UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

(Mark One)

x

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

 

For the quarterly period ended June 30, 2017

 

OR

 

¨

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

 

COMMISSION FILE NUMBER: 1-36447

 

 

ALCENTRA CAPITAL CORPORATION

(Exact Name of Registrant as Specified in Its Charter)

 

 

Maryland		46-2961489
(State or other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)

 

200 Park Avenue, 7 ^th Floor

New York, NY

(Address of Principal Executive Offices) (Zip Code)

 

(212) 922-8240

(Registrant’s Telephone Number, Including Area Code)  

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (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, a smaller reporting company or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer		¨		Accelerated filer		¨
Non-accelerated filer		¨ (do not check if a smaller reporting company)		Smaller reporting company		¨
Emerging growth company		x

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.   ¨

 

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

 

There were 14,245,220 shares of the Registrant’s common stock outstanding as of August 3, 2017.

 

 

ALCENTRA CAPITAL CORPORATION

TABLE OF CONTENTS

 

		Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Financial Statements of Alcentra Capital Corporation:
Consolidated Statements of Assets and Liabilities as of June 30, 2017 (unaudited) and December 31, 2016		3
Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2017 (unaudited) and 2016 (unaudited)		4
Consolidated Statements of Changes in Net Assets for the Six Months Ended June 30, 2017 (unaudited) and 2016 (unaudited)		5
Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2017 (unaudited) and 2016 (unaudited)		6
Consolidated Schedule of Investments as of June 30, 2017 (unaudited) and December 31, 2016		7
Notes to Unaudited Consolidated Financial Statements		15
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		31
Item 3. Quantitative and Qualitative Disclosures About Market Risk		40
Item 4. Controls and Procedures		41
PART II. OTHER INFORMATION
Item 1. Legal Proceedings		42
Item 1A. Risk Factors		42
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		42
Item 3. Defaults Upon Senior Securities		42
Item 4. Mine Safety Disclosures		42
Item 5. Other Information		42
Item 6. Exhibits		43
SIGNATURES		44

 

 

Alcentra Capital Corporation and Subsidiary

 

Consolidated Statements of Assets and Liabilities

 

		As of June 30, 2017 (Unaudited)				As of December 31, 2016
Assets
Portfolio investments, at fair value
Non-controlled, non-affiliated investments, at fair value (cost of $253,680,500 and $248,479,039, respectively)		$	235,723,168			$	239,722,117
Non-controlled, affiliated investments, at fair value (cost of $31,005,209 and $29,734,859, respectively)			20,377,820				22,094,203
Controlled, affiliated investments, at fair value (cost $15,459,015 and $15,122,171, respectively)			15,269,000				14,456,630
Total of portfolio investments, at fair value (cost $300,144,724 and $293,336,069, respectively)			271,369,988				276,272,950
Cash			3,802,620				3,891,606
Dividends and interest receivable			1,070,251				3,240,640
Receivable for investments sold			470,983				2,139,463
Deferred financing costs			848,054				1,287,807
Deferred tax asset			1,498,264				1,264,811
Income tax asset			795,364				—
Prepaid expenses and other assets			209,428				100,770
Total Assets		$	280,064,952			$	288,198,047
Liabilities
Credit facility payable		$	35,133,273			$	39,133,273
Notes payable (net of deferred note offering costs of $1,436,280 and $1,495,062, respectively)			53,563,720				53,504,938
Other accrued expenses and liabilities			375,037				282,165
Directors’ fees payable			73,000				95,000
Professional fees payable			246,602				331,867
Interest and credit facility expense payable			1,132,888				1,008,127
Management fee payable			1,060,125				1,301,591
Income-based incentive fees payable			1,310,651				2,071,661
Distributions payable			4,843,375				4,586,816
Unearned structuring fee revenue			1,050,677				1,175,319
Income tax liability			—				182,699
Total Liabilities		$	98,789,348			$	103,673,456
Commitments and Contingencies (Note 12)
Net Assets
Common stock, par value $0.001 per share (100,000,000 shares authorized, 14,245,220 and 13,451,633 shares issued and outstanding, respectively)			14,245				13,452
Additional paid-in capital			206,977,643				196,290,348
Accumulated net realized loss			(2,198,897	)			(776,548	)
Undistributed net investment income			4,914,081				4,890,065
Net unrealized appreciation (depreciation) on investments, net of benefit/(provision) for taxes of $343,268 and $1,170,393 as of June 30, 2017 and December 31, 2016, respectively			(28,431,468	)			(15,892,726	)
Total Net Assets			181,275,604				184,524,591
Total Liabilities and Net Assets		$	280,064,952			$	288,198,047
Net Asset Value Per Share		$	12.73			$	13.72

 

See notes to unaudited consolidated financial statements

 

 

Alcentra Capital Corporation and Subsidiary

 

Consolidated Statements of Operations

 

		For the three months ended June 30, 2017 (Unaudited)				For the three months ended June 30, 2016  (Unaudited)				For the six months ended June 30, 2017 (Unaudited)				For the six months ended June 30, 2016 (Unaudited)
Investment Income:
From non-controlled, non-affiliated investments:
Interest income from portfolio investments		$	6,187,702			$	5,169,619			$	13,192,379			$	10,437,162
Paid-in-kind interest income from portfolio investments			302,190				1,008,525				650,382				2,359,613
Other income from portfolio investments			587,782				652,786				1,197,747				1,571,450
Dividend income from portfolio investments			29,049				—				56,569				—
From non-controlled, affiliated investments:
Interest income from portfolio investments			594,972				785,044				846,750				1,695,367
Paid in-kind income from portfolio investments			63,345				634,025				450,381				1,485,164
Other income from portfolio investments			—				1,845,055				—				1,950,937
From controlled, affiliated investments:
Interest income from portfolio investments			573,069				382,888				978,904				764,635
Paid in-kind income from portfolio investments			—				162,027				166,445				322,032
Other income from portfolio investments			—				—				—				—
Total investment income			8,338,109				10,639,969				17,539,557				20,586,360
Expenses:
Management fees			1,229,648				1,283,763				2,479,217				2,572,799
Income-based incentive fees			—				926,158				653,911				1,716,885
Professional fees			226,849				372,535				493,188				726,537
Valuation services			68,345				71,061				169,741				142,047
Interest and credit facility expense			1,513,067				1,334,510				3,039,974				2,643,454
Amortization of deferred financing costs			288,048				283,805				573,611				548,435
Directors’ fees			74,344				84,372				142,480				149,295
Insurance expense			60,102				65,771				124,583				132,381
Amortization of deferred note offering costs			105,418				—				203,828				—
Other expenses			98,437				319,648				392,557				451,289
Total expenses			3,664,258				4,741,623				8,273,090				9,083,122
Waiver of management fees			(169,524	)			—				(169,524	)			—
Net expenses			3,494,734				4,741,623				8,103,566				9,083,122
Net investment income			4,843,375				5,898,346				9,435,991				11,503,238
Realized Gain (Loss) and Net Change in Unrealized Appreciation (Depreciation) From Portfolio Investments
Net realized gain (loss) on:
Non-controlled, non-affiliated investments			30,002				23,802				(1,019,237	)			1,900,440
Non-controlled, affiliated investments			—				1,626,964				—				2,021,697
Controlled, affiliated investments			—				—				—				(11,154,495	)
Net realized gain (loss) from portfolio investments			30,002				1,650,766				(1,019,237	)			(7,232,358	)
Net change in unrealized appreciation (depreciation) on:
Non-controlled, non-affiliated investments			(8,084,209	)			(3,575,425	)			(9,200,410	)			(9,560,426	)
Non-controlled, affiliated investments			(2,168,452	)			(2,228,352	)			(2,986,733	)			351,589
Controlled, affiliated investments			328,527				(62,999	)			475,526				11,143,915
Net change in unrealized appreciation (depreciation) from portfolio investments			(9,924,134	)			(5,866,776	)			(11,711,617	)			1,935,078
Benefit/(Provision) for taxes on unrealized gain (loss) on investments			(102,309	)			(287,167	)			(827,125	)			(497,031	)
Net realized gain (loss) and net change in unrealized appreciation (depreciation) from portfolio investments			(9,996,441	)			(4,503,177	)			(13,557,979	)			(5,794,311	)
Net Increase (Decrease) in Net Assets Resulting from Operations		$	(5,153,066	)		$	1,395,169			$	(4,121,988	)		$	5,708,927
Basic and diluted:
Net investment income per share		$	0.36			$	0.44			$	0.68			$	0.85
Earnings per share		$	(0.38	)		$	0.10			$	(0.30	)		$	0.42
Weighted Average Shares of Common Stock Outstanding			13,612,059				13,500,429				13,783,414				13,507,973
Dividends declared per common share		$	0.340			$	0.340			$	0.710			$	0.680

 

See notes to unaudited consolidated financial statements

 

 

Alcentra Capital Corporation and Subsidiary

 

Consolidated Statements of Changes in Net Assets

 

		For the six months ended June 30, 2017 (Unaudited)				For the six months ended June 30, 2016 (Unaudited)
Increase (decrease) in net assets resulting from operations
Net investment income		$	9,435,991			$	11,503,238
Net realized gain (loss) on investments			(1,019,237	)			(7,232,358	)
Net change in unrealized appreciation (depreciation) on investments			(11,711,617	)			1,935,078
Benefits/(Provision) for taxes on unrealized gain (loss) on investments			(827,125	)			(497,031	)
Net increase (decrease) in net assets resulting from operations			(4,121,988	)			5,708,927
Capital transactions
Offering costs			—				(165,635	)
Issuance of common stock (808,161 and 0 shares, respectively)			10,853,602				—
Repurchase of common stock (14,574 and 26,130 shares, respectively)			(165,514	)			(305,450	)
Net increase (decrease) in net assets resulting from capital transactions			10,688,088				(471,085	)
Distributions to shareholders from:
Net investment income			(9,411,975	)			(9,182,517	)
Realized gains			(403,112	)			—
Total distributions to shareholders			(9,815,087	)			(9,182,517	)
Total increase (decrease) in net assets			(3,248,987	)			(3,944,675	)
Net assets at beginning of period			184,524,591				195,032,211
Net assets at end of period [including undistributed net investment income of $4,914,081 and $3,451,048, respectively]		$	181,275,604			$	191,087,536

 

See notes to unaudited consolidated financial statements

 

 

Alcentra Capital Corporation and Subsidiary

 

Consolidated Statements of Cash Flows

 

		For the six months ended June 30, 2017 (Unaudited)				For the six months ended June 30, 2016 (Unaudited)
Cash Flows from Operating Activities
Net increase/(decrease) in net assets resulting from operations		$	(4,121,988	)		$	5,708,927
Adjustments to reconcile net increase/(decrease) in net assets resulting from operations to net cash provided by (used in) operating activities:
Net realized loss from portfolio investments			1,019,237				7,232,358
Net change in unrealized (appreciation) depreciation of portfolio investments			11,711,617				(1,935,078	)
Deferred tax asset			(233,453	)			454,776
Paid in-kind interest income from portfolio investments			(1,267,209	)			(4,166,809	)
Accretion of discount on debt securities			(1,419,446	)			(203,639	)
Purchases of portfolio investments			(56,112,100	)			(69,555,393	)
Net proceeds from sales/return of capital of portfolio investments			50,970,863				71,331,188
Amortization of deferred financing costs			573,611				548,435
Amortization of deferred note offering costs			203,828				—
(Increase) decrease in operating assets:
Dividends and interest receivable			2,170,389				1,089,280
Receivable for investments sold			1,668,480				(1,364,550	)
Income tax asset			(795,364	)			—
Prepaid expenses and other assets			(108,658	)			(135,275	)
Increase (decrease) in operating liabilities:
Other accrued expenses and liabilities			92,872				6,220
Directors' fees payable			(22,000	)			35,475
Professional fees payable			(85,265	)			(246,266	)
Interest and credit facility expense payable			124,761				161,070
Management fee payable			(241,466	)			(18,450	)
Income-based incentive fees payable			(761,010	)			941,885
Unearned structuring fee revenue			(124,642	)			665,269
Income tax			(182,699	)			(16,912	)
Net cash provided by (used in) operating activities			3,060,358				10,532,511
Cash Flows from Financing Activities
Issuance of common stock			10,853,602				—
Financing costs paid			(133,858	)			(166,038	)
Offering costs paid			(145,046	)			(422,950	)
Proceeds from credit facility payable			46,850,000				51,500,000
Repayments of credit facility payable			(50,850,000	)			(63,318,892	)
Proceeds from notes payable			—				11,544,000
Distributions paid to shareholders			(9,558,528	)			(9,191,401	)
Repurchase of common stock			(165,514	)			(305,450	)
Net cash provided by (used in) financing activities			(3,149,344	)			(10,360,731	)
Increase (decrease) in cash and cash equivalents			(88,986	)			171,780
Cash at beginning of period			3,891,606				4,866,972
Cash and Cash Equivalents at End of Period		$	3,802,620			$	5,038,752
Supplemental and non-cash financing activities:
Cash paid during the period for interest		$	2,915,213			$	2,482,384
Accrued offering costs		$	2,485			$	2,485
Accrued distributions payable		$	4,843,375			$	4,586,816

 

See notes to unaudited consolidated financial statements

 

 

Alcentra Capital Corporation and Subsidiary

Consolidated Schedule of Investments

As of June 30, 2017

(Unaudited)

 

