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Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

 

FORM 10-Q

 

 

(Mark One)

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.

For the transition period from                      to                     

Commission file number 814-01132

 

 

Crescent Capital BDC, Inc.

(Exact Name of Registrant as Specified in Its Charter)

 

 

 

Delaware   47-3162282

(State or Other Jurisdiction of

Incorporation or Organization)

 

(I.R.S. Employer

Identification No.)

11100 Santa Monica Blvd., Suite 2000, Los Angeles, CA   90025
(Address of Principal Executive Offices)   (Zip Code)

Registrant’s Telephone Number, Including Area Code: (310) 235-5900

Not applicable

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

 

 

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

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

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

 

Large accelerated filer

 

  

Accelerated filer

 

☐        

Non-Accelerated filer

 

☒  (Do not check if a smaller reporting company)

  

Smaller reporting company        

 

☐        

Emerging growth company        

 

    

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 Securities Exchange Act of 1934).    Yes  ☐    No  ☒

The number of shares of the Registrant’s common stock, $.001 par value per share, outstanding at August 11, 2017 was 7,613,414.

 

 

 


Table of Contents

CRESENT CAPITAL BDC, INC.

FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 2017

Table of Contents

 

   

INDEX

   PAGE
NO.
 

PART I.

  FINANCIAL INFORMATION      2  

  Item 1.

  Financial Statements      2  
  Consolidated Statements of Assets and Liabilities as of June 30, 2017 (Unaudited) and December 31, 2016      2  
  Consolidated Statements of Operations for the three months ended June 30, 2017 and June 30, 2016 (Unaudited), and for the six months ended June 30, 2017 and June 30, 2016 (Unaudited)      3  
  Consolidated Statements of Changes in Net Assets for the six months ended June 30, 2017 and June 30, 2016 (Unaudited)      4  
  Consolidated Statements of Cash Flows for the six months ended June 30, 2017 and June 30, 2016 (Unaudited)      5  
  Consolidated Schedule of Investments as of June 30, 2017 (Unaudited)      6  
  Consolidated Schedule of Investments as of December 31, 2016      12  
  Notes to Consolidated Financial Statements (Unaudited)      18  

  Item 2.

  Management’s Discussion and Analysis of Financial Condition and Results of Operations      38  

  Item 3.

  Quantitative and Qualitative Disclosures About Market Risk      53  

  Item 4.

  Controls and Procedures      54  

PART II.

  OTHER INFORMATION      54  

  Item 1.

  Legal Proceedings      54  

  Item 1A.

  Risk Factors      54  

  Item 2.

  Unregistered Sales of Equity Securities and Use of Proceeds      55  

  Item 3.

  Defaults Upon Senior Securities      55  

  Item 4.

  [Reserved]      55  

  Item 5.

  Other Information      55  

  Item 6.

  Exhibits      56  


Table of Contents

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This report contains forward-looking statements that involve substantial risks and uncertainties. These forward-looking statements are not historical facts, but rather are based on current expectations, estimates and projections about us, our current or prospective portfolio investments, our industry, our beliefs, and our assumptions. We believe that it is important to communicate our future expectations to our investors. Words such as “anticipates,” “expects,” “intends,” “plans,” “believes,” “seeks,” “estimates,” “would,” “should,” “targets,” “projects,” and variations of these words and similar expressions are intended to identify forward-looking statements. These statements are not guarantees of future performance and are subject to risks, uncertainties, and other factors, some of which are beyond our control and are difficult to predict, that could cause actual results to differ materially from those expressed or forecasted in the forward-looking statements.

The following factors and factors listed under “Risk Factors” in this report and other documents Crescent Capital BDC, Inc. has filed with the Securities and Exchange Commission, or SEC, provide examples of risks, uncertainties and events that may cause our actual results to differ materially from the expectations we describe in our forward-looking statements. The occurrence of the events described in these risk factors and elsewhere in this report could have a material adverse effect on our business, results of operation and financial position. The following factors are among those that may cause actual results to differ materially from our forward-looking statements:

 

    Potential fluctuation in quarterly operating results

 

    Potential impact of economic recessions or downturns

 

    Adverse developments in the credit markets

 

    Operation in a highly competitive market for investment opportunities

 

    Regulations governing our operation as a business development company

 

    Financing investments with borrowed money

 

    Lack of liquidity in investments

 

    Defaults by portfolio companies

 

    Uncertainty as to the value of certain portfolio investments

 

    Potential resignation of the Advisor and or the Administrator

 

    Changes in interest rates may affect our cost of capital and net investment income

 

    Potential adverse effects of price declines and illiquidity in the corporate debt markets

 

    Risks associated with original issue discount (“OID”) and payment-in-kind (“PIK”) interest income

 

    Risks regarding distributions

 

    Potential adverse effects of new or modified laws and regulations

Although we believe that the assumptions on which these forward-looking statements are based upon are reasonable, some of those assumptions are based on the work of third parties and any of those assumptions could prove to be inaccurate; as a result, forward-looking statements based on those assumptions also could prove to be inaccurate. In light of these and other uncertainties, the inclusion of a projection or forward-looking statement in this report should not be regarded as a representation by us that our plans and objectives will be achieved. You should not place undue reliance on these forward-looking statements, which apply only as of the date of this report. We do not undertake any obligation to update or revise any forward-looking statements or any other information contained herein, except as required by applicable law. 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 safe harbor provisions of Section 21E of the 1934 Act, which preclude civil liability for certain forward-looking statements, do not apply to the forward-looking statements in this report because we are an investment company.

 

See accompanying notes.

 

1


Table of Contents

Crescent Capital BDC, Inc.

Consolidated Statements of Assets and Liabilities

 

     As of
    June 30, 2017    
(Unaudited)
  As of
    December 31,    
2016

Assets

    
Investments, non-controlled and non-affiliated, at fair value (cost of $283,125,960 and $216,239,598, respectively)      $ 287,680,063       $ 217,920,952  
Cash and cash equivalents      7,106,757       4,990,157  
Cash denominated in foreign currency (cost of $250,122 and $137,495, respectively)      257,368       129,168  
Receivable for investments sold      671,774       993,726  
Interest receivable      1,030,118       1,478,221  
Due from Advisor - affiliate      22,531        
Prepaid expenses and other assets      153,514       52,753  
  

 

 

 

 

 

 

 

Total assets

     $ 296,922,125       $ 225,564,977  
  

 

 

 

 

 

 

 

Liabilities

    
Debt (net of deferred financing costs of $1,254,841 and $979,874, respectively)      $ 136,507,077       $ 93,670,635  
Distributions payable      2,169,823       1,750,000  
Management fees payable - affiliate      668,293       521,866  
Income incentive fee payable - affiliate      392,978       461,537  
Due to Advisor - affiliate            27,247  
Due to Administrator - affiliate      169,007       154,403  
Professional fees payable      268,037       145,854  
Directors’ fees payable      127,625       48,375  
Interest and other debt financing costs payable      765,588       449,812  
Accrued expenses and other liabilities      475,795       279,220  
  

 

 

 

 

 

 

 

Total liabilities

     $ 141,544,223       $ 97,508,949  
  

 

 

 

 

 

 

 

Commitments and Contingencies (Note 7)

    

Net Assets

    
Preferred stock, par value $0.001 per share (10,000 shares authorized, zero outstanding, respectively)      $       $  
Common stock, par value $0.001 per share (200,000,000 shares authorized, 7,613,414 and 6,376,850 shares issued and outstanding, respectively)      7,613       6,377  
Paid-in capital in excess of par value      150,728,294       125,750,640  
Accumulated net realized loss      (376,082     (112,155
Accumulated distributions in excess of net investment income      (19,520     (49,518
Net unrealized appreciation (depreciation) on investments and foreign currency translation      5,037,597       2,460,684  
  

 

 

 

 

 

 

 

Total Net Assets

     $ 155,377,902       $ 128,056,028  
  

 

 

 

 

 

 

 

Total Liabilities and Net Assets

     $     296,922,125       $     225,564,977  
  

 

 

 

 

 

 

 

Net asset value per share      $ 20.41       $ 20.08  

 

See accompanying notes.

 

2


Table of Contents

Crescent Capital BDC, Inc.

Consolidated Statements of Operations

(Unaudited)

 

         For the three months ended    
June 30,
         For the six months ended    
June 30,
 
     2017      2016      2017      2016  

Investment Income:

           
Interest income from non-controlled and non-affiliated investments    $ 5,291,948         $ 2,903,519         $ 9,756,672         $ 5,413,647     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total investment income

     5,291,948           2,903,519           9,756,672           5,413,647     
  

 

 

    

 

 

    

 

 

    

 

 

 

Expenses:

           
Interest and other debt financing costs      1,290,790           704,003           2,336,222           1,158,096     
Management fees (net of waiver of $379,136, $248,005, $683,096 and $448,561, respectively)      668,292           390,041           1,272,519           747,088     
Income incentive fees      392,977           —           614,535           —     
Directors’ fees      72,500           83,042           145,000           149,917     
Professional fees      176,566           171,273           351,566           386,273     
Organization expenses      16,226           22,716           40,564           42,187     
Other general and administrative expenses      399,970           394,831           800,709           718,416     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total expenses

     3,017,321           1,765,906           5,561,115           3,201,977     
  

 

 

    

 

 

    

 

 

    

 

 

 
Net investment income before taxes      2,274,627           1,137,613           4,195,557           2,211,670     
  

 

 

    

 

 

    

 

 

    

 

 

 
Income taxes      1,600           —           1,689           800     
  

 

 

    

 

 

    

 

 

    

 

 

 
Net investment income after taxes      2,273,027           1,137,613           4,193,868           2,210,870     
  

 

 

    

 

 

    

 

 

    

 

 

 
Net realized and unrealized gains (losses) on investments:           

Net realized gain (loss) on investments

     (277,325)          17,162           (261,931)          (443,865)    

Net realized gain (loss) on foreign currency transactions

     (1,011)          (2,345)          (1,996)          40,960     

Net change in unrealized appreciation (depreciation) on investments and foreign currency translation

     976,701           1,868,781           2,576,913           2,402,241     
  

 

 

    

 

 

    

 

 

    

 

 

 
Net realized and unrealized gains (losses) on investments      698,365           1,883,598           2,312,986           1,999,336     
  

 

 

    

 

 

    

 

 

    

 

 

 
Net increase in net assets resulting from operations    $     2,971,392         $     3,021,211         $     6,506,854         $     4,210,206     
  

 

 

    

 

 

    

 

 

    

 

 

 

Per Common Share Data:

 

Net increase in net assets resulting from operations per share (basic and diluted):    $ 0.40      $ 0.62      $ 0.92      $ 0.92  
Net investment income per share (basic and diluted):    $ 0.31      $ 0.23      $ 0.59      $ 0.48  
Weighted average shares outstanding (basic and diluted):      7,446,092          4,881,504          7,095,592          4,578,842    
Distributions declared per share:    $ 0.29      $ 0.22      $ 0.57      $ 0.46  

 

See accompanying notes.

 

3


Table of Contents

Crescent Capital BDC, Inc.

Consolidated Statements of Changes in Net Assets

(Unaudited)

 

     For the six
    months ended    

June 30, 2017
  For the six
    months ended    

June 30, 2016

Increase (decrease) in net assets resulting from operations:

    
Net investment income     $ 4,193,868      $ 2,210,870  
Net realized loss on investments and foreign currency transactions      (263,927     (402,905
Net change in unrealized appreciation (depreciation) on investments and foreign currency translation      2,576,913       2,402,241  
  

 

 

 

 

 

 

 

Net increase in net assets resulting from operations

     6,506,854       4,210,206  
  

 

 

 

 

 

 

 

Distributions to shareholders from:

    

Net investment income

     (4,163,870     (2,294,993
  

 

 

 

 

 

 

 

Total distributions to shareholders

     (4,163,870     (2,294,993
  

 

 

 

 

 

 

 

Capital transactions:

    
Issuance of common stock      25,000,000       26,000,000  
Issuance of common stock pursuant to dividend reinvestment plan      35,636       15,687  
Equity offering costs      (56,746     (59,017
  

 

 

 

 

 

 

 

Net increase in net assets resulting from capital transactions

     24,978,890       25,956,670  
  

 

 

 

 

 

 

 

Total increase in net assets

     27,321,874       27,871,883  

Net assets at beginning of period

     128,056,028       77,586,238  
  

 

 

 

 

 

 

 

Net assets at end of period

    $ 155,377,902      $ 105,458,121  
  

 

 

 

 

 

 

 

Accumulated distributions in excess of net investment income     $ (19,520    $ (249,549

Changes in Shares

    
Common stock, at beginning of period      6,376,850       4,056,316  
Issuance of common stock      1,234,786       1,352,639  
Issuance of common stock pursuant to dividend reinvestment plan      1,778       805  
  

 

 

 

 

 

 

 

Common stock, at end of period      7,613,414       5,409,760  
  

 

 

 

 

 

 

 

 

See accompanying notes.

 

4


Table of Contents

Crescent Capital BDC, Inc.

Consolidated Statements of Cash Flows

(Unaudited)

 

     For the six
    months ended    

June 30, 2017
  For the six
    months ended    

June 30, 2016
Cash flows from operating activities:     
Net increase (decrease) in net assets resulting from operations     $ 6,506,854      $ 4,210,206  

Adjustments to reconcile net increase (decrease) in net assets resulting from

operations to net cash provided by (used for) operating activities:

    

Purchases of investments

     (90,236,677     (45,750,919

Paid-in-kind interest income

     (20,698      

Proceeds from sales of investments and principal repayments

     23,457,767       11,317,104  

Net realized (gain) loss on investments

     261,931       443,865  

Net change in unrealized (appreciation) depreciation on investments and foreign currency translation

     (2,576,913     (2,402,241

Amortization of premium and accretion of discount, net

     (348,685     (106,874

Amortization of deferred financing costs

     368,746       323,506  
Increase (decrease) in operating assets and liabilities:     

(Increase) decrease in receivable for investments sold

     321,952       (1,936,186

(Increase) decrease in interest receivable

     448,103       (462,516

(Increase) decrease in due from Advisor - affiliate

     (22,531      

(Increase) decrease in prepaid expenses and other assets

     (100,761     (52,532

Increase (decrease) in payable for investments purchased

           (4,489,310

Increase (decrease) in management fees payable - affiliate

     146,427       53,862  

Increase (decrease) in income incentive fees payable - affiliate

     (68,559      

Increase (decrease) in due to Advisor - affiliate

     (27,247     (41,562

Increase (decrease) in due to Administrator - affiliate

     14,604       (58,179

Increase (decrease) in professional fees payable

     122,183       31,373  

Increase (decrease) in directors’ fees payable

     79,250       7,667  

Increase (decrease) in interest and credit facility fees and expenses payable

     315,776       179,249  

Increase (decrease) in accrued expenses and other liabilities

     196,575       (154,095
  

 

 

 

 

 

 

 

Net cash provided by (used for) operating activities      (61,161,903     (38,887,582
  

 

 

 

 

 

 

 

Cash flows from financing activities:     

Issuance of common stock

     25,000,000       26,000,000  

Financing costs paid related to revolving credit facility

     (643,713     (1,365,536

Distributions paid

     (3,708,411     (2,039,312

Equity offering costs

     (56,746     (59,017

Borrowings on revolving credit facility

     76,000,000       52,462,689  

Repayments on revolving credit facility

     (33,200,000     (35,450,000
  

 

 

 

 

 

 

 

Net cash provided by (used for) financing activities      63,391,130       39,548,824  
  

 

 

 

 

 

 

 

Effect of exchange rate changes on cash denominated in foreign currency      15,573       (2,006
Net increase (decrease) in cash, cash equivalents and foreign currency      2,244,800       659,236  
Cash, cash equivalents and foreign currency, beginning of period      5,119,325       4,767,556  
  

 

 

 

 

 

 

 

Cash, cash equivalents and foreign currency, end of period     $       7,364,125      $       5,426,792  
  

 

 

 

 

 

 

 

Supplemental and non-cash financing activities:     
Cash paid during the period for interest     $ 1,557,235      $ 640,612  
Issuance of common stock pursuant to distribution reinvestment plan     $ 35,636      $ 15,687  
Accrued but unpaid offering costs     $ 22,698      $ 31,778  
Accrued but unpaid distributions     $ 2,169,823      $ 1,164,992  

 

See accompanying notes.

 

5


Table of Contents

CRESCENT CAPITAL BDC, INC.

Consolidated Schedule of Investments (Unaudited)

June 30, 2017

 

                                                                                                                                                                               
   

Investment Type

  Spread
Above
Index *
    Interest
Rate
    Maturity
Date
    Principal/Par
Amount
    Cost   Percentage
of Net
Assets**
  Fair
Value
 

Investments(1)

               

United States

               

Debt Investments

               

Automobiles & Components

               

AP Exhaust Acquisition, LLC

 

Senior Secured Second Lien

    L + 850 (2)      9.82     05/2025     $ 9,072,563     $ 8,758,746       5.9   $ 9,072,562  

POC Investors, LLC

 

Senior Secured First Lien

    L + 550 (2)      6.66     10/2021       4,680,500       4,616,543       3.0       4,680,500  

POC Investors, LLC(3)

 

Senior Secured First Lien

    L + 550 (4)      6.73     10/2021       208,333       198,213       0.1       208,333  
         

 

 

   

 

 

 

 

 

 

 

 

 

 

 
            13,961,396       13,573,502       9.0       13,961,395  
         

 

 

   

 

 

 

 

 

 

 

 

 

 

 

Capital Goods

               

Accudyne Industries, LLC(5)

 

Senior Secured First Lien

    L + 300 (4)      4.23     12/2019       532,207       523,209       0.4       528,921  

Alion Science and Technology Corp.

 

Unsecured Debt

      11.00     08/2022       5,000,000       4,879,220       3.2       5,000,000  

MB Aerospace Holdings Inc.(5)

 

Senior Secured First Lien

    L + 550 (2)      6.81     12/2022       4,338,821       4,305,014       2.8       4,365,938  

Midwest Industrial Rubber(3) (6)

 

Senior Secured First Lien

        12/2021             (6,610            

Midwest Industrial Rubber

 

Senior Secured First Lien

    L + 550 (2)      6.80     12/2021       4,079,500       4,015,241       2.6       4,079,500  

Pro Mach Group, Inc.

 

Senior Secured First Lien

    L + 375 (4)      4.98     10/2021       734,925       738,947       0.5       741,047  
         

 

 

   

 

 

 

 

 

 

 

 

 

 

 
            14,685,453       14,455,021       9.5       14,715,406  
         

 

 

   

 

 

 

 

 

 

 

 

 

 

 

Commercial & Professional Services

             

ADMI Corp.

 

Senior Secured First Lien

    L + 375 (2)      4.92     04/2022       980,000       988,741       0.6       991,946  

Advantage Sales & Marketing, Inc.

 

Senior Secured First Lien

    L + 325 (2)      4.55     07/2021       832,871       833,178       0.5       801,643  

Advantage Sales & Marketing, Inc.

 

Senior Secured Second Lien

    L + 650 (2)      7.80     07/2022       500,000       502,654       0.3       481,875  

ASP MCS Acquisition Corp.

 

Senior Secured First Lien

    L + 475 (4)      5.96     05/2024       5,375,000       5,348,385       3.5       5,469,062  

Asurion, LLC

 

Senior Secured Second Lien

    L + 750 (4)      8.73     03/2021       275,000       278,938       0.2       277,005  

Brickman Group, Ltd. LLC

 

Senior Secured Second Lien

    L + 650 (4)      7.71     12/2021       234,043       234,918       0.2       234,745  

DFS Intermediate Holdings, LLC(3)

 

Senior Secured First Lien

    L + 525 (4)      6.47     09/2018       410,604       377,319       0.3       410,604  

DFS Intermediate Holdings, LLC(3)

 

Senior Secured First Lien

    L + 525 (4)      6.47     03/2022       365,000       327,015       0.2       365,000  

DFS Intermediate Holdings, LLC

 

Senior Secured First Lien

    L + 525 (4)      6.30     03/2022       7,331,625       7,191,316       4.7       7,331,625  

Hepaco, LLC(3)

 

Senior Secured First Lien

    P + 400 (7)      8.25     08/2021       208,333       203,092       0.1       208,333  

Hepaco, LLC(3) (6)

 

Senior Secured First Lien

        08/2022             (15,503            

Hepaco, LLC

 

Senior Secured First Lien

    L + 500 (4)      6.22     08/2022       2,927,875       2,895,786       1.9       2,927,875  

Jordan Healthcare, Inc.

 

Senior Secured First Lien

    L + 525 (2)      6.55     07/2021       2,376,000       2,351,442       1.5       2,387,880  

Jordan Healthcare, Inc.(3) (6)

 

Senior Secured First Lien

        08/2021             (4,516           2,250  

Jordan Healthcare, Inc.(3)

 

Senior Secured First Lien

    L + 525 (2)      6.55     08/2021       837,900       825,691       0.6       843,889  

MHS Acquisition Holdings, LLC

 

Senior Secured Second Lien

    L + 875 (2)      10.05     03/2026       6,250,456       6,066,998       4.0       6,250,456  

MHS Acquisition Holdings, LLC(3)

 

Senior Secured Second Lien

    L + 875 (2)      10.05     03/2026       494,431       429,280       0.3       494,431  

MHS Acquisition Holdings, LLC

 

Unsecured Debt

      13.50     03/2026       509,885       500,305       0.3       509,885  

MHS Acquisition Holdings, LLC(3)

 

Unsecured Debt

      13.50     03/2026       35,545       32,793             35,545  

NS Intermediate Holdings, LLC(3) (6)

 

Senior Secured First Lien

        09/2021             (3,726            

NS Intermediate Holdings, LLC

 

Senior Secured First Lien

    L + 550 (4)      6.73     09/2021       2,705,505       2,664,361       1.8       2,705,505  

 

See accompanying notes.

 

6


Table of Contents

CRESCENT CAPITAL BDC, INC.

Consolidated Schedule of Investments (Unaudited)

June 30, 2017

 

                                                                                                                                                                               
   

Investment Type

  Spread
Above
Index *
    Interest
Rate
    Maturity
Date
    Principal/Par
Amount
    Cost   Percentage
of Net
Assets**
  Fair
Value
 

PowerTeam Services, LLC

 

Senior Secured First Lien

    L + 325 (2)      4.55     05/2020     $ 980,513     $ 979,022       0.6   $ 974,998  

SavATree, LLC(3) (6)

 

Senior Secured First Lien

        05/2022             (7,000           (3,500

SavATree, LLC(3) (6)

 

Senior Secured First Lien

        06/2022             (11,000           (5,500

SavATree, LLC

 

Senior Secured First Lien

    L + 525 (2)      6.55     06/2022       2,850,000       2,793,774       1.8       2,821,500  

Survey Sampling International, LLC

 

Senior Secured First Lien

    L + 500 (2)      6.30     12/2020       3,159,582       3,135,439       2.1       3,167,481  

TecoStar Holdings Inc.

 

Senior Secured Second Lien

    L + 850 (2)      9.67     11/2024       5,000,000       4,876,922       3.2       5,000,000  

USAGM HoldCo, LLC

 

Senior Secured Second Lien

      11.00     07/2023       2,000,000       1,954,584       1.4       2,100,000  

USAGM HoldCo, LLC

 

Senior Secured Second Lien

    L + 850 (2)      9.67     07/2023       10,000,000       9,669,822       6.5       10,158,300  

Valet Waste Holdings, Inc.(3)

 

Senior Secured First Lien

    L + 700 (4)      8.23     09/2021       326,087       320,125       0.2       331,522  

Valet Waste Holdings, Inc.

 

Senior Secured First Lien

    L + 700 (4)      8.23     09/2021       4,271,739       4,222,947       2.8       4,314,456  

Vencore, Inc.

 

Senior Secured First Lien

    L + 475 (2)      6.05     11/2019       484,547       484,947       0.3       488,382  

William Morris Endeavor Entertainment, LLC

 

Senior Secured Second Lien

    L + 725 (4)      8.48     05/2022       166,667       163,468       0.1       168,854  

Xcentric Mold and Engineering Acquisition Company, LLC(3) (6)

 

Senior Secured First Lien

        01/2022             (14,000           7,000  

Xcentric Mold and Engineering Acquisition Company, LLC

 

Senior Secured First Lien

    L + 550 (2)      6.58     01/2022       5,037,375       4,945,124       3.3       5,087,749  
         

 

 

   

 

 

 

 

 

 

 

 

 

 

 
            66,926,583       65,542,641       43.3       67,340,796  
         

 

 

   

 

 

 

 

 

 

 

 

 

 

 

Consumer Durables & Apparel

               

C.F. Stinson, LLC

 

Senior Secured First Lien

    L + 657 (4) (8)      7.65     05/2021       3,000,000       2,950,434       2.0       3,030,000  
         

 

 

   

 

 

 

 

 

 

 

 

 

 

 

Consumer Services

               

Catapult Learning, LLC

 

Senior Secured First Lien

    L + 650 (2) (8)      7.67     07/2020       5,000,000       4,966,927       3.1       4,875,000  

Centerplate, Inc.

 

Senior Secured First Lien

    L + 375 (2)      4.97     11/2019       704,001       704,001       0.5       704,441  

Oncourse Learning Corp.(3)

 

Senior Secured First Lien

    L + 650 (2)      7.79     09/2021       240,000       232,359       0.2       240,000  

Oncourse Learning Corp.

 

Senior Secured First Lien

    L + 650 (4)      7.65     09/2021       10,996,250       10,852,691       7.1       10,996,250  

SkillSoft Corporation

 

Senior Secured First Lien

    L + 475 (4)      5.98     04/2021       969,713       956,027       0.6       918,977  

Teaching Company, LLC

 

Senior Secured First Lien

    L + 475 (2)      6.05     02/2023       4,987,500       4,940,100       3.2       4,987,500  

Wrench Group, LLC(3) (6)

 

Senior Secured First Lien

        03/2022             (12,923            

Wrench Group, LLC

 

Senior Secured First Lien

    L + 525 (2)      6.55     03/2022       3,781,945       3,735,959       2.4       3,781,945  
         

 

 

   

 

 

 

 

 

 

 

 

 

 

 
            26,679,409       26,375,141       17.1       26,504,113  
         

 

 

   

 

 

 

 

 

 

 

 

 

 

 

Diversified Financials

               

Edelman Financial Group, The

 

Senior Secured First Lien

    L + 550 (2)      6.66     12/2022       2,949,457       2,901,275       1.9       2,966,652  
         

 

 

   

 

 

 

 

 

 

 

 

 

 

 

Energy

               

Fairmount Santrol, Inc.(5)

 

Senior Secured First Lien

    L + 350 (2)      4.80     09/2019       313,493       303,871       0.2       296,800  

Murray Energy Corporation

 

Senior Secured First Lien

    L + 725 (2)      8.55     04/2020       353,466       339,030       0.2       346,543  
         

 

 

   

 

 

 

 

 

 

 

 

 

 

 
            666,959       642,901       0.4       643,343  
         

 

 

   

 

 

 

 

 

 

 

 

 

 

 

Food & Staples Retailing

               

Good Source Solutions, Inc.

 

Senior Secured First Lien

    L + 7.25 (2)      8.55     07/2021       2,648,897       2,626,566       1.7       2,668,690    

 

See accompanying notes.

 

7


Table of Contents

CRESCENT CAPITAL BDC, INC.

Consolidated Schedule of Investments (Unaudited)

June 30, 2017

 

                                                                                                                                                                               
   

Investment Type

  Spread
Above
Index *
    Interest
Rate
    Maturity
Date
    Principal/Par
Amount
    Cost   Percentage
of Net
Assets**
  Fair
Value
 

HLF Financing S.a r.l.(5)

 

Senior Secured First Lien

    L + 550 (4)      6.73     02/2023     $ 4,906,250     $ 4,813,169       3.2   $ 4,967,578  
         

 

 

   

 

 

 

 

 

 

 

 

 

 

 
            7,555,147       7,439,735       4.9       7,636,268  
         

 

 

   

 

 

 

 

 

 

 

 

 

 

 

Food, Beverage & Tobacco

               

American Seafoods Group LLC

 

Senior Secured Second Lien

    L + 900 (4)      10.23     02/2022       5,000,000       4,893,122       3.2       5,050,000  

Shearer’s Foods, Inc.

 

Senior Secured First Lien

    L + 425 (2)      5.55     06/2021       738,750       733,279       0.5       738,750  
         

 

 

   

 

 

 

 

 

 

 

 

 

 

 
            5,738,750       5,626,401       3.7       5,788,750  
         

 

 

   

 

 

 

 

 

 

 

 

 

 

 

Health Care Equipment & Services

               

Alere, Inc.(5)

 

Senior Secured First Lien

    L + 325 (4)      4.48     06/2022       776,293       780,790       0.5       779,069  

ATI Holdings Acquisition, Inc.

 

Senior Secured First Lien

    L + 450 (2)      5.65     05/2023       1,163,250       1,153,200       0.8       1,175,848  

Beaver-Visitec International, Inc.(5)

 

Senior Secured First Lien

    L + 500 (2)      6.30     08/2023       7,443,750       7,376,480       4.8       7,443,750  

CDRH Parent, Inc.

 

Senior Secured First Lien

    L + 425 (2)      5.32     07/2021       367,134       369,488       0.2       292,134  

Centauri Health Solutions, Inc.

 

Senior Secured First Lien

    L + 550 (4)      6.56     01/2022       8,279,250       8,125,528       5.4       8,444,835  

Centauri Health Solutions, Inc.(3)

 

Senior Secured First Lien

    L + 550 (4)      6.56     01/2022       459,375       440,112       0.3       480,375  

ExamWorks Group, Inc.

 

Senior Secured Second Lien

      10.50     07/2024       5,000,000       4,861,554       3.3       5,131,793  

NMSC Holdings, Inc.

 

Senior Secured Second Lien

    L + 1000 (2)      11.30     10/2023       4,307,480       4,153,885       2.8       4,307,480  

NVA Holdings, Inc.

 

Senior Secured First Lien

    L + 350 (2)      4.80     08/2021       4,033,891       3,954,687       2.6       4,061,624  

Onex Carestream Finance LP(5)

 

Senior Secured First Lien

    L + 400 (9)      5.25     06/2019       410,718       411,025       0.3       409,007  

Onex Carestream Finance LP(5)

 

Senior Secured Second Lien

    L + 850 (2)      9.80     12/2019       197,728       197,728       0.1       194,104  

Professional Physical Therapy

 

Senior Secured First Lien

    L + 600 (2)      7.30     12/2022       7,462,500       7,393,390       4.8       7,481,156  

PT Network, LLC(3) (6)

 

Senior Secured First Lien

        11/2021             (1,770            

PT Network, LLC(3)

 

Senior Secured First Lien

    L + 650 (2)      7.59     11/2021       212,670       204,678       0.1       212,670  

PT Network, LLC

 

Senior Secured First Lien

    L + 650 (9)      7.70     11/2021       2,288,500       2,267,884       1.5       2,288,500  

Snow Companies, LLC

 

Senior Secured First Lien

    L + 600 (4)      7.23     01/2022       9,303,250       9,130,615       6.0       9,396,282  

Zest Holdings LLC

 

Senior Secured First Lien

    L + 425 (4)      5.48     08/2023       4,937,625       4,903,463       3.2       4,991,124  
         

 

 

   

 

 

 

 

 

 

 

 

 

 

 
            56,643,414       55,722,737       36.7       57,089,751  
         

 

 

   

 

 

 

 

 

 

 

 

 

 

 

Household & Personal Products

               

Paris Presents Incorporated

 

Senior Secured First Lien

    L + 500 (4)      6.23     01/2021       1,732,312       1,717,369       1.1       1,732,312  

Paris Presents Incorporated

 

Senior Secured Second Lien

    L + 875 (4)      9.98     01/2022       504,468       495,371       0.3       499,423  
         

 

 

   

 

 

 

 

 

 

 

 

 

 

 
            2,236,780       2,212,740       1.4       2,231,735  
         

 

 

   

 

 

 

 

 

 

 

 

 

 

 

Insurance

               

Edgewood Partners Insurance Center

 

Senior Secured First Lien

    L + 500 (4)      6.23     03/2023       2,970,000       2,919,538       1.9       3,003,412  

Integro Parent, Inc.

 

Senior Secured First Lien

    L + 575 (2)      6.92     09/2022       458,383       451,343       0.3       459,529  

Integro Parent, Inc.

 

Senior Secured First Lien

    L + 575 (2)      6.99     10/2022       34,259       33,694             34,345  

Integro Parent, Inc.

 

Senior Secured Second Lien

    L + 925 (2)      10.41     10/2023       380,282       374,104       0.3       374,578  

Integro Parent, Inc.

 

Senior Secured Second Lien

    L + 925 (2)      10.42     10/2023       2,408,451       2,364,716       1.5       2,372,324  
         

 

 

   

 

 

 

 

 

 

 

 

 

 

 
            6,251,375       6,143,395       4.0       6,244,188  
         

 

 

   

 

 

 

 

 

 

 

 

 

 

 

Materials

               

Emerald Performance Materials, LLC

 

Senior Secured First Lien

    L + 350 (4)      4.73     08/2021       966,999       970,051       0.6       975,610  

 

See accompanying notes.

 

8


Table of Contents

CRESCENT CAPITAL BDC, INC.

Consolidated Schedule of Investments (Unaudited)

June 30, 2017

 

                                                                                                                                                                               
   

Investment Type

  Spread
Above
Index *
    Interest
Rate
    Maturity
Date
    Principal/Par
Amount
    Cost   Percentage
of Net
Assets**
  Fair
Value
 

IBC Capital Limited(5)

 

Senior Secured First Lien

    L + 375 (2)      4.98     09/2021     $ 832,958     $ 823,423       0.5   $ 821,850  

Royal Holdings, Inc.

 

Senior Secured First Lien

    L + 325 (2)      4.55     06/2022       835,157       837,279       0.6       842,728  

Tank Holding Corp.

 

Senior Secured First Lien

    L + 425 (2)      5.55     03/2022       883,146       889,687       0.6       887,010  
         

 

 

   

 

 

 

 

 

 

 

 

 

 

 
            3,518,260       3,520,440       2.3       3,527,198  
         

 

 

   

 

 

 

 

 

 

 

 

 

 

 

Media

               

Acosta Holdco, Inc.

 

Senior Secured First Lien

    L + 325 (4)      4.48     09/2021       975,253       975,996       0.6       877,728  

Charter Communications Operating, LLC(5)

 

Senior Secured First Lien

    L + 225 (4)      3.48     01/2024       320,937       320,311       0.2       322,408  

iHeartCommunications, Inc.(5)

 

Senior Secured First Lien

    L + 675 (4)      7.98     01/2019       738,673       715,210       0.4       605,882  

Rentpath, Inc.(5)

 

Senior Secured First Lien

    L + 525 (4)      6.48     12/2021       979,900       987,166       0.6       979,086  

Tribune Media Co.(5)

 

Senior Secured First Lien

    L + 300 (4)      4.23     12/2020       164,167       164,728       0.1       164,988  

Vivid Seats Ltd.

 

Senior Secured Second Lien

    L + 975 (10)      10.75     06/2025       2,500,000       2,354,054       1.5       2,354,054  
         

 

 

   

 

 

 

 

 

 

 

 

 

 

 
            5,678,930       5,517,465       3.4       5,304,146  
         

 

 

   

 

 

 

 

 

 

 

 

 

 

 

Real Estate

               

DTZ U.S. Borrower, LLC(5)

 

Senior Secured Second Lien

    L + 825 (2)      9.42     11/2022       425,532       420,220       0.3       426,596  
         

 

 

   

 

 

 

 

 

 

 

 

 

 

 

Retailing

               

Academy, Ltd.

 

Senior Secured First Lien

    L + 400 (2)      5.17     07/2022       925,205       929,333       0.5       721,660  

Petco Animal Supplies, Inc.

 

Senior Secured First Lien

    L + 300 (2)      4.17     01/2023       164,583       161,990       0.1       149,113  

Strategic Partners, Inc.

 

Senior Secured First Lien

    L + 450 (4)      5.73     06/2023       6,467,541       6,452,916       4.2       6,548,385  
         

 

 

   

 

 

 

 

 

 

 

 

 

 

 
            7,557,329       7,544,239       4.8       7,419,158  
         

 

 

   

 

 

 

 

 

 

 

 

 

 

 

Software & Services

               

Ansira Partners, Inc.(3) (6)

 

Senior Secured First Lien

        12/2022             (8,729           (7,159

Ansira Partners, Inc.

 

Senior Secured First Lien

    L + 650 (2)      7.80     12/2022       6,512,727       6,452,272       4.2       6,463,882  

Cision US, Inc.

 

Senior Secured First Lien

    L + 600 (4)      7.23     06/2023       4,950,003       4,775,371       3.2       4,985,891  

Epicor Software Corporation

 

Senior Secured First Lien

    L + 375 (4)      4.98     06/2022       970,884       972,265       0.6       971,947  

Informatica Corporation(5)

 

Senior Secured First Lien

    L + 350 (2)      4.80     08/2022       823,537       824,463       0.5       824,125  

Mediaocean LLC

 

Senior Secured First Lien

    L + 425 (4)      5.48     08/2022       6,490,518       6,435,599       4.2       6,522,971  

Merrill Communications, LLC

 

Senior Secured First Lien

    L + 525 (2)      6.42     06/2022       981,772       984,564       0.6       986,681  

Ministry Brands Intermediate, LLC

 

Senior Secured First Lien

    L + 500 (4)      6.23     11/2023       5,226,575       5,178,018       3.4       5,226,575  

SMS Systems Maintenance Services, Inc.

 

Senior Secured Second Lien

    L + 850 (2)      9.75     10/2024       4,703,478       4,555,926       3.0       4,703,478  

SMS Systems Maintenance Services, Inc.

 

Senior Secured Second Lien

      10.00     10/2024       9,015,000       8,738,564       5.8       9,015,000  

Transportation Insight, LLC

 

Senior Secured First Lien

    L + 525 (4)      6.48     09/2019       1,765,134       1,752,152       1.2       1,765,134  
         

 

 

   

 

 

 

 

 

 

 

 

 

 

 
            41,439,628       40,660,465       26.7       41,458,525  
         

 

 

   

 

 

 

 

 

 

 

 

 

 

 

Technology Hardware & Equipment

               

Onvoy, LLC

 

Senior Secured Second Lien

    L + 1050 (2)      11.80     02/2025       2,635,052       2,513,192       1.7       2,635,052  
         

 

 

   

 

 

 

 

 

 

 

 

 

 

 

Transportation

               

Kenan Advantage Group, Inc.

 

Senior Secured First Lien

    L + 300 (4)      4.23     07/2022       780,428       782,179       0.5       782,461  

 

See accompanying notes.

 

9


Table of Contents

CRESCENT CAPITAL BDC, INC.

Consolidated Schedule of Investments (Unaudited)

June 30, 2017

 

                                                                                                                                                                               
   

Investment Type

  Spread
Above
Index *
    Interest
Rate
    Maturity
Date
    Principal/Par
Amount
    Cost   Percentage
of Net
Assets**
  Fair
Value
 

Pilot Air Freight, LLC

 

Senior Secured First Lien

    L + 525 (4)      6.48     10/2022      $ 3,333,250      $ 3,303,102       2.1    $ 3,333,250  
         

 

 

   

 

 

 

 

 

 

 

 

 

 

 
            4,113,678       4,085,281       2.6       4,115,711  
         

 

 

   

 

 

 

 

 

 

 

 

 

 

 
Total Debt Investments United States            $ 272,663,132      $ 267,847,225       175.7    $ 273,038,783  
         

 

 

   

 

 

 

 

 

 

 

 

 

 

 

Equity Investments

               

Automobiles & Components

               

AP Centric(11)

 

Common Stock

          927       927,438       0.6       927,438  
         

 

 

   

 

 

 

 

 

 

 

 

 

 

 

Capital Goods

               

Alion Science and Technology Corp.(11)

 

Common Stock

          535,714       535,714       0.3       442,889  
         

 

 

   

 

 

 

 

 

 

 

 

 

 

 

Commercial & Professional Services

               

MHS Acquisition Holdings, LLC(11)

 

Common Stock

          877       876,504       0.6       876,504  

TecoStar Holdings Inc.(11)

 

Common Stock

          500,000       500,000       0.3       500,000  

Universal Services Equity Investments(11)

 

Common Stock

          1,000,000       1,000,000       0.6       1,000,000  

USAGM HoldCo, LLC(11)

 

Common Stock

          238,095       238,095       0.2       238,095  
         

 

 

   

 

 

 

 

 

 

 

 

 

 

 
            1,738,972       2,614,599       1.7       2,614,599  
         

 

 

   

 

 

 

 

 

 

 

 

 

 

 

Health Care Equipment & Services

               

ExamWorks Group, Inc.(11)

 

Common Stock

          7,500       750,000       0.5       750,000  
         

 

 

   

 

 

 

 

 

 

 

 

 

 

 

Insurance

               

Integro Equity(11)

 

Common Stock

          4,225       422,535       0.3       420,341  
         

 

 

   

 

 

 

 

 

 

 

 

 

 

 

Media

               

Vivid Seats Ltd.(11)

 

Common Stock

          608,108       608,108       0.4       608,108  

Vivid Seats Ltd.(11)

 

Preferred Stock

      12.00       1,891,892       1,891,892       1.2       1,891,892  
         

 

 

   

 

 

 

 

 

 

 

 

 

 

 
            2,500,000       2,500,000       1.6       2,500,000  
         

 

 

   

 

 

 

 

 

 

 

 

 

 

 

Software & Services

               

SMS Systems Maintenance Services, Inc.(11)

 

Common Stock

          1,142,789       1,144,520       0.7       1,142,789  
         

 

 

   

 

 

 

 

 

 

 

 

 

 

 

Technology Hardware & Equipment

               

Onvoy, LLC(11)

 

Common Stock, Class A

          3,650       364,948       0.2       364,948  

Onvoy, LLC(11)

 

Common Stock, Class B

          253,572                    
         

 

 

   

 

 

 

 

 

 

 

 

 

 

 
            257,222       364,948       0.2       364,948  
         

 

 

   

 

 

 

 

 

 

 

 

 

 

 
Total Equity Investments United States            $ 6,187,263      $ 9,259,754       5.9    $ 9,163,004  
         

 

 

   

 

 

 

 

 

 

 

 

 

 

 
Total United States              $ 277,106,979       181.6    $ 282,201,787  
           

 

 

 

 

 

 

 

 

 

 

 
France                

Debt Investments

               

Technology Hardware & Equipment

               

Parkeon, Inc.(5)

 

Senior Secured First Lien

    L + 575 (12)      5.75     03/2023      € 1,994,499       2,054,501       1.4       2,169,625  
         

 

 

   

 

 

 

 

 

 

 

 

 

 

 
Total Debt Investments France            € 1,994,499      $ 2,054,501       1.4    $ 2,169,625  
         

 

 

   

 

 

 

 

 

 

 

 

 

 

 
Total France              $ 2,054,501       1.4    $ 2,169,625  
           

 

 

 

 

 

 

 

 

 

 

 
United Kingdom                

Debt Investments

               

Software & Services

               

CB SDG , Ltd.(5)

 

Senior Secured First Lien

    L + 650 (13)      7.04     07/2022      £ 1,978,200       2,996,739       1.6       2,505,342  

CB SDG , Ltd.(3) (5)

 

Senior Secured First Lien

    L + 650 (14)      7.00     07/2022       442,844       967,741       0.5       803,309  
         

 

 

   

 

 

 

 

 

 

 

 

 

 

 
Total Debt Investments United Kingdom            £ 2,421,044      $ 3,964,480       2.1    $ 3,308,651  
         

 

 

   

 

 

 

 

 

 

 

 

 

 

 
Total United Kingdom              $ 3,964,480       2.1    $ 3,308,651  
           

 

 

 

 

 

 

 

 

 

 

 
Total Investments              $ 283,125,960       185.1    $ 287,680,063  
           

 

 

 

 

 

 

 

 

 

 

 

 

See accompanying notes.

 

10


Table of Contents

CRESCENT CAPITAL BDC, INC.

Consolidated Schedule of Investments (Unaudited)

June 30, 2017

 

* The majority of the investments bear interest at a rate that may be determined by reference to London Interbank Offered Rate (“LIBOR” or “L”) or Prime (“P”) and which reset daily, quarterly or semiannually. For each, the Company has provided the spread over LIBOR or Prime and the weighted average current interest rate in effect at June 30, 2017. Certain investments are subject to a LIBOR or Prime interest rate floor. For fixed rate loans, a spread above a reference rate is not applicable.

 

** Percentage is based on net assets of $155,377,902 as of June 30, 2017.

 

(1) All positions held are non-controlled/non-affiliated investments as defined by the Investment Company Act of 1940, as amended (“1940 Act”). Non-controlled/non-affiliated investments are investments that are neither controlled investments nor affiliated investments.

 

(2) The interest rate on these loans is subject to the greater of a LIBOR floor or 3 month LIBOR plus a base rate. The 3 month LIBOR as of June 30, 2017 was 1.30%.

 

(3) Position or portion thereof is an unfunded loan commitment, and no interest is being earned on the unfunded portion. See Note 7 “Commitments and Contingencies”.

 

(4) The interest rate on these loans is subject to the greater of a LIBOR floor or 1 month LIBOR plus a base rate. The 1 month LIBOR as of June 30, 2017 was 1.22%.

 

(5) Investment is not a qualifying investment as defined under section 55 (a) of the Investment Company Act of 1940. Qualifying assets must represent at least 70% of total assets at the time of acquisition.

 

(6) The negative cost, if applicable, is the result of the capitalized discount or unfunded commitment being greater than the principal amount outstanding on the loan. The negative fair value, if applicable, is the result of the capitalized discount or unfunded commitment on the loan.

 

(7) The interest rate on these loans is subject to the U.S. Prime rate, which as of June 30, 2017 was 4.25%.

 

(8) These loans are first lien/last-out term loans.

 

(9) The interest rate on these loans is subject to the greater of a LIBOR floor or 2 month LIBOR plus a base rate. The 2 month LIBOR as of June 30, 2017 was 1.25%.

 

(10) The interest rate on these loans is subject to the greater of a LIBOR floor or 1 week LIBOR plus a base rate. The 1 week LIBOR as of June 30, 2017 was 1.19%.

 

(11) Non-income producing security.

 

(12) The interest rate on these loans is subject to the greater of a EURIBOR floor or 3 month EURIBOR plus a base rate. The 3 month EURIBOR as of June 30, 2017 was (0.33)%.

 

(13) The interest rate on these loans is subject to the greater of a GBP LIBOR floor or 6 month GBP LIBOR plus a base rate. The 6 month GBP LIBOR as of June 30, 2017 was 0.46%.

 

(14) The interest rate on these loans is subject to the greater of a GBP LIBOR floor or 3 month GBP LIBOR plus a base rate. The 3 month GBP LIBOR as of June 30, 2017 was 0.31%.

 

See accompanying notes.

 

11


Table of Contents

CRESCENT CAPITAL BDC, INC.

Consolidated Schedule of Investments

December 31, 2016

 

                                                                                                                                                                                       
   

Investment Type

  Spread
Above
Index *
    Interest
Rate
    Maturity
Date
    Principal/
Par

Amount
    Cost   Percentage
of Net
Assets **
  Fair
Value
 

Investments (1)

               

United States

               

Debt Investments

               

Automobiles & Components

               

POC Investors, LLC (2)

 

Senior Secured First Lien

    L + 550 (3)      6.50     10/2021     $ 83,333     $ 76,042       0.1   $ 83,333  

POC Investors, LLC

 

Senior Secured First Lien

    L + 550 (4)      6.50     10/2021       3,100,000       3,054,645       2.4       3,100,000  
         

 

 

   

 

 

 

 

 

 

 

 

 

 

 
            3,183,333       3,130,687       2.5       3,183,333  
         

 

 

   

 

 

 

 

 

 

 

 

 

 

 

Capital Goods

               

Alion Science and Technology Corp.

 

Unsecured Debt

      11.00     08/2022       5,000,000       4,870,817       3.8       4,950,000  

Brand Energy & Infrastructure Services, Inc.

 

Senior Secured First Lien

    L + 375 (4)      4.75     11/2020       835,809       821,808       0.6       835,588  

Doosan Infracore International, Inc. (5)

 

Senior Secured First Lien

    L + 350 (3)      4.50     05/2021       598,673       601,635       0.5       608,030  

MB Aerospace Holdings I, Inc. (5)

 

Senior Secured First Lien

    L + 550 (4)      6.50%       12/2022       4,360,845       4,324,305       3.4       4,349,943  

Midwest Industrial Rubber (2)

 

Senior Secured First Lien

        12/2021       85,000       77,680       0.1       80,818  

Midwest Industrial Rubber

 

Senior Secured First Lien

    L + 550 (3)      6.50     12/2021       4,100,000       4,029,260       3.2       4,059,651  

Pro Mach Group, Inc.

 

Senior Secured First Lien

    L + 375 (4)      4.75     10/2021       738,693       743,154       0.6       739,247  

Silver II US Holdings, LLC (5)

 

Senior Secured First Lien

    L + 300 (4)      4.00     12/2019       830,597       813,397       0.6       787,435  

Univar Inc. (5)

 

Senior Secured First Lien

    L + 325 (4)      4.25     07/2022       740,625       743,672       0.6       748,802  
         

 

 

   

 

 

 

 

 

 

 

 

 

 

 
            17,290,242       17,025,728       13.4       17,159,514  
         

 

 

   

 

 

 

 

 

 

 

 

 

 

 

Commercial & Professional Services

               

ADMI Corp.

 

Senior Secured First Lien

    L + 425 (4)      5.25     04/2022       985,000       994,587       0.8       994,234  

Advantage Sales & Marketing, Inc.

 

Senior Secured Second Lien

    L + 650 (4)      7.50     07/2022       500,000       502,868       0.4       489,690  

Advantage Sales & Marketing, Inc.

 

Senior Secured First Lien

    L + 325 (4)      4.25     07/2021       837,154       837,496       0.6       841,549  

Asurion, LLC

 

Senior Secured Second Lien

    L + 750 (3)      8.50     03/2021       275,000       279,388       0.2       280,071  

Asurion, LLC

 

Senior Secured First Lien

    L + 400 (3)      5.00     08/2022       486,875       486,294       0.4       493,996  

Brickman Group, Ltd. LLC

 

Senior Secured Second Lien

    L + 650 (3)      7.50     12/2021       500,000       502,043       0.4       504,690  

Emerald Expositions Holding, Inc.

 

Senior Secured First Lien

    L + 375 (4)      4.75     06/2020       696,535       699,151       0.5       701,759  

Hepaco, LLC (2)

 

Senior Secured First Lien

        08/2021       208,333       202,513       0.2       208,333  

Hepaco, LLC

 

Senior Secured First Lien

    L + 500 (4)      6.00     08/2022       2,942,625       2,907,744       2.3       2,942,625  

Hepaco, LLC (2)(6)

 

Senior Secured First Lien

        08/2022             (17,089            

Jordon Healthcare Inc.

 

Senior Secured First Lien

    L + 525 (4)      6.25     07/2021       2,388,000       2,360,651       1.9       2,388,000  

Jordon Healthcare Inc.(2)(6)

 

Senior Secured First Lien

        08/2021             (18,741            

NS Intermediate Holdings, LLC

 

Senior Secured First Lien

    L + 550 (4)      6.50     09/2021       2,981,250       2,931,417       2.3       2,981,250  

NS Intermediate Holdings, LLC (2)

 

Senior Secured First Lien

        09/2021       16,199       12,047             16,199  

 

See accompanying notes.

 

12


Table of Contents

CRESCENT CAPITAL BDC, INC.

Consolidated Schedule of Investments

December 31, 2016

 

                                                                                                                                                                               
   

Investment Type

  Spread
Above
Index *
    Interest
Rate
    Maturity
Date
    Principal/
Par

Amount
    Cost   Percentage
of Net
Assets **
  Fair
Value
 

PowerTeam Services, LLC

 

Senior Secured First Lien

    L + 325 (4)      4.25     05/2020     $ 985,474     $ 983,730       0.8   $ 988,553  

Survey Sampling International, LLC

 

Senior Secured First Lien

    L + 500 (4)      6.00     12/2020       3,175,749       3,148,350       2.5       3,175,749  

USAGM HoldCo, LLC

 

Senior Secured Second Lien

    L + 850 (4)      9.50     07/2023       10,000,000       9,650,208       8.0       10,200,000  

USAGM HoldCo, LLC

 

Senior Secured Second Lien

      11.00     07/2023       2,000,000       1,952,052       1.6       2,060,000  

Valet Waste Holdings, Inc.

 

Senior Secured First Lien

    L + 700 (4)      8.00     09/2021       4,293,479       4,239,662       3.4       4,336,413  

Valet Waste Holdings, Inc. (2)

 

Senior Secured First Lien

        09/2021       326,087       319,427       0.2       331,522  

Vencore, Inc.

 

Senior Secured First Lien

    L + 475 (4)      5.75     11/2019       487,121       487,601       0.4       493,364  

William Morris Endeavor Entertainment, LLC

 

Senior Secured Second Lien

    L + 725 (4)      8.25     05/2022       250,000       244,808       0.2       253,750  

William Morris Endeavor Entertainment, LLC

 

Senior Secured First Lien

    L + 425 (4)      5.25     05/2021       984,810       987,734       0.8       997,125  
         

 

 

   

 

 

 

 

 

 

 

 

 

 

 
            35,319,691       34,693,941       27.9       35,678,872  
         

 

 

   

 

 

 

 

 

 

 

 

 

 

 

Consumer Durables & Apparel

               

C.F. Stinson, LLC

 

Senior Secured First Lien

    L + 670 (7)(14)      7.32     05/2021       3,000,000       2,944,942       2.3       3,000,000  

Varsity Brands, Inc.

 

Senior Secured First Lien

    L + 400 (4)      5.00     12/2021       984,925       993,379       0.8       1,001,176  
         

 

 

   

 

 

 

 

 

 

 

 

 

 

 
            3,984,925       3,938,321       3.1       4,001,176  
         

 

 

   

 

 

 

 

 

 

 

 

 

 

 

Consumer Services

               

Catapult Learning, LLC

 

Senior Secured First Lien

    L + 650 (4)(14)      7.50     07/2020       5,000,000       4,962,140       3.8       4,875,000  

Centerplate, Inc.

 

Senior Secured First Lien

    L + 375 (4)      4.75     11/2019       707,640       707,640       0.5       706,755  

Oncourse Learning Corp.

 

Senior Secured First Lien

    L + 650 (4)      7.50     09/2021       10,450,000       10,301,281       8.2       10,450,000  

Oncourse Learning Corp. (2)

 

Senior Secured First Lien

        09/2021       240,000       231,528       0.2       240,000  

Scientific Games International, Inc. (5)

 

Senior Secured First Lien

    L + 500 (8)      6.00     10/2021       983,690       986,750       0.8       997,491  

SkillSoft Corporation

 

Senior Secured First Lien

    L + 475 (9)      5.84     04/2021       984,887       969,364       0.7       902,713  

Wrench Group, LLC (2)(6)

 

Senior Secured First Lien

        03/2022             (14,433            

Wrench Group, LLC

 

Senior Secured First Lien

    L + 525 (4)      6.25     03/2022       3,840,278       3,789,365       3.0       3,840,278  
         

 

 

   

 

 

 

 

 

 

 

 

 

 

 
            22,206,495       21,933,635       17.2       22,012,237  
         

 

 

   

 

 

 

 

 

 

 

 

 

 

 

Diversified Financials

               

Edelman Financial Group, The

 

Senior Secured First Lien

    L + 550 (4)      6.50     12/2022       2,970,000       2,917,848       2.3       2,993,211  
         

 

 

   

 

 

 

 

 

 

 

 

 

 

 

Energy

               

Fairmount Santrol, Inc. (5)

 

Senior Secured First Lien

    L + 350 (4)      4.50     09/2019       335,198       322,749       0.2       326,749  

Murray Energy Corporation

 

Senior Secured First Lien

    L + 725 (4)      8.25     04/2020       356,470       339,701       0.3       342,213  
         

 

 

   

 

 

 

 

 

 

 

 

 

 

 
            691,668       662,450       0.5       668,962  
         

 

 

   

 

 

 

 

 

 

 

 

 

 

 

Food & Staples Retailing

               

BJ’s Wholesale Club, Inc.

 

Senior Secured First Lien

    L + 350 (4)      4.50     09/2019       818,327       820,823       0.7       827,407  

BJ’s Wholesale Club, Inc.

 

Senior Secured Second Lien

    L + 750 (4)      8.50     03/2020       248,809       250,649       0.2       252,281  

 

See accompanying notes.

 

13


Table of Contents

CRESCENT CAPITAL BDC, INC.

Consolidated Schedule of Investments

December 31, 2016

 

                                                                                                                                                                               
   

Investment Type

  Spread
Above
Index *
    Interest
Rate
    Maturity
Date
    Principal/
Par

Amount
    Cost   Percentage
of Net
Assets **
  Fair
Value
 

Good Source Solutions, Inc.

 

Senior Secured First Lien

    L + 725 (4)      8.25     07/2021     $ 2,699,449     $ 2,674,347       2.1   $ 2,699,448  
         

 

 

   

 

 

 

 

 

 

 

 

 

 

 
            3,766,585       3,745,819       3.0       3,779,136  
         

 

 

   

 

 

 

 

 

 

 

 

 

 

 

Food, Beverage & Tobacco

               

American Seafoods Group LLC

 

Senior Secured Second Lien

    L + 900 (4)      10.00     02/2022       5,000,000       4,884,333       3.8       4,850,000  

Shearer’s Foods, Inc.

 

Senior Secured First Lien

    L + 425 (4)      5.25     06/2021       742,500       736,390       0.6       746,213  
         

 

 

   

 

 

 

 

 

 

 

 

 

 

 
            5,742,500       5,620,723       4.4       5,596,213  
         

 

 

   

 

 

 

 

 

 

 

 

 

 

 

Health Care Equipment & Services

               

Alere, Inc. (5)

 

Senior Secured First Lien

    L + 325 (3)      4.25     06/2022       780,254       785,178       0.6       781,339  

ATI Holdings Acquisition, Inc.

 

Senior Secured First Lien

    P + 350 (10)      7.25     05/2023       1,169,125       1,158,311       0.9       1,186,662  

Beaver-Visitec International, Inc. (5)

 

Senior Secured First Lien

    L + 500 (4)      6.00     08/2023       7,481,250       7,409,181       5.8       7,481,250  

CDRH Parent, Inc.

 

Senior Secured First Lien

    L + 425 (4)      5.25     07/2021       369,021       371,653       0.3       338,577  

Epic Health Services, Inc.

 

Senior Secured First Lien

    L + 475 (4)      5.75     02/2021       171,445       169,798       0.1       171,445  

Epic Health Services, Inc.

 

Senior Secured Second Lien

    L + 825 (4)      10.25     08/2021       928,125       910,225       0.7       928,125  

ExamWorks Group, Inc.

 

Senior Secured Second Lien

      10.50     07/2024       5,000,000       4,855,211       3.9       5,000,000  

Heartland Dental, LLC

 

Senior Secured First Lien

    L + 450 (4)      5.50     12/2018       984,925       989,007       0.8       987,692  

NMSC Holdings, Inc.

 

Senior Secured Second Lien

    L + 1000 (4)      11.00     10/2023       4,307,480       4,145,844       3.4       4,350,555  

NVA Holdings, Inc.

 

Senior Secured First Lien

    L + 450 (4)      5.50     08/2021       4,054,162       3,966,046       3.2       4,074,433  

Onex Carestream Finance LP (5)

 

Senior Secured First Lien

    L + 400 (4)      5.00     06/2019       423,553       423,947       0.3       412,610  

Onex Carestream Finance LP (5)

 

Senior Secured

Second Lien

    L + 850 (4)      9.50     12/2019       197,728       197,728       0.1       163,126  

Professional Physical Therapy

 

Senior Secured First Lien

    L + 500 (4)      6.00     12/2022       7,500,000       7,425,376       5.9       7,518,750  

PT Network,

LLC (2)(6)

 

Senior Secured First Lien

        11/2021             (10,811            

PT Network, LLC

 

Senior Secured First Lien

    L + 650 (4)      7.50     11/2021       2,300,000       2,277,339       1.8       2,300,000  

Zest Holdings LLC

 

Senior Secured First Lien

    L + 475 (4)      5.75     08/2020       4,962,500       4,924,402       3.9       4,937,687  
         

 

 

   

 

 

 

 

 

 

 

 

 

 

 
            40,629,568       39,998,435       31.7       40,632,251  
         

 

 

   

 

 

 

 

 

 

 

 

 

 

 

Household & Personal Products

               

Paris Presents Incorporated

 

Senior Secured First Lien

    L + 500 (3)      6.00     01/2021       1,741,127       1,724,253       1.3       1,732,421  

Paris Presents Incorporated

 

Senior Secured Second Lien

    L + 875 (3)      9.75     01/2022       504,468       494,600       0.4       494,379  
         

 

 

   

 

 

 

 

 

 

 

 

 

 

 
            2,245,595       2,218,853       1.7       2,226,800  
         

 

 

   

 

 

 

 

 

 

 

 

 

 

 

Insurance

               

Confie Seguros Holding II Co.

 

Senior Secured First Lien

    L + 475 (3)      5.75     04/2022       179,147       177,390       0.1       180,357  

Edgewood Partners Insurance Center

 

Senior Secured First Lien

    L + 600 (3)      7.00     03/2023       2,977,500       2,923,345       2.4       2,999,831  

Integro Parent, Inc.

 

Senior Secured First Lien

    L + 575 (4)      6.75     09/2022       460,883       453,252       0.4       456,274  

Integro Parent, Inc.

 

Senior Secured First Lien

    L + 575 (4)      6.75     10/2022       34,259       33,650             33,917  

 

See accompanying notes.

 

14


Table of Contents

CRESCENT CAPITAL BDC, INC.

Consolidated Schedule of Investments

December 31, 2016

 

                                                                                                                                                                               
   

Investment Type

  Spread
Above
Index *
    Interest
Rate
    Maturity
Date
    Principal/
Par

Amount
    Cost   Percentage
of Net
Assets **
  Fair
Value
 

Integro Parent, Inc.

 

Senior Secured Second Lien

    L + 925 (4)      10.25     10/2023     $ 380,282     $ 373,449       0.3   $ 370,775  

Integro Parent, Inc.

 

Senior Secured Second Lien

    L + 925 (4)      10.25     10/2023       2,408,451       2,362,284       1.8       2,348,240  
         

 

 

   

 

 

 

 

 

 

 

 

 

 

 
            6,440,522       6,323,370       5.0       6,389,394  
         

 

 

   

 

 

 

 

 

 

 

 

 

 

 

Materials

               

Berlin Packaging LLC

 

Senior Secured First Lien

    L + 350 (3)      4.50     10/2021       979,804       983,603       0.8       989,676  

Emerald Performance Materials, LLC

 

Senior Secured First Lien

    L + 350 (3)      4.50     08/2021       967,618       971,009       0.8       975,600  

IBC Capital Limited (5)

 

Senior Secured First Lien

    L + 375 (9)      4.99     09/2021       837,218       826,618       0.6       830,591  

Ineos US Finance LLC (5)

 

Senior Secured First Lien

    L + 325 (3)      4.25     03/2022       492,477       493,470       0.4       499,365  

Royal Holdings, Inc.

 

Senior Secured First Lien

    L + 350 (4)      4.50     06/2022       837,250       839,571       0.7       847,017  

Tank Holding Corp.

 

Senior Secured First Lien

    L + 425 (4)      5.25     03/2022       932,584       940,133       0.7       924,811  
         

 

 

   

 

 

 

 

 

 

 

 

 

 

 
            5,046,951       5,054,404       4.0       5,067,060  
         

 

 

   

 

 

 

 

 

 

 

 

 

 

 

Media

               

Acosta Holdco, Inc.

 

Senior Secured First Lien

    L + 325 (4)      4.25     09/2021       985,370       986,201       0.7       963,510  

iHeartCommunications, Inc. (5)

 

Senior Secured First Lien

    L + 675 (7)      7.52     01/2019       738,673       708,375       0.5       603,865  

Rentpath, Inc. (5)

 

Senior Secured First Lien

    L + 525 (3)      6.25     12/2021       984,925       992,930       0.8       970,151  

Tribune Media Co. (5)

 

Senior Secured First Lien

    L + 300 (7)      3.77     12/2020       492,500       494,408       0.4       497,272  
         

 

 

   

 

 

 

 

 

 

 

 

 

 

 
            3,201,468       3,181,914       2.4       3,034,798  
         

 

 

   

 

 

 

 

 

 

 

 

 

 

 

Pharmaceuticals, Biotechnology & Life Sciences

               

Ortho-Clinical Diagnostics, Inc.

 

Senior Secured First Lien

    L + 375 (4)      4.75     06/2021       837,121       828,864       0.6       832,638  
         

 

 

   

 

 

 

 

 

 

 

 

 

 

 

Real Estate

               

Capital Automotive L.P. (5)

 

Senior Secured Second Lien

    L + 500 (3)      6.00     04/2020       500,000       507,232       0.4       507,915  

DTZ U.S. Borrower, LLC (5)

 

Senior Secured Second Lien

    L + 825 (4)      9.25     11/2022       425,532       419,844       0.3       426,772  
         

 

 

   

 

 

 

 

 

 

 

 

 

 

 
            925,532       927,076       0.7       934,687  
         

 

 

   

 

 

 

 

 

 

 

 

 

 

 

Retailing

               

Academy, Ltd.

 

Senior Secured First Lien

    L + 400 (3)      5.00     07/2022       930,205       934,721       0.7       862,766  

Midas Intermediate Holdco II, LLC

 

Senior Secured First Lien

    L + 350 (4)      4.50     08/2021       984,887       991,511       0.8       998,429  

Petco Animal Supplies, Inc.

 

Senior Secured First Lien

    L + 400 (4)      5.00     01/2023       165,417       162,602       0.1       166,540  

Strategic Partners, Inc.

 

Senior Secured First Lien

    L + 525 (4)      6.25     06/2023       6,483,750       6,468,222       5.1       6,548,587  
         

 

 

   

 

 

 

 

 

 

 

 

 

 

 
            8,564,259       8,557,056       6.7       8,576,322  
         

 

 

   

 

 

 

 

 

 

 

 

 

 

 

Software & Services

               

Ansira Partners, Inc. (2)(6)

 

Senior Secured First Lien

        12/2022             (9,495           (7,159

Ansira Partners, Inc.

 

Senior Secured First Lien

    L + 650 (4)      7.50     12/2022       6,545,455       6,480,290       5.1       6,496,364  

Cision US Inc.

 

Senior Secured First Lien

    L + 600 (4)      7.00     06/2023       4,975,000       4,787,830       3.9       4,940,797  

Compuware Corporation

 

Senior Secured First Lien

    L + 525 (4)      6.25     12/2021       983,690       969,250       0.8       991,191  

 

See accompanying notes.

 

15


Table of Contents

CRESCENT CAPITAL BDC, INC.

Consolidated Schedule of Investments

December 31, 2016

 

                                                                                                                                                                               
   

Investment Type

  Spread
Above
Index *
    Interest
Rate
    Maturity
Date
    Principal/Par
Amount
    Cost   Percentage
of Net
Assets **
  Fair
Value
 

Epicor Software Corporation

 

Senior Secured First Lien

    L + 375 (3)      4.75     06/2022     $ 970,883     $ 972,387       0.8   $ 976,432  

Informatica Corporation (5)

 

Senior Secured First Lien

    L + 350 (4)      4.50     08/2022       839,375       840,401       0.6       837,365  

Magic Newco LLC (5)

 

Senior Secured First Lien

    L + 400 (3)      5.00     12/2018       984,595       986,788       0.8       995,366  

Mediaocean LLC

 

Senior Secured First Lien

    L + 475 (3)      5.75     08/2022       6,523,509       6,463,692       5.1       6,564,281  

Merrill Communications, LLC

 

Senior Secured First Lien

    L + 525 (4)      6.25     06/2022       986,768       989,816       0.8       984,302  

Ministry Brands Intermediate, LLC

 

Senior Secured First Lien

    L + 500 (4)      6.00     11/2023       4,120,000       4,079,195       3.2       4,078,800  

Ministry Brands Intermediate, LLC (2)(6)

 

Senior Secured First Lien

        11/2023             (11,300           (11,300

SMS Systems Maintenance Services, Inc.

 

Senior Secured Second Lien

      10.00     10/2024       9,015,000       8,726,344       7.0       9,015,000  

Tibco Software Inc.

 

Senior Secured First Lien

    L + 550 (3)      6.50     12/2020       399,614       400,396       0.3       402,029  

Transportation Insight, LLC

 

Senior Secured First Lien

    L + 525 (3)      6.25     09/2019       1,862,644       1,846,176       1.4       1,862,644  
         

 

 

   

 

 

 

 

 

 

 

 

 

 

 
            38,206,533       37,521,770       29.8       38,126,112  
         

 

 

   

 

 

 

 

 

 

 

 

 

 

 

Technology Hardware & Equipment

             

Riverbed Technology, Inc.

 

Senior Secured First Lien

    L + 325 (3)      4.25     04/2022             114              
         

 

 

   

 

 

 

 

 

 

 

 

 

 

 

Telecommunication Services

             

Birch Communications, Inc.

 

Senior Secured First Lien

    L + 725 (4)      8.25     07/2020       948,068       951,686       0.7       853,261  

Charter Communications Operating, LLC (5)

 

Senior Secured First Lien

    L + 225 (7)      2.51     01/2024       322,562       321,888       0.2       324,880  

Level 3 Financing Inc. (5)

 

Senior Secured First Lien

    L + 300 (4)      4.00     01/2020       500,000       501,315       0.4       507,500  

U.S. Telepacific Corporation

 

Senior Secured First Lien

    L + 500 (4)      6.00     11/2020       982,787       984,672       0.8       985,347  
         

 

 

   

 

 

 

 

 

 

 

 

 

 

 
            2,753,417       2,759,561       2.1       2,670,988  
         

 

 

   

 

 

 

 

 

 

 

 

 

 

 

Transportation

               

Kenan Advantage Group, Inc. (2)

 

Senior Secured First Lien

        01/2017             8             196  

Kenan Advantage Group, Inc.

 

Senior Secured First Lien

    L + 300 (3)      4.00     07/2022       778,569       780,484       0.6       782,221  

Keurig Green Mountain, Inc. (5)

 

Senior Secured First Lien

    L + 450 (7)      5.31     03/2023       229,188       225,056       0.2       233,074  

Pilot Air Freight, LLC

 

Senior Secured First Lien

    L + 525 (4)      6.25     10/2022       3,350,000       3,317,358       2.6       3,350,000  
         

 

 

   

 

 

 

 

 

 

 

 

 

 

 
            4,357,757       4,322,906       3.4       4,365,491  
         

 

 

   

 

 

 

 

 

 

 

 

 

 

 

Utilities

               

Eastern Power, LLC

 

Senior Secured First Lien

    L + 400 (4)      5.00     10/2021       938,787       943,975       0.7       949,151  
         

 

 

   

 

 

 

 

 

 

 

 

 

 

 

Total Debt Investments United States

          $ 209,302,949     $ 206,307,450       163.1   $ 208,878,346  
         

 

 

   

 

 

 

 

 

 

 

 

 

 

 

Equity Investments

               

Capital Goods

               

Alion Science and Technology Corp. (11)

 

Common Stock

          535,714       535,715       0.4       554,894  
         

 

 

   

 

 

 

 

 

 

 

 

 

 

 

Commercial & Professional Services

             

Universal Services Equity Investments (11)

 

Common Stock

          1,000,000       1,000,000       0.8       1,000,000  

USAGM HoldCo, LLC (11)

 

Common Stock

          238,095       238,095       0.2       238,095  
         

 

 

   

 

 

 

 

 

 

 

 

 

 

 
            1,238,095       1,238,095       1.0       1,238,095  
         

 

 

   

 

 

 

 

 

 

 

 

 

 

 

 

See accompanying notes.

 

16


Table of Contents

CRESCENT CAPITAL BDC, INC.

Consolidated Schedule of Investments

December 31, 2016

 

                                                                                                                                                                               
   

Investment Type

  Spread
Above
Index *
    Interest
Rate
    Maturity
Date
    Principal/
Par

Amount
    Cost   Percentage
of Net
Assets **
  Fair
Value
 

Health Care Equipment & Services

             

ExamWorks Group, Inc. (11)

 

Common Stock

        $ 7,500     $ 750,000       0.6   $ 750,000  
         

 

 

   

 

 

 

 

 

 

 

 

 

 

 

Insurance

               

Integro Equity (11)

 

Common Stock

          4,226       422,535       0.3       415,645  
         

 

 

   

 

 

 

 

 

 

 

 

 

 

 

Software & Services

               

SMS Systems Maintenance Services, Inc. (11)

 

Common Stock

          985,000       985,000       0.8       985,000  
         

 

 

   

 

 

 

 

 

 

 

 

 

 

 

Total Equity Investments United States

          $ 2,770,535     $ 3,931,345       3.1   $ 3,943,634  
         

 

 

   

 

 

 

 

 

 

 

 

 

 

 

Total United States

            $ 210,238,795       166.2   $ 212,821,980  
           

 

 

 

 

 

 

 

 

 

 

 

France

               

Debt Investments

               

Technology Hardware & Equipment

             

Parkeon, Inc. (5)

 

Senior Secured First Lien

    E + 575 (12)      5.75     03/2023     1,994,499       2,041,092       1.6       2,022,011  
         

 

 

   

 

 

 

 

 

 

 

 

 

 

 

Total Debt Investments France

          1,994,499     $ 2,041,092       1.6   $ 2,022,011  
         

 

 

   

 

 

 

 

 

 

 

 

 

 

 

Total France

            $ 2,041,092       1.6   $ 2,022,011  
           

 

 

 

 

 

 

 

 

 

 

 

United Kingdom

               

Debt Investments

               

Software & Services

               

CB SDG , Ltd. (5)

 

Senior Secured First Lien

    L + 650 (13)      7.18     07/2022     £ 1,978,200       2,993,723       1.8       2,336,810  

CB SDG , Ltd. (2)(5)

 

Senior Secured First Lien

    L + 650 (13)      7.18     07/2022       442,828       965,988       0.6       740,151  
         

 

 

   

 

 

 

 

 

 

 

 

 

 

 

Total Debt Investments United Kingdom

          £ 2,421,028     $ 3,959,711       2.4   $ 3,076,961  
         

 

 

   

 

 

 

 

 

 

 

 

 

 

 

Total United Kingdom

            $ 3,959,711       2.4   $ 3,076,961  
           

 

 

 

 

 

 

 

 

 

 

 

Total Investments

            $ 216,239,598       170.2   $ 217,920,952  
           

 

 

 

 

 

 

 

 

 

 

 

 

* The majority of the investments bear interest at a rate that may be determined by reference to London Interbank Offered Rate (“LIBOR” or “L”) or Prime (“P”) and which reset daily, quarterly or semiannually. For each, the Company has provided the spread over LIBOR or Prime and the weighted average current interest rate in effect at December 31, 2016. Certain investments are subject to a LIBOR or Prime interest rate floor. For fixed rate loans, a spread above a reference rate is not applicable.

 

** Percentage is based on net assets of $128,056,028 as of December 31, 2016.

 

(1) All positions held are non-controlled/non-affiliated investments as defined by the Investment Company Act of 1940, as amended (“1940 Act”). Non-controlled/non-affiliated investments are investments that are neither controlled investments nor affiliated investments.

 

(2) Position or portion thereof is an unfunded loan commitment, and no interest is being earned on the unfunded portion. See Note 7 “Commitments and Contingencies”.

 

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

 

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

 

(5) Investment is not a qualifying investment as defined under section 55 (a) of the Investment Company Act of 1940. Qualifying assets must represent at least 70% of total assets at the time of acquisition.

 

(6) The negative cost, if applicable, is the result of the capitalized discount or unfunded commitment being greater than the principal amount outstanding on the loan. The negative fair value, if applicable, is the result of the capitalized discount or unfunded commitment on the loan.

 

(7) The interest rate on these loans is subject to a base rate plus 1 month LIBOR.

 

(8) The interest rate on these loans is subject to a base rate plus 2 month LIBOR. As the interest rate is subject to a minimum LIBOR floor which was greater than the 2 month LIBOR rate at December 31, 2016, the prevailing rate in effect as of December 31, 2016 was the base rate plus the LIBOR floor.

 

(9) The interest rate on these loans is subject to a base rate plus 6 month LIBOR.

 

(10) The interest rate on these loans is subject to the U.S. Prime rate, which as of December 31, 2016 was 3.75%.

 

(11) Non-income producing security.

 

(12) The interest rate on these loans is subject to a base rate plus 3 month EURIBOR. As the interest rate is subject to a minimum EURIBOR floor which was greater than the 3 month EURIBOR rate at December 31, 2016, the prevailing rate in effect as of December 31, 2016 was the base rate plus the EURIBOR floor.

 

(13) The interest rate on these loans is subject to a base rate plus 6 month GBP LIBOR. As the interest rate is subject to a minimum GBP LIBOR floor which was greater than the 6 month LIBOR rate at December 31, 2016, the prevailing rate in effect as of December 31, 2016 was the base rate plus the GBP LIBOR floor.
(14) These loans are first lien/last-out term loans.

 

 

See accompanying notes.

 

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CRESCENT CAPITAL BDC, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2017 (Unaudited)

Note 1. Organization and Basis of Presentation

Crescent Capital BDC, Inc. (the “Company”) was formed on February 5, 2015 (“Inception”) as a Delaware corporation structured as an externally managed, closed-end, non-diversified management investment company. The Company commenced investment operations on June 26, 2015 (“Commencement”). The Company has elected to be treated as a business development company (“BDC”) under the Investment Company Act of 1940, as amended (the “1940 Act”). In addition, the Company has elected to be treated for U.S. federal income tax purposes as a regulated investment company (a “RIC”) under Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”). As a RIC, the Company will not be taxed on its income to the extent that it distributes such income each year and satisfies other applicable income tax requirements.

The Company is managed by CBDC Advisors, LLC (the “Advisor”), an investment adviser that is registered with the Securities and Exchange Commission (the “SEC”) under the Investment Advisers Act of 1940, as amended. CBDC Administration, LLC (the “Administrator”) provides the administrative services necessary for the Company to operate. Company management consists of investment and administrative professionals from the Advisor and Administrator along with the Company’s Board of Directors (the “Board”). The Advisor directs and executes the investment operations and capital raising activities of the Company subject to oversight from the Board, which sets the broad policies of the Company. The Board has delegated investment management of the Company’s investment assets to the Advisor. The Board consists of five directors, three of whom are independent.

On July 23, 2015, the Company formed CBDC Universal Equity, Inc., a wholly-owned subsidiary. This subsidiary allows the Company to hold equity securities of portfolio companies organized as a pass-through entity while continuing to satisfy the requirements of a RIC under the Code. On February 25, 2016, the Company formed Crescent Capital BDC Funding, LLC (“CBDC SPV”), a Delaware limited liability company and wholly owned subsidiary. The financial statements of these two entities are consolidated into the financial statements of the Company. All intercompany balances and transactions have been eliminated.

The Company’s primary investment objective is to maximize the total return to the Company’s stockholders in the form of current income and capital appreciation through debt and related equity investments. The Company will seek to achieve its investment objectives by investing primarily in secured debt (including senior secured, unitranche and second lien debt) and unsecured debt (including senior unsecured and subordinated debt), as well as related equity securities of private U.S. middle-market companies. The Company may purchase interests in loans or make debt investments, either (i) directly from our target companies as primary market or private credit investments (i.e., private credit transactions), or (ii) primary or secondary market bank loan or high yield transactions in the broadly syndicated “over-the-counter” market (i.e., broadly syndicated loans and bonds). Although the Company’s focus is to invest in private credit transactions, in certain circumstances it will also invest in broadly syndicated loans and bonds.

Basis of Presentation

The Company’s functional currency is the United States dollar and these consolidated financial statements have been prepared in that currency. The Company’s consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and pursuant to Regulation S-X.

Additionally, the accompanying consolidated financial statements of the Company and related financial information have been prepared pursuant to the requirements for reporting on Form 10-Q and Article 10 of Regulation S-X. Accordingly, certain disclosures accompanying annual consolidated financial statements prepared in accordance with GAAP are omitted. In the opinion of management, the unaudited interim financial results included herein contain all adjustments and reclassifications that are necessary for the fair presentation of consolidated financial statements for the periods included herein. The current period’s results of operations will not necessarily be indicative of results that ultimately may be achieved for the year ended December 31, 2017.

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

 

See accompanying notes.

 

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Note 2. Summary of Significant Accounting Policies

Use of Estimates

The preparation of the consolidated financial statements in conformity with GAAP requires management to make certain estimates and assumptions that may affect the amounts reported in the consolidated financial statements and accompanying notes. These consolidated financial statements reflect adjustments that in the opinion of management are necessary for the fair statement of the results for the periods presented. Although management believes that the estimates and assumptions are reasonable, changes in the economic environment, financial markets and any other parameters used in determining these estimates could cause actual results to differ materially.

Cash and Cash Equivalents

Cash and cash equivalents consist of demand deposits and highly liquid investments (e.g., money market funds, U.S. Treasury notes, and similar type instruments) with original maturities of three months or less. Cash and cash equivalents other than money market mutual funds, are carried at cost plus accrued interest, which approximates fair value. Money market mutual funds are carried at their net asset value, which approximates fair value. The Company deposits its cash and cash equivalents with highly-rated banking corporations and, at times, cash deposits may exceed the insured limits under applicable law.

Investment Transactions

Investments purchased on a secondary market are recorded on the trade date. Loan originations are recorded on the date of the binding commitment. Realized gains or losses are recorded on the First In, First Out (“FIFO”) method as the difference between the net proceeds received (excluding prepayment fees, if any) and the amortized cost basis of the investment without regard to unrealized gains or losses previously recognized, and include investments written off during the period, net of recoveries. The net change in unrealized gains or losses primarily reflects the change in investment fair values as of the last business day of the reporting period and also includes the reversal of previously recorded unrealized gains or losses with respect to investments realized during the period.

Investment Valuation

Investments for which market quotations are readily available are typically valued at those market quotations. To validate market quotations, the Company utilizes a number of factors to determine if the quotations are representative of fair value, including the source and number of the quotations. 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 the Board, based on, among other things, the input of the Advisor, the Company’s Audit Committee and independent third-party valuation firms engaged at the direction of the Board.

The Board oversees and supervises a multi-step valuation process, which includes, among other procedures, the following:

 

    The valuation process begins with each investment being initially valued by the investment professionals responsible for the portfolio investment in conjunction with the portfolio management team.
    The Advisor’s management reviews the preliminary valuations with the investment professionals. Agreed upon valuation recommendations are presented to the Audit Committee.
    The Audit Committee reviews the valuations presented and recommends values for each investment to the Board.
    The Board reviews the recommended valuations and determines the fair value of each investment; valuations that are not based on readily available market quotations are valued in good faith based on, among other things, the input of the Advisor, Audit Committee and, where applicable, other third parties.

The Company applies Financial Accounting Standards Board ASC 820, Fair Value Measurement (ASC 820), as amended, which establishes a framework for measuring fair value in accordance with GAAP and required disclosures of fair value measurements. ASC 820 determines fair value to be the price that would be received for an investment in a current sale, which assumes an orderly transaction between market participants on the measurement date. Market participants are defined as buyers and sellers in the principal or most advantageous market (which may be a hypothetical market) that are independent, knowledgeable, and willing and

 

See accompanying notes.

 

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able to transact. In accordance with ASC 820, the Company considers its principal market to be the market that has the greatest volume and level of activity. ASC 820 specifies a fair value hierarchy that prioritizes and ranks the level of observability of inputs used in the determination of fair value. In accordance with ASC 820, these levels are summarized below:

Level 1—Valuations based on quoted prices in active markets for identical assets or liabilities that the Company has the ability to access.

Level 2—Valuations based on quoted prices in markets that are not active or for which all significant inputs are observable, either directly or indirectly.

Level 3—Valuations based on inputs that are unobservable and significant to the overall fair value measurement.

In addition to using the above inputs in investment valuations, the Company applies the valuation policy approved by its Board that is consistent with ASC 820. Consistent with the valuation policy, the Company evaluates the source of inputs, including any markets in which its investments are trading (or any markets in which securities with similar attributes are trading), in determining fair value. When a security is valued based on prices provided by reputable dealers or pricing services (that is, broker quotes), the Company subjects those prices to various criteria in making the determination as to whether a particular investment would qualify for classification as a Level 2 or Level 3 investment. For example, the Company reviews pricing methodologies provided by dealers or pricing services in order to determine if observable market information is being used, versus unobservable inputs. Some additional factors considered include the number of prices obtained as well as an assessment as to their quality. Transfers between levels, if any, are recognized at the beginning of the period in which the transfers occur. During the six months ended June 30, 2017, the Company recorded $4,850,000 in transfers from Level 2 to Level 3 due to a decrease in observable inputs in market data. During the six months ended June 30, 2016, the Company recorded $12,000,233 in transfers from Level 3 to Level 2 due to an increase in observable inputs in market data.

Due to the inherent uncertainty of determining the fair value of investments that do not have a readily available market value, the fair value of the Company’s investments may fluctuate from period to period. Additionally, the fair value of such investments may differ significantly from the values that would have been used had a ready market existed for such investments and may differ materially from the values that may ultimately be realized. Further, such investments are generally less liquid than publicly traded securities and may be subject to contractual and other restrictions on resale. If the Company were required to liquidate a portfolio investment in a forced or liquidation sale, it could realize amounts that are different from the amounts presented and such differences could be material.

In addition, changes in the market environment and other events that may occur over the life of the investments may cause the gains or losses ultimately realized on these investments to be different than the unrealized gains or losses reflected herein. See Note 4. Investments and Note 5. Fair Value of Financial Instruments for additional information on the Company’s investment portfolio.

Foreign Currency

Foreign currency amounts are translated into U.S. dollars on the following basis:

 

    cash and cash equivalents, fair value of investments, outstanding debt on revolving credit facilities, other assets and liabilities: at the spot exchange rate on the last business day of the period; and

 

    purchases and sales of investments, borrowings and repayments of such borrowings, income and expenses: at the rates of exchange prevailing on the respective dates of such transactions.

Although net assets and fair values are presented based on the applicable foreign exchange rates described above, the Company does not isolate that portion of the results of operations resulting from changes in foreign exchange rates on investments from the fluctuations arising from changes in fair values of investments held. Gains or losses on foreign currency transactions are included with net realized gain (loss) on foreign currency transactions on the Consolidated Statements of Operations. Fluctuations arising from the translation of foreign currency on investments and borrowings are included with net change in unrealized appreciation (depreciation) on investments and foreign currency translation on the Consolidated Statements of Operations.

The Company’s current approach to hedging the foreign currency exposure in its non-U.S. dollar denominated investments is primarily to borrow local currency under the Company’s revolving credit facility to partially or fully fund these investments.

 

See accompanying notes.

 

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Equity Offering and Organization Expenses

The Company has agreed to repay the Advisor for initial organization costs and equity offering costs incurred prior to the commencement of its operations up to a maximum of $1.5 million on a pro rata basis over the first $350 million of invested capital not to exceed 3 years from the initial capital commitment on June 26, 2015. To the extent such costs relate to equity offerings, these costs are charged as a reduction of capital upon the issuance of common shares. To the extent such costs relate to organization costs, these costs are expensed in the Consolidated Statements of Operations upon the issuance of common shares. The Advisor is responsible for organization and private equity offerings costs in excess of $1.5 million. See Note 7. Commitments, Contingencies and Indemnifications for additional discussion of certain related party transactions with the Advisor.

Debt Issuance Costs

The Company records costs related to issuance of debt obligations as deferred financing costs. These costs are deferred and amortized using the effective yield method, or straight-line method for revolving credit facilities, over the stated maturity life of the obligation. As of June 30, 2017 and December 31, 2016, there were $1,254,841 and $979,874, respectively, of deferred financing costs netted against debt balances on the Company’s Consolidated Statements of Assets and Liabilities.

Interest and Dividend Income Recognition

Interest income is recorded on an accrual basis and includes the amortization of purchase discounts and premiums. Discounts and premiums to par value on securities purchased are accreted or amortized into interest income over the contractual life of the respective security using the effective yield method. The amortized cost of investments represents the original cost adjusted for the accretion and amortization of discounts and premiums, if any. Upon prepayment of a loan or debt security, any prepayment premiums, unamortized upfront loan origination fees and unamortized discounts are recorded as interest income.

Dividend income from preferred equity securities is recorded on an accrual basis to the extent that such amounts are payable by the portfolio company and are expected to be collected. Dividend income from common equity securities is recorded on the record date for private portfolio companies or on the ex-dividend date for publicly-traded portfolio companies.

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

Loans are generally placed on non-accrual status when principal or interest payments are past due 30 days or more or when there is reasonable doubt that principal or interest will be collected in full. Accrued and unpaid interest is generally reversed when a loan is placed on non-accrual status. Interest payments received on non-accrual loans may be recognized as income or applied to principal depending upon management’s judgment regarding collectability. Non-accrual loans are restored to accrual status when past due principal and interest is paid current and, in management’s judgment, are likely to remain current. Management may determine to not place a loan on non-accrual status if the loan has sufficient collateral value and is in the process of collection. As of June 30, 2017 and December 31, 2016, no loans had been placed on non-accrual status by the Company.

Other Income

From time to time, the Company may receive fees for services provided to portfolio companies by the Advisor under the Investment Advisory Agreement. The services that the Advisor provides vary by investment, but generally include syndication, structuring or diligence fees, and fees for providing managerial assistance to the portfolio companies. The Company may also generate revenue in the form of commitment or origination fees. Loan origination fees, original issue discount and market discount or premium are capitalized; such amounts are accreted or amortized into income over the life of the loan. Fees for providing managerial assistance to the portfolio companies are generally non-recurring and are recognized as revenue when services are provided.

In certain instances where the Company is invited to participate as a co-lender in a transaction and does not provide significant services in connection with the investment, all or a portion of any loan fees received by the Company in such situations will be deferred and amortized over the investment’s life using the effective yield method.

 

See accompanying notes.

 

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Income Taxes

The Company has elected to be treated as a BDC under the 1940 Act. The Company also has elected to be treated as a RIC under the Internal Revenue Code. So long as the Company maintains its status as a RIC, it will generally not pay corporate-level U.S. federal income or excise taxes on any ordinary income or capital gains that it distributes at least annually to its stockholders as dividends. As a result, any tax liability related to income earned and distributed by the Company represents obligations of the Company’s stockholders and will not be reflected in the consolidated financial statements of the Company.

The Company evaluates tax positions taken or expected to be taken in the course of preparing its consolidated financial statements to determine whether the tax positions are “more-likely-than-not” to be sustained by the applicable tax authority. Tax positions not deemed to meet the “more-likely-than-not” threshold are reversed and recorded as a tax benefit or expense in the current year. All penalties and interest associated with income taxes are included in income tax expense. Conclusions regarding tax positions are subject to review and may be adjusted at a later date based on factors including, but not limited to, on-going analyses of tax laws, regulations and interpretations thereof. The Company accounts for income taxes in conformity with ASC Topic 740 — Income Taxes (“ASC Topic 740”). ASC Topic 740 provides guidelines for how uncertain tax positions should be recognized, measured, presented and disclosed in financial statements.

As of June 30, 2017, all tax filings of the Company since the inception on February 5, 2015 remain subject to examination by federal tax authorities. No such examinations are currently pending.

In order for the Company not to be subject to federal excise taxes, it must distribute annually an amount at least equal to the sum of (i) 98% of its ordinary income (taking into account certain deferrals and elections), (ii) 98.2% of its net capital gains from the current year and (iii) any undistributed ordinary income and net capital gains from preceding years. The Company, at its discretion, may carry forward taxable income in excess of calendar year dividends and pay a 4% excise tax on this income. If the Company chooses to do so, this generally would increase expenses and reduce the amount available to be distributed to stockholders. The Company will accrue excise tax on estimated undistributed taxable income as required.

CBDC Universal Equity, Inc. 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.

The Company intends to comply with the applicable provisions of the Code, pertaining to regulated investment companies and to make distributions of taxable income sufficient to relieve it from substantially all federal income taxes. Accordingly, no provision for income taxes is required in the consolidated financial statements.

Dividends and Distributions

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

The Company has adopted a dividend reinvestment plan that provides for reinvestment of any distributions the Company declares in cash on behalf of the Company’s stockholders for those stockholders electing not to receive cash. As a result, if the Board authorizes, and the Company declares, a cash dividend, then the Company’s stockholders who have “opted in” to the Company’s dividend reinvestment plan will have their cash dividends automatically reinvested in additional shares of the Company’s common stock, rather than receiving the cash dividend.

 

See accompanying notes.

 

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New Accounting Standards

In May 2014, the FASB issued Accounting Standards Update (“ASU”) 2014-09 (“ASU 2014-09”), “Revenue from Contracts with Customers (Topic 606).” The guidance in this ASU supersedes the revenue recognition requirements in Topic 605, Revenue Recognition. Under the new guidance, an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The amendments in ASU 2014-09 are effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. Early adoption is permitted for annual reporting periods beginning after December 15, 2016 and interim periods therein. This standard will not have a material impact on the consolidated financial statements, primarily because the majority of the Company’s revenue is accounted for under FASB ASC Topic 320, “Investments – Debt and Equity Securities”, which is scoped out of this standard.

In December 2016, the FASB issued ASU 2016-19,Technical Corrections and Improvements.” As part of this guidance, ASU 2016-19 amends FASB ASC Topic 820, “Fair Value Measurement and Disclosures” (“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 adopted this guidance during the quarter ended March 31, 2017. The adoption of this guidance did not have a material impact on the Company’s financial position, results of operations, cash flows or disclosures.

Note 3. Agreements and Related Party Transactions

Administration Agreement

On June 2, 2015, the Company entered into the Administration Agreement with the Administrator. Under the terms of the Administration Agreement, the Administrator provides administrative services to the Company. These services include providing office space, equipment and office services, maintaining financial records, preparing reports to stockholders and reports filed with the SEC, and managing the payment of expenses and the performance of administrative and professional services rendered by others. Certain of these services are reimbursable to the Administrator under the terms of the Administration Agreement. In addition, the Administrator is permitted to delegate its duties under the Administration Agreement to affiliates or third parties. To the extent the Administrator outsources any of its functions, the Company will pay the fees associated with such functions on a direct basis, without incremental profit to the Administrator.

For the three and six months ended June 30, 2017, the Company incurred administrative services expenses of $141,589 and $283,179, respectively, which is included in other general and administrative expenses on the Consolidated Statements of Operations, under the terms of the Administration Agreement, of which $169,007 was payable at June 30, 2017. For the three and six months ended June 30, 2016, the Company incurred administrative services expenses of $122,859 and $245,718, respectively, which is included in other general and administrative expenses on the Consolidated Statements of Operations, under the terms of the Administration Agreement, of which $125,173 was payable at June 30, 2016.

Unless earlier terminated as described below, the Administration Agreement will remain in effect until June 2, 2017, and may be extended subject to required approvals. The Administration Agreement may be terminated by either party without penalty on 60 days’ written notice to the other party.

No person who is an officer, director or employee of the Administrator or its affiliates and who serves as a director of the Company receives any compensation from the Company for his or her services as a director. However, the Company reimburses the Administrator (or its affiliates) for an allocable portion of the compensation paid by the Administrator or its affiliates to the Company’s Chief Compliance Officer, Chief Financial Officer, and other professionals who spend time on such related activities (based on the percentage of time those individuals devote, on an estimated basis, to the business and affairs of the Company). The allocable portion of the compensation for these officers and other professionals are included in the administration expenses paid to Administrator. Directors who are not affiliated with the Administrator or its affiliates receive compensation for their services and reimbursement of expenses incurred to attend meetings.

 

See accompanying notes.

 

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On June 5, 2015, the Company entered into sub-administration, accounting, transfer agent, and custodian agreements with State Street Bank and Trust Company (“SSB”) to perform certain administrative, custodian, transfer agent and other services on behalf of the Company. The sub-administration agreements with SSB have an initial term of three years ending June 5, 2018. The Company does not reimburse the Administrator for any services for which it pays a separate sub-administrator and custodian fee to SSB. For the three and six months ended June 30, 2017, the Company incurred expenses of $163,232 and $324,009, respectively, which is included in other general and administrative expenses on the Consolidated Statements of Operations, under the terms of the sub-administration agreements, of which $163,565 was payable at June 30, 2017. For the three and six months ended June 30, 2016, the Company incurred expenses of $154,012 and $306,437, respectively, which is included in other general and administrative expenses on the Consolidated Statements of Operations, under the terms of the sub-administration agreements, of which $153,995 was payable at June 30, 2016.

Investment Advisory Agreement

On June 2, 2015, the Company entered into the Investment Advisory Agreement with the Advisor. Under the terms of the Investment Advisory Agreement, the Advisor will provide investment advisory services to the Company and its portfolio investments. The Advisor’s services under the Investment Advisory Agreement are not exclusive, and the Advisor is free to furnish similar or other services to others so long as its services to the Company are not impaired. Under the terms of the Investment Advisory Agreement, the Company will pay the Advisor the Base Management Fee, as discussed below, and may also pay certain Incentive Fees, as discussed below.

The Base Management Fee is calculated and payable quarterly in arrears at an annual rate of 1.5% of the Company’s gross assets, including assets acquired through the incurrence of debt but excluding any cash and cash equivalents. The Base Management Fee is calculated based on the average value of gross assets at the end of the two most recently completed calendar quarters, and appropriately adjusted for any share issuances or repurchases during the current calendar quarter.

The Advisor, however, has agreed to waive its right to receive management fees in excess of the sum of (i) 0.25% of the aggregate committed but undrawn capital and (ii) 0.75% of the aggregate gross assets excluding cash and cash equivalents (including capital drawn to pay the Company’s expenses) during any period prior to a qualified initial public offering, as defined by the Investment Advisory Agreement (“Qualified IPO”). The Advisor will not be permitted to recoup any waived amounts at any time and the waiver agreement may only be modified or terminated prior to a Qualified IPO with the approval of the Board. For purposes of the Investment Advisory Agreement, cash equivalents means U.S. government securities and commercial paper maturing within one year of purchase.

For the three and six months ended June 30, 2017, the Company incurred management fees, which are net of waived amounts, of $668,292 and $1,272,519, respectively, of which $668,293 was payable at June 30, 2017. For the three and six months ended June 30, 2016, the Company incurred management fees, which are net of waived amounts, of $390,041 and $747,088, respectively, of which $390,042 was payable at June 30, 2016.

The Incentive Fees consists of two parts. The first part, the income incentive fee, is calculated and payable quarterly in arrears and (a) equals 100% of the excess of the pre-incentive fee net investment income for the immediately preceding calendar quarter, over a preferred return of 1.5% per quarter (6% annualized) (the “Hurdle”), and a catch-up feature until the Advisor has received, (i) prior to a Qualified IPO, 15%, or (ii) after a Qualified IPO, 17.5%, of the pre-incentive fee net investment income for the current quarter up to, (i) prior to a Qualified IPO, 1.7647%, or (ii) after a Qualified IPO, 1.8182% (the “Catch-up”), and (b) (i) prior to a Qualified IPO, 15% or (ii) after a Qualified IPO, 17.5%, of all remaining pre-incentive fee net investment income above the “Catch-up.”

Pre-incentive fee net investment income means interest income, dividend income and any other income (including any other fees (other than fees for providing managerial assistance), such as commitment, origination, structuring, diligence and consulting fees or other fees that the Company receives from portfolio companies) accrued during each calendar quarter, minus operating expenses for such quarter (including the base management fee, expenses payable under the Administration Agreement and any interest expense and distributions paid on any issued and outstanding debt or preferred stock, but excluding the incentive fee). Pre-incentive fee net investment income includes, in the case of investments with a deferred interest feature (such as market discount, OID, debt instruments with PIK interest, preferred stock with PIK dividends and zero coupon securities), accrued income that the Company has not yet received in cash. Pre-incentive fee net investment income does not include any realized capital gains, realized capital losses or unrealized capital appreciation or depreciation. Pre-incentive fee net investment income will be compared to a “Hurdle Amount” equal to the product of (i) the Hurdle rate of 1.50% per quarter (6.00% annualized) and (ii) our net assets (defined as total assets less indebtedness, before taking into account any incentive fees payable during the period), at the end of the immediately preceding calendar quarter, subject to a “catch-up” provision incurred at the end of each calendar quarter. Our net pre-incentive fee investment income used to calculate this part of the incentive fee is also included in the amount of our gross assets used to calculate the 1.5% Base Management Fee.

 

See accompanying notes.

 

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For the three and six months ended June 30, 2017, the Company incurred income incentive fees of $392,977 and $614,535, respectively, of which $392,978 was payable at June 30, 2017. For the three and six months ended June 30, 2016, the Company did not incur income incentive fees and none remained payable at June 30, 2016.

The second part, the capital gains incentive fee, is determined and payable in arrears as of the end of each fiscal year (or upon a Qualified IPO or termination of the Investment Advisory Agreement), (i) prior to a Qualified IPO, 15.0%, or (ii) after a Qualified IPO, 17.5% of the Company’s realized capital gains, if any, on a cumulative basis from inception through the end of the fiscal year, computed net of all realized capital losses and unrealized capital depreciation on a cumulative basis, less the aggregate amount of any previously paid capital gain incentive fees. If a Qualified IPO occurs on a date other than the first day of a calendar quarter, the income incentive fee shall be calculated for such calendar quarter at a weighted rate calculated based on the fee rates applicable before and after a Qualified IPO based on the number of days in such calendar quarter before and after a Qualified IPO. If a Qualified IPO occurs on a date other than the first day of a fiscal year, a capital gains incentive fee shall be calculated as of the day before the Qualified IPO, with such capital gains incentive fee paid to the Advisor following the end of the fiscal year in which the Qualified IPO occurred. For the avoidance of doubt, such capital gains incentive fee shall be equal to 15.0% of the Company’s realized capital gains on a cumulative basis from inception through the day before the Qualified IPO, computed net of all realized capital losses and

unrealized capital depreciation on a cumulative basis, less the aggregate amount of any previously paid capital gains incentive fees. Following a Qualified IPO, solely for the purposes of calculating the capital gains incentive fee, the Company will be deemed to have previously paid capital gains incentive fees prior to a Qualified IPO equal to the product obtained by multiplying (a) the actual aggregate amount of previously paid capital gains incentive fees for all periods prior to a Qualified IPO by (b) the percentage obtained by dividing (x) 17.5% by (y) 15.0%. In the event that the Investment Advisory Agreement shall terminate as of a date that is not a fiscal year end, the termination date shall be treated as though it were a fiscal year end for purposes of calculating and paying a capital gains incentive fee.

No capital gains incentive fees were incurred for the six months ended June 30, 2017 and 2016.

From time to time, the Advisor may pay amounts owed by the Company to third-party providers of goods or services, including the Board, and the Company will subsequently reimburse the Advisor for such amounts paid on its behalf. Amounts payable to the Advisor are settled in the normal course of business without formal payment terms. See Note 7. Commitments, Contingencies and Indemnifications for additional discussion of certain related party transactions with the Advisor.

A portion of the outstanding shares of the Company’s common stock are owned by Crescent Capital Group LP (“CCG LP”). CCG LP is also the majority member of the Advisor and sole member of the Administrator. The Company has entered into a license agreement with CCG LP under which CCG LP granted the Company a non-exclusive, royalty-free license to use the name “Crescent Capital”. The Advisor has entered into a resource sharing agreement with CCG LP. CCG LP will provide the Advisor with the resources necessary for the Advisor to fulfill its obligations under the Investment Advisory Agreement.

Directors Fees

Each of the Company’s independent directors receive (i) an annual fee of $75,000, and (ii) $2,500 plus reimbursement of reasonable out-of-pocket expenses incurred in connection with attending each regular Board meeting and $500 each special meeting. The Company’s independent directors also receive $1,000 plus reimbursement of reasonable out-of-pocket expenses incurred in connection with each committee meeting attended. The Chairman of the Audit Committee receives an additional annual fee of $7,500. The Chairperson of the Nominating and Corporate Governance Committee and the Compensation Committee receive an additional annual fee of $2,500 and $2,500, respectively. The Company has obtained directors’ and officers’ liability insurance on behalf of the Company’s directors and officers. For the three and six months ended June 30, 2017, the Company recorded directors’ fees of $72,500 and $145,000, respectively, of which $127,625 was payable at June 30, 2017. For the three and six months ended June 30, 2016, the Company recorded directors’ fees of $83,042 and $149,917, respectively, of which $47,250 was payable at June 30, 2016.

Note 4. Investments

The Company’s investments at any time may include securities and other financial instruments or other assets of any sort, including, without limitation, corporate and government bonds, convertible securities, collateralized loan obligations, term loans, trade claims, equity securities, privately negotiated securities, direct placements, working interests, warrants and investment derivatives (such as credit default swaps, recovery swaps, total return swaps, options, forward contracts, and futures) (all of the foregoing collectively referred to in these consolidated financial statements as “investments”).

 

See accompanying notes.

 

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Under the 1940 Act, the Company is required to separately identify non-controlled investments where it owns 5% or more of a portfolio company’s outstanding voting securities and/or has the power to exercise control over the management or policies of such portfolio company as investments in “affiliated” companies. In addition, under the 1940 Act, the Company is required to separately identify investments where it owns more than 25% of a portfolio company’s outstanding voting securities and/or has the power to exercise control over the management or policies of such portfolio company as investments in “controlled” companies. Detailed information with respect to the Company’s non-controlled, non-affiliated; non-controlled, affiliated; and controlled affiliated investments is contained in the accompanying consolidated financial statements, including the Consolidated Schedule of Investments. The information in the tables below is presented on an aggregate portfolio basis, without regard to whether they are non-controlled non-affiliated, non-controlled affiliated or controlled affiliated investments. As of June 30, 2017 and December 31, 2016, all investments held are non-controlled/non-affiliated investments.

Certain Risk Factors

In the ordinary course of business, the Company manages a variety of risks including market risk and liquidity risk. The Company identifies, measures and monitors risk through various control mechanisms, including trading limits and diversifying exposures and activities across a variety of instruments, markets and counterparties.

Market risk is the risk of potential adverse changes to the value of financial instruments because of changes in market conditions, including as a result of changes in the credit quality of a particular issuer, credit spreads, interest rates, and other movements and volatility in security prices or commodities. In particular, the Company may invest in issuers that are experiencing or have experienced financial or business difficulties (including difficulties resulting from the initiation or prospect of significant litigation or bankruptcy proceedings), which involves significant risks. The Company manages its exposure to market risk through the use of risk management strategies and various analytical monitoring techniques.

The Company’s investments may, at any time, include securities and other financial instruments or obligations that are illiquid or thinly traded, making purchase or sale of such securities and financial instruments at desired prices or in desired quantities difficult. Furthermore, the sale of any such investments may be possible only at substantial discounts, and it may be extremely difficult to value any such investments accurately.

Investments denominated in foreign currencies and foreign currency transactions may involve certain considerations and risks not typically associated with those of domestic origin, including unanticipated movements in the value of the foreign currency relative to the U.S. dollar.

Investments at fair value consisted of the following at June 30, 2017:

 

Investment Type                                                             

   Cost      Fair Value      Unrealized
Appreciation/
 (Depreciation) 
 

Senior Secured First Lien

   $         199,595,122        $         201,669,519        $         2,074,397     

Senior Secured Second Lien

     68,858,766          71,302,110          2,443,344     

Common Stock

     7,367,862          7,271,112          (96,750)    

Unsecured Debt

     5,412,318          5,545,430          133,112     

Preferred Stock

     1,891,892          1,891,892          —     
  

 

 

    

 

 

    

 

 

 

Total Investments

   $ 283,125,960        $ 287,680,063        $ 4,554,103     
  

 

 

    

 

 

    

 

 

 

Investments at fair value consisted of the following at December 31, 2016:

 

Investment Type                                                             

   Cost      Fair Value      Unrealized
Appreciation/
 (Depreciation) 
 

Senior Secured First Lien

   $         166,178,326        $ 166,531,949        $ 353,623    

Senior Secured Second Lien

     41,259,110          42,495,369          1,236,259    

Unsecured Debt

     4,870,817          4,950,000          79,183    

Common Stock

     3,931,345          3,943,634          12,289    
  

 

 

    

 

 

    

 

 

 

Total Investments

   $ 216,239,598        $ 217,920,952        $ 1,681,354    
  

 

 

    

 

 

    

 

 

 

 

See accompanying notes.

 

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The industry composition of investments at fair value at June 30, 2017 and December 31, 2016 is as follows:

 

Industry

  Fair Value
June 30, 2017
    Percentage of
Fair Value
    Fair Value
December 31,
2016
    Percentage
of Fair
Value
 

Automobiles & Components

  $ 14,888,833       5.17   $ 3,183,333       1.46

Capital Goods

    15,158,295       5.27       17,714,408       8.13  

Commercial & Professional Services

    69,955,395       24.32       36,916,967       16.94  

Consumer Durables & Apparel

    3,030,000       1.05       4,001,176       1.84  

Consumer Services

    26,504,113       9.21       22,012,237       10.10  

Diversified Financials

    2,966,652       1.03       2,993,211       1.37  

Energy

    643,343       0.22       668,962       0.31  

Food & Staples Retailing

    7,636,268       2.65       3,779,136       1.73  

Food, Beverage & Tobacco

    5,788,750       2.01       5,596,213       2.57  

Health Care Equipment & Services

    57,839,751       20.11       41,382,251       18.99  

Household & Personal Products

    2,231,735       0.78       2,226,800       1.02  

Insurance

    6,664,529       2.32       6,805,039       3.12  

Materials

    3,527,198       1.23       5,067,060       2.32  

Media

    7,804,146       2.71       3,034,798       1.39  

Pharmaceuticals, Biotechnology & Life Sciences

    —         —         832,638       0.38  

Real Estate

    426,596       0.15       934,687       0.43  

Retailing

    7,419,158       2.58       8,576,322       3.94  

Software & Services

    45,909,965       15.96       42,188,073       19.36  

Technology Hardware & Equipment

    5,169,625       1.80       2,022,011       0.93  

Telecommunication Services

    —         —         2,670,988       1.23  

Transportation

    4,115,711       1.43       4,365,491       2.00  

Utilities

    —         —         949,151       0.44  
 

 

 

   

 

 

   

 

 

   

 

 

 

Total Investments

  $ 287,680,063       100.00   $ 217,920,952       100.00
 

 

 

   

 

 

   

 

 

   

 

 

 

The geographic composition of investments at fair value at June 30, 2017 and December 31, 2016 is as follows:

 

Geographic Region

   Fair Value
June 30, 2017
     Percentage of
Fair Value
    Fair Value
December 31,
2016
     Percentage of
Fair Value
 

United States

   $ 282,201,787        98.10   $ 212,821,980        97.66

United Kingdom

     3,308,651        1.15       3,076,961        1.41  

France

     2,169,625        0.75       2,022,011        0.93  
  

 

 

    

 

 

   

 

 

    

 

 

 

Total Investments

   $ 287,680,063        100.00   $ 217,920,952        100.00
  

 

 

    

 

 

   

 

 

    

 

 

 

 

See accompanying notes.

 

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Table of Contents

Note 5. Fair Value of Financial Instruments

Investments

The following table presents fair value measurements of investments as of June 30, 2017:

 

Fair Value Hierarchy  

 

 
     Level 1      Level 2      Level 3      Total  

 

 

Senior Secured First Lien

   $             —      $ 97,929,341      $ 103,740,178      $ 201,669,519      

Unsecured Debt

                   5,545,430        5,545,430      

Senior Secured Second Lien

            15,187,804        56,114,306        71,302,110      

Common Stock

                   7,271,112        7,271,112      

Preferred Stock

                   1,891,892        1,891,892      

 

 

Total Investments

   $      $      113,117,145      $      174,562,918      $      287,680,063      

 

 

The following table presents fair value measurements of investments as of December 31, 2016:

 

Fair Value Hierarchy  

 

 
     Level 1        Level 2        Level 3        Total  

 

 

Senior Secured First Lien

   $                         —      $ 101,132,842      $ 65,399,107      $ 166,531,949      

Unsecured Debt

                   4,950,000        4,950,000      

Senior Secured Second Lien

            21,141,689        21,353,680        42,495,369      

Common Stock

                   3,943,634        3,943,634      

 

 

Total Investments

   $      $      122,274,531      $      95,646,421      $      217,920,952      

 

 

 

See accompanying notes.

 

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The following table provides a reconciliation of the beginning and ending balances for total investments that use Level 3 inputs for the six months ended June 30, 2017, based off of the fair value hierarchy at June 30, 2017:

 

                   Senior      Senior                
     Common      Preferred      Secured      Secured      Unsecured         
     Stock      Stock      First Lien      Second Lien      Debt      Total  

Balance as of December 31, 2016

   $ 3,943,634      $ -      $ 65,399,107      $ 21,353,680      $ 4,950,000      $ 95,646,421  

Amortized discounts/premiums

     -        -        138,112        59,471        8,692        206,275  

Paid in-kind interest

     -        -        20        -        20,678        20,698  

Net realized gain (loss)

     -        -        12,303        17,282        -        29,585  
Net change in unrealized appreciation (depreciation)      (109,040)        -        1,438,736        1,227,831        53,930        2,611,457  
Purchases      3,436,518        1,891,892        39,663,491        29,534,167        512,130        75,038,198  
Sales/return of capital/principal repayments/paydowns      -        -        (2,911,591)        (928,125)        -        (3,839,716)  
Transfers in      -        -        -        4,850,000        -        4,850,000  
Transfers out      -        -        -        -        -        -  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
Balance as of June 30, 2017    $ 7,271,112      $ 1,891,892      $ 103,740,178      $ 56,114,306      $ 5,545,430      $ 174,562,918  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
Net change in unrealized appreciation (depreciation) from investments still held as of June 30, 2017    $ (109,040)      $ -      $ 1,571,043      $ 1,245,732      $ 53,930      $ 2,761,665  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

During the six months ended June 30, 2017, the Company recorded $4,850,000 in transfers from Level 2 to Level 3 due to a decrease in observable inputs in market data.

The following table provides a reconciliation of the beginning and ending balances for total investments that use Level 3 inputs for the six months ended June 30, 2016 based off of fair value hierarchy at June 30, 2016:

 

            Senior      Senior                
     Common      Secured      Secured      Unsecured         
     Stock      First Lien      Second Lien      Debt      Total  

Balance as of December 31, 2015

   $ 1,958,249      $ 32,607,633      $ 12,236,479      $ 5,000,000      $ 51,802,361  

Amortized discounts/premiums

     -        51,510        10,934        7,515        69,959  

Net realized gain (loss)

     -        828        1,546        -        2,374  
Net change in unrealized appreciation (depreciation)      -        (257,234)        65,035        (57,515)        (249,714)  
Purchases      -        14,587,892        4,633,032        -        19,220,924  
Sales/return of capital/principal repayments      -        (63,406)        (38,853)        -        (102,259)  
Transfers in      -        -        -        -        -  
Transfers out      -        (4,391,077)        (7,609,156)        -        (12,000,233)  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
Balance as of June 30, 2016    $     1,958,249      $     42,536,146      $       9,299,017      $     4,950,000      $       58,743,412  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
Net change in unrealized appreciation (depreciation) from investments still held as of June 30, 2016    $ -      $ (256,916)      $ 65,035      $ (57,515)      $ (249,396)  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

See accompanying notes.

 

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During the six months ended June 30, 2016, the Company recorded $12,000,233 in transfers from Level 3 to Level 2 due to an increase in observable inputs in market data.

The following tables present the fair value of Level 3 investments and the ranges of significant unobservable inputs used to value the Company’s Level 3 investments as of June 30, 2017 and December 31, 2016. These ranges represent the significant unobservable inputs that were used in the valuation of each type of investment. These inputs are not representative of the inputs that could have been used in the valuation of any one investment. For example, the highest market yield presented in the table for senior secured first lien investments is appropriate for valuing a specific investment but may not be appropriate for valuing any other investment. Accordingly, the ranges of inputs presented below do not represent uncertainty in, or possible ranges of, fair value measurements of the Company’s Level 3 investments.

 

Quantitative information about Level 3 Fair Value Measurements

 

     Fair value as of
June 30, 2017
    

Valuation

Techniques

  

Unobservable

Input

  

Range  

(Weighted Average)  

           

  Senior Secured First Lien

     $103,740,178      Discounted Cash Flows    Discount Rate    5.7% - 10.1% (6.8%)
           
           

  Senior Secured Second Lien

     $56,114,306      Discounted Cash Flows    Discount Rate    8.5% - 10.9% (9.7%)
           

  Unsecured Debt

     $5,545,430      Discounted Cash Flows    Discount Rate    11.0% - 13.5% (11.5%)
           

  Common Stock

     $7,271,112      Market Multiple    Comparable EBITDA Multiple    6.5x - 16.1x (11.4x)
           

  Preferred Stock

     $1,891,892      Market Multiple    Comparable EBITDA Multiple    16.1x

 

Quantitative information about Level 3 Fair Value Measurements

 

    

Fair value as of

December 31, 2016

    

Valuation

Techniques

  

Unobservable

Input

  

Range  

(Weighted Average)  

           

  Senior Secured First Lien

     $65,399,107      Discounted Cash Flows    Discount Rate    5.7% - 9.9% (7.1%)
           
           

  Senior Secured Second Lien

     $21,353,680      Discounted Cash Flows    Discount Rate    9.8% - 10.5% (10.1%)
           

  Unsecured Debt

     $4,950,000      Discounted Cash Flows    Discount Rate    11.2%
           

  Common Stock

     $3,943,634      Market Multiple    Comparable EBITDA Multiple    10.5x - 13.4x (11.8x)

 

See accompanying notes.

 

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As noted above, the discounted cash flows, market rate and market multiple approaches were used in the determination of fair value of certain Level 3 assets as of June 30, 2017 and December 31, 2016. The significant unobservable inputs used in the discounted cash flow approach is the discount rate used to discount the estimated future cash flows expected to be    received from the underlying investment, which include both future principal and interest payments. An increase in the discount rate would result in a decrease in the fair value. Included in the consideration and selection of discount rates is    risk of default, rating of the investment, call provisions and comparable company investments. The significant unobservable inputs used in the market rate approach are the effective yield on a loan given its current fair value mark and the market yields for that type of loan. An increase in the market yield would result in a decrease in the fair value. The significant unobservable inputs used in the market multiple approach are the multiples of similar companies’ earnings before income taxes, depreciation and amortization (“EBITDA”) and comparable market transactions. Increases or decreases in market EBITDA multiples would result in an increase or decrease in the fair value.

Financial Instruments Not Carried at Fair Value

Debt

The carrying value of the Company’s revolving credit facility, as of June 30, 2017 and December 31, 2016, approximates its fair value as the revolving credit facility, issued at market terms, includes a variable interest rate, as discussed in Note 6.

Note 6. Debt

Debt consisted of the following as of June 30, 2017 and December 31, 2016:

 

     June 30, 2017  
     Aggregate Principal      Drawn      Amount      Carrying  
     Amount Committed      Amount(4)      Available (1)      Value (2)  

SPV Asset Facility

   $ 125,000,000      $ 87,928,575      $ 37,071,425      $ 87,928,575  

Revolving Credit Facility

     -        -        -        -  

Revolving Credit Facility II(3)(5)

     75,000,000        50,309,591        25,176,909        49,833,343  
  

 

 

    

 

 

    

 

 

    

 

 

 

            Total Debt

   $ 200,000,000      $     138,238,166      $     62,248,334      $     137,761,918  
  

 

 

    

 

 

    

 

 

    

 

 

 
     December 31, 2016  
     Aggregate Principal      Drawn      Amount      Carrying  
     Amount Committed      Amount(4)      Available (1)      Value (2)  

SPV Asset Facility

   $ 75,000,000      $ 47,628,575      $ 27,371,425      $ 47,628,575  

Revolving Credit Facility (3)(5)

     50,000,000        47,809,591        2,998,009        47,021,934  
  

 

 

    

 

 

    

 

 

    

 

 

 

            Total Debt

   $ 125,000,000      $ 95,438,166      $ 30,369,434      $ 94,650,509  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(1) The amount available reflects any limitations related to the respective debt facilities’ borrowing bases and foreign currency translation adjustments.
(2) The difference between the outstanding principal balance and the carrying amount is attributable to the effect of foreign currency translation adjustments.
(3) The Company had outstanding debt denominated in Pound Sterling (GBP) of 2.5 million and Euro (EUR) of 1.8 million on its Revolving Credit Facility, and Revolving Credit Facility II.
(4) For borrowings in non-USD, the drawn amount represents the USD equivalent at the time of borrowing (i.e. cost).
(5) Total drawn amount payable after the effect of foreign currency translation as of June 30, 2017 and December 31, 2016, was $49,823,091 and $47,006,114, respectively.

As of June 30, 2017 and December 31, 2016, the Company was in compliance with the terms and covenants of its debt arrangements.

 

See accompanying notes.

 

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Revolving Credit Facility

On June 29, 2015, the Company entered into the “Revolving Credit Facility” with Natixis, New York Branch (“Natixis”), as administrative agent (the “Administrative Agent”), and Natixis and certain of its affiliates as lenders. Proceeds from the Revolving Credit Facility may be used for investment activities, expenses, working capital requirements and general corporate purposes. The Company’s obligations to the lenders are secured by a first priority security interest in the unused capital commitments (See Note 7. Commitments, Contingencies and Indemnifications) and certain investments and cash held by the Company. The Revolving Credit Facility contains certain covenants, including, but not limited to maintaining an asset coverage ratio of total assets to total borrowings of at least 2 to 1. The maximum principal amount of the Revolving Credit Facility is $50 million, subject to availability under the borrowing base. On October 23, 2015, the Company amended the Revolving Credit Facility to include a multi-currency tranche allowing the Company to borrow up to 15% of the principal amount committed under an alternative currency including Euro, Canadian Dollar and Pound Sterling (GBP). On June 29, 2016, the Company amended the Revolving Credit Facility decreasing the facility limit from $75 million to $50 million and extending the maturity date to June 29, 2017. The Company paid down in full and terminated the Revolving Credit Facility on June 29, 2017.

Borrowings under the Revolving Credit Facility bear interest at either (i) London Interbank Offered Rate (“LIBOR”) plus a margin with no LIBOR floor or (ii) at lenders’ cost of funds plus a margin. The Company may elect either the LIBOR or prime rate at the time of draw-down, and loans may be converted from one rate to another at any time, subject to certain conditions. The Company pays unused facility fees of 0.20% per annum on committed but undrawn amounts under the Revolving Credit Facility. Interest is payable monthly in arrears.

Costs incurred in connection with obtaining the Revolving Credit Facility have been recorded as deferred financing costs and are being amortized over the life of the Revolving Credit Facility on a straight-line basis. As of June 30, 2017 and December 31, 2016, deferred financing costs related to the Revolving Credit Facility were $0 and $79,854, respectively, and were included in debt on the Consolidated Statements of Assets and Liabilities.

Revolving Credit Facility II

On June 29, 2017, the Company entered into the “Revolving Credit Facility II” with Capital One, National Association (“CONA”), as Administrative Agent, Lead Arranger, Managing Agent and Committed Lender. Proceeds from the Revolving Credit Facility II may be used for investment activities, expenses, working capital requirements and general corporate purposes. The Company’s obligations to the Committed Lender are secured by a first priority security interest in the unused capital commitments (See Note 7. Commitments, Contingencies and Indemnifications) and certain investments and cash held by the Company. The Revolving Credit Facility II contains certain covenants, including, but not limited to maintaining an asset coverage ratio of total assets to total borrowings of at least 2 to 1. The maximum principal amount of the Revolving Credit Facility II is $75 million, subject to availability under the borrowing base.

Borrowings under the Revolving Credit Facility II bear interest at the London Interbank Offered Rate (“LIBOR”) plus a margin with no LIBOR floor. The Company may elect either the LIBOR or prime rate at the time of draw-down, and loans may be converted from one rate to another at any time, subject to certain conditions. The Company pays unused facility fees of 0.20% per annum on committed but undrawn amounts under the Revolving Credit Facility II. Interest is payable monthly in arrears. Any amounts borrowed under the Revolving Credit Facility II, and all accrued and unpaid interest, will be due and payable, on June 29, 2018.

Costs incurred in connection with obtaining the Revolving Credit Facility II have been recorded as deferred financing costs and are being amortized over the life of the Revolving Credit Facility II on a straight-line basis. As of June 30, 2017, deferred financing costs related to the Revolving Credit Facility II was $162,082 and was included in debt on the Consolidated Statements of Assets and Liabilities.

SPV Asset Facility

On March 28, 2016 Crescent Capital BDC Funding, LLC (“CBDC SPV”), a Delaware limited liability company and wholly owned and consolidated subsidiary of the Company, entered into a loan and security agreement (the “SPV Asset Facility”) with the Company as the collateral manager, seller and equityholder, CBDC SPV as the borrower, the banks and other financial institutions from time to time party thereto as lenders, and Wells Fargo Bank, National Association (“Wells Fargo”), as administrative agent, collateral agent, and lender. The SPV Asset Facility is effective as of March 28, 2016. On February 2017, the Company amended the SPV Asset Facility increasing the facility limit from $75 million to $125 million.

 

See accompanying notes.

 

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The maximum commitment amount under the SPV Asset Facility is $125 million, and may be increased with the consent of Wells Fargo or reduced upon request of the Company. Proceeds of the advances under the SPV Asset Facility may be used to acquire portfolio investments, to make distributions to the Company in accordance with the SPV Asset Facility, and to pay related expenses. The maturity date is the earlier of: (a) the date the Borrower voluntarily reduces the commitments to zero, (b) the Facility Maturity Date (March 28, 2021) and (c) the date upon which Wells Fargo declares the obligations due and payable after the occurrence of an Event of Default. Borrowings under the SPV Asset Facility bear interest at London Interbank Offered Rate (“LIBOR”) plus a margin with no LIBOR floor. The Company pays unused facility fees of 0.50% per annum on committed but undrawn amounts under the SPV Asset Facility. The SPV Asset Facility includes customary covenants, including certain limitations on the incurrence of additional indebtedness and liens, as well as usual and customary events of default for revolving credit facilities of this nature.

Also on March 28, 2016, the Company, as Seller, and CBDC SPV, as Purchaser, entered into a loan sale agreement whereby the Company will sell certain assets to CBDC SPV. CBDC SPV will be consolidated into the Company’s financial statements and no gain or loss is expected to result from the sale of assets to CBDC SPV. The Company retains a residual interest in assets contributed to or acquired by CBDC SPV through its 100% ownership of CBDC SPV. The facility size is subject to availability under the borrowing base, which is based on the amount of CBDC SPV’s assets from time to time, and satisfaction of certain conditions, including an asset coverage test and certain concentration limits.

Costs incurred in connection with obtaining the SPV Asset Facility have been recorded as deferred financing costs and are being amortized over the life of the SPV Asset Facility on a straight-line basis. As of June 30, 2017 and December 31, 2016, deferred financing costs related to the SPV Asset Facility were $1,092,759 and $900,020, respectively, and were included in debt on the Consolidated Statements of Assets and Liabilities.

The summary information regarding the Revolving Credit Facility, Revolving Credit Facility II and the SPV Asset Facility for the three and six months ended June 30, 2017 and 2016 were as follows:

 

           For the three months ended      
June 30,
          For the six months ended      
June 30,
 
     2017     2016     2017     2016  

Borrowing interest expense

   $ 1,039,257       $ 414,284       $ 1,859,909       $ 743,490    

Facility fees

     55,556         80,936         107,567         91,100    

Amortization of financing costs

     195,977         208,783         368,746         323,506    
  

 

 

   

 

 

   

 

 

   

 

 

 

Total

   $ 1,290,790       $ 704,003       $ 2,336,222       $ 1,158,096    
  

 

 

   

 

 

   

 

 

   

 

 

 

Weighted average interest rate

     3.18       2.18       3.09       2.25  

Average outstanding balance

   $ 130,888,883       $ 74,090,794       $ 121,303,940       $ 68,609,141    

Note 7. Commitments, Contingencies and Indemnifications

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 unfunded commitments denominated in USD totaling $14,418,355 and $9,297,035, respectively, under loan and financing agreements. The Company also had outstanding an unfunded commitment denominated in GBP totaling £377,841 and £377,841 at June 30, 2017 and December 31, 2016, respectively.

Other Commitments and Contingencies

As of June 30, 2017, the Company had $389.0 million in total capital commitments from investors. Of this amount, $10.0 million was from Crescent Capital Group LP (“CCG LP”) and its affiliates. The remaining unfunded capital commitments totaled $238.0 million as of June 30, 2017.

 

See accompanying notes.

 

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Up to June 25, 2015, the Company’s efforts had been limited to organizational activities, the cost of which has been borne by the Advisor. The Company has agreed to repay the Advisor for initial organization costs and equity offering costs incurred prior to the commencement of its operations up to a maximum of $1.5 million on a pro rata basis over the first $350 million of invested capital not to exceed 3 years from the initial capital commitment. The Advisor incurred costs on behalf of the Company of $794,450 of equity offering costs and $567,895 of organization costs through Commencement. For the six months ended June 30, 2017, the Advisor allocated to the Company $56,746 of equity offering costs and $40,564 of organization costs, of which $38,924 was netted against Due from Advisor on the Consolidated Statements of Assets and Liabilities at June 30, 2017. Since June 26, 2015 (Commencement) through June 30, 2017, the Advisor has allocated to the Company $342,748 of equity offering costs and $245,006 of organization costs.

In the normal course of business, the Company enters into contracts which provide a variety of representations and warranties, and that provide general indemnifications. Such contracts include those with certain service providers, brokers and trading counterparties. Any exposure to the Company under these arrangements is unknown as it would involve future claims that may be made against the Company; however, based on the Company’s experience, the risk of loss is remote and no such claims are expected to occur. As such, the Company has not accrued any liability in connection with such indemnifications.

Note 8. Stockholders’ Equity

On June 26, 2015, the Company entered into subscription agreements (collectively, the “Subscription Agreements”) with several investors, including CCG LP and its affiliates, providing for the private placement of the Company’s common stock. Under the terms of the Subscription Agreements, investors are required to fund capital drawdowns to purchase the Company’s common stock up to the amount of their respective capital commitments on an as-needed basis as determined by the Company with a minimum of 10 business days’ prior notice. The remaining unfunded capital commitments related to these Subscription Agreements totaled $238.0 million and $246.7 million as of June 30, 2017 and December 31, 2016, respectively.

The following table summarizes the total shares issued and amount received related to capital drawdowns delivered pursuant to the Subscription Agreements during the six months ended June 30, 2017 and 2016:

 

                     For the six months ended                       
     June 30, 2017  

Quarter Ended                            

   Shares      Amount  

June 30, 2017

     490,701       $ 10,000,000  

March 31, 2017

     744,085        15,000,000  
  

 

 

    

 

 

 

Total Capital Drawdowns

     1,234,786       $ 25,000,000  
  

 

 

    

 

 

 
                     For the six months ended                       
     June 30, 2016  

Quarter Ended                            

   Shares      Amount  

June 30, 2016

     728,257       $ 14,000,000  

March 31, 2016

     624,382        12,000,000  
  

 

 

    

 

 

 

Total Capital Drawdowns

                             1,352,639       $                     26,000,000  
  

 

 

    

 

 

 

Prior to the listing of the Company’s shares on an exchange, stockholders who “opt in” to the Company’s dividend reinvestment plan will have their cash dividends and distributions automatically reinvested in additional shares of the Company’s common stock, rather than receiving cash dividends and distributions. The number of shares to be issued to a stockholder is determined by dividing the total dollar amount of the cash dividend or distribution payable to a stockholder by the net asset value per share of the common stock as of the last day of the Company’s fiscal quarter or such other date and price per share as determined by the Board preceding the date such dividend was declared.

 

See accompanying notes.

 

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The Company has authorized 200,000,000 shares of its common stock with a par value of $0.001 per share. The Company has authorized 10,000 shares of its preferred stock with a par value of $0.001 per share. Shares of preferred stock have not been issued. On February 5, 2015, the Company issued 1,000 common shares to CCG LP. On April 15, 2015, CCG LP contributed $499,000 of additional paid-in-capital to the Company. On June 29, 2015, CCG LP exchanged its 1,000 shares issued on February 5, 2015 for 25,000 common shares, which were subsequently redeemed on June 30, 2015.

At June 30, 2017 and December 31, 2016, CCG LP and its affiliates owned 3.75% and 4.47%, respectively, of the outstanding common shares of the Company.

For the six months ended June 30, 2017, distributions made by the Company are as follows:

 

Quarter Ended                        

   Total Amount                      Per Share Amount          

March 31, 2017

     $1,994,047        $0.28  

June 30, 2017

     $2,169,823        $0.29  

For the six months ended June 30, 2016, distributions made by the Company are as follows:

 

Quarter Ended                        

   Total Amount                      Per Share Amount          

March 31, 2016

     $1,130,001        $0.24  

June 30, 2016

     $1,164,992        $0.22  

Note 9. Earnings Per Share

 

In accordance with the provisions of ASC Topic 260 – Earnings per Share (“ASC 260”), basic earnings per share is computed by dividing earnings available to common shareholders by the weighted average number of shares outstanding during the period. Other potentially dilutive common shares, and the related impact to earnings, are considered when calculating earnings per share on a diluted basis. As of June 30, 2017 and December 31, 2016, there are no dilutive shares.

The following table sets forth the computation of the weighted average basic and diluted net increase in net assets per share from operations for the following periods:

 

         For the three months ended    
June 30,
         For the six months ended    
June 30,
 
     2017      2016      2017      2016  

Net increase (decrease) in net assets resulting from

operations

   $ 2,971,392      $ 3,021,211      $ 6,506,854      $ 4,210,206  

Weighted average common shares outstanding

     7,446,092        4,881,504        7,095,592        4,578,842  

Net increase (decrease) in net assets resulting from

operations per common share-basic and diluted

   $ 0.40      $ 0.62      $ 0.92      $ 0.92  

Note 10. Income Taxes

As of June 30, 2017, the Company’s aggregate investment unrealized appreciation and depreciation for federal income tax purposes was:

 

Tax cost

    $     283,125,960  
  

 

 

 

Gross unrealized appreciation

    $ 6,027,023  

Gross unrealized depreciation

     (1,472,920 )   
  

 

 

 

Net unrealized investment appreciation

    $ 4,554,103  
  

 

 

 

 

See accompanying notes.

 

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As of December 31, 2016, the Company’s aggregate investment unrealized appreciation and depreciation for federal income tax purposes was:

 

Tax cost

    $     216,264,636  
  

 

 

 

Gross unrealized appreciation

    $ 2,754,130  

Gross unrealized depreciation

     (1,097,814 )   
  

 

 

 

Net unrealized investment appreciation

   $ 1,656,316  
  

 

 

 

For the six months ended June 30, 2017, the Company recognized no current or deferred income tax or benefit related to the Taxable Subsidiary. There were no deferred tax assets or liabilities related to the Taxable Subsidiary at June 30, 2017 or December 31, 2016.

Note 11. Financial Highlights

Below is the schedule of financial highlights of the Company for the six months ended June 30, 2017 and 2016, relating to the common shares issued through June 30, 2017 pursuant to the Subscription Agreements:

 

     For the six months ended
June 30, 2017
     For the six months ended
June 30, 2016
 

Per Share Data:(1)

 

Net asset value, beginning of period

     $ 20.08           $ 19.13     

Net investment income after tax

     0.59           0.48     

Net realized and unrealized gains (losses) on investments(2)

     0.33           0.35     
  

 

 

    

 

 

 

Net increase (decrease) in net assets resulting from operations

     0.92           0.83     
  

 

 

    

 

 

 

Distributions declared from net investment income(3)

     (0.57)          (0.46)    

Offering costs

     (0.02)          (0.01)    
  

 

 

    

 

 

 

Total increase (decrease) in net assets

     0.33           0.36     
  

 

 

    

 

 

 

Net asset value, end of period

     $ 20.41           $ 19.49     

Shares outstanding, end of period

     7,613,414           5,409,760     

Weighted average shares outstanding

     7,095,592           4,578,842     

Total return(4)(5)

     8.96%        8.61%  

Ratio/Supplemental Data:

 

Net assets, end of period

     $ 155,377,902           $ 105,458,121     

Ratio of total expenses to average net assets(6)

     7.80%        7.06%  

Ratio of net investment income to average net assets(6)

     5.94%        4.96%  

Ratio of interest and credit facility expenses to average net assets(5)

     3.29%        2.57%  

Ratio of incentive fees to average net assets(5)

     0.87%        —%      

Portfolio turnover rate(7)

     9.04%        7.31%  

Asset coverage ratio(8)

     2.12           2.47     

 

 

(1) Based on actual number of shares outstanding at the end of the corresponding period or the weighted average shares outstanding for the period, unless otherwise noted, as appropriate.
(2) The amount shown does not correspond with the aggregate realized and unrealized gains (losses) on investment transactions for the period as it includes the effect of the timing of equity issuances.
(3) The per share data for distributions per share reflects the actual amount of distributions declared per share for the applicable period.
(4) Total return based on net asset value is calculated as the change in net asset value per share during the period plus declared dividends per share during the period, divided by the beginning net asset value per share.

 

See accompanying notes.

 

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(5) Annualized.
(6) Annualized except for organization expenses.
(7) Not annualized.
(8) Asset coverage ratio is equal to (i) the sum of (A) net assets at end of period and (B) debt outstanding at end of period, divided by (ii) total debt outstanding at the end of the period.

Note 12. Subsequent Events

The Company’s management evaluated subsequent events through the date of issuance of the consolidated financial statements included herein. There have been no subsequent events that occurred during such period that would require disclosure in this Form 10-Q or would be required to be recognized in the consolidated financial statements as of June 30, 2017 and for the six months ended June 30, 2017.

 

See accompanying notes.

 

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

OPERATIONS

The information contained in this section should be read in conjunction with the financial statements and notes thereto appearing elsewhere in this report. This discussion also should be read in conjunction with the “Cautionary Statement Regarding Forward Looking Statements” set forth on page 1 of this Quarterly Report on Form 10-Q.

OVERVIEW

We are a specialty finance company focused on lending to middle-market companies and are incorporated under the laws of the State of Delaware on February 5, 2015 (Inception). We have elected to be treated as a business development company (BDC) under the Investment Company Act of 1940, as amended (the 1940 Act). In addition, the Company has elected to be treated for U.S. federal income tax purposes as a regulated investment company (a “RIC”) under Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code). As such, we are required to comply with various regulatory requirements, such as the requirement to invest at least 70% of our assets in “qualifying assets,” source of income limitations, asset diversification requirements, and the requirement to distribute annually at least 90% of our taxable income and tax-exempt interest.

The Company is managed by CBDC Advisors, LLC (the “Advisor”), an investment adviser that is registered with the Securities and Exchange Commission (the “SEC”) under the Investment Advisers Act of 1940. CBDC Administration, LLC (the “Administrator”) provides the administrative services necessary for the Company to operate. Company management consists of investment and administrative professionals from the Advisor and Administrator along with the Company’s Board of Directors (the “Board”). The Advisor directs and executes the investment operations and capital raising activities of the Company subject to oversight from the Board, which sets the broad policies of the Company. The Board has delegated investment management of the Company’s investment assets to the Advisor. The Board consists of five directors, three of whom are independent.

The Company’s primary investment objective is to maximize the total return to the Company’s stockholders in the form of current income and capital appreciation through debt and related equity investments. The Company seeks to achieve its investment objectives by investing primarily in secured debt (including senior secured first-lien, unitranche and senior secured second-lien debt) and unsecured debt (including senior unsecured and subordinated debt), as well as related equity securities of private U.S. middle-market companies. We may purchase interests in loans or make debt investments, either (i) directly from our target companies as primary market or private credit investments (i.e., private credit transactions), or (ii) primary or secondary market bank loan or high yield transactions in the broadly syndicated “over-the-counter” market (i.e., broadly syndicated loans and bonds). Although our focus is to invest in less liquid private credit transactions, broadly syndicated loans and bonds are generally more liquid than and complement our private credit transactions.

From February 5, 2015 (Inception) through June 25, 2015, the Company devoted substantially all of its efforts to establishing the business and raising capital commitments from private investors. On June 26, 2015, we entered into subscription agreements with several investors, including Crescent Capital Group LP and its affiliates (CCG LP), providing for the private placement of the Company’s common stock. The Company commenced investment operations on June 26, 2015 (Commencement).

KEY COMPONENTS OF OPERATIONS

Investments

We expect our investment activity to vary substantially from period to period depending on many factors, the general economic environment, the amount of capital we have available to us, the level of merger and acquisition activity for middle-market companies, including the amount of debt and equity capital available to such companies and the competitive environment for the type of investments we make. In addition, as part of our risk strategy on investments, we may reduce certain levels of investments through partial sales or syndication to additional investors.

We must not invest in any assets other than “qualifying assets” specified in the 1940 Act, unless, at the time the investments are made, at least 70% of our total assets are qualifying assets (with certain limited exceptions). Qualifying assets include investments in “eligible portfolio companies.” Pursuant to rules adopted by the SEC, “eligible portfolio companies” include certain companies that do not have any securities listed on a national securities exchange and public companies whose securities are listed on a national securities exchange but whose market capitalization is less than $250 million.

 

See accompanying notes.

 

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The Investment Advisor

Our investment activities are managed by the Advisor, which will be responsible for originating prospective investments, conducting research and due diligence investigations on potential investments, analyzing investment opportunities, negotiating and structuring our investments and monitoring our investments and portfolio companies on an ongoing basis. The Advisor has entered into a Resource Sharing Agreement (the “Resource Sharing Agreement”) with Crescent Capital Group LP (“CCG LP”), pursuant to which CCG LP will provide the Advisor with experienced investment professionals (including the members of the Advisor’s investment committee) and access to the resources of CCG LP so as to enable the Advisor to fulfill its obligations under the Investment Advisory Agreement. Through the Resource Sharing Agreement, the Advisor intends to capitalize on the deal origination, credit underwriting, due diligence, investment structuring, execution, portfolio management and monitoring experience of CCG LP’s investment professionals.

Revenues

We generate revenue primarily in the form of interest income on debt investments and, to a lesser extent, capital gains and distributions, if any, on equity securities that we may acquire in portfolio companies. Certain investments may have contractual PIK interest or dividends. PIK represents accrued interest or accumulated dividends that are added to the loan principal of the investment on the respective interest or dividend payment dates rather than being paid in cash and generally becomes due at maturity or upon being called by the issuer. PIK is recorded as interest or dividend income, as applicable.

Dividend income from preferred equity securities is recorded on an accrual basis to the extent that such amounts are payable by the portfolio company and are expected to be collected. Dividend income from common equity securities is recorded on the record date for private portfolio companies or on the ex-dividend date for publicly-traded portfolio companies.

In addition, we may receive fees for services provided to portfolio companies by the Advisor under the Investment Advisory Agreement. The services that the Advisor provides vary by investment, but generally include syndication, structuring or diligence fees, and fees for providing managerial assistance to our portfolio companies. We also generate revenue in the form of commitment or origination fees. Loan origination fees, original issue discount and market discount or premium are capitalized, and we accrete or amortize such amounts into income over the life of the loan. Fees for providing managerial assistance to our portfolio companies are generally non-recurring and are recognized as revenue when services are provided. In certain instances where the Company is invited to participate as a co-lender in a transaction and does not provide significant services in connection with the investment, all or a portion of any loan fees received by the Company in such situations will be deferred and amortized over the investment’s life using the effective yield method.

Expenses

Our primary operating expenses include the payment of Management fees and Incentive fees to the Advisor under the Investment Advisory Agreement, our allocable portion of overhead expenses under the administration agreement with our Administrator (the “Administration Agreement”), operating costs associated with our sub-administration, custodian and transfer agent agreements with State Street Bank and Trust Company (the “Sub-Administration Agreements”) and other operating costs described below. The Management and Incentive fees compensate our investment adviser for its work in identifying, evaluating, negotiating, closing and monitoring our investments. We bear all other out-of-pocket costs and expenses of our operations and transactions, including:

 

    allocated organization costs from the Advisor incurred prior to the commencement of our operations up to a maximum of $1.5 million;

 

    the cost of calculating our net asset value, including the cost of any third-party valuation services;

 

    fidelity bond, directors’ and officers’ liability insurance and other insurance premiums;

 

    direct costs, such as printing, mailing, long distance telephone and staff;

 

    fees and expenses associated with independent audits and outside legal costs;

 

    independent directors’ fees and expenses;

 

    U.S. federal, state and local taxes;

 

    the cost of effecting sales and repurchases of shares of our common stock and other securities;

 

See accompanying notes.

 

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    fees payable to third parties relating to making investments, including out-of-pocket fees and expenses associated with performing due diligence and reviews of prospective investments;

 

    out-of-pocket fees and expenses associated with marketing efforts;

 

    federal and state registration fees and any stock exchange listing fees;

 

    brokerage commissions;

 

    costs associated with our reporting and compliance obligations under the 1940 Act and other applicable U.S. federal and state securities laws;

 

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

 

    all other expenses reasonably incurred by us in connection with making investments and administering our business.

We have agreed to repay the Advisor for initial organization costs and equity offering costs incurred prior to the commencement of operations up to a maximum of $1.5 million on a pro rata basis over the first $350 million of invested capital not to exceed 3 years from the initial capital commitment. The Advisor is responsible for organization and private equity offerings costs in excess of $1.5 million.

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

Leverage

Our financing facilities allow us to borrow money and lever our investment portfolio, subject to the limitations of the 1940 Act, with the objective of increasing our yield. This is known as “leverage” and could increase or decrease returns to our stockholders.

The use of leverage involves significant risks. As a BDC, with certain limited exceptions, we will only be permitted to borrow amounts such that our asset coverage ratio, as defined in the 1940 Act, equals at least 2 to 1 after such borrowing. Short-term credits necessary for the settlement of securities transactions and arrangements with respect to securities lending will not be considered borrowings for these purposes. The amount of leverage that we employ will depend on our Advisor’s and our Board assessment of market conditions and other factors at the time of any proposed borrowing.

PORTFOLIO INVESTMENT ACTIVITY

We seek to create a broad and varied portfolio that generally includes senior secured first-lien, “unitranche” (which are loans that combine features of first-lien, second-lien and mezzanine debt, generally in a first-lien position), senior secured second lien and subordinated loans and minority equity securities by investing in the securities of U.S. middle market companies. The size of our individual investments will vary proportionately with the size of our capital base. We generally invest in securities that have been rated below investment grade by independent rating agencies or that would be rated below investment grade if they were rated. These securities have speculative characteristics with respect to the issuer’s capacity to pay interest and repay principal. In addition, many of our debt investments have floating interest rates that reset on a periodic basis and typically do not fully pay down principal prior to maturity, which may increase our risk of losing part or all of our investment.

As of June 30, 2017 and December 31, 2016, our portfolio at fair value was comprised of the following:

 

     June 30, 2017      December 31, 2016  

($ in millions)

  

 

    Fair Value (1)    

         Percentage              Fair Value (1)              Percentage      

Senior secured first-lien

   $ 194.6        64.3%      $ 156.9        68.9%  

Unitranche

     20.3        6.7            19.4        8.5      

Senior secured second-lien

     73.0        24.1            42.5        18.7      

Unsecured

     5.6        1.9            5.0        2.2      

Equity

     9.2        3.0            3.9        1.7      
  

 

 

    

 

 

    

 

 

    

 

 

 

Total investments

   $ 302.7        100.0%      $ 227.7        100.0%  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(1) Includes unfunded commitments at fair value of $15.1 million and $9.8 million as of June 30, 2017 and December 31, 2016, respectively.

 

See accompanying notes.

 

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The following table shows the asset mix of our new investment commitments for the three months ended June 30, 2017 and June 30, 2016, and for the six months ended June 30, 2017 and June 30, 2016:

 

     Three Months Ended
June 30, 2017
     Three Months Ended
June 30, 2016
 

($ in millions)

  

 

    Cost    

         Percentage              Cost              Percentage      

Senior secured first-lien

   $ 11.4        36.5%      $ 15.1        65.0%  

Unitranche

     —          —            3.9        16.7      

Senior secured second-lien

     16.0        51.0            4.3        18.3      

Unsecured

     —          —            —          —      

Equity

     3.9        12.5            —          —      
  

 

 

    

 

 

    

 

 

    

 

 

 

Total investments

   $ 31.3        100.0%      $ 23.3        100.0%  
  

 

 

    

 

 

    

 

 

    

 

 

 
     Six Months Ended
June 30, 2017
     Six Months Ended
June 30, 2016
 

($ in millions)

  

 

    Cost    

         Percentage              Cost              Percentage      

Senior secured first-lien

   $ 56.4        60.2%      $ 37.6        82.2%  

Unitranche

     —          —            3.9        8.5      

Senior secured second-lien

     31.3        33.4            4.3        9.3      

Unsecured

     0.6        0.7            —          —      

Equity

     5.3        5.7            —          —      
  

 

 

    

 

 

    

 

 

    

 

 

 

Total investments

   $ 93.6        100.0%      $ 45.8        100.0%  
  

 

 

    

 

 

    

 

 

    

 

 

 

For the three months ended June 30, 2017, we had principal repayments of $7.4 million. For this period, we had sales of securities in four portfolio companies aggregating approximately $2.9 million in net proceeds. For the three months ended June 30, 2017, we had a net portfolio increase of $22.1 million aggregate principal amount (amortized cost).

For the six months ended June 30, 2017, we had principal repayments of $15.6 million. For this period, we had sales of securities in twelve portfolio companies aggregating approximately $7.8 million in net proceeds. For the six months ended June 30, 2017, we had a net portfolio increase of $66.9 million aggregate principal amount (amortized cost).

For the three months ended June 30, 2016, we had principal repayments of $5.0 million. For this period, we had sales of securities in seven portfolio companies aggregating approximately $3.6 million in net proceeds. For the three months ended June 30, 2016, we had a net portfolio increase of $15.1 million aggregate principal amount (amortized cost).

For the six months ended June 30, 2016, we had principal repayments of $6.4 million. For this period, we had sales of securities in thirteen portfolio companies aggregating approximately $4.9 million in net proceeds. For the six months ended June 30, 2016, we had a net portfolio increase of $34.4 million aggregate principal amount (amortized cost).

The following table presents certain selected information regarding our investment portfolio at fair value as of June 30, 2017 and December 31, 2016:

 

             June 30, 2017                   December 31, 2016        

Weighted average total yield to maturity of
debt and income producing securities (at
fair value)

             7.7%             7.3%

Weighted average total yield to maturity of
debt and income producing securities (at
cost)

             8.1%             7.5%

Weighted average interest rate of debt and
income producing securities

             7.7%             7.2%

Percentage of debt bearing a floating rate

           91.2%           90.8%

Percentage of debt bearing a fixed rate

             8.8%             9.2%

Number of portfolio companies

             84                95   

 

See accompanying notes.

 

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The following table shows the amortized cost of our performing and non-accrual investments as of June 30, 2017 and December 31, 2016.

 

     June 30, 2017      December 31, 2016  

($ in millions)

       Amortized Cost (1)              Percentage              Amortized Cost (1)              Percentage      

Performing

     $ 298.3         100.0%        $ 226.1        100.0%  

Non-accrual

     —            —            —            —      
  

 

 

    

 

 

    

 

 

    

 

 

 

Total assets

     $ 298.3         100.0%        $ 226.1        100.0%  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(1) Includes unfunded commitments at cost of $15.1 million and $9.9 million as of June 30, 2017 and December 31, 2016, respectively.

Loans are generally placed on non-accrual status when there is reasonable doubt that principal or interest will be collected in full. Non-accrual loans are restored to accrual status when past due principal and interest is paid current and, in management’s judgment, are likely to remain current. Management may determine to not place a loan on non-accrual status if the loan has sufficient collateral value and is in the process of collection.

The Advisor monitors our portfolio companies on an ongoing basis. The Advisor monitors the financial trends of each portfolio company to determine if it is meeting its business plans and to assess the appropriate course of action for each company. The Advisor has a number of methods of evaluating and monitoring the performance and fair value of our investments, which may include the following:

 

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

 

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

 

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

 

    comparisons to other companies in the industry; and

 

    possible attendance at, and participation in, board meetings.

As part of the monitoring process, the Advisor regularly assesses the risk profile of each of our investments and, on a quarterly basis, grades each investment on a risk scale of 1 to 5. Risk assessment is not standardized in our industry and our risk assessment may not be comparable to ones used by our competitors. Our assessment is based on the following categories:

 

1 Involves the least amount of risk in our portfolio. The investment/borrower is performing above expectations since investment, and the trends and risk factors are generally favorable, which may include the financial performance of the borrower or a potential exit.

 

2 Involves an acceptable level of risk that is similar to the risk at the time of investment. The investment/borrower is generally performing as expected, and the risk factors are neutral to favorable.

 

3 Involves an investment/borrower performing below expectations and indicates that the investment’s risk has increased somewhat since investment. The borrower’s loan payments are generally not past due and more likely than not the borrower will remain in compliance with debt covenants. An investment rating of 3 requires closer monitoring.

 

4 Involves an investment/borrower performing materially below expectations and indicates that the loan’s risk has increased materially since investment. In addition to the borrower being generally out of compliance with debt covenants, loan payments may be past due (but generally not more than 180 days past due). Placing loans on non-accrual status should be considered for investments rated 4.

 

5 Involves an investment/borrower performing substantially below expectations and indicates that the loan’s risk has substantially increased since investment. Most or all of the debt covenants are out of compliance and payments are substantially delinquent. Loans rated 5 are not anticipated to be repaid in full and the fair market value of the loan should be reduced to the anticipated recovery amount. Loans with an investment rating of 5 should be placed on non-accrual status.

 

See accompanying notes.

 

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The following table shows the distribution of our investments on the 1 to 5 investment performance rating scale at fair value as of June 30, 2017 and December 31, 2016. Investment performance ratings are accurate only as of those dates and may change due to subsequent developments relating to a portfolio company’s business or financial condition, market conditions or developments, and other factors.

 

     June 30, 2017 (1)      December 31, 2016 (1)  

Investment Performance Rating

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

1

   $ —          —  %      $ —          —  %  

2

     296.3        97.9            220.4        96.8      

3

     6.4        2.1            7.3        3.2      

4

     —          —            —          —      

5

     —          —            —          —      
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 302.7        100.0%      $ 227.7        100.0%  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(1) Includes unfunded commitments at fair value of $15.1 million and $9.8 million as of June 30, 2017 and December 31, 2016, respectively.

RESULTS OF OPERATIONS

Operating results for the three months ended June 30, 2017 and June 30, 2016 and for the six months ended June 30, 2017 and June 30, 2016, were as follows:

 

     For the three
months ended
        June 30, 2017         
     For the three
months ended
        June 30, 2016         
     For the six
months ended
        June 30, 2017    
     For the six months
        ended June 30, 2016         
 

Total investment income

   $ 5,291,948      $ 2,903,519      $ 9,756,672      $ 5,413,647  

Less: Net expenses

     3,017,321        1,765,906        5,561,115        3,201,977  
  

 

 

    

 

 

    

 

 

    

 

 

 

Net investment income before taxes

   $ 2,274,627      $ 1,137,613      $ 4,195,557      $ 2,211,670  

Income taxes

     1,600               1,689        800  
  

 

 

    

 

 

    

 

 

    

 

 

 

Net investment income

     2,273,027        1,137,613        4,193,868        2,210,870  

Net realized gain (loss) on investments (1)

     (278,336)        14,817        (263,927)        (402,905)  

Net unrealized appreciation (depreciation) on investments (1)

     976,701        1,868,781        2,576,913        2,402,241  
  

 

 

    

 

 

    

 

 

    

 

 

 

Net increase in net assets resulting from operations

   $ 2,971,392      $ 3,021,211      $ 6,506,854      $ 4,210,206  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(1) Includes foreign exchange hedging activity.

Investment Income

 

     For the three
months ended
        June 30, 2017         
     For the three
months ended
        June 30, 2016         
     For the six
months ended
        June 30, 2017    
     For the six months
        ended June 30, 2016         
 

Interest from investments

   $ 5,238,587      $ 2,902,935      $ 9,683,379      $ 5,413,063  

Dividend Income

                           

Other income

     53,361        584        73,293        584  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

     5,291,948        2,903,519        9,756,672        5,413,647  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

See accompanying notes.

 

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Interest from investments, which includes amortization of upfront fees and prepayment fees, increased from $2.9 million for the three months ended June 30, 2016 compared to $5.2 million for the three months ended June 30, 2017, due to the increase in the size of our portfolio. The average size of our total investment portfolio increased from $170.0 million during the three months ended June 30, 2016 to $287.2 million during the three months ended June 30, 2017. We did not have dividend income for the three months ended June 30, 2017 and June 30, 2016. Other income primarily relates to the amortization of loan administration fees earned as the administration agent.

Interest from investments, which includes amortization of upfront fees and prepayment fees, increased from $5.4 million for the six months ended June 30, 2016 compared to $9.7 million for the six months ended June 30, 2017, due to the increase in the size of our portfolio. The average size of our total investment portfolio increased from $161.1 million during the six months ended June 30, 2016 to $266.9 million during the six months ended June 30, 2017. We did not have dividend income for the six months ended June 30, 2017 and June 30, 2016. Other income primarily relates to the amortization of loan administration fees earned as the administration agent.

Expenses

 

     For the three
months ended
        June 30, 2017         
     For the three
months ended
        June 30, 2016         
     For the six
months ended
        June 30, 2017         
     For the six months ended
June 30, 2016
 

Interest and credit facility expenses

   $ 1,290,790      $ 704,003      $ 2,336,222      $ 1,158,096  

Management fees

     668,292        390,041        1,272,519        747,088  

Income Incentive Fees

     392,977               614,535         

Directors’ fees

     72,500        83,042        145,000        149,917  

Professional fees

     176,566        171,273        351,566        386,273  

Organization expenses

     16,226        22,716        40,564        42,187  

Other general and administrative expenses

     399,970        394,831        800,709        718,416  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total expenses

     3,017,321        1,765,906        5,561,115        3,201,977  

Interest and Credit Facility Expenses

Interest and credit facility expenses include interest, amortization of deferred financing costs, upfront commitment fees and unused fees on the Revolving Credit Facility, Revolving Credit Facility II and SPV Asset Facility. The Company first drew on the Revolving Credit Facility in July 2015, on the SPV Asset Facility in April 2016, and on the Revolving Credit Facility II in June 2017. Interest and credit facility expenses increased from $0.7 million for the three months ended June 30, 2016 to $1.3 million for the three months ended June 30, 2017. This increase was primarily due to an increase in the weighted average debt outstanding from $74.1 million for the three months ended June 30, 2016 to $130.9 million for the three months ended June 30, 2017. Average interest rate (excludes deferred upfront financing costs and unused fees) on our weighted average debt outstanding for the three months ended June 30, 2017 and June 30, 2016 were 3.2% and 2.2%, respectively.

Interest and credit facility expenses increased from $1.2 million for the six months ended June 30, 2016 to $2.3 million for the six months ended June 30, 2017. This increase was primarily due to an increase in the weighted average debt outstanding from $68.6 million for the six months ended June 30, 2016 to $121.3 million for the six months ended June 30, 2017. Average interest rate (excludes deferred upfront financing costs and unused fees) on our weighted average debt outstanding for the six months ended June 30, 2017 and June 30, 2016 were 3.1% and 2.2%, respectively.

Management fees

Management fees will be calculated and payable quarterly in arrears at an annual rate of 1.5% of our gross assets, including assets acquired through the incurrence of debt but excluding any cash and cash equivalents. The Advisor, however, has agreed to waive its right to receive management fees in excess of the sum of (i) 0.25% of the aggregate committed but undrawn capital and (ii) 0.75% of the aggregate gross assets excluding cash and cash equivalents (including capital drawn to pay the Company’s expenses) during any

period prior to a qualified initial public offering, as defined by the Investment Advisory Agreement (“Qualified IPO”). Management fees, net of waived management fees, increased from $0.4 million for the three months ended June 30, 2016 to $0.7 million for the three months ended June 30, 2017 due to the increase in total assets, which increased from an average of $172.8 million for the three months ended June 30, 2016 to an average of $285.7 million for the three months ended June 30, 2017. Waived management fees for the three months ended June 30, 2017 and June 30, 2016 were approximately $0.4 million and $0.2 million, respectively. The Advisor will not be permitted to recoup any waived amounts at any time.

 

See accompanying notes.

 

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Management fees, net of waived management fees, increased from $0.7 million for the six months ended June 30, 2016 to $1.3 million for the six months ended June 30, 2017 due to the increase in total assets, which increased from an average of $163.0 million for the six months ended June 30, 2016 to an average of $265.7 million for the six months ended June 30, 2017. Waived management fees for the six months ended June 30, 2017 and June 30, 2016 were approximately $0.7 million and $0.2 million, respectively.

Income incentive fees

Income incentive fees increased from zero for three and six months ended June 30, 2016 to $0.4 million and $0.6 million for the three and six months ended June 30, 2017, respectively. The increase was due to the Pre-Incentive Fee Net Investment Income (as defined below), expressed as a rate of return on the value of our net assets (defined as total assets less indebtedness, before taking into account any incentive fees payable during the period) as of the preceding quarter, exceeding 1.5% per quarter (the hurdle rate). For the three and six months ended June 30, 2017, income incentive fees as a percentage of Pre-Incentive Fee Net Investment Income was 14.7% and 12.8% compared to 0.0% for both the three and six months ended June 30, 2016, respectively. “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 and consulting fees or other fees that we receive from portfolio companies, but excluding fees for providing managerial assistance) accrued during the calendar quarter, minus operating expenses for the calendar quarter (including the base management fee, taxes, any expenses payable under the Investment Advisory Agreement and the Administration Agreement and any interest expense, but excluding the Incentive fee). Pre-Incentive Fee Net Investment Income includes accrued income that we have not yet received in cash, such as debt instruments with PIK interest, preferred stock with PIK dividends and zero coupon securities.

Professional Fees and Other General and Administrative Expenses

Professional fees generally include expenses from independent auditors, tax advisors, legal counsel and third party valuation agents. Other general and administrative expenses generally include expenses from the Sub-Administration Agreements, insurance premiums, overhead and staffing costs allocated from the Administrator and other miscellaneous general and administrative costs associated with the operations and investment activity of the Company. Professional fees remained flat at $0.2 million for the three months ended June 30, 2016 and June 30, 2017, respectively, while other general and administrative expenses also remained flat at $0.4 million for the three months ended June 30, 2016 and June 30, 2017, respectively.

Professional fees remained flat at $0.4 million for the six months ended June 30, 2016 and June 30, 2017, respectively, while other general and administrative expenses increased from $0.7 million for the six months ended June 30, 2016 to $0.8 million for the six months ended June 30, 2017. The net increase in costs was due to an increase in costs associated with servicing a growing investment portfolio.

Organization expenses

We have agreed to repay the Advisor for the organization costs and offering costs (not to exceed $1.5 million) on a pro rata basis over the first $350 million of capital contributed to the Company. For the three and six months ended June 30, 2017, we called $10.0 million and $25.0 million, respectively, and the Advisor allocated $0.0 million and $0.0 million, respectively of organization costs to the Company, which was included in the Consolidated Statements of Operations.

For the three and six months ended June 30, 2017, the Advisor also allocated $0.0 million and $0.1 million, respectively of equity offering costs to the Company that was recorded as an offset to Paid-in capital in excess of par value on the Consolidated Statement of Assets and Liabilities.

During the three and six months ended June 30, 2016, we called $14.0 million and $26.0 million, respectively, and the Advisor allocated $0.0 million and $0.0 million, respectively of organization costs to the Company, which was included in the Consolidated Statements of Operations. During the three and six months ended June 30, 2016, the Advisor also allocated $0.0 million and $0.1 million, respectively of equity offering costs to the Company that was recorded as an offset to Paid-in capital in excess of par value on the Consolidated Statement of Assets and Liabilities.

 

See accompanying notes.

 

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Table of Contents

Income Tax Expense, Including Excise Tax

We have elected to be treated as a RIC under the Code and operate in a manner so as to qualify for the tax treatment applicable to RICs. To qualify as a RIC, we must generally (among other requirements) timely distribute to our stockholders at least 90% of our investment company taxable income, as defined by the Code, for each year. In order to maintain our RIC status, we intend to make the requisite distributions to our stockholders which will generally relieve us from corporate-level income taxes.

In order for the Company not to be subject to federal excise taxes, it must distribute annually an amount at least equal to the sum of (i) 98% of its ordinary income (taking into account certain deferrals and elections), (ii) 98.2% of its net capital gains from the current year and (iii) any undistributed ordinary income and net capital gains from preceding years. Depending on the level of taxable income earned in a tax year, we may choose to carry forward such taxable income in excess of current year dividend distributions into the next tax year and pay a 4% excise tax on such income, as required. If we determine that our estimated current year taxable income will be in excess of estimated dividend distributions for the current year from such income, we accrue excise tax on estimated excess taxable income as such taxable income is earned. As of June 30, 2017, we had no accrual for U.S. federal excise tax.

Net Realized and Unrealized Gains and Losses

We value our portfolio investments quarterly and any changes in fair value are recorded as unrealized appreciation (depreciation) on investments. For the three and six months ended June 30, 2017 and June 30, 2016, net realized gains (losses) and net unrealized appreciation (depreciation) on our investment portfolio were comprised of the following:

 

     For the three
months ended
        June 30, 2017         
     For the three
months ended
        June 30, 2016         
     For the six
months ended
        June 30, 2017         
     For the six months
    ended June 30, 2016    
 

Realized losses on investments

   $ (281,589)      $ (2,919)      $ (287,553)      $ (463,946)  

Realized gains on investments

     4,263        20,082        25,620        20,082  

Realized gains on foreign currency transactions

     (169)        14,640        748        58,866  

Realized losses on foreign currency transactions

     (841)        (16,986)        (2,742)        (17,907)  
  

 

 

    

 

 

    

 

 

    

 

 

 

Net realized gains (losses)

   $ (278,336)      $ 14,817      $ (263,927)      $ (402,905)  
  

 

 

    

 

 

    

 

 

    

 

 

 

Change in unrealized depreciation on investments

   $ 276,525      $ 1,006,688      $ 114,033      $ 1,437,786  

Change in unrealized appreciation on investments

     936,124        559,806        2,758,716        619,964  

Change in unrealized depreciation on foreign currency translation

     (247,989)        (2,221)        (311,409)        (2,006)  

Change in unrealized appreciation on foreign currency translation

     12,041        304,507        15,573        346,497  
  

 

 

    

 

 

    

 

 

    

 

 

 

Net unrealized appreciation (depreciation)

   $ 976,701      $ 1,868,781      $ 2,576,913      $ 2,402,241  
  

 

 

    

 

 

    

 

 

    

 

 

 

Hedging

We may, but are not required to, enter into interest rate, foreign exchange or other derivative agreements to hedge interest rate, currency, credit or other risks. Generally, we do not intend to enter into any such derivative agreements for speculative purposes. Any derivative agreements entered into for speculative purposes are not expected to be material to the Company’s business or results of operations. These hedging activities, which will be in compliance with applicable legal and regulatory requirements, may include the use of various instruments, including futures, options and forward contracts. We will bear the costs incurred in connection with entering into, administering and settling any such derivative contracts. There can be no assurance any hedging strategy we employ will be successful.

We did not enter into any interest rate, foreign exchange or other derivative agreements during the three and six months ended June 30, 2017 and June 30, 2016.

 

See accompanying notes.

 

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FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES

At June 30, 2017, we had $7.4 million in cash on hand. The primary uses of our cash and cash equivalents are for (1) investments in portfolio companies and other investments and to comply with certain portfolio diversification requirements; (2) the cost of operations (including paying our Advisor); (3) debt service, repayment, and other financing costs; and, (4) cash distributions to the holders of our common shares.

We expect to generate additional cash from (1) future offerings of our common or preferred shares; (2) borrowings from our Revolving Credit Facility II, SPV Asset Facility and from other banks or lenders; and, (3) cash flows from operations.

Cash on hand of $7.4 million combined with our uncalled capital commitments of $238.0 million, $25.2 million undrawn amount on our Revolving Credit Facility II and $37.1 million undrawn amount on our SPV Asset Facility, is expected to be sufficient for our investing activities and to conduct our operations for the foreseeable future.

Capital Share Activity

Since June 26, 2015 (Commencement), we have entered into subscription agreements (collectively, the “Subscription Agreements”) with several investors, including CCG LP, providing for the private placement of our common shares. Under the terms of the Subscription Agreements, investors are required to fund drawdowns to purchase our common shares up to the amount of their respective capital commitments on an as-needed basis with a minimum of 10 business days’ prior notice. At June 30, 2017, we had received capital commitments totaling $389.0 million, of which $10.0 million was from CCG LP.

Since June 26, 2015 (Commencement), pursuant to the Subscription Agreements, we have delivered ten capital drawdown notices to our investors relating to the issuance of 7,609,431 of our common shares for an aggregate offering of $151.0 million. Proceeds from

the issuance were used to fund our investing activities and for other general corporate purposes. As of June 30, 2017, the Company received all amounts relating to the ten capital drawdown notices.

During the three and six months ended June 30, 2017, we issued 1,116.38 and 1,777.85 shares of our common stock, respectively, to investors who have opted into our dividend reinvestment plan for proceeds of $22,505 and $35,636. For the three and six months ended June 30, 2016, we issued 450.77 and 805.13 shares of our common stock, respectively, to investors who have opted into our dividend reinvestment plan for proceeds of $8,663 and $15,687.

Debt

Debt consisted of the following as of June 30, 2017 and December 31, 2016:

 

     June 30, 2017  

($ in millions)

   Aggregate Principal
    Amount Committed    
         Drawn    
    Amount (4)    
     Amount
    Available (1)    
     Carrying
    Value (2)    
 

SPV Asset Facility

    $ 125.0        $ 87.9        $ 37.1        $ 87.9   

Revolving Credit Facility

     —         —         —         —   

Revolving Credit Facility II (3)(5)

     75.0         50.3         25.2         49.8   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total Debt

    $ 200.0        $ 138.2        $ 62.3        $ 137.7   
  

 

 

    

 

 

    

 

 

    

 

 

 
     December 31, 2016  

($ in millions)

   Aggregate Principal
Amount Committed
     Drawn
Amount (4)
     Amount
Available (1)
     Carrying
Value (2)
 

SPV Asset Facility

    $ 75.0        $ 47.6        $ 27.4        $ 47.6   

Revolving Credit Facility (3)(5)

     50.0         47.8         3.0         47.0   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total Debt

    $ 125.0        $ 95.4        $ 30.4        $ 94.6   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(1) The amount available is subject to any limitations related to the respective debt facilities’ borrowing bases and foreign currency translation adjustments.
(2) The difference between the drawn amount and the carrying amount is attributable to the effect of foreign currency rates as of the balance sheet dates versus foreign currency rates at the time of the respective non-USD borrowings.

 

See accompanying notes.

 

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(3) The Company had outstanding debt denominated in Pound Sterling (GBP) of 2.5 million and Euro (EUR) of 1.8 million on its Revolving Credit Facility, and Revolving Credit Facility II.
(4) For borrowings in non-USD, the drawn amount represents the USD equivalent at the time of borrowing (i.e. cost).
(5) Total drawn amount payable after the effect of foreign currency translation as of June 30, 2017 and December 31, 2016, was $49,823,091 and $47,006,114, respectively.

Revolving Credit Facility

On June 29, 2015, we entered into the Revolving Credit Facility with Natixis, New York Branch (“Natixis”) as administrative agent (the “Administrative Agent”), and Natixis and certain of its affiliates as lenders. Proceeds from the Revolving Credit Facility may be used for investment activities, expenses, working capital requirements and general corporate purposes. The maximum principal amount of the Revolving Credit Facility is $50 million, subject to availability under the borrowing base. On October 23, 2015, the Company amended the Revolving Credit Facility to include a multi-currency tranche allowing the Company to borrow up to 15% of the principal amount committed under an alternative currency including Euro, Canadian Dollar and Pound Sterling (GBP). On June 29, 2016, the Company amended the Revolving Credit Facility decreasing the facility limit from $75 million to $50 million and extending the maturity date to June 29, 2017. The Company paid down in full and terminated the Revolving Credit Facility on June 29, 2017.

Borrowings under the Revolving Credit Facility bear interest at either (i) London Interbank Offered Rate (“LIBOR”) plus a margin with no LIBOR floor or (ii) at lenders’ cost of funds plus a margin. The Company may elect either the LIBOR or prime rate at the time of draw-down, and loans may be converted from one rate to another at any time, subject to certain conditions. The Company pays unused facility fees of 0.20% per annum on committed but undrawn amounts under the Revolving Credit Facility. Interest is payable monthly in arrears.

Revolving Credit Facility II

On June 29, 2017, the Company entered into the “Revolving Credit Facility II” with Capital One, National Association (“CONA”), as Administrative Agent, Lead Arranger, Managing Agent and Committed Lender. Proceeds from the Revolving Credit Facility II may be used for investment activities, expenses, working capital requirements and general corporate purposes. The maximum principal amount of the Revolving Credit Facility II is $75 million, subject to availability under the borrowing base.

Borrowings under the Revolving Credit Facility II bear interest at London Interbank Offered Rate (“LIBOR”) plus a margin with no LIBOR floor. The Company may elect either the LIBOR or prime rate at the time of draw-down, and loans may be converted from one rate to another at any time, subject to certain conditions. The Company pays unused facility fees of 0.20% per annum on committed but undrawn amounts under the Revolving Credit Facility II. Interest is payable monthly in arrears. Any amounts borrowed under the Revolving Credit Facility II, and all accrued and unpaid interest, will be due and payable, on June 29, 2018.

SPV Asset Facility

On March 28, 2016 Crescent Capital BDC Funding, LLC (“CBDC SPV”), a Delaware limited liability company and wholly owned and consolidated subsidiary of the Company, entered into a loan and security agreement (the “SPV Asset Facility”) with the Company as the collateral manager, seller and equityholder, CBDC SPV as the borrower, the banks and other financial institutions from time to time party thereto as lenders, and Wells Fargo Bank, National Association (“Wells Fargo”), as administrative agent, collateral agent, and lender. The SPV Asset Facility is effective as of March 28, 2016. On February 8, 2017 the Company amended the SPV Asset Facility increasing the facility limit from $75 million to $125 million.

The maximum commitment amount under the SPV Asset Facility is $125 million, and may be increased with the consent of Wells Fargo or reduced upon request of the Company. Proceeds of the Advances under the SPV Asset Facility may be used to acquire portfolio investments, to make distributions to the Company in accordance with the SPV Asset Facility, and to pay related expenses. The maturity date is the earlier of: (a) the date the borrower voluntarily reduces the commitments to zero, (b) the Facility Maturity Date (March 28, 2021) and (c) the date upon which Wells Fargo declares the obligations due and payable after the occurrence of an Event of Default. Borrowings under the SPV Asset Facility bear interest at London Interbank Offered Rate (“LIBOR”) plus a margin with no LIBOR floor. The Company pays unused facility fees of 0.50% per annum on committed but undrawn amounts under the SPV Asset Facility. The SPV Asset Facility includes customary covenants, including certain limitations on the incurrence of additional indebtedness and liens, as well as usual and customary events of default for revolving credit facilities of this nature.

 

See accompanying notes.

 

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Also on March 28, 2016, the Company, as seller, and CBDC SPV, as purchaser, entered into a loan sale agreement whereby the Company will sell certain assets to CBDC SPV. We consolidate CBDC SPV in our consolidated financial statements and no gain or loss is expected to result from the sale of assets to CBDC SPV. We retain a residual interest in assets contributed to or acquired by CBDC SPV through our 100% ownership of CBDC SPV. The facility size is subject to availability under the borrowing base, which is based on the amount of CBDC SPV’s assets from time to time, and satisfaction of certain conditions, including an asset coverage test and certain concentration limits.

 

     For the three
months ended
      June 30, 2017      
    For the three
months ended
      June 30, 2016      
    For the six
months ended
      June 30, 2017      
     For six months ended 
June 30, 2016
 

Borrowing interest expense

   $ 1,039,257     $ 414,284     $ 1,859,909     $ 743,490  

Unused facility fees

     55,556       80,936       107,567       91,100  

Amortization of upfront commitment fees

     159,494       119,631       299,596       165,012  

Amortization of deferred financing costs

     36,483       89,152       69,150       158,493  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total interest and credit facility expenses

   $ 1,290,790     $ 704,003     $ 2,336,222     $ 1,158,095  
  

 

 

   

 

 

   

 

 

   

 

 

 

Weighted average interest rate

     3.2  %      2.2  %      3.1  %      2.2  % 

Weighted average outstanding balance

   $         130,888,883     $         74,090,794     $         121,303,940     $         68,609,141  

To the extent we determine that additional capital would allow us to take advantage of additional investment opportunities, if the market for debt financing presents attractively priced debt financing opportunities, or if our Board otherwise determines that leveraging our portfolio would be in our best interest and the best interests of our stockholders, we may enter into credit facilities in addition to our Revolving Credit Facility and SPV Asset Facility. We would expect any such credit facilities may be secured by certain of our assets and may contain advance rates based upon pledged collateral. The pricing and other terms of any such facilities would depend upon market conditions when we enter into any such facilities as well as the performance of our business, among other factors. In accordance with applicable SEC staff guidance and interpretations, as a BDC, with certain limited exceptions, we are only permitted to borrow amounts such that our asset coverage ratio, as defined in the 1940 Act, is at least 2 to 1 after such borrowing. As of June 30, 2017 and December 31, 2016, our asset coverage ratio was 2.12 to 1 and 2.35 to 1, respectively. We may also refinance or repay any of our indebtedness at any time based on our financial condition and market conditions. See Note 6. Debt to our consolidated financial statements for more detail on the debt facilities.

OFF BALANCE SHEET ARRANGEMENTS

Information on our off balance sheet arrangements is contained in Note 7. Commitments, Contingencies and Indemnifications to our consolidated financial statements.

CRITICAL ACCOUNTING POLICIES

Our discussion and analysis of our financial condition and results of operations are based upon our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. Changes in the economic environment, financial markets and any other parameters used in determining such estimates could cause actual results to differ materially. The critical accounting policies should be read in connection with our risk factors as disclosed herein and in our Registration Statement on Form 10.

In addition to the discussion below, our critical accounting policies are further described in Note 2. Summary of Significant Accounting Policies to our consolidated financial statements.

 

See accompanying notes.

 

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Investment Valuation

The Company applies Financial Accounting Standards Board ASC 820, Fair Value Measurement (ASC 820), as amended, which establishes a framework for measuring fair value in accordance with GAAP and required disclosures of fair value measurements. ASC 820 determines fair value to be the price that would be received for an investment in a current sale, which assumes an orderly transaction between market participants on the measurement date. Market participants are defined as buyers and sellers in the principal or most advantageous market (which may be a hypothetical market) that are independent, knowledgeable, and willing and able to transact. In accordance with ASC 820, the Company considers its principal market to be the market that has the greatest volume and level of activity. ASC 820 specifies a fair value hierarchy that prioritizes and ranks the level of observability of inputs used in the determination of fair value. In accordance with ASC 820, these levels are summarized below:

Level 1—Valuations based on quoted prices in active markets for identical assets or liabilities that the Company has the ability to access.

Level 2—Valuations based on quoted prices in markets that are not active or for which all significant inputs are observable, either directly or indirectly.

Level 3—Valuations based on inputs that are unobservable and significant to the overall fair value measurement.

In addition to using the above inputs in investment valuations, the Company applies the valuation policy approved by its Board that is consistent with ASC 820. Consistent with the valuation policy, the Company evaluates the source of inputs, including any markets in which its investments are trading (or any markets in which securities with similar attributes are trading), in determining fair value. When a security is valued based on prices provided by reputable dealers or pricing services (that is, broker quotes), the Company subjects those prices to various criteria in making the determination as to whether a particular investment would qualify for classification as a Level 2 or Level 3 investment. For example, the Company reviews pricing methodologies provided by dealers or pricing services in order to determine if observable market information is being used, versus unobservable inputs. Some additional factors considered include the number of prices obtained as well as an assessment as to their quality. Transfers between levels, if any, are recognized at the beginning of the period in which the transfers occur. During the six months ended June 30, 2017, the Company recorded $4,850,000 in transfers from Level 2 to Level 3 due to a decrease in observable inputs in market data. During the six months ended June 30, 2016, the Company recorded $12,000,233 in transfers from Level 3 to Level 2 due to an increase in observable inputs in market data.

Investments for which market quotations are readily available are typically valued at those market quotations. To validate market quotations, the Company utilizes a number of factors to determine if the quotations are representative of fair value, including the source and number of the quotations. 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 the Board, based on, among other things, the input of the Advisor, the Company’s Audit Committee and independent third-party valuation firms engaged at the direction of the Board.

The Board oversees and supervises a multi-step valuation process, which includes, among other procedures, the following:

 

    The valuation process begins with each investment being initially valued by the investment professionals responsible for the portfolio investment in conjunction with the portfolio management team.

 

    The Advisor’s management reviews the preliminary valuations with the investment professionals. Agreed upon valuation recommendations are presented to the Audit Committee.

 

    The Audit Committee reviews the valuations presented and recommends values for each investment to the Board.

 

    The Board reviews the recommended valuations and determines the fair value of each investment; valuations that are not based on readily available market quotations are valued in good faith based on, among other things, the input of the Advisor, Audit Committee and, where applicable, other third parties.

The Company currently conducts this valuation process on a quarterly basis.

In connection with debt and equity securities that are valued at fair value in good faith by the Board, the Board will engage independent third-party valuation firms to perform certain limited procedures that the Board has identified.

 

See accompanying notes.

 

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Due to the inherent uncertainty of determining the fair value of investments that do not have a readily available market value, the fair value of the Company’s investments may fluctuate from period to period. Additionally, the fair value of such investments may differ significantly from the values that would have been used had a ready market existed for such investments and may differ materially from the values that may ultimately be realized. Further, such investments are generally less liquid than publicly traded securities and may be subject to contractual and other restrictions on resale. If the Company were required to liquidate a portfolio investment in a forced or liquidation sale, it could realize amounts that are different from the amounts presented and such differences could be material.

In addition, changes in the market environment and other events that may occur over the life of the investments may cause the gains or losses ultimately realized on these investments to be different than the unrealized gains or losses reflected herein. See Note 4. Investments and Note 5. Fair Value of Financial Instruments for additional information on the Company’s investment portfolio.

Equity Offering and Organization Expenses

The Company has agreed to repay the Advisor for initial organization costs and equity offering costs incurred prior to the commencement of its operations up to a maximum of $1.5 million on a pro rata basis over the first $350 million of invested capital not to exceed 3 years from the initial capital commitment on June 26, 2015. To the extent such costs relate to equity offerings, these costs are charged as a reduction of capital upon the issuance of common shares. To the extent such costs relate to organization costs, these costs are expensed in the Consolidated Statements of Operations upon the issuance of common shares. The Advisor is responsible for organization and private equity offerings costs in excess of $1.5 million. See Note 7. Commitments, Contingencies and Indemnifications for additional discussion of certain related party transactions with the Advisor.

The Advisor incurred costs on behalf of the Company of $794,450 of equity offering costs and $567,895 of organization costs through Commencement. For the six months ended June 30, 2017, the Advisor allocated to the Company $56,746 of equity offering costs and $40,564 of organization costs, of which $38,924 was netted against Due to Advisor on the Consolidated Statements of Assets and Liabilities at June 30, 2017. Since June 26, 2015 (Commencement) through June 30, 2017, the Advisor has allocated to the Company $342,748 of equity offering costs and $245,006 of organization costs.

Interest and Dividend Income Recognition

Interest income is recorded on an accrual basis and includes the amortization of purchase discounts and premiums. Discounts and premiums to par value on securities purchased are accreted or amortized into interest income over the contractual life of the respective security using the effective yield method. The amortized cost of investments represents the original cost adjusted for the accretion and amortization of discounts and premiums, if any. Upon prepayment of a loan or debt security, any prepayment premiums, unamortized upfront loan origination fees and unamortized discounts are recorded as interest income.

Dividend income from preferred equity securities is recorded on an accrual basis to the extent that such amounts are payable by the portfolio company and are expected to be collected. Dividend income from common equity securities is recorded on the record date for private portfolio companies or on the ex-dividend date for publicly-traded portfolio companies.

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

Loans are generally placed on non-accrual status when principal or interest payments are past due 30 days or more or when there is reasonable doubt that principal or interest will be collected in full. Accrued and unpaid interest is generally reversed when a loan is placed on non-accrual status. Interest payments received on non-accrual loans may be recognized as income or applied to principal depending upon management’s judgment regarding collectability. Non-accrual loans are restored to accrual status when past due principal and interest is paid current and, in management’s judgment, are likely to remain current. Management may determine to not place a loan on non-accrual status if the loan has sufficient collateral value and is in the process of collection. As of June 30, 2017 and December 31, 2016, no loans had been placed on non-accrual status by the Company.

 

See accompanying notes.

 

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Income Taxes

The Company has elected to be treated as a BDC under the 1940 Act. The Company also has elected to be treated as a RIC under the Internal Revenue Code. So long as the Company maintains its status as a RIC, it will generally not pay corporate-level U.S. federal income or excise taxes on any ordinary income or capital gains that it distributes at least annually to its stockholders as dividends. As a result, any tax liability related to income earned and distributed by the Company represents obligations of the Company’s stockholders and will not be reflected in the consolidated financial statements of the Company.

The Company evaluates tax positions taken or expected to be taken in the course of preparing its consolidated financial statements to determine whether the tax positions are “more-likely-than-not” to be sustained by the applicable tax authority. Tax positions not deemed to meet the “more-likely-than-not” threshold are reversed and recorded as a tax benefit or expense in the current year. All penalties and interest associated with income taxes are included in income tax expense. Conclusions regarding tax positions are subject to review and may be adjusted at a later date based on factors including, but not limited to, on-going analyses of tax laws, regulations and interpretations thereof. The Company accounts for income taxes in conformity with ASC Topic 740 — Income Taxes (“ASC Topic 740”). ASC Topic 740 provides guidelines for how uncertain tax positions should be recognized, measured, presented and disclosed in financial statements.

As of June 30, 2017, all tax filings of the Company since the inception on February 5, 2015 remain subject to examination by federal tax authorities. No such examinations are currently pending.

In order for the Company not to be subject to federal excise taxes, it must distribute annually an amount at least equal to the sum of (i) 98% of its ordinary income (taking into account certain deferrals and elections), (ii) 98.2% of its net capital gains from the current year and (iii) any undistributed ordinary income and net capital gains from preceding years. The Company, at its discretion, may carry forward taxable income in excess of calendar year dividends and pay a 4% excise tax on this income. If the Company chooses to do so, this generally would increase expenses and reduce the amount available to be distributed to stockholders. The Company will accrue excise tax on estimated undistributed taxable income as required.

CBDC Universal Equity, Inc. 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.

The Company intends to comply with the applicable provisions of the Code, pertaining to regulated investment companies and to make distributions of taxable income sufficient to relieve it from substantially all federal income taxes. Accordingly, no provision for income taxes is required in the consolidated financial statements.

New Accounting Standards

In May 2014, the FASB issued Accounting Standards Update (“ASU”) 2014-09 (“ASU 2014-09”), “Revenue from Contracts with Customers (Topic 606).” The guidance in this ASU supersedes the revenue recognition requirements in Topic 605, Revenue Recognition. Under the new guidance, an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The amendments in ASU 2014-09 are effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. Early adoption is permitted for annual reporting periods beginning after December 15, 2016 and interim periods therein. This standard will not have a material impact on the consolidated financial statements, primarily because the majority of the Company’s revenue is accounted for under FASB ASC Topic 320, “Investments – Debt and Equity Securities”, which is scoped out of this standard.

 

See accompanying notes.

 

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In December 2016, the FASB issued ASU 2016-19,Technical Corrections and Improvements.” As part of this guidance, ASU 2016-19 amends FASB ASC Topic 820, “Fair Value Measurement and Disclosures” (“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 adopted this guidance during the quarter ended March 31, 2017. The adoption of this guidance did not have a material impact on the Company’s financial position, results of operations, cash flows or disclosures.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are subject to financial market risks, including valuation risk, interest rate risk and currency risk.

Valuation Risk

We have invested, and plan to continue to invest, in illiquid debt and equity securities of private companies. These investments will generally not have a readily available market price, and we will value these investments at fair value as determined in good faith by our Board in accordance with our valuation policy. There is no single standard for determining fair value in good faith. As a result, determining fair value requires that judgment be applied to the specific facts and circumstances of each portfolio investment while employing a consistently applied valuation process for the types of investments we make. If we were required to liquidate a portfolio investment in a forced or liquidation sale, we may realize amounts that are different from the amounts presented and such differences could be material. See Note 2. Summary of Significant Account Policies to our consolidated financial statements for more details on estimates and judgments made by us in connection with the valuation of our investments.

Interest Rate Risk

Interest rate sensitivity refers to the change in earnings that may result from changes in the level of interest rates. We also fund a portion of our investments with borrowings and our net investment income will be affected by the difference between the rate at which we invest and the rate at which we borrow. Accordingly, there can be no assurance that a significant change in market interest rates will not have a material adverse effect on our net investment income.

We regularly measure our exposure to interest rate risk. We assