include insurance, filing, research, subscriptions and other costs.

Net Realized Gain (Loss) and Net Change in Unrealized Appreciation (Depreciation) on Investments

During the three month and nine month periods ended September 30, 2016, the Company had a change in unrealized appreciation on 14 and 77 investments, respectively, totaling approximately $2,986 and $4,798,

 

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respectively, which was offset by a change in unrealized depreciation on 2 and 23 investments, respectively, totaling approximately $1,465 and $3,883, respectively. During the three month and nine month periods ended September 30, 2015, the Company had a change in unrealized appreciation on 30 and 51 investments, respectively, totaling approximately $932 and $2,185, respectively, which was offset by a change in unrealized depreciation on 43 and 29 investments, respectively, totaling approximately $955 and $1,143, respectively.

 

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

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

   $ 23       $ 1      $ 56       $ 51   

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

     1,521         (23     915         1,042   
  

 

 

    

 

 

   

 

 

    

 

 

 

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

   $ 1,544       $ (22   $ 971       $ 1,093   
  

 

 

    

 

 

   

 

 

    

 

 

 

Net realized gain (loss) and net change in unrealized appreciation (depreciation) by the type of investments for the three month and nine month periods ended September 30, 2016 and 2015 were as follows:

 

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

Type

   Net
realized
gain
(loss)
     Net change in
unrealized
appreciation
(depreciation)
     Net
realized
gain
(loss)
     Net change in
unrealized
appreciation
(depreciation)
 

First Lien Debt

   $ 28       $ 1,043       $ 1       $ 129   

Second Lien Debt

     (5      478         —           (152
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 23       $ 1,521       $ 1       $ (23
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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

Type

   Net
realized
gain
(loss)
     Net change in
unrealized
appreciation
(depreciation)
     Net
realized
gain
(loss)
     Net change in
unrealized
appreciation
(depreciation)
 

First Lien Debt

   $ 61       $ 178       $ 51       $ 934   

Second Lien Debt

     (5      737         —           108   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 56       $ 915       $ 51       $ 1,042   
  

 

 

    

 

 

    

 

 

    

 

 

 

Net change in unrealized depreciation in our investments for the three month and nine month periods ended September 30, 2016 compared to the comparable periods in 2015 was primarily due to changes in various inputs utilized under our valuation methodology, including, but not limited to, market spreads, leverage multiples and borrower ratings.

FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES

We generate cash from the net proceeds of offerings of our common stock and through cash flows from operations, including investment sales and repayments as well as income earned on investments and cash equivalents. We may also fund a portion of our investments through borrowings under the Borrower Sub’s senior secured revolving credit facility (as amended, the “Revolving Credit Facility”) and/or the Company’s senior secured revolving credit facility (as amended, the, “Facility”).

 

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The Borrower Sub closed on September 12, 2013 on the Revolving Credit Facility, which was subsequently amended on July 25, 2014 and November 13, 2015. The Revolving Credit Facility provides for secured borrowings during the applicable revolving period up to an amount equal to the lesser of $120,000 (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 $262,500, 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 imposes financial and operating covenants on us and the Borrower Sub that restrict our and its business activities. Continued compliance with these covenants will depend on many factors, some of which are beyond our control.

The Company closed on March 27, 2014 on the Facility, which was subsequently amended on August 22, 2014, December 12, 2014 and further amended on August 31, 2016. The maximum principal amount of the Facility is $50,000, subject to availability under the Facility, which is based on certain advance rates multiplied by the value of the Company’s portfolio investments 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 $125,000 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 $10,000 limit for swingline loans and a $5,000 limit for letters of credit. 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 $34,000). The pledge of unfunded investor equity capital commitments was subject to release upon the earlier of (a) the date eligible investments held by the Company are equal to or greater than $62,500 and the Facility’s borrowing base equity test is satisfied and (b) the date the borrower has received equity capital contributions in an amount equal to $34,000. Such eligible investments and shareholder equity thresholds had been satisfied as of September 31, 2016 and December 31, 2015. The Facility includes customary covenants, including certain financial covenants related to asset coverage, shareholders’ equity, liquidity and interest coverage, 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.

Although we believe that we and the Borrower Sub will remain in compliance, there are no assurances that we or the Borrower Sub will continue to comply with the covenants in the Facility and Revolving Credit Facility, as applicable. Failure to comply with these covenants could result in a default under the Facility and/or Revolving Credit Facility that, if we or the Borrower Sub were unable to obtain a waiver from the applicable lenders, could result in the immediate acceleration of the amounts due under the Facility and/or Revolving Credit Facility, and thereby have a material adverse impact on our business, financial condition and results of operations.

For more information on the Revolving Credit Facility and Facility, see Note 5 to the consolidated financial statements in Part I, Item 1 of this Form 10-Q.

The primary use of existing funds and any funds raised in the future is expected to be for investments in portfolio companies, repayment of indebtedness, cash distributions to our stockholders and for other general corporate purposes.

 

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As of September 30, 2016 and December 31, 2015, the Company had $6,707 and $7,404, respectively, in cash and cash equivalents. 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

   $ 120,000       $ 88,121       $ 31,879       $ 4,099   

Facility

     50,000         39,500         10,500         10,500   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 170,000       $ 127,621       $ 41,379       $ 14,599   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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

Revolving Credit Facility

   $ 120,000       $ 87,194       $ 32,806       $ 2,753   

Facility

     50,000         31,000         19,000         10,526   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 170,000       $ 118,194       $ 51,806       $ 13,279   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(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.

Equity Activity

There were no investor equity capital commitments made to the Company during the three month and nine month periods ended September 30, 2016 and 2015. As of September 30, 2016 and December 31, 2015, the Company had $190,077 in total capital commitments from stockholders, of which $28,540 and $53,540, respectively, was unfunded. As of September 30, 2016 and December 31, 2015, current directors had no capital commitments to the Company.

Shares issued as of September 30, 2016 and December 31, 2015 were 8,156,316 and 6,864,244, respectively.

The following table summarizes activity in the number of shares of our common stock outstanding during the nine month periods ended September 30, 2016 and 2015:

 

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

Shares outstanding, beginning of period

     6,864,244         4,618,564   

Common stock issued

     1,292,072         1,795,023   
  

 

 

    

 

 

 

Shares outstanding, end of period

     8,156,316         6,413,587   
  

 

 

    

 

 

 

Upon the earlier of August 6, 2018 and the completion of a Qualified IPO by Carlyle GMS Finance, Inc., investors will be released from any further obligation to purchase additional shares of common stock, subject to certain exceptions contained in the subscription agreement.

 

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Contractual Obligations

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

 

     Revolving Credit Facility and Facility  

Payment Due by Period

     September 30, 2016          December 31, 2015    

Less than 1 Year

   $ —         $ —     

1-3 Years

     —           —     

3-5 Years

     127,621         31,000   

More than 5 Years

     —           87,194   
  

 

 

    

 

 

 

Total

   $ 127,621       $ 118,194   
  

 

 

    

 

 

 

For more information on the Revolving Credit Facility and Facility, see Note 5 to the consolidated financial statements in Part I, Item 1 of this Form 10-Q.

As of September 30, 2016 and December 31, 2015, $88,121 and $87,194, respectively, of secured borrowings were outstanding under the Revolving Credit Facility and $39,500 and $31,000, respectively, were outstanding under the Facility. For the three month and nine month periods ended September 30, 2016, we incurred $56 and $185, respectively, of unused commitment fees and $742 and $2,033, respectively, of interest expense. For the three month and nine month periods ended September 30, 2015, we incurred $539 and $1,446, respectively, of interest expense and $99 and $334, respectively, of unused commitment fees.

OFF BALANCE SHEET ARRANGEMENTS

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 these consolidated financial statements as of September 30, 2016 and December 31, 2015 included in Part I, Item 1 of this Form 10-Q for any such exposure.

We have in the past and may in the future become obligated to fund commitments such as revolving credit facilities, bridge financing commitments, or delayed draw commitments.

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

   $ 4,020       $ 2,097   

Unfunded revolving term loan commitments

     1,412         737   
  

 

 

    

 

 

 

Total unfunded commitments

   $ 5,432       $ 2,834   
  

 

 

    

 

 

 

 

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DIVIDENDS AND DISTRIBUTIONS TO COMMON STOCKHOLDERS

Dividends and distributions, if any, are paid in cash to common stockholders. The following table summarizes the Company’s dividends declared and payable since inception through September 30, 2016:

 

Date Declared

   Record Date      Payment Date      Per
Share
Amount
     Total
Amount
     Annualized
Dividend Yield (1)
 

March 13, 2014

     March 31, 2014         April 14, 2014       $ 0.04       $ 128         1.12

June 26, 2014

     June 30, 2014         July 14, 2014       $ 0.12       $ 383         2.46

September 12, 2014

     September 18, 2014         October 9, 2014       $ 0.24       $ 825         5.14

December 19, 2014

     December 29, 2014         January 26, 2015       $ 0.27       $ 1,247         6.19

March 11, 2015

     March 13, 2015         April 17, 2015       $ 0.30       $ 1,645         6.84

June 24, 2015

     June 30, 2015         July 22, 2015       $ 0.35       $ 2,191         7.69

September 24, 2015

     September 24, 2015         October 22, 2015       $ 0.40       $ 2,563         8.17

December 29, 2015

     December 29, 2015         January 22, 2016       $ 0.47