Company(+) ***		Industry		Interest Rate		Base Rate Floor				Maturity Date		No. Shares/ Principal Amount				Cost(1)				Fair Value				% of Net Assets
Investments in Non-Controlled, Non-Affiliated Portfolio Companies — 130.04%
Senior Secured - First Lien — 56.41%
Black Diamond Rentals		Oil & Gas Services		12% Cash, 2% PIK(2)						7/9/2018			5,937,501			$	5,937,501			$	5,025,416				2.77	%
				4% Cash, 10% PIK						7/9/2018			1,682,975				1,673,300				1,682,975				0.93	%
																	7,610,801				6,708,391				3.70	%
Champion ONE (3)		Technology & Telecom		LIBOR + 10.5%			1.00	%		3/17/2022			7,359,375				7,290,078				7,359,375				4.06	%
IGT (3),(4)		Industrial Services		LIBOR + 8.75% Cash, 0.5% PIK			1.00	%		12/10/2019			8,054,930				8,005,028				8,054,930				4.45	%
LRI Holding, Inc. (3)		Industrial Services		LIBOR + 9.25% Cash			1.00	%		6/30/2022			20,000,000				19,928,000				20,000,000				11.03	%
Lugano Diamonds & Jewelry, Inc (3),(4)		Retail		LIBOR + 10.0% Cash			0.75	%		10/24/2021			6,000,000				5,289,878				5,420,000				2.99	%
NTI Holdings, LLC (3),(4)		Telecommunications		LIBOR + 8.0% Cash			1.00	%		3/30/2021			15,173,835				14,911,852				15,019,210				8.29	%
NWN Corporation (3)		Technology & IT		LIBOR + 10.0% Cash			1.00	%		10/16/2020			3,856,608				3,779,476				3,895,435				2.15	%
Palmetto Moon LLC		Retail		11.5% Cash						10/31/2021			5,437,412				5,414,331				5,437,000				3.00	%
Pharmalogics Recruiting, LLC (4)		Business Services		10.25% Cash						1/31/2022			9,975,000				9,885,520				9,975,000				5.50	%
Stancor, Inc. (3)		Wholesale/Distribution		LIBOR + 9.0%			0.75	%		8/19/2019			4,556,363				4,556,363				4,556,363				2.51	%
Superior Controls, Inc. (3),(4)		High Tech Industries		LIBOR + 8.75%			1.00	%		3/22/2021			15,825,000				15,769,749				15,825,000				8.73	%
Total Senior Secured - First Lien																	102,441,076				102,250,704				56.41	%
Senior Secured - Second Lien — 26.01%
Conisus LLC (3)		Media: Advertising, Printing & Publishing		LIBOR + 8.75% Cash			1.00	%		6/23/2021			11,750,000			$	11,750,000			$	9,988,000				5.51	%
Graco Supply Company		Aerospace		12% Cash						3/17/2021			4,000,000				4,000,000				4,000,000				2.21	%
Healthcare Associates of Texas, LLC (4)		Healthcare Services		12.25% Cash						4/30/2022			8,500,000				8,500,000				8,500,000				4.69	%
Medsurant Holdings, LLC		Healthcare Services		12.25% Cash						6/18/2021			6,200,000				6,138,000				6,200,000				3.42	%
My Alarm Center, LLC (3)		Security		LIBOR + 11.0% Cash			1.00	%		7/9/2019			13,929,583				13,929,583				2,312,367				1.27	%
Nation Safe Drivers (NSD) (3)		Automotive Business Services		LIBOR + 8.0% Cash			2.00	%		9/29/2020			11,721,154				11,721,154				11,838,000				6.53	%
Xpress Global Systems, LLC (3)		Transportation Logistics		5.0% PIK						4/10/2020			5,596,333				5,318,652				2,352,000				1.30	%
				LIBOR + 11.0%			1.00	%		4/10/2020			1,964,871				1,928,621				1,964,871				1.08	%
																	7,247,273				4,316,871				2.38	%
Total Senior Secured - Second Lien																	63,286,010				47,155,238				26.01	%

 

See notes to unaudited consolidated financial statements 

 

 

Alcentra Capital Corporation and Subsidiary

Consolidated Schedule of Investments (continued)

As of June 30, 2017

(Unaudited) 

 

Company(+) ***		Industry		Interest Rate		Base Rate Floor				Maturity Date		No. Shares/ Principal Amount				Cost(1)				Fair Value				% of Net Assets
Senior Subordinated — 40.39%
Black Diamond Rentals (2)		Oil & Gas Services		4% Cash						7/9/2018			8,009,188			$	8,009,188			$	3,602,973				1.99	%
GST Autoleather		Automotive Business Services		11% Cash, 2.0% PIK						1/11/2021			8,496,238			$	8,496,238			$	7,251,000				4.00	%
Media Storm, LLC		Media & Entertainment		10% Cash						8/28/2019			2,454,546				2,454,546				2,454,546				1.35	%
Metal Powder Products LLC (3)		Industrial Manufacturing		LIBOR + 11.25% Cash, 1.0% PIK			0.75	%		11/5/2021			8,291,761				8,291,761				8,270,854				4.56	%
NextCare Holdings, Inc.		Healthcare Services		10% Cash, 4% PIK						12/31/2018			15,511,145				15,363,249				15,510,999				8.56	%
Pharmalogic Holdings Corp.		Healthcare Services		12% Cash						9/1/2021			16,122,103				16,091,805				16,122,103				8.89	%
QRC Holdings, LLC		High Tech Industries		11.50% Cash						11/20/2021			10,000,000				10,000,000				10,000,000				5.52	%
Security Alarm Financing Enterprises L. P. (3)		Security		LIBOR + 13.00% Cash			1.00	%		6/19/2020			10,003,848				9,835,937				10,000,097				5.52	%
Total Senior Subordinated																	78,542,724				73,212,572				40.39	%
Equity/Other — 7.23%
Champion ONE, Common Shares(2)		Technology & Telecom											11,250			$	1,125,000			$	1,125,000				0.62	%
IGT, Preferred Shares(2)		Industrial Services		11% PIK						12/10/2019			1,110,922				1,110,922				1,106,001				0.61	%
Common Shares(2)													44,000				44,000				249,000				0.14	%
Preferred AA Shares				15% PIK						12/10/2019			314,667				314,667				314,667				0.17	%
																	1,469,589				1,669,668				0.92	%
LRI Holding, Inc.,		Industrial Services											79,365				100,000				100,000				0.06	%
Preferred Shares(2)													1,000,000				1,000,000				1,905,000				1.05	%
																	1,100,000				2,005,000				1.11	%
Lugano Diamonds & Jewelry, Inc, Warrants(2)		Retail											666,615				666,615				825,003				0.46	%
Metal Powder Products, LLC, Common Shares(2)		Industrial Manufacturing											500,000				500,000				704,000				0.39	%
My Alarm Center, LLC, Class A Preferred(2)		Security											284,589				—				—				—
NTI Holdings, LLC, Common Shares(2)		Telecommunications											424,621				547,349				1,313,477				0.72	%
Warrants(2)													417,823				224,689				1,201,504				0.66	%
																	772,038				2,514,981				1.38	%
Palmetto Moon LLC, Common Shares(2)		Retail											434,145				434,145				434,002				0.24	%
Superior Controls, Inc., Preferred Shares(2)		High Tech Industries											400,000				400,000				581,000				0.32	%
Tunnel Hill Class B Common Units(5)		Waste Services											93,160				2,454,303				3,246,000				1.79	%
Xpress Global Systems, LLC, Warrants(2)		Transportation Logistics											489,000				489,000				—				—
Total Equity/Other																	9,410,690				13,104,654				7.23	%
Total Investments in Non-Controlled, Non-Affiliated Portfolio Companies																	253,680,500				235,723,168				130.04	%

 

See notes to unaudited consolidated financial statements 

 

 

Alcentra Capital Corporation and Subsidiary

Consolidated Schedule of Investments (continued)

As of June 30, 2017

(Unaudited) 

 

Company(+) ***		Industry		Interest Rate		Base Rate Floor				Maturity Date		No. Shares/ Principal Amount				Cost(1)				Fair Value				% of Net Assets
Investments in Non-Controlled, Affiliated Portfolio Companies — 11.24%*
Senior Secured - First Lien — 0.59%
Show Media, Inc. (2)		Media & Entertainment		5.5% Cash, 5.5% PIK						12/31/2018			4,153,393			$	4,120,057			$	1,063,000				0.59	%
Total Senior Secured - First Lien																	4,120,057				1,063,000				0.59	%
Senior Secured - Second Lien — 4.26%
Southern Technical Institute, Inc. (3)		Education		LIBOR + 8.0% Cash, 4% PIK			1.00	%		12/2/2020			8,385,356			$	8,385,356			$	7,729,287				4.26	%
Total Senior Secured - Second Lien																	8,385,356				7,729,287				4.26	%
Senior Subordinated — 1.27%
Battery Solutions, Inc.		Environmental/Recycling Services		6% Cash, 8% PIK						11/6/2021			2,308,580			$	2,308,580			$	2,309,000				1.27	%
Total Senior Subordinated																	2,308,580				2,309,000				1.27	%
Equity/Other — 5.12%
Battery Solutions, Inc.,  Class A and F Units(2)		Environmental/Recycling Services											5,000,000			$	1,058,000			$	1,400,000				0.77	%
Class E Units				8% PIK						11/6/2021			3,973,312				3,973,312				3,973,312				2.19	%
																	5,031,312				5,373,312				2.96	%
Show Media, Inc., Units(2)		Media & Entertainment											4,092,210				3,747,428				—				—
Southern Technical Institute, Inc.,  Class A Units(2)		Education											3,164,063				2,167,000				—				—
Preferred Shares				15.75% PIK						3/30/2026			5,135,209				5,024,209				3,903,221				2.16	%
Warrants(2)													221,267				221,267				—				—
																	7,412,476				3,903,221				2.16	%
Total Equity/Other																	16,191,216				9,276,533				5.12	%
Total Investments in Non-Controlled, Affiliated Portfolio Companies																	31,005,209				20,377,820				11.24	%
Investments in Controlled, Affiliated Portfolio Companies — 8.42%**
Senior Secured - First Lien — 7.53%
FST Technical Services, LLC		Technology & Telecom		12% Cash, 5% PIK						11/18/2018			13,652,473			$	13,652,473			$	13,652,000				7.53	%
Total Senior Secured - First Lien																	13,652,473				13,652,000				7.53	%
Equity/Other — 0.89%
FST Technical Services, LLC, Common Class B Shares		Technology & Telecom											1,750,000			$	1,806,542			$	1,617,000				0.89	%
Total Equity/Other																	1,806,542				1,617,000				0.89	%
Total Investments in Controlled, Affiliated Portfolio Companies																	15,459,015				15,269,000				8.42	%
Total Investments																	300,144,724				271,369,988				149.70	%
Liabilities In Excess Of Other Assets																					(90,094,384	)			(49.70	)%
Net Assets																				$	181,275,604				100.00	%

  

See notes to unaudited consolidated financial statements 

 

 

Alcentra Capital Corporation and Subsidiary

Consolidated Schedule of Investments (continued)

As of June 30, 2017

(Unaudited) 

 

(+)

All portfolio companies listed are qualifying assets. Qualifying assets must represent at least 70% of the Company's assets, as defined under Section 55 of the 1940 Act, at the time of acquisition of any additional non-qualifying assets.

*

Denotes investments in which the Company is an “Affiliated Person” but not exercising a controlling influence, as defined in the 1940 Act, due to beneficially owning, either directly or through one or more controlled companies, more than 5% but less than 25% of the outstanding voting securities of the investment. Transactions during the six months ended June 30, 2017 in these affiliated investments are as follows:

 

		Fair Value at												Interest/				Fair Value at
		December 31,				Gross				Gross				Dividend/				June 30,
Name of Issuers		2016				Addition				Reductions				Other Income				2017
Battery Solutions, Inc.		$	6,517,046			$	-			$	-			$	316,662			$	7,682,312
Show Media, Inc.			2,077,000				-				-				63,097				1,063,000
Southern Technical Institute, Inc.			13,500,157				-				-				917,372				11,632,508
		$	22,094,203			$	-			$	-			$	1,297,131			$	20,377,820

 

**

Denotes investments in which the Company is an “Affiliate Person” and exceeding a controlling influence, as defined in the 1940 Act, due to beneficially owning, either directly or through one or more controlled companies, more than 25% of the outstanding voting securities of the investment. Transactions during the six months ended June 30, 2017 in these affiliated and controlled investments are as follows:

 

		Fair value at												Interest/				Fair Value at
		December 31,				Gross				Gross				Dividend/				June 30,
Name of Issuers		2016				Addition				Reductions				Other income				2017
FST Technical Services, LLC		$	1,804,817			$	-			$	-			$	1,145,349			$	15,269,000
		$	1,804,817			$	-			$	-			$	1,145,349			$	15,269,000

 

***

Pledged as collateral under the Credit Facility with ING Capital LLC.

(1)

The cost of debt securities is adjusted for accretion of discount/amortization of premium and interest paid-in-kind on such securities.

(2)

Non-income producing security.

(3)

The principal balance outstanding for all floating rate loans is indexed to LIBOR or an alternate base rate (e.g., prime rate), which typically resets semi-annually, quarterly, or monthly at the borrower's option. The borrower may also elect to have multiple interest reset periods for each loan. For each of these loans, the Company has provided the applicable margin over LIBOR based on each respective credit agreement.

(4)

The investment has an unfunded commitment as of June 30, 2017 which is excluded from the presentation (see Note 12).

(5)

The investment was formerly known as City Carting Holding Company, Inc. On June 3, 2016, City Carting combined with Tunnel Hill Partners, L.P.

 

Abbreviation Legend

PIK - Payment-In-Kind

 

See notes to unaudited consolidated financial statements 

 

  

Alcentra Capital Corporation and Subsidiary
 
Consolidated Schedule of Investments – (continued)
As of December 31, 2016

Alcentra Capital Corporation and Subsidiary
 
Consolidated Schedule of Investments – (continued)
As of December 31, 2016

(+)

All portfolio companies listed are qualifying assets.

*

Denotes investments in which the Company is an “Affiliated Person” but not exercising a controlling influence, as defined in the 1940 Act, due to beneficially owning, either directly or through one or more controlled companies, more than 5% but less than 25% of the outstanding voting securities of the investment. Transactions during the year ended December 31, 2016 in these affiliated investments are as follows:

**

Denotes investments in which the Company is an “Affiliate Person” and exceeding a controlling influence, as defined in the 1940 Act, due to beneficially owning, either directly or through one or more controlled companies, more than 25% of the outstanding voting securities of the investment. Transactions during the year ended December 31, 2016 in these affiliated and controlled investments are as follows:

***

Pledged as collateral under the Credit Facility with ING Capital LLC.

(1)

The cost of debt securities is adjusted for accretion of discount/amortization of premium and interest paid-in-kind on such securities.

(2)

The principal balance outstanding for all floating rate loans is indexed to LIBOR or an alternate base rate (e.g., prime rate), which typically resets semi-annually, quarterly, or monthly at the borrower's option. The borrower may also elect to have multiple interest reset periods for each loan. For each of these loans, the Company has provided the applicable margin over LIBOR based on each respective credit agreement.

 

Alcentra Capital Corporation and Subsidiary
 
Consolidated Schedule of Investments – (continued)
As of December 31, 2016

(3)

The investment has an unfunded commitment as of December 31, 2016 which is excluded from the presentation (see Note 12).

(4)

Non-income producing security.

(5)

The investment was formerly known as City Carting Holding Company, Inc. On June 3, 2016, City Carting combined with Tunnel Hill Partners, L.P.

Abbreviation Legend

PIK — Payment-In-Kind

 

 

 

ALCENTRA CAPITAL CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2017

 

1.

Organization and Purpose

 

Alcentra Capital Corporation (the “Company”, “Alcentra”) was formed as a Maryland corporation on June 6, 2013 as an externally managed, non-diversified closed-end management investment company that has elected to be regulated as a business development company under the Investment Company Act of 1940, as amended (the “1940 Act”) and is applying the guidance of Accounting Standards Codification (“ASC”) Topic 946, Financial Services Investment Companies. Alcentra is managed by Alcentra NY, LLC (the “Adviser” or “Alcentra NY”), a registered investment adviser under the Investment Advisers Act of 1940, as amended (the “Advisers Act”). In addition, for U.S. federal income tax purposes, Alcentra has elected to be treated as a regulated investment company (“RIC”) under Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”), commencing with its tax year ending December 31, 2014.

 

The Company was formed for the purpose of acquiring certain assets held by BNY Mellon-Alcentra Mezzanine III, L.P. (the “Partnership”). The Partnership is a Delaware limited partnership, which commenced operations on May 14, 2010 (the “Commencement Date”). BNY Mellon-Alcentra Mezzanine III (GP), L.P. (the “General Partner”), a Delaware limited liability company, is the General Partner of the Partnership. BNY Mellon-Alcentra Mezzanine Partners (the “Manager”), a division of Alcentra NY and an affiliate of the General Partner, manages the investment activities of the Partnership. Alcentra NY is wholly-owned by BNY Alcentra Group Holdings, Inc. (“Alcentra Group”), which is a subsidiary of The Bank of New York Mellon Corporation.

 

On May 8, 2014 (commencement of operations), the Company acquired all of the assets of the Partnership other than its investment in the shares of common stock and warrants to purchase common stock of GTT Communications (the “Fund III Acquired Assets”) for $64.4 million in cash and $91.5 million in shares of Alcentra’s common stock. Concurrent with Alcentra’s acquisition of the Fund III Acquired Assets from the Partnership, Alcentra also purchased for $29 million in cash certain debt investments (the “Warehouse Portfolio”) from Alcentra Group. The Warehouse Portfolio debt investments were originated by the investment professionals of the Adviser and purchased by Alcentra Group using funds under a warehouse credit facility provided by The Bank of New York Mellon Corporation in anticipation of the initial public offering of Alcentra’s shares of common stock. Except for the $1,500 seed capital provided by Alcentra NY in exchange for 100 shares of Alcentra’s common stock, the Company had no assets or operations prior to the acquisition of the investment portfolios of the Partnership and as a result, the Partnership is considered a predecessor entity of the Company.

 

On May 14, 2014, Alcentra completed its initial public offering (the “IPO”), at a price of $15.00 per share. Through the IPO the Company sold 6,666,666 shares for gross proceeds of approximately $100 million. Alcentra used $94.2 million of the proceeds from the IPO to fund the purchase of the warehouse portfolio, and the cash portion of the consideration paid to Fund III. On June 6, 2014, Alcentra sold 750,000 shares through the underwriters’ exercise of the overallotment option for gross proceeds of $11,250,000.

 

On April 8, 2014, the Company formed Alcentra BDC Equity Holdings, LLC, a wholly-owned subsidiary for tax purposes. This subsidiary allows us to hold equity securities of portfolio companies organized as pass-through entities while continuing to satisfy the requirements of a RIC under the Code. The financial statements of this entity are consolidated into the financial statements of Alcentra. All intercompany balances and transactions have been eliminated.

 

On May 22, 2017 Alcentra Capital Corporation completed an underwritten primary offering of 808,161 shares of its common stock at a public offering price of $13.68 per share for proceeds of approximately $10,853,602, after paying the sales load and offering expenses.

 

The Company’s investment objective is to generate both current income and capital appreciation through debt and equity investments by targeting investment opportunities with favorable risk-adjusted returns. The Company seeks to achieve its investment objective by originating and investing primarily in private U.S. middle-market companies (typically those with $5.0 million to $25.0 million of EBITDA (earnings before interest, taxes, depreciation and amortization) and/or revenues of between $10 million and $250 million through first lien, second lien, unitranche and mezzanine debt financing, with corresponding equity co-investments. It sources investments primarily through the network of relationships that the principals of its investment adviser have developed with financial sponsor firms, financial institutions, middle-market companies, management teams and other professional intermediaries.

 

 

Upon commencement of operations, the Company also entered into an administration and custodian agreement (the “Administration Agreement”) with State Street Bank and Trust Company (the “Administrator”).

 

2.

Summary of Significant Accounting Policies

 

Basis of Presentation – The accompanying financial statements of the Company have been prepared on the accrual basis of accounting in accordance with U.S. generally accepted accounting principles (“GAAP”) and pursuant to the requirements for reporting on Form 10-Q and Article 10 of Regulation S-X. Accordingly, certain financial information that is normally included in annual financial statements, including certain financial statement notes, prepared in accordance with GAAP, is not required for interim reporting purposes and have been omitted. In the opinion of management, the unaudited financial results included herein contain all adjustments considered necessary for the fair presentation of financial statements for the interim periods included herein. The current period’s results of operations will not necessarily be indicative of results that ultimately may be achieved for the fiscal year ending December 31, 2017.

 

The accounting records of the Company are maintained in United States dollars.

 

Use of Estimates – The preparation of financial statements in accordance with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of income and expenses during the reporting period. Actual results could differ from those estimates and such differences could be material. The most significant estimates relate to the valuation of the Company’s portfolio investments.

 

Consolidation – In accordance with Regulation S-X Article 6.03 and ASC Topic 810 - Consolidation, the Company generally will not consolidate its interest in any operating company other than in investment company subsidiaries, certain financing subsidiaries, and controlled operating companies substantially all of whose business consists of providing services to the Company.

 

Portfolio Investment Classification – The Company classifies its investments in accordance with the requirements of the 1940 Act. Under the 1940 Act, “Control Investments” are defined as investments in which the Company owns more than 25% of the voting securities or has rights to maintain greater than 50% of the board representation. Under the 1940 Act, “Affiliate Investments” are defined as investments in which the Company owns between 5% and 25% of the voting securities and does not have rights to maintain greater than 50% of the board representation. “Non-controlled, non-affiliate investments” are defined as investments that are neither Control Investments or Affiliate Investments.

 

Cash – At June 30, 2017, cash balances totaling $3.8 million exceeded FDIC insurance protection levels, subjecting the Company to risk related to the uninsured balance. All of the Company’s cash deposits are held by the Administrator and management believes that the risk of loss associated with any uninsured balance is remote.

 

Deferred Financing Costs – Deferred financing costs consist of fees and expenses paid in connection with the credit facility (as defined in Note 10) and are capitalized at the time of payment. These costs are amortized using the straight line method, which approximate the effective interest method over the term of the Credit Facility.

 

Deferred Note Offering Costs – Deferred Note Offering costs consist of fees and expenses paid in connection with the series of Senior Securities issued (as defined in Note 9) and are capitalized at this time as these fees and expenses were incurred before the issuance commenced. These costs are amortized using the straight line method, which approximate the effective interest method over the term of the Notes.

 

Valuation of Portfolio Investments – Portfolio investments are carried at fair value as determined by the Board of Directors (the ‘‘Board’’) of Alcentra.

 

The methodologies used in determining these valuations include:

 

(1) Preferred shares/membership units and common shares/membership units

 

 

In determining estimated fair value for common shares/membership units and preferred shares, the Company makes assessments of the methodologies and value measurements which market participants would use in pricing comparable investments, based on market data obtained from independent sources as well as from the Company’s own assumptions and taking into account all material events and circumstance which would affect the estimated fair value of such investments. Several types of factors, circumstances and events could affect the estimated fair value of the investments. These include but are not limited to the following:

 

(i) Any material changes in the (a) competitive position of the portfolio investment, (b) legal and regulatory environment within which the portfolio investment operates, (c) management or key managers of the portfolio investment, (d) terms and/or cost of financing available to the portfolio investment, and (e) financial position or operating results of the investment; (ii) pending disposition by the Company of all or a major portfolio investments; and (iii) sales prices of recent public or private transactions in identical or comparable investments.

 

One or a combination of the following valuation techniques are used to fair value these investments: Market Approach and Income Approach. The Market Approach uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities. The Income Approach uses valuation techniques to convert future amounts to a present amount (i.e., discounting estimated future cash flows to a net present value amount).

 

(2) Debt

 

The fair value of performing debt investments is typically derived utilizing a market yield analysis.  In a market yield analysis, a price is ascribed to each debt investment based upon an assessment of current and expected market yields for similar debt investments and risk profiles. Additional consideration is given to current contractual interest rates, relative maturities and other key terms and risks associated with a debt investment. 

 

The Company considers many factors in evaluating the most suitable point within the range of fair values, including, but not limited to, the following:

 

·                     the portfolio company’s underlying operating performance and any related trends;

 

·                     the improvement or decline in the underlying credit quality measured on the basis of a loan-to-enterprise value ratio and total outstanding debt to EBITDA ratio; and

 

·                     changes or issues related to the portfolio company’s customer/supplier concentration, regulatory developments and other portfolio company specific considerations.

 

(3) Warrants

 

Where warrants are considered to be in the money, their incremental value is included within the valuation of the investments.

 

Valuation techniques are applied consistently from period to period, except when circumstances warrant a change to a different valuation technique that will provide a better estimate of fair value. The valuation process begins with each investment being initially valued by the investment professionals of the Company and its Adviser. Preliminary valuation conclusions are then documented and discussed with senior investment professional of the Company, its Adviser. The Investment Committee reviews the valuation of the investment professionals and then determines the fair value of each investment in good faith based on the input of the investment professionals.

 

With respect to the Company’s valuation process, the Board undertakes a similar multi-step valuation process each quarter, as described below:

 

•

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

 

•

preliminary valuation conclusions will then be documented and discussed with Alcentra’s senior management and the Adviser;

 

•

the audit committee of the Board then reviews these preliminary valuations;

 

•

at least once quarterly, independent valuation firms engaged by the Board prepare preliminary valuations on a selected basis and submit the reports to the Board; and

 

•

the Board then discusses valuations and determine the fair value of each investment in Alcentra’s portfolio in good faith, based on the input of the Adviser, the independent valuation firms and the audit committee.

 

The Board has authorized the engagement of independent valuation firms to provide Alcentra with valuation assistance. Alcentra intends to have independent valuation firms provide it with valuation assistance on a portion of its portfolio on a quarterly basis and its entire portfolio will be reviewed at least annually by independent valuation firms; however, the Board is ultimately and solely responsible for the valuation of its portfolio investments at fair value as determined in good faith pursuant to its valuation policy and a consistently applied valuation process.

 

 

Because of the inherent uncertainty of valuation, those estimated values may differ significantly from the values that would have been used had a readily available market for the securities existed or from those which will ultimately be realized.

 

Organizational and Offering Costs – Organization expenses, including reimbursement payments to the Adviser, are expensed on the Company’s Consolidated Statements of Operations. These expenses consist principally of legal and accounting fees incurred in connection with the organization of the Company and have been expensed as incurred. Offering expenses consist principally of underwriter’s fee, legal, accounting, printing fees and other related expenses associated with the filing of a registration statement. Offering costs are offset against proceeds of the offering in paid-in capital in excess of par in the Consolidated Statements of Changes in Net Assets. $1.56 million of offering costs were incurred with the initial public offering.

 

Paid-In-Capital – The Company records the proceeds from the sale of its common stock on a net basis to (i) capital stock and (ii) paid in capital in excess of par value, excluding all commissions

 

Earnings and Net Asset Value Per Share – Earnings per share is calculated based upon the weighted average number of shares of common stock outstanding during the reported period. Net Asset Value per share is calculated using the number of shares outstanding as of the end of the period.

 

Investments – Investment security transactions are accounted for on a trade date basis. Cost of portfolio investments represents the actual purchase price of the securities acquired including capitalized legal, brokerage and other fees as well as the value of interest and dividends received in-kind and the accretion of original issue discounts. Fees may be charged to the issuer by the Company in connection with the origination of a debt security financing. Such fees are reflected as a discount to the cost of the portfolio security and the discount is accreted into income over the life of the related debt security.

 

Original Issue Discount – When the Company receives warrants with a nominal or discounted exercise price upon origination of a debt or preferred stock investment, a portion of the cost basis is allocated to the warrants. When the investment is made concurrently with the sale of a substantial amount of equity, the value of the warrants is based on the sales price. The value of the warrants is recorded as original issue discount (“OID”) to the value of the debt or preferred stock investment and the OID is amortized over the life of the investment.

 

Interest and Dividend Income – Interest is recorded on the accrual basis to the extent that the Company expects to collect such amounts. The Company accrues paid in-kind interest (“PIK”) by recording income and an increase to the cost basis of the related investments. Dividend income is recorded on ex-dividend date. Dividends in-kind are recorded as an increase in cost basis of investments and as income.

 

Investments that are expected to pay regularly scheduled interest in cash are generally placed on non-accrual status when principal or interest cash payments are past due 30 days or more and/or when it is no longer probable that principal or interest cash payments will be collected. Such non-accrual investments are restored to accrual status if past due principal and interest are paid in cash, and in management’s judgment, are likely to continue timely payment of their remaining principal and interest obligations. Cash interest payments received on non-accrual designated investments may be recognized as income or applied to principal depending on management’s judgment. There were two non-accrual investments as of June 30, 2017 and one non-accrual investment as of December 31, 2016.

 

Other Income – The Company may also receive structuring or closing fees in connection with its investments. Such upfront fees are accreted into income over the life of the investment. These fees are non-recurring in nature.

 

Prepayment penalties received by the Company for debt instruments paid back to the Company prior to the maturity date are recorded as income upon receipt.

 

Income Taxes – The Company has elected to be treated for U.S. federal income tax purposes as a RIC under Subchapter M of the Code, and to operate in a manner so as to qualify for the tax treatment applicable to RIC’s. To obtain and maintain our qualification for taxation as a RIC, the Company must, among other things, meet certain source-of-income and asset diversification requirements. In addition, the Company must distribute to our stockholders, for each taxable year, at least 90% of ‘‘investment company taxable income,’’ which is generally net ordinary taxable income plus the excess of realized net short-term capital gains over realized net long-term capital losses, or the Annual Distribution Requirement. As a RIC, the Company generally will not pay corporate-level U.S. federal income taxes on any ordinary income or capital gains that are timely distributed to stockholders as dividends.

 

 

Alcentra BDC Equity Holdings LLC has elected to be a taxable entity (the “Taxable Subsidiary”). The Taxable Subsidiary permits the Company to hold equity investments in portfolio companies which are “pass through” entities for tax purposes and continue to comply with the “source income” requirements contained in RIC tax provisions of the Code. The Taxable Subsidiary is not consolidated with the Company for income tax purposes and may generate income tax expense, benefit, and the related tax assets and liabilities, as a result of its ownership of certain portfolio investments. The income tax expense, or benefit, if any, and related tax assets and liabilities are reflected in the Company’s consolidated financial statements. For the three and six months ended June 30, 2017, we recognized a provision for income tax on unrealized gain on investments of $(0.1) million and $(0.8) million for the Taxable Subsidiaries, respectively. For the three and six months ended June 30, 2016, we recognized a provision for income tax on unrealized gain on investments of $(0.3) million and $(0.5) million for the Taxable Subsidiaries, respectively. As of June 30, 2017 and December 31, 2016, $1.5 million and $1.3 million was included in the deferred tax asset on the Consolidated Statements of Assets and Liabilities, respectively.

 

Indemnification – In the normal course of business, the Company enters into contractual agreements that provide general indemnifications against losses, costs, claims and liabilities arising from the performance of individual obligations under such agreements. The Company has had no prior claims or payments pursuant to such agreements. The Company’s individual maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Company that have not yet occurred. However, based on management’s experience, the Company expects the risk of loss to be remote.

 

Recently Issued Accounting Standards – In October 2016, the U.S. Securities and Exchange Commission adopted new rules and amended rules (together, “final rules”) interned to modernize the reporting and disclosure of information by registered investment companies. In part, the final rules amend Regulation S-X and require standardized, enhanced disclosure about derivatives in investment company financial statements, as well as other amendments. The compliance date for the amendments to Regulation S-X was August 1, 2017. The Company is evaluating the impact that the adoption of the amendments to Regulation S-X will have on its consolidated financial statements and disclosures.

 

In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows, which will amend FASB ASC 230. The amendments in this Update require that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The amendments in this Update apply to all entities that have restricted cash or restricted cash equivalents and are required to present a statement of cash flows under Topic 230. For public business entities, the amendments are effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. The Company is evaluating the impact of ASU 2016-18 on its consolidated financial statements and disclosures.

 

In December 2016, the FASB issued ASU 2016-19, Technical Corrections and Improvements. As part of this guidance, ASU 2016-19 amends FASB ASC 820 to clarify the difference between a valuation approach and a valuation technique. The amendment also requires an entity to disclose when there has been a change in either or both a valuation approach and/or a valuation technique. ASU 2016-19 is effective on a prospective basis for financial statements issued for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016 on a prospective basis. The Company has evaluated the impact of ASU 2016-19 on its consolidated financial statements and disclosures and determined that the adoption of ASU 2016-19 has not had a material impact on its consolidated financial statements.

 

In March 2017, the FASB issued ASU 2017-08, Premium Amortization on Purchased Callable Debt Securities, which will amend FASB ASC 310-20. The amendments in this Update shorten the amortization period for certain callable debt securities held at a premium, generally requiring the premium to be amortized to the earliest call date. For public business entities, the amendments are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Early adoption is permitted, including adoption in an interim period. The Company is evaluating the impact of ASU 2017-08 on its consolidated financial statements and disclosures.

 

3.

Fair Value of Portfolio Investments

 

The Company accounts for its investments in accordance with FASB Accounting Standards Codification Topic 820 (“ASC Topic 820”), Fair Value Measurements and Disclosures, which defines fair value, establishes a framework for measuring fair value. ASC Topic 820 established a fair value hierarchy which prioritizes and ranks the level of market price observability used in measuring investments at fair value.

 

Market price observability is impacted by a number of factors, including the type of investment, the characteristics specific to the investment, and the state of the marketplace (including the existence and transparency of transactions between market participants). Investments with readily-available actively quoted prices or for which fair value can be measured from actively-quoted prices in an orderly market will generally have a higher degree of market price observability and a lesser degree of judgment used in measuring fair value.

 

Investments measured and reported at fair value are classified and disclosed in one of the following categories (from highest to lowest) based on inputs:

 

Level 1 – Quoted prices (unadjusted) are available in active markets for identical investments that the Company has the ability to access as of the reporting date. The type of investments which would generally be included in Level 1 includes listed equity securities and listed derivatives. As required by ASC Topic 820, the Company, to the extent that it holds such investments, 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 2 – Pricing inputs are observable for the investments, either directly or indirectly, as of the reporting date, but are not the same as those used in Level 1. Fair value is determined through the use of models or other valuation methodologies.

 

Level 3 – Pricing inputs are unobservable for the investment and include situations where there is little, if any, market activity for the investment. The inputs into the determination of fair value require significant judgment or estimation by the Company. The types of investments which would generally be included in this category include debt and equity securities issued by private entities.

 

 

In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the determination of which category within the fair value hierarchy is appropriate for any given investment is based on the lowest level of input that is significant to the fair value measurement. The Company's assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the investment.

 

The fair values of our investments disaggregated into the three levels of the fair value hierarchy based upon the lowest level of significant input used in the valuation as of June 30, 2017 are as follows:

 

		Level 1				Level 2				Level 3				Total
Senior Secured - First Lien		$	—			$	—			$	116,965,704			$	116,965,704
Senior Secured - Second Lien			—				—				54,884,525				54,884,525
Subordinated Debt			—				—				75,521,572				75,521,572
Equity/Other			—				—				23,998,187				23,998,187
Total Investments		$	—			$	—			$	271,369,988			$	271,369,988

 

The fair values of our investments disaggregated into the three levels of the fair value hierarchy based upon the lowest level of significant input used in the valuation as of December 31, 2016 are as follows:

 

		Level 1				Level 2				Level 3				Total
Senior Secured - First Lien		$	—			$	—			$	95,684,153			$	95,684,153
Senior Secured - Second Lien			—				—				84,864,909				84,864,909
Subordinated Debt			—				—				74,050,349				74,050,349
Equity/Other			—				—				21,673,539				21,673,539
Total Investments		$	—			$	—			$	276,272,950			$	276,272,950

 

The changes in investments classified as Level 3 are as follows for the six months ended June 30, 2017 and June 30, 2016.

 

As of June 30, 2017:

 

		Senior				Senior
		Secured -				Secured -				Senior				Equity/
		First Lien				Second Lien				Subordinated				Other				Total
Balance as of January 1, 2017		$	95,684,153			$	84,864,909			$	74,050,349			$	21,673,539			$	276,272,950
Amortized discounts/premiums			445,927				897,432				76,086				-				1,419,445
Paid in-kind interest			230,149				283,586				482,269				271,205				1,267,209
Net realized gain (loss)			-				-				74				(1,019,310	)			(1,019,236	)
Net change in unrealized appreciation (depreciation)			(1,416,184	)			(13,920,788	)			(1,419,978	)			5,045,333				(11,711,617	)
Purchases			50,379,773				1,391,178				2,333,039				2,008,110				56,112,100
Sales/Return of capital			(28,358,114	)			(18,631,792	)			(267	)			(3,980,690	)			(50,970,863	)
Transfers in			-				-				-				-				-
Transfers out			-				-				-				-				-
Balance as of June 30, 2017		$	116,965,704			$	54,884,525			$	75,521,572			$	23,998,187			$	271,369,988
Net change in unrealized appreciation (depreciation) from investments still held as of June 30, 2017		$	(1,269,644	)		$	(13,830,385	)		$	(1,419,904	)		$	3,745,334			$	(12,774,599	)

 

 

As of June 30, 2016:

 

		Senior				Senior
		Secured -				Secured -				Senior				Equity/
		First Lien				Second Lien				Subordinated				Other				Total
Balance as of January 1, 2016		$	88,453,325			$	83,266,558			$	80,458,554			$	44,163,174			$	296,341,611
Amortized discounts/premiums			73,466				76,331				53,842				-				203,639
Paid in-kind interest			1,165,969				207,009				1,130,887				1,662,944				4,166,809
Net realized gain (loss)			(5,309,022	)			11,658				269,964				(2,204,958	)			(7,232,358	)
Net change in unrealized appreciation (depreciation)			3,993,380				(1,594,453	)			(4,143,123	)			3,679,274				1,935,078
Purchases			30,984,253				15,340,499				27,918,637				7,355,926				81,599,315
Sales/Return of capital			(38,657,613	)			(4,304,031	)			(35,433,585	)			(4,979,881	)			(83,375,110	)
Balance as of June 30, 2016		$	80,703,758			$	93,003,571			$	70,255,176			$	49,676,479			$	293,638,984
Net change in unrealized appreciation(depreciation) from investments still held as of June 30, 2016		$	(462,764	)		$	(1,594,452	)		$	(3,964,158	)		$	973,410			$	(5,047,964	)

 

The following is a summary of the quantitative inputs and assumptions used for items categorized in Level 3 of the fair value hierarchy as of June 30, 2017 and December 31, 2016, respectively.

 

As of June 30, 2017:

 

Assets at Fair Value		Fair Value at June 30, 2017				Valuation Technique		Unobservable Input		Range of Inputs				Weighted Average
Senior Secured - First Lien		$	116,965,704			Yield to Maturity		Comparable Market Rate			9.0% - 17.0%				11.12	%
Senior Secured - Second Lien		$	54,884,525			Yield to Maturity		Comparable Market Rate			9.5% - 21.5%				11.73	%
Senior Subordinated		$	75,521,572			Yield to Maturity		Comparable Market Rate			10.0% - 14.0%				12.31	%
Preferred Ownership		$	7,909,889			Market Approach		Enterprise Value/ LTM EBITDA Multiple			4.0x – 13.0x				8.36	x
Common Ownership/ Common Warrants		$	16,088,298			Market Approach		Enterprise Value/ LTM EBITDA Multiple			4.0x – 13.0x				8.53	x
Total		$	271,369,988

 

As of December 31, 2016:

 

Assets at Fair Value		Fair Value at December 31, 2016				Valuation Technique		Unobservable Input		Range of Inputs				Weighted Average
Senior Secured - First Lien		$	95,684,153			Yield to Maturity		Comparable Market Rate			9.0% - 17.0%				11.44	%
Senior Secured - Second Lien		$	84,864,909			Yield to Maturity		Comparable Market Rate			9.7% - 20.7%				11.39	%
Senior Subordinated		$	74,050,349			Yield to Maturity		Comparable Market Rate			10.0% - 14.0%				12.33	%
Preferred Ownership		$	12,426,782			Market Approach		Enterprise Value/ LTM EBITDA Multiple			4.0x - 13.0x				8.26	x
Common Ownership/ Common Warrants		$	9,246,757			Market Approach		Enterprise Value/ LTM EBITDA Multiple			4.0x - 13.0x				10.13	x
Total		$	276,272,950

 

 

4.

Share Transactions

 

The following table sets forth the number of shares of common stock issued by the Company for the six months ended June 30, 2017:

 

 

Month Ended		Shares Issued				Issuance Price Per Share				Aggregate Consideration for Issued Shares
May 31,  2017			808,161			$	13.6800			$	10,853,602

 

On January 18, 2016, the Board of Directors approved a $5.0 million open market stock repurchase program. Pursuant to the program, we are authorized to repurchase up to $5.0 million in the aggregate of our outstanding common stock in the open market. The timing, manner, price and amount of any share repurchases will be determined by our management, in its discretion, based upon the evaluation of economic conditions, stock price, applicable legal and regulatory requirements and other factors. The open market stock repurchase program will be in effect until the earlier of (i) January 18, 2017 or (ii) the repurchase of $5.0 million of the Company’s common stock. The program does not require us to repurchase any specific number of shares and we cannot assure that any shares will be repurchased under the program. The program may be suspended, extended, modified or discontinued at any time.

 

The following tables set forth the number of shares of common stock repurchased by the Company under its share repurchase program for the six months ended June 30, 2017 and 2016:

 

As of June 30, 2017:

 

Month Ended		Shares Repurchased				Repurchase Price Per Share				Aggregate Consideration for Repurchased Shares
January 31,  2017			14,574				$12.1253 - $12.4900			$	165,514

 

As of June 30, 2016:

 

Month Ended		Shares Repurchased				Repurchase Price Per Share				Aggregate Consideration for Repurchased Shares
March 31, 2016			10,509				$10.7700 - $11.2444			$	115,828
May 31, 2016			9,547				$11.5596 - $12.3333				114,762
June 30, 2016			6,074				$12.2335 - $12.3586				74,860
			26,130							$	305,450

 

5.

Distributions

 

The Company intends to make quarterly distributions of available net investment income determined on a tax basis to its stockholders. Distributions to stockholders are recorded on the record date. The amount, if any, to be distributed to stockholders is determined by the Board each quarter and is generally based upon the earnings estimated by management. Net realized capital gains, if any, will be distributed at least annually. If the Company does not distribute (or are not deemed to have distributed) at least 98% of the Company’s annual ordinary income in the calendar year earned, the Company will generally be required to pay an excise tax equal to 4% of the amount by which 98% of our annual ordinary income exceed the distributions from such taxable income for the year. To the extent that the Company determines that its estimated current year annual taxable income will be in excess of estimated current year dividend distributions from such taxable income, the Company accrues excise taxes, if any, on estimated excess taxable income. As of June 30, 2017 and December 31, 2016, the Company accrued $211,152 and $240,207, respectively, for any unpaid potential excise tax liability and have included these amounts within income tax liability on the accompanying Consolidated Statements of Assets and Liabilities.

 

 

The following table reflects the Company’s dividends declared and paid on its common stock for the six months ended June 30, 2017:

 

Date Declared		Record Date		Payment Date		Amount Per Share
March 9, 2017		March 31, 2017		April 6, 2017		$	0.340
March 9, 2017		March 31, 2017		April 6, 2017		$	0.030
May 4, 2017		June 30, 2017		July 6, 2017		$	0.340

 

The following table reflects the Company’s dividends declared and paid on its common stock for the six months ended June 30, 2016:

 

Date Declared		Record Date		Payment Date		Amount Per Share
March 7, 2016		March 31, 2016		April 7, 2016		$	0.340
May 5, 2016		June 30, 2016		July 7, 2016		$	0.340

 

The Company has adopted a dividend reinvestment plan (“DRIP”) that provides for the reinvestment of dividends on behalf of its stockholders, unless a stockholder has elected to receive dividends in cash. As a result, if the Company declares a cash dividend, the stockholders who have not “opted out” of the DRIP no later than the record date will have their cash dividend automatically reinvested into additional shares of the Company’s common stock. The Company has the option to satisfy the share requirements of the DRIP through the issuance of new shares of common stock or through open market purchases of common stock by the DRIP plan administrator. Newly issued shares are valued based upon the final closing price of the common stock on the NASDAQ Global Select Market on the dividend payment date. Shares purchased in the open market to satisfy the DRIP requirements will be valued upon the average price of the applicable shares purchased by the plan administrator, before any associated brokerage or other costs.

 

6.

Related Party Transactions

 

Management Fee

 

Under the Investment Advisory Agreement, the Company has agreed to pay Alcentra NY an annual base management fee based on its gross assets as well as an incentive fee based on its performance. The base management fee is calculated at an annual rate as follows: 1.75% of its gross assets (i.e., total assets held before deduction of any liabilities), including assets purchased with borrowed funds or other forms of leverage and excluding cash and cash equivalents (such as investments in U.S. Treasury Bills), if its gross assets are below $625 million; 1.625% if its gross assets are between $625 million and $750 million; and 1.5% if its gross assets are greater than $750 million. The various management fee percentages (i.e. 1.75%, 1.625% and 1.5%) would apply to the Company’s entire gross assets in the event its gross assets exceed the various gross asset thresholds. The base management fee will be payable quarterly in arrears and shall be calculated based on the average value of the Company’s gross assets, excluding cash and cash equivalents, at the end of the two most recently completed calendar quarters.

 

The incentive fee consists of two parts. The first part, which is calculated and payable quarterly in arrears, equals 20% of the Company's ‘‘pre-incentive fee net investment income’’ for the immediately preceding quarter, subject to a hurdle rate of 2% per quarter, and is subject to a ‘‘catch-up’’ feature. The “catch-up” feature is intended to provide the Adviser with an incentive fee of 50% of the Company’s “pre-incentive fee net investment income” as if a preferred return did not apply when our net investment income exceeds 2.5% in any quarter. The second part is calculated and payable in arrears as of the end of each calendar year (or, upon termination of the Investment Advisory Agreement, as of the termination date) and equals 20% of our aggregate cumulative realized capital gains from inception through the end of each calendar year, computed net of aggregate cumulative realized capital losses and aggregate cumulative unrealized capital depreciation through the end of such year, less the aggregate amount of any previously paid capital gain incentive fees. Pre-incentive fee net investment income means interest income, dividend income and any other income (including any other fees, such as commitment, origination, structuring, diligence, managerial assistance and consulting fees or other fees that the Company receives from portfolio companies) accrued during the calendar quarter, minus our operating expenses for the quarter (including the base management fee, expenses payable for administrative services under the Investment Advisory Agreement, and any interest expense and any distributions paid on any issued and outstanding preferred stock, but excluding the incentive fee and any offering expenses and other expenses not charged to operations but excluding certain reversals to the extent such reversals have the effect of reducing previously accrued incentive fees based on the deferral of non-cash interest). Pre-incentive fee net investment income excludes, in the case of investments with a deferred interest feature (such as original issue discount, debt instruments with PIK interest and zero coupon securities), accrued income until the Company has received such income in cash.

 

 

For the three and six months ended June 30, 2017, the Company recorded expenses for base management fees of $1,229,648 and $2,479,217, respectively, of which $169,524 and $169,524, respectively, was waived by the Adviser and $1,060,125 was payable at June 30, 2017. For the three and six months ended June 30, 2016, the Company recorded expenses for base management fees of $1,283,763 and $2,572,799, respectively, of which none was waived by the Adviser and $1,283,763 was payable at June 30, 2016.

 

For the three and six months ended June 30, 2017, the Company incurred income-based incentive fees of $0 and $653,911, respectively, of which $0 and $0 was waived by the Adviser, respectively. For the three and six months ended June 30, 2016, the Company incurred income-based incentive fees of $926,158 and $1,716,885, respectively, of which none was waived by the Adviser. For the three and six months ended June 30, 2017, the Company incurred capital gains incentive fees of $0 and $0, respectively, of which $0 and $0, respectively, was waived by the Adviser. For the three and six months ended June 30, 2016, the Company incurred capital gains incentive fees of $0 and $0, respectively, of which $0 and $0, respectively, was waived by the Adviser.

 

7.

Directors' Fees

 

The independent directors of the Company each receive an annual fee of $40,000. They also receive $2,500 plus reimbursement of reasonable out-of-pocket expenses incurred in connection with attending in person each board of directors meeting and $1,000 plus reimbursement of reasonable out-of-pocket expenses incurred in connection with attending each board meeting telephonically. They also receive $1,000 plus reimbursement of reasonable out-of-pocket expenses incurred in connection with each committee meeting attended in person and each telephonic committee meeting. The chairman of the audit committee, the nominating and corporate governance committee and the compensation committee will receive an annual fee of $10,000, $5,000 and $5,000, respectively. The Company has obtained directors’ and officers’ liability insurance on behalf of its directors and officers.

 

For the three and six months ended June 30, 2017 the Company recorded directors' fee expense of $74,344 and $142,480, respectively, of which $73,000 was payable at June 30, 2017. For the three and six months ended June 30, 2016 the Company recorded directors' fee expense of $84,372 and $149,295, respectively, of which $72,500 was payable at June 30, 2016.

 

8.

Purchases and Sales (Investment Transactions)

 

Investment purchases, sales and principal payments/paydowns are summarized below for the six months ended June 30, 2017 and June 30, 2016.

 

		For the six months ended June 30,
		2017				2016
Investment purchases, at cost (including PIK interest and dividends)		$	57,379,309			$	73,722,202
Investment sales, proceeds (including principal payments/paydown proceeds)			50,970,863				71,331,188

 

9.

Alcentra Capital InterNotes®

 

On January 30, 2015, the Company entered into a Selling Agent Agreement with Incapital LLC, as purchasing agent for the Company's issuance of $40.0 million of Alcentra Capital InterNotes®. On January 25, 2016, the Company entered into an additional Selling Agent Agreement with Incapital LLC, as purchasing agent for the Company’s issuance of up to $15 million of Alcentra Capital InterNotes®.

 

These notes are direct unsecured obligations and each series of notes will be issued by a separate trust (administered by U.S. Bank). These notes bear interest at fixed interest rates and offer a variety of maturities no less than twelve months from the original date of issuance.

 

 

During the six months ended June 30, 2017, the Company issued $0 million in aggregate principal amount of the Alcentra Capital InterNotes® for net proceeds of $0 million. These notes were issued with a stated interest rate of 6.50%, 6.375% and 6.25%. These notes mature on February 15, 2021, June 15, 2021 and July 15, 2021. For the three and six months ended June 30, 2017, the Company borrowed an average of $55.0 million and $55.0 million, respectively, with a weighted average interest rate of 6.44% and 6.40%, respectively. For the three and six months ended June 30, 2016, the Company borrowed an average of $46.0 million and $44.6 million, respectively, with a weighted average interest rate of 6.43%.

 

The following table summarizes the Alcentra Capital InterNotes® issued and outstanding during the six months ended June 30, 2017.

 

Tenor at				Principal				Interest				Weighted
Origination				Amount				Rate				Average
(in years)				(000’s omitted)				Range				Interest Rate				Maturity Date Range
	5			$	53,582				6.25% - 6.50	%			6.38	%		February 15, 2020 - June 15, 2021
	7				1,418				6.50% - 6.75	%			6.63	%		January 15, 2022 - April 15, 2022
				$	55,000

 

During the six months ended June 30, 2017, we redeemed $xxx aggregate principal amount of our Alcentra Capital InterNotes®. The net proceeds of this offering were used to repay outstanding indebtedness under the Credit Facility.

 

In connection with the issuance of the Alcentra Capital InterNotes®, the Company incurred $x.xxx million of fees which are being amortized over the term of the notes and are included within deferred financing costs on the Consolidated Statements of Assets and Liabilities as of June 30, 2017. During the six months ended June 30, 2017 the Company recorded $x.xxx million of interest costs and amortization of offering costs on the Alcentra Capital InterNotes® as interest expense.

 

10.

Credit Facility

 

On May 8, 2014, the Company entered into a senior secured revolving credit agreement (the “Credit Facility”) with ING Capital LLC (“ING”), as administrative agent, collateral agent and lender to provide liquidity in support of its investment and operational activities. The Credit Facility has an initial commitment of $80 million with an accordion feature that allows for an increase in the total commitments up to $160 million, subject to certain conditions and the satisfaction of specified financial covenants. The Credit Facility was amended on August 11, 2015 to increase the accordion feature to allow for a future increase of the total commitments up to $250 million, subject to satisfaction of certain conditions at the time of any such future increase. As amended, the Credit Facility has a maturity date of August 11, 2020 and bears interest, at our election, at a rate per annum equal to (i) 2.25% plus the highest of a prime rate, the Federal Funds rate plus 0.5%, three month LIBOR plus 1%, and zero or (ii) 3.25% plus the one, three or six month LIBOR rate, as applicable.

 

On March 2, 2016, the Company amended certain provisions of the Credit Facility relating to the treatment of approximately $38.6 million in aggregate principal amount of outstanding InterNotes that mature prior to the Credit Facility. Among other things, the amendments to the Credit Facility provide that, in the nine-month period prior to the maturity of these particular InterNotes, which mature between February 15 and April 15, 2020, the Company's ability to borrow under the Credit Facility will be reduced by and in the amount of such InterNotes still outstanding during such time. The Credit Facility is secured primarily by the Company’s assets. Costs of $3.8 million were incurred in connection with obtaining and amending the Credit Facility, which have been recorded as deferred financing costs on the Consolidated Statements of Assets and Liabilities and are being amortized over the life of the Credit Facility.

 

Amounts available to borrow under the Credit Facility are subject to a minimum borrowing /collateral base that applies an advance rate to certain investments held by the Company. The Company is subject to limitations with respect to the investments securing the Credit Facility, including, but not limited to, restrictions on sector concentrations, loan size, portfolio company leverage which may affect the borrowing base and therefore amounts available to borrow.

 

The Company pays a commitment fee between 0.5% and 1.0% per annum based on the size of the unused portion of the Credit Facility. This fee is included in interest expense on the Company’s Consolidated Statements of Operations.

 

The Company has made customary representations and warranties and is required to comply with various covenants and reporting requirements. These covenants are subject to important limitations and exceptions that are described in the documents governing the Credit Facility. As of June 30, 2017, the Company was in compliance in all material respects with the terms of the Credit Facility.

 

 

As of June 30, 2017 and December 31, 2016 the Company had United States dollar borrowings of $35.1 million and $39.1 million outstanding under the Credit Facility, respectively. For the three and six months ended June 30, 2017, the Company borrowed an average of $38.9 million and $38.8 million with a weighted average interest rate of 4.36% and 4.32%, respectively. For the three and six months ended June 30, 2016, the Company borrowed an average of $43.4 million and $49.3 million with a weighted average interest rate of 3.83% and 3.79%, respectively.

 

11.

Market and Other Risk Factors

 

At June 30, 2017, the Company’s portfolio investments are comprised of non-publicly-traded securities. The non-publicly-traded securities trade in an illiquid marketplace. The portfolio is comprised of investments in the twenty industries listed in Note 13. Risks affecting these industries include, but are not limited to, increasing competition, rapid changes in technology, government actions and changes in economic conditions. These risk factors could have a material effect on the ultimate realizable value of the Company’s investments.

 

Economic conditions in 2016 continued to impact revenues and operating cash flows for most businesses and continued to impact the lending markets, leaving many businesses unable to borrow or refinance debt obligations. These restrictions on obtaining available financing, coupled with the continuing economic slowdown, have resulted in a low volume of purchase and sale transactions across all industries, which have limited the amount of observable inputs available to the Company in estimating the fair value of the Company’s investments. The Company estimates the fair value of investments for which observable market prices in active markets do not exist based on the best information available, which may differ significantly from values that would have otherwise been used had a ready market for the investments existed and the differences could be material.

 

Market conditions may deteriorate, which may negatively impact the estimated fair value of the Company’s investments or the amounts which are ultimately realized for such investments.

 

The above events are beyond the control of the Company and cannot be predicted. Furthermore, the ability to liquidate investments and realize value is subject to significant limitations and uncertainties. There may also be risk associated with the concentration of investments in one geographic region or in certain industries.

 

12.

Commitments and Contingencies

 

In the normal course of business, the Company enters into contracts that contain a variety of representations and warranties and which provide general indemnifications. In addition, the Company has agreed to indemnify its officers, directors, employees, agents or any person who serves on behalf of the Company from any loss, claim, damage, or liability which such person incurs by reason of his performance of activities of the Company, provided they acted in good faith. The Company expects the risk of loss related to its indemnifications to be remote.

 

The Company’s investment portfolio may contain debt investments that are in the form of lines of credit and unfunded delayed draw commitments, which require the Company to provide funding when requested by portfolio companies in accordance with the terms of the underlying loan agreements. As of June 30, 2017 and December 31, 2016, the Company had $9.6 million and $6.3 million in unfunded commitments under loan and financing agreements, respectively. As of June 30, 2017 and December 31, 2016, the Company’s unfunded commitment under loan and financing agreements are presented below.

 

		As of
		June 30, 2017				December 31, 2016
Superior Controls, Inc.		$	2,500,000			$	2,500,000
Lugano Diamonds & Jewelry, Inc.			2,000,000				2,000,000
Pharmalogics Recruiting, LLC			2,000,000				-
Healthcare Associates of Texas, LLC			1,300,000				1,300,000
NTI Holdings, LLC			1,258,540				-
IGT			500,000				500,000
Total		$	9,558,540			$	6,300,000

 

 

13.

Classification of Portfolio Investments

 

As of June 30, 2017, the Company’s portfolio investments were categorized as follows:

 

Industry		Cost				Fair Value				% of Net Assets*
Healthcare Services		$	46,093,054			$	46,333,102				25.56	%
Industrial Services			30,502,617				31,729,598				17.50	%
High Tech Industries			26,169,749				26,406,000				14.57	%
Technology & Telecom			23,874,093				23,753,375				13.10	%
Automotive Business Services			20,217,392				19,089,000				10.53	%
Telecommunications			15,683,890				17,534,191				9.67	%
Security			23,765,520				12,312,464				6.79	%
Retail			11,804,969				12,116,005				6.68	%
Education			15,797,832				11,632,508				6.42	%
Oil & Gas Services			15,619,989				10,311,364				5.69	%
Media: Advertising, Printing & Publishing			11,750,000				9,988,000				5.51	%
Business Services			9,885,520				9,975,000				5.50	%
Industrial Manufacturing			8,791,761				8,974,854				4.95	%
Environmental/Recycling Services			7,339,892				7,682,312				4.24	%
Wholesale/Distribution			4,556,363				4,556,363				2.51	%
Transportation Logistics			7,736,273				4,316,871				2.38	%
Aerospace			4,000,000				4,000,000				2.21	%
Technology & IT			3,779,476				3,895,435				2.15	%
Media & Entertainment			10,322,031				3,517,546				1.94	%
Waste Services			2,454,303				3,246,000				1.79	%
Total		$	300,144,724			$	271,369,988				149.70	%
Geographic Region
South		$	81,205,397			$	72,128,573				39.79	%
Eastern			59,352,556				49,749,130				27.44	%
Mid West			39,935,098				40,951,878				22.59	%
South West			30,822,264				30,779,999				16.98	%
North East			29,834,745				30,276,435				16.70	%
South East			35,334,749				30,175,873				16.65	%
West			23,659,915				17,308,100				9.55	%
Total		$	300,144,724			$	271,369,988				149.70	%
Investment Type
Senior Secured - First Lien		$	120,213,606			$	116,965,704				64.52	%
Senior Subordinated			80,851,304				75,521,572				41.66	%
Senior Secured - Second Lien			71,671,366				54,884,525				30.28	%
Equity/Other			27,408,448				23,998,187				13.24	%
Total		$	300,144,724			$	271,369,988				149.70	%

 

*Fair value as a percentage of Net Assets

 

 

As of December 31, 2016, the Company’s portfolio investments were categorized as follows:

 

Industry		Cost				Fair Value				% of Net Assets*
Healthcare Services		$	43,497,566			$	43,750,000				23.71	%
Telecommunications			26,601,444				27,342,064				14.82	%
Security			22,425,000				22,909,589				12.41	%
High Tech Industries			20,400,000				20,516,000				11.12	%
Automotive Business Services			20,090,093				20,206,939				10.95	%
Industrial Services			20,358,827				19,440,026				10.53	%
Industrial Manufacturing			15,472,567				16,259,000				8.81	%
Technology & Telecom			15,122,171				14,456,630				7.83	%
Education			14,837,425				13,500,157				7.32	%
Waste Services			13,586,080				13,160,777				7.13	%
Retail			11,876,716				12,022,615				6.52	%
Media: Advertising, Printing & Publishing			11,750,000				10,870,000				5.89	%
Oil & Gas Services			14,750,272				10,077,583				5.46	%
Environmental/Recycling Services			7,093,046				6,517,046				3.53	%
Wholesale/Distribution			4,900,000				4,900,000				2.66	%
Media & Entertainment			10,258,933				4,531,545				2.46	%
Transportation Logistics			7,475,203				4,316,871				2.34	%
Technology & IT			3,840,726				3,919,108				2.12	%
Aerospace			4,000,000				3,877,000				2.10	%
Food & Beverage			5,000,000				3,700,000				2.01	%
Total		$	293,336,069			$	276,272,950				149.72	%
Geographic Region
South		$	82,260,883			$	73,848,766				40.02	%
Mid West			48,785,996				49,578,049				26.87	%
Eastern			48,228,643				48,486,134				26.28	%
South East			35,200,203				31,186,871				16.90	%
South West			29,981,737				29,506,630				15.99	%
West			34,637,881				29,231,392				15.84	%
North East			14,240,726				14,435,108				7.82	%
Total		$	293,336,069			$	276,272,950				149.72	%
Investment Type
Senior Secured - First Lien		$	97,515,871			$	95,684,153				51.85	%
Senior Secured - Second Lien			87,730,962				84,864,909				45.99	%
Senior Subordinated			77,960,103				74,050,349				40.13	%
Equity/Other			30,129,133				21,673,539				11.75	%
Total		$	293,336,069			$	276,272,950				149.72	%

 

*Fair value as a percentage of Net Assets

 

14.

Financial Highlights

 

The following per share data and financial ratios have been derived from information provided in the consolidated financial statements of the Company. The following is a schedule of financial highlights for one share of common stock for the six months ended June 30, 2017 and June 30, 2016.

 

		For the six months ended				For the six months ended
		June 30, 2017				June 30, 2016
		(Unaudited)				(Unaudited)
Per share data(1)
Net asset value, beginning of period		$	13.72			$	14.43
Net investment income (loss)			0.68				0.85
Net realized and unrealized gains (losses)			(0.90	)			(0.40	)
Benefit (Provision) for taxes on unrealized appreciation (depreciation) on investments			(0.06	)			(0.04	)
Net increase (decrease) in net assets resulting from operations			(0.28	)			0.41
Distributions to shareholders:(2)
From net investment income			(0.68	)			(0.68	)
Net realized gains			(0.03	)			0.00
Total dividend distributions declared			(0.71	)			(0.68	)
Net asset value, end of period		$	12.73			$	14.16
Market value per share, end of period		$	13.59			$	12.15
Total return based on net asset value(3)(4)			(2.0	)%			2.8	%
Total return based on market value(3)(4)			19.5	%			10.6	%
Shares outstanding at end of period			14,245,220				13,490,636
Ratio/Supplemental Data:
Net assets, at end of period		$	181,275,604			$	191,087,536
Ratio of total expenses before waiver to average net assets(5)			9.16	%			9.44	%
Ratio of interest expenses to average net assets(5)			4.00	%			3.32	%
Ratio of incentive fees to average net assets(5)			0.72	%			1.78	%
Ratio of waiver of management and incentive fees to average net assets(5)			(0.19	)%			—%
Ratio of net expenses to average net assets(5)			8.98	%			9.44	%
Ratio of net investment income (loss) before waiver to average net assets(5)			10.26	%			11.95	%
Ratio of net investment income (loss) after waiver to average net assets(5)			10.45	%			11.95	%
Total Credit Facility payable outstanding		$	35,133,273			$	51,685,846
Total Notes payable outstanding		$	55,000,000			$	51,544,000
Asset coverage ratio(6)			3.0				2.9
Portfolio turnover rate(4)			18	%			25	%

 

 

(1)

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

(2)

The per share data for distributions is the actual amount of distributions paid or payable per share of common stock outstanding during the entire period.

(3)

Returns are historical and are calculated by determining the percentage change in net asset value or market value with all distributions reinvested. Distributions are assumed to be reinvested at prices obtained under the Company’s dividend reinvestment plan.

(4)

Not Annualized.

(5)

Annualized.

(6)

Asset coverage ratio is equal to (i) the sum of (A) net assets at the end of the period and (B) debt outstanding at the end of the period, divided by (ii) total debt outstanding at the end of the period.

 

15.

Unconsolidated Significant Subsidiaries

 

In accordance with the SEC’s Regulation S-X and GAAP, we have a subsidiary that is not required to be consolidated. We have a certain unconsolidated significant subsidiary that pursuant to Rule 4-08(g) of Regulation S-X, summarized financial information is presented below in aggregate as of and for the six months ended June 30, 2017 and as of and for the year ended December 31, 2016.

 

			As of					For the six months ended
Balance Sheet			June 30, 2017		Income Statement			June 30, 2017
Current Assets			5,476,202		Net Sales			7,331,017
Noncurrent Assets			18,372,753		Gross Profit			2,408,319
Current Liabilities			1,154,753		Net Income/EBITDA			1,181,478
Noncurrent Liabilities			13,595,674
			As of					For the year ended
Balance Sheet			December 31, 2016		Income Statement			December 31, 2016
Current Assets			4,881,976		Net Sales			15,174,299
Noncurrent Assets			18,320,899		Gross Profit			5,271,000
Current Liabilities			811,164		Net Income (Loss)			3,322,367
Noncurrent Liabilities			13,315,630

 

 

In addition to the risks associated with our investments in general, there are unique risks associated with our investment in this entity.

 

The business and growth of FST Technical Services, LLC (“FST”) depends in large part on the continued trend toward outsourcing of certain services in the semiconductor and biopharmaceutical industries. There can be no assurance that this trend in outsourcing will continue, as companies may elect to perform such services internally. A significant change in the direction of this trend generally, or a trend in the semiconductor and biopharmaceutical industry not to use, or to reduce the use of, outsourced services such as those provided by it, could significantly decrease its revenues and such decreased revenues could have a material adverse effect on it or its results operations or financial condition.

 

16. Subsequent Events

 

The Company has evaluated the need for disclosures and/or adjustments resulting from subsequent events through the date the financial statements were issued.

 

Subsequent to June 30, 2017, the following activity occurred:

 

On July 3, 2017, NWN Corporation repaid all of their 1st Lien debt totaling $3,856,608.

 

On July 5, 2017, Superior Controls repaid $825,000 of their 1st lien debt

 

On July 6, 2017, Alcentra paid a dividend to shareholders of record as of June 30, 2017 of $0.34 per share.

 

On July 7, 2017, Superior Controls repaid $175,000 of their 1st lien debt

 

On July 11, 2017, Alcentra funded an additional $2.0 million in Lugano Diamonds.

 

On July 14, 2017, Alcentra funded an additional $1.9 million in My Alarm Center as part of an overall restructuring.

 

On August 3, 2017, the Board of Directors approved the 2017 third quarter dividend of $0.34 per share for shareholders of record date September 30, 2017 and payable October 5, 2017.

 

 

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

 

Forward-Looking Statements

 

Some of the statements in this quarterly report on Form 10-Q constitute forward-looking statements, which relate to future events or our future performance or financial condition. The forward-looking statements contained in this quarterly report on Form 10-Q involve risks and uncertainties, including statements as to:

 

•

our future operating results;

 

•

our business prospects and the prospects of our portfolio companies;

 

•

the effect of investments that we expect to make;

 

•

our contractual arrangements and relationships with third parties;

 

•

actual and potential conflicts of interest with Alcentra NY, LLC;

 

•

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

 

•

the ability of our portfolio companies to achieve their objectives;

 

•

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

 

•

the adequacy of our financing sources and working capital;

 

•

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

 

•

our ability to maintain our qualification as a business development company; and

 

•

the effect of future changes in laws or regulations (including the interpretation of these laws and regulations by regulatory authorities) and conditions in our operating areas, particularly with respect to business development companies.

 

Such forward-looking statements may include statements preceded by, followed by or that otherwise include the words “may,” “might,” “will,” “intend,” “should,” “could,” “can,” “would,” “expect,” “believe,” “estimate,” “anticipate,” “predict,” “potential,” “plan” or similar words.

 

We have based the forward-looking statements included in this quarterly report on Form 10-Q on information available to us on the date of this quarterly report on Form 10-Q. Actual results could differ materially from those anticipated in our forward-looking statements, and future results could differ materially from historical performance. We undertake no obligation to revise or update any forward-looking statements, whether as a result of new information, future events or otherwise, unless required by law or SEC rule or regulation. You are advised to consult any additional disclosures that we may make directly to you or through reports that we in the future may file with the SEC, including annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K.

 

The following analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and the related notes thereto contained in this quarterly report on Form 10-Q.

 

Overview

 

Alcentra Capital Corporation (“we”, “us” or “our”) was formed as a Maryland corporation on June 6, 2013 as an externally managed, non-diversified closed-end management investment company that has elected to be regulated as a business development company under the Investment Company Act of 1940, as amended (the “1940 Act”). We are managed by Alcentra NY, LLC (the “Adviser”, or “Alcentra NY”), registered investment adviser under the Investment Advisers Act of 1940, as amended (the “Advisers Act”). State Street Bank and Trust Company (“State Street”) provides us with financial reporting, post-trade compliance, and treasury services. In addition, for U.S. federal income tax purposes, we have elected to be treated as a regulated investment company (“RIC”), commencing with tax year ended December 31, 2014, under Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”).  

 

 

BNY Mellon-Alcentra Mezzanine III, L.P. (the “Partnership” or “Fund III”) is a Delaware limited partnership, which commenced operations on May 14, 2010. The Partnership was formed for the purpose of seeking current income and long-term capital appreciation by making investments in senior debt securities, subordinated debt securities, and common and preferred equity securities with equity rights or participations in U.S.-based middle market companies. BNY Mellon-Alcentra Mezzanine III (GP), L.P. (the “General Partner”), a Delaware limited liability company, is the General Partner of the Partnership. BNY Mellon-Alcentra Mezzanine Partners (the “Manager”), a division of Alcentra NY, LLC (“Alcentra Group”) and an affiliate of the General Partner, manages the investment activities of the Partnership. Alcentra NY, LLC is wholly owned by BNY Alcentra Group Holdings, Inc. which is wholly owned by The Bank of New York Mellon Corporation.

 

On May 14, 2014, Alcentra completed its initial public offering (the “Offering”), at a price of $15.00 per share. Through its initial public offering the Company sold 6,666,666 shares for gross proceeds of approximately $100,000,000. On June 6, 2014, Alcentra sold 750,000 shares through the underwriters' exercise of the overallotment option for gross proceeds of $11,250,000.

 

Immediately prior to the Offering, Fund III sold all of its assets other than its investment in the shares of common stock and warrants to purchase common stock of GTT Communications (the “Fund III Acquired Assets”) to the Company for $64.4 million in cash and $91.5 million in shares of the Company's common stock. Concurrent with the acquisition of the Fund III Acquired Assets from Fund III, the Company also purchased for $29 million in cash certain additional investments (the “Warehouse Portfolio”) from Alcentra Group. The Warehouse Portfolio consisted of approximately $29 million in debt investments originated by the investment professionals of the Manager and purchased by Alcentra Group using funds under a warehouse credit facility provided by The Bank of New York Mellon Corporation in anticipation of the Offering.

 

The Company entered into a senior secured term loan agreement (the “Bridge Facility”) with ING Capital LLC as lender that it used to fund the purchase of the Warehouse Portfolio and to fund the cash portion of the consideration paid to Fund III. In May 2014, the Company used $94.2 million of the proceeds from the Offering to repay the Bridge Facility in full.

 

On May 22, 2017 Alcentra Capital Corporation completed an underwritten primary offering of 808,161 shares of its common stock at a public offering price of $13.68 per share for proceeds of approximately $10.6 million after deducting sales load and offering expenses.

 

Our investment objective is to generate both current income and capital appreciation through debt and equity investments by targeting investment opportunities with favorable risk-adjusted returns. The Company invests primarily in middle-market companies in the form of mezzanine and senior secured loans, each of which may include an equity component, and, to a lesser extent, by making direct equity investments in such companies.

 

We are required to comply with certain regulatory requirements such as not acquiring any assets other than “qualifying assets” specified in the 1940 Act unless, at the time the acquisition is made, at least 70% of our total assets are qualifying assets. Qualifying assets include investments in “eligible portfolio companies.” Under the relevant SEC rules, the term “eligible portfolio company” includes all private operating companies, operating companies whose securities are not listed on a national securities exchange, and certain public operating companies that have listed their securities on a national securities exchange and have a market capitalization of less than $250 million, in each case organized and with their principal of business in the United States.

 

Portfolio Composition and Investment Activity

 

Portfolio Composition

 

We originate and invest primarily in middle-market companies (typically those with $5.0 million to $25.0 million of EBITDA and/or revenues between $10 million and $250 million) through first lien, second lien, unitranche and mezzanine debt financing, often times with a corresponding equity investment.

 

During the three months ended June 30, 2017, we invested $11.4 million in debt and equity investments, including three add on investments and one refinancing. These investments consisted of senior secured loans ($11.1 million, or 96.6%), second lien loans ($0.3 million, or 2.6%), and equity securities ($0.1 million, or 0.8%). During the three months ended June 30, 2017 we received proceeds from sales or repayments, including principal, return of capital dividends and net realized gains (losses), of $14.5 million. During the three months ended June 30, 2016, we invested $39.3 million in debt and equity investments in four new portfolio companies and one add on investment. These investments consisted of senior secured loans ($4.55 million, or 11.6%), second lien notes ($16.0 million, or 40.7%), subordinated notes ($18.25 million, or 46.4%), and equity securities ($0.5 million, or 1.3%). During the three months ended June 30, 2016 we received proceeds from sales or repayments, including principal, return of capital dividends and net realized gains (losses), of $26.46 million 

 

 

As of June 30, 2017, the fair value of our investment portfolio totaled $271.4 million and consisted of 30 portfolio companies. As of June 30, 2017, 53 % of our debt investments bore interest based on floating rates (subject to interest rate floors), such as LIBOR, and 47% bore interest at fixed rates. Our average portfolio company investment at amortized cost and fair value was approximately $10.0 million and $9.0 million, respectively, and our largest portfolio company investment by amortized cost and fair value was approximately $21.0 million and $22.0 million, respectively.

 

As of December 31, 2016, the fair value of our investment portfolio totaled $276.3 million and consisted of 32 portfolio companies. As of December 31, 2016, 58.4% of our debt investments bore interest based on floating rates (subject to interest rate floors), such as LIBOR, and 41.6% bore interest at fixed rates. Our average portfolio company investment at amortized cost and fair value was approximately $8.8 million and $8.4million, respectively, and our largest portfolio company investment by amortized cost and fair value was approximately $15.1 million and $15.1 million, respectively.

 

The weighted average yield on debt investments as of June 30, 2017 and December 31, 2016 was 11.6% and 11.7%, respectively. The weighted average yields were computed using the effective interest rates for debt investments at cost as of June 30, 2017 and December 31, 2016, including the accretion of original issue discount but excluding investments on non-accrual status, if any. The weighted average yield of our debt investments is not the same as a return on investment for our stockholders but, rather, relates to a portion of our investment portfolio and is calculated before the payment of all of our and our subsidiaries’ fees and expenses. There can be no assurance that the weighted average yield will remain at its current level.

 

The following table shows the portfolio composition by investment type at fair value and cost with the corresponding percentage of total investments:

 

		Fair Value																Cost
		30-Jun-17								31-Dec-16								31-Mar-17								31-Dec-16
		(dollars in thousands)
Senior Secured - First Lien		$	116,966				43.1	%		$	95,684				34.6	%		$	120,214				40.1	%		$	97,516				33.2	%
Senior Secured - Second Lien			75,521				20.2	%			84,865				30	%			71,671				23.9	%			87,731				29.9	%
Senior Subordinated			54,885				27.8	%			74,050				26.1	%			80,851				26.9	%			77,960				26.6	%
Equity/Other			23,998				8.9	%			21,674				7.6	%			27,408				9.1	%			30,129				10.3	%
Total		$	271,370				100.0	%		$	276,273				100.0	%		$	300,144				100.0	%		$	293,336				100.0	%

 

The following table shows portfolio composition by geographic region at fair value and cost with the corresponding percentage of total investments. The geographic composition is determined by the location of the corporate headquarters of the portfolio company, which may not be indicative of the primary source of the portfolio company’s business.

 

		Fair Value																Cost
		30-Jun-17								31-Dec-16								30-Jun-17								31-Dec-16
		(dollars in thousands)
South		$	72,129				26.6	%		$	73,849				27.0	%		$	81,205				27.1	%		$	82,261				28.0	%
Eastern			80,025				29.5	%			62,921				23.0	%			89,187				29.7	%			62,469				21.3	%
Mid West			40,952				15.1	%			49,578				18.1	%			39,935				13.3	%			48,786				16.6	%
South Eastern			30,176				11.1	%			31,187				11.4	%			35,335				11.8	%			35,200				12.0	%
West			17,308				6.4	%			29,231				10.7	%			23,660				7.9	%			34,638				11.8	%
South West			30,780				11.3	%			26,507				9.7	%			30,822				10.3	%			29,982				10.2	%
Total		$	271,370				100.0	%		$	273,273				100.0	%		$	300,144				100.0	%		$	293,336				100.0	%

 

The following table shows the detailed industry composition of our portfolio at fair value and cost as a percentage of total investments:

 

		Fair Value								Cost
		June 30, 2017				December 31, 2016				June 30, 2017				December 31, 2016
Healthcare Services			17.07	%			15.84	%			15.36	%			14.83	%
Industrial Services			11.69	%			7.04	%			10.16	%			6.94	%
High Tech Industries			9.73	%			7.43	%			8.72	%			6.95	%
Technology & Telecom			8.75	%			5.23	%			7.95	%			5.16	%
Security			4.54	%			8.29	%			7.92	%			7.64	%
Automotive Business Services			7.03	%			7.31	%			6.74	%			6.85	%
Education			4.29	%			4.89	%			5.26	%			5.06	%
Telecommunications			6.46	%			9.90	%			5.23	%			9.07	%
Oil & Gas Services			3.80	%			3.65	%			5.20	%			5.03	%
Retail			4.46	%			4.35	%			3.93	%			4.05	%
Media: Advertising, Printing & Publishing			3.68	%			3.93	%			3.91	%			4.01	%
Media & Entertainment			1.30	%			1.64	%			3.44	%			3.50	%
Business Services			3.68	%			-				3.29	%			-
Industrial Manufacturing			3.31	%			5.89	%			2.93	%			5.27	%
Transportation Logistics			1.59	%			1.56	%			2.58	%			2.55	%
Environmental/Recycling Services			2.83	%			2.36	%			2.45	%			2.42	%
Wholesale/Distribution			1.68	%			1.77	%			1.52	%			1.67	%
Aerospace			1.47	%			1.40	%			1.33	%			1.36	%
Technology & IT			1.44	%			1.42	%			1.26	%			1.31	%
Waste Services			1.20	%			4.76	%			0.82	%			4.63	%
Food & Beverage			-				1.34	%			-				1.70	%
Grand Total			100.00	%			100.00	%			100.00	%			100.00	%

 

In analyzing our credit exposure, we consider the attachment point, in terms of EBITDA multiple, at which we would experience a principal loss on an investment.

 

Investment Activity

 

As of June 30, 2017 $119.4 million of the portfolio (44.0%) had a first credit exposure at 0.0x - 1.0x EBITDA; $90.2 million of the portfolio (33.3%) had a first credit exposure at 1.0x - 3.0x EBITDA; $29.9 million of the portfolio (11.0%) had a first credit exposure at 3.0x - 4.0x EBITDA; $0.0 million of the portfolio (0.0%) had a first credit exposure at 4.0x – 4.5x; and $31.9 million of the portfolio (11.7%) had a first credit exposure at >4.5x EBITDA.

 

As of December 31, 2016 $127.7 million of the portfolio at fair value (46.2%) had a first dollar loss at 0.0x – 1.0x EBITDA; $82.6 million of the portfolio at fair value (29.9%) had a first dollar loss at 1.0x – 3.0x EBITDA; $24.6 million of the portfolio at fair value (8.9%) had a first dollar loss of 3.0x – 4.0x EBITDA; $0.003 million of the portfolio at fair value (01.2%) had a first dollar loss of 4.0x – 4.5x EBITDA; and $38.1 million of the portfolio at fair value (13.8%) had a first dollar loss >4.5x EBITDA.

 

Portfolio Asset Quality

 

We will generally not accrue interest on loans and debt securities if principal or interest cash payments are past due 30 days or we have reason to doubt our ability to collect such interest.

 

As of June 30, 2017 and December 31, 2016, we had two loans and one loan on non-accrual status.

 

 

Discussion and Analysis of Results of Operations

 

Comparison of three months ended June 30, 2017 and June 30, 2016

 

Investment Income

 

For the three months ended June 30, 2017, total investment income was $8.3 million, a decrease of $2.3 million, or 21.6% over the $10.6 million of total investment income for the three months ended June 30, 2016. This decrease was primarily attributable to a $1.7 million decrease in prepayment penalties and the shift in timing of the closing of new deals relative to repayments.

 

 

We generate revenue in the form of interest income on debt investments and capital gains and distributions, if any, on investment securities that we may acquire in portfolio companies. Our debt investments typically have a term of five to seven years and bear interest at a fixed or floating rate. Interest on our debt securities is payable both quarterly and monthly. Payments of principal on our debt investments may be amortized over the stated term of the investment, deferred for several years or due entirely at maturity. In some cases, our debt investments may pay interest in-kind, or PIK. Any outstanding principal amount of our debt securities and any accrued but unpaid interest will generally become due at the maturity date. The level of interest income we receive is directly related to the balance of interest-bearing investments multiplied by the weighted average yield of our investments. We expect that the total dollar amount of interest and any dividend income that we earn to increase as the size of our investment portfolio increases. In addition, we may generate revenue in the form of prepayment fees, commitment, loan origination, structuring or due diligence fees, fees for providing significant managerial assistance and consulting fees.

 

Expenses

 

For the three months ended June 30, 2017, total net expenses were $3.5 million, which was a decrease of $1.2 million, or 26.3%, from the $4.7 million for the three months ended June 30, 2016 primarily as a result of a decrease in management and incentive fees. Interest and financing expenses for the three months ended June 30, 2017 were $1.9 million, an increase of $0.2 million, or 11.3% over the $1.6 million for the three months ended June 30, 2016. This is largely due to the issuance of $5 million in Alcentra Internotes® in late June 2016 and the increase in Libor in 2017. The base management fee decreased $0.05 million, or 4.2%, to $1.2 million for the three months ended June 30, 2017 due to slightly lower average total assets less cash and cash equivalents than the comparable period in 2016. The incentive fee for the three months ended June 30, 2017 was $0.0, a 100% decrease from the comparable period in 2016. The administrative service fee, professional fees and other general and administrative expenses totaled $0.5 million for the three months ended June 30, 2017 compared to a total of $0.9 million for the three months ended June 30, 2016. This decrease is the result of lower legal expenses, the renewed terms with third party vendors and the initial increase in June 30, 2016 of excise tax expense.

 

Net Investment Income

 

Net investment income for the three months ended June 30, 2017 was $4.8 million, a decrease of $1.0. million, or 17.8%, compared to net investment income of $5.9 million during the three months ended June 30, 2016 as a result of the lower investment income due to the shift in timing of new investments.

 

Net Increase in Net Assets Resulting From Operations

 

For the three months ended June 30, 2017, the net realized gain from portfolio investments was $0.03 million and for the three months ended June 30, 2016, realized gains were $1.6 million primarily from the repayment of ACT Lighting.

 

During the three months ended June 30, 2017, we recorded a net change in unrealized depreciation from portfolio investments of $9.9 million of which $8.4 million was attributable to net unrealized depreciation on My Alarm Capital, LLC. During the three months ended June 30, 2016, the net change in unrealized depreciation was $5.8 million.

 

As a result of these events, our net decrease in net assets resulting from operations during the three months ended June 30, 2017 was $5.2 million, a decrease of $6.5 million compared to a net increase in net assets resulting from operations of $1.4 million during the three months ended June 30, 2016.

 

Provision for Taxes on Unrealized Appreciation on Investments

 

We have a direct wholly owned subsidiary that has elected to be a taxable entity (the "Taxable Subsidiary"). The Taxable Subsidiary permits us to hold equity investments in portfolio companies which are "pass through" entities for tax purposes and continue to comply with the "source income" requirements contained in RIC tax provisions of the Code. The Taxable Subsidiary is not consolidated with us for income tax purposes and may generate income tax expense, benefit, and the related tax assets and liabilities, as a result of their ownership of certain portfolio investments. The income tax expense, or benefit, if any, and related tax assets and liabilities are reflected in our consolidated financial statements. For the three months ended June 30, 2017, we recognized a provision for income tax on unrealized gains on investments of $0.1 million.

 

Comparison of six months ended June 30, 2017 and June 30, 2016

 

Investment Income

 

For the six months ended June 30, 2017, total investment income was $17.5 million, an decrease of $3.0 million, or 14.8%, over the $20.6 million of total investment income for the six months ended June 30, 2016. The decrease was primarily attributable to a slower pace of deployment as compared to repayments as well as a decrease of $1.7 million in fee income.

 

 

Expenses

 

For the six months ended June 30, 2017, total expenses were $8.1 million after the waiver of management fees, a decrease of $0.9 million or 10.8%, over the $9.1 million of total expenses for the six months ended June 30, 2016. Interest and financing expenses for the six months ended June 30, 2017 were $3.6 million, an increase of $0.4 million or 13.2%, compared to $3.2 million for the six months ended June 30, 2016 as a result of the rise in Libor as well as the additional full six month accrual of interest payable on the the issuance of $5 million of InterNotes. The base management fee decreased $0.09 million, or 3.6%, to $2.5 million for the six months ended June 30, 2017 due to slightly lower average total assets less cash and cash equivalents than the comparable period in 2016. The incentive fee for the six months ended June 30, 2017 was $0.7 million, a $1.0 million, or 61.9%, decrease from the $1.7 million incentive fee for the six months ended June 30, 2016 which was the result of lower net investment income during the second quarter of 2017 which resulted in not earning the income incentive fee. The administrative service fee, professional fees and other general and administrative expenses totaled $1.3 million for the six months ended June 30, 2017 compared to $1.6 million for the six months ended June 30, 2016.

 

Net Investment Income

 

Net investment income for the six months ended June 30, 2017 was $9.4 million, which was a decrease of $2.1 million, or 17.9%, compared to net investment income of $11.5 million during the six months ended June 30, 2016 as a result of the $3.1 million decrease in total investment income and the $.9 million decrease in total expenses.

 

Net Increase in Net Assets Resulting From Operations

 

For the six months ended June 30, 2017, the total net realized losses on investments were $1.0 million. The net change in unrealized depreciation on investments for the six months ended June 30, 2016 was $11.7 million attributable mainly to the write down on My Alarm Capital, LLC with smaller write downs on Southern Technical Institute and GST Autoleather. During the six months ended June 30, 2016, the net change in unrealized appreciation on investments was $1.9 million attributable to (i) the reversal of net unrealized depreciation on investments of $11.1 million related to the exit or sale of investments (ii) net unrealized depreciation of $9.2 million on debt investments.

 

 

Liquidity and Capital Resources

 

As of June 30, 2017, there was $3.8 million in cash and cash equivalents and net assets totaled $181.3 million. We believe that our current cash and cash equivalents on hand, our credit facility and our anticipated cash flows from operations will provide adequate capital resources with which to operate and finance our investment business and make distributions to our stockholders for at least the next 12 months. We intend to generate additional cash primarily from future debt offerings and future borrowings, as well as cash flows from operations, including income earned from investments in our portfolio companies. On both a short-term and long-term basis, our primary use of funds will be investments in portfolio companies and cash distributions to our stockholders.

 

 

Cash Flows

 

For the three months ended June 30, 2017, we experienced a net decrease in cash and cash equivalents in the amount of $0.08 million. During that period, we used $3.0 million in cash from operating activities, primarily due to the purchase of portfolio investments of approximately $56.1 million. This was partially offset by proceeds from the return of capital of portfolio investments in of approximately $50.9 million. This was also offset by $11.7 of change in depreciation of investments and a decrease of $3.8 million in interest and dividends receivable. During the same period, financing activities decreased cash by $3.1 million primarily due to the repayments to the credit facility.

 

 

For the three months ended June 30, 2016, we experienced a net increase in cash and cash equivalents in the amount of $0.171 million. During that period, we received $10.5 million in cash from operating activities, primarily from the return of capital from portfolio investments of approximately $71.3 million and $4.1 million of paid in kind income. This was partially offset by the investment in new portfolio companies of approximately $69.5 million. During the same period, financing activities reduced cash by $10.4 million primarily due to the repayment of the credit facility.

 

Capital Resources

 

Our liquidity and capital resources are derived from the capital contributions and cash flows from operations, including investment sales and repayments, and income earned. Our primary use of funds from operations includes investments in portfolio companies and other operating expenses we incur, as well as distributions to our stockholders. We expect to use these capital resources as well as proceeds from turnover within our portfolio, borrowings under the Credit Facility and from public and private offerings of securities to finance our investment activities.

 

In May 2014, Alcentra entered into a senior secured revolving credit agreement (“Credit Facility”) with ING Capital LLC, as administrative agent and lender. The Credit Facility had an initial commitment of $80 million with an accordion feature that allows for an increase in total commitments to $160 million. The Credit Facility was amended on August 11, 2015 to increase the accordion feature to allow for a future increase of the total commitments up to $250.0 million, subject to satisfaction of certain conditions at the time of any such future increase. As amended, the Credit Facility has a maturity date of August 11, 2020 and bears interest, at our election, at a rate per annum equal to (i) 2.25% plus the highest of a prime rate, the Federal Funds rate plus 0.5%, three month LIBOR plus 1.0% and zero or (ii) 3.00% plus the one, three or six month LIBOR rate, as applicable.

 

On March 2, 2016, we amended certain provisions of the Credit Facility relating to the treatment of approximately $38.6 million in aggregate principal amount of outstanding InterNotes that mature prior to the Credit Facility. Among other things, the amendments to the Credit Facility provide that, in the nine-month period prior to the maturity of these particular InterNotes, which mature between February 15 and April 15, 2020, our ability to borrow under the Credit Facility will be reduced by and in the amount of such InterNotes still outstanding during such time. The Credit Facility is secured by a first priority security interest in all of our portfolio investments, the equity interests in certain of its direct and indirect subsidiaries and substantially all of its other assets. We are also subject to customary covenants and events of default typical of a facility of this type.

 

As of June 30, 2017, we are in compliance with all covenants of the Credit Facility and there was $35.1 million of availability for borrowings outstanding.

 

Also, as a business development company, we generally are required to meet a coverage ratio of total assets, less liabilities and indebtedness not represented by senior securities, to total senior securities, which include all of our borrowings and any outstanding preferred stock, of at least 200%. We were in compliance with the asset coverage ratios at all times. As of June 30, 2017 our asset coverage ratio was 304%.

 

During May of 2017, we completed an underwritten primary offering of 808,161 shares of our common stock at a public offering price of $13.68 per share for proceeds of approximately $10,653,602, after paying the sales load and offering expenses.

 

Recently Issued Accounting Standards

 

In October 2016, the U.S. Securities and Exchange Commission adopted new rules and amended rules (together, “final rules”) interned to modernize the reporting and disclosure of information by registered investment companies. In part, the final rules amend Regulation S-X and require standardized, enhanced disclosure about derivatives in investment company financial statements, as well as other amendments. The compliance date for the amendments to Regulation S-X was August 1, 2017. The Company is evaluating the impact that the adoption of the amendments to Regulation S-X will have on its consolidated financial statements and disclosures.

 

In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows, which will amend FASB ASC 230. The amendments in this Update require that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The amendments in this Update apply to all entities that have restricted cash or restricted cash equivalents and are required to present a statement of cash flows under Topic 230. For public business entities, the amendments are effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. The Company is evaluating the impact of ASU 2016-18 on its consolidated financial statements and disclosures.

 

In December 2016, the FASB issued ASU 2016-19, Technical Corrections and Improvements. As part of this guidance, ASU 2016-19 amends FASB ASC 820 to clarify the difference between a valuation approach and a valuation technique. The amendment also requires an entity to disclose when there has been a change in either or both a valuation approach and/or a valuation technique. ASU 2016-19 is effective on a prospective basis for financial statements issued for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016 on a prospective basis. The Company has evaluated the impact of ASU 2016-19 on its consolidated financial statements and disclosures and determined that the adoption of ASU 2016-19 has not had a material impact on its consolidated financial statements.

 

In March 2017, the FASB issued ASU 2017-08, Premium Amortization on Purchased Callable Debt Securities, which will amend FASB ASC 310-20. The amendments in this Update shorten the amortization period for certain callable debt securities held at a premium, generally requiring the premium to be amortized to the earliest call date. For public business entities, the amendments are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Early adoption is permitted, including adoption in an interim period. The Company is evaluating the impact of ASU 2017-08 on its consolidated financial statements and disclosures.

  

 

 

Regulated Investment Company Status and Distributions

 

We have elected to be treated as a RIC under Subchapter M of the Code beginning the fiscal year ending December 31, 2014. If we qualify as a RIC, we will not be taxed on our investment company taxable income or realized net capital gains, to the extent that such taxable income or gains are distributed, or deemed to be distributed, to stockholders on a timely basis.

 

Taxable income generally differs from net income for financial reporting purposes due to temporary and permanent differences in the recognition of income and expenses, and generally excludes net unrealized appreciation or depreciation until realized. Dividends declared and paid by us in a year may differ from taxable income for that year as such dividends may include the distribution of current year taxable income or the distribution of prior year taxable income carried forward into and distributed in the current year. Distributions also may include returns of capital.

 

To qualify for RIC tax treatment, we must, among other things, distribute, with respect to each taxable year, at least 90% of our investment company net taxable income (i.e., our net ordinary income and our realized net short-term capital gains in excess of realized net long-term capital losses, if any). If we qualify as a RIC, we will also be subject to a federal excise tax, based on distributive requirements of our taxable income on a calendar year basis.

 

We intend to distribute to our stockholders between 90% and 100% of our annual taxable income (which includes our taxable interest and fee income).

 

Investment Advisory Agreement

 

Under the Advisory Agreement, Alcentra pays Alcentra NY, LLC (the "Adviser") a base management fee calculated at an annual rate as follows: 1.75% of its gross assets (i.e., total assets held before deduction of any liabilities), including assets purchased with borrowed funds or other forms of leverage and excluding cash and cash equivalents (such as investments in U.S. Treasury Bills), if its gross assets are below $625 million; 1.625% of its total gross assets if our gross assets are between $625 million and $750 million; and 1.5% of its gross assets if its assets are greater than $750 million. These various management fee percentages (i.e. 1.75%, 1.625% and 1.5%) would apply to ACC's entire gross assets in the event its gross assets exceed the various gross asset thresholds.

 

In addition, Alcentra pays the Adviser an incentive fee under the Advisory Agreement which consists of two parts. The first part, which is calculated and payable quarterly in arrears, equals 20% of ACC's "pre-incentive fee net investment income" for the immediately preceding quarter, subject to a hurdle rate of 2% per quarter (8% annualized), and is subject to a "catch-up" feature. The second part is calculated and payable in arrears as of the end of each calendar year (or, upon termination of the Advisory Agreement, as of the termination date) and equals 20% of ACC's aggregate cumulative realized capital gains from inception through the end of each calendar year, computed net of aggregate cumulative realized capital losses and aggregate cumulative unrealized capital depreciation through the end of such year, less the aggregate amount of any previously paid capital gain incentive fees. See Note 7.

 

 

Critical Accounting Policies

 

The preparation of our consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. Changes in the economic environment, financial markets and any other parameters used in determining such estimates could cause actual results to differ.

 

Valuation of portfolio investments

 

We generally invest in illiquid loans and securities including debt and equity securities of middle-market companies. Debt and equity securities that are not publicly traded or whose market prices are not readily available are valued at fair value as determined in good faith by ACC's board of directors. Such determination of fair values may involve subjective judgments and estimates, although we engage independent valuation providers to review the valuation of each portfolio investment that does not have a readily available market quotation at least once annually. With respect to unquoted securities, we value each investment considering, among other measures, discounted cash flow models, comparisons of financial ratios of peer companies and other factors.

 

Because there is not a readily available market for substantially all of the investments in our portfolio, we value most of our portfolio investments at fair value as determined in good faith by ACC's board of directors using a documented valuation policy and a consistently applied valuation process. 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 our investments may differ significantly from the values that would have been used had a readily available market value existed for such investments, and the differences could be material.

 

With respect to investments for which market quotations are not readily available, ACC's board of directors undertakes a multi-step valuation process each quarter, as described below:

 

•

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

 

•

Preliminary valuation conclusions are then documented and discussed with our senior management and the Adviser committee;

 

•

The audit committee of ACC's board of directors then reviews these preliminary valuations;

 

•

At least once quarterly, independent valuation firms engaged by ACC's board of directors will prepare valuations on a selected basis and submit reports to the board of directors; and

 

•

The board of directors then discusses valuations and determines the fair value of each investment in our portfolio in good faith, based the input of Adviser, the independent valuation firm and the audit committee.

 

 

Revenue Recognition

 

We record interest income on an accrual basis to the extent that we expect to collect such amounts. For loans and debt securities with contractual PIK interest, which represents contractual interest accrued and added to the loan balance that generally becomes due at maturity, we do not accrue PIK interest if the portfolio company valuation indicates that such PIK interest is not collectible. We will not accrue interest on loans and debt securities if principal or interest cash payments are past due 30 days or more and/or we have reason to doubt our ability to collect such interest.

 

Loan origination fees, original issue discount and market discount or premium are capitalized, and we then accrete or amortize such amounts using the effective interest method as interest income. Upon the prepayment of a loan or debt security, any unamortized loan origination is recorded as interest income. We record prepayment premiums on loans and debt securities as interest income.

 

Off-Balance Sheet Arrangements

 

We may be a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financial needs of our portfolio companies. As of June 30, 2017, we had off-balance sheet commitments totaling $9.6 million. As of December 31, 2016, we had off-balance sheet commitments totaling $6.3 million.

 

Recent Developments

 

Subsequent to June 30, 2017, the following activity occurred:

 

On July 3, 2017, NWN Corporation repaid all of their 1st Lien debt totaling $3,856,608.

 

On July 5, 2017, Superior Controls repaid $825,000 of their 1st lien debt

 

On July 6, 2017, Alcentra paid a dividend to shareholders of record as of June 30, 2017 of $0.34 per share.

 

On July 7, 2017, Superior Controls repaid $175,000 of their 1st lien debt

 

On July 11, 2017, Alcentra funded an additional $2.0 million in Lugano Diamonds.

 

On July 14, 2017, Alcentra funded an additional $1.9 million in My Alarm Center as part of an overall restructuring.

 

On August 3, 2017, the Board of Directors approved the 2017 third quarter dividend of $0.34 per share for shareholders of record date September 30, 2017 and payable October 5, 2017.

 

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

 

We are subject to financial market risks, including changes in interest rates. All of the floating rate loans in the portfolio have interest rate floors, which have effectively converted the loans to fixed rate loans in the current interest rate environment. For the three months ended June 30, 2017, 15 loans in the portfolio bore interest at floating rates, or 53% of the fair value of our portfolio. For the year ended December 31, 2016, 16 of the loans in the portfolio bore interest at floating rates, or 58% of the fair value of our portfolio. In the future, we expect other loans in our portfolio will have floating rates. Assuming that the Statement of Assets and Liabilities as of June 30, 2017, were to remain constant and no actions were taken to alter the existing interest rate sensitivity, a hypothetical one or two percent increase in LIBOR would have less than a 2.5% effect on our portfolio’s income. Although we believe that this measure is indicative of our sensitivity to interest rate changes, it does not adjust for potential changes in credit quality, size and composition of the assets on the balance sheet and other business developments that could affect net increase in net assets resulting from operations, or net income. Accordingly, no assurances can be given that actual results would not differ materially from the potential outcome simulated by this estimate. We may hedge against interest rate fluctuations by using standard hedging instruments such as futures, options and forward contacts subject to the requirements of the 1940 Act. While hedging activities may insulate us against adverse changes in interest rates, they may also limit our ability to participate in the benefits of lower interest rates with respect to our portfolio of investments. As of June 30, 2017 and June 30, 2016, we did not engage in hedging activities.

 

Changes in interest rates will affect our cost of funding. Our interest expense will be affected by changes in certain published indices such as the LIBOR rate in connection with the Credit Facility.

 

 

Item 4. Controls and Procedures

 

(a) Evaluation of Disclosure Controls and Procedures

 

The Company’s management, under the supervision and with the participation of various members of management, including its Chief Executive Officer (“CEO”) and its Chief Financial Officer (“CFO”), has evaluated the effectiveness of its disclosure controls and procedures (as defined in Rule 13a-15(e) or Rule 15d-15(e) of the Exchange Act) as of the end of the period covered by this report. Based upon that evaluation, the Company’s CEO and CFO have concluded that the Company’s disclosure controls and procedures are effective as of the end of the period covered by this report.

 

(b) Changes in Internal Control Over Financial Reporting

 

Management did not identify any change in the Company’s internal control over financial reporting that occurred during the quarter ended June 30, 2017 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

 

PART II - OTHER INFORMATION

 

Item 1.  Legal Proceedings

 

The Company is not currently subject to any material legal proceedings, nor, to its knowledge, is any material legal proceeding threatened against it. From time to time, the Company may be a party to certain legal proceedings in the ordinary course of business, including proceedings relating to the enforcement of its rights under contracts with its portfolio companies. While the outcome of these legal proceedings cannot be predicted with certainty, the Company does not expect that these proceedings will have a material effect upon its financial condition or results of operations.

 

Item 1A. Risk Factors

 

There has been no material change in the information provided under the heading “Risk Factors” in the Company’s annual report on Form 10-K filed with the SEC on March 9, 2017. Additional risks and uncertainties not currently known to the Company or that it currently deems to be immaterial may materially affect its business, financial condition and/or operating results.

 

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

 

None.

 

Item 3.  Defaults Upon Senior Securities

 

None.

 

Item 4.  Mine Safety Disclosures

 

Not applicable.

 

Item 5.  Other Information

 

None.

 

 

Item 6.  Exhibits

 

The following exhibits are filed as part of this report or hereby incorporated by reference to exhibits previously filed with the SEC:

 

Exhibit Number		Description

11.1		Computation of Per Share Earnings (included in the Registrant’s statement of operations)
31.1		Chief Executive Officer Certification Pursuant to Exchange Act Rule 13a-14 (a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*
31.2		Chief Financial Officer Certification Pursuant to Exchange Act Rule 13a-14 (a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*
32.1		Chief Executive Officer Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*
32.2		Chief Financial Officer Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*

 

 

*

Filed herewith.

 

 

SIGNATURES

 

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

Dated: August 3, 2017

 

	By:	/s/ David Scopelliti
		Name: David Scopelliti
		Title:  Chief Executive Officer and President
	By:	/s/ Ellida McMillan
		Name:  Ellida McMillan
		Title:  Chief Financial Officer, Chief Operating Officer, Secretary, and Treasurer

 

 

 

 

EXHIBIT INDEX

 

 

Exhibit Number		Description
11.1		Computation of Per Share Earnings (included in the Registrant’s statement of operations)
31.1		Chief Executive Officer Certification Pursuant to Exchange Act Rule 13a-14 (a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*
31.2		Chief Financial Officer Certification Pursuant to Exchange Act Rule 13a-14 (a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*
32.1		Chief Executive Officer Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*
32.2		Chief Financial Officer Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*

 

*

Filed herewith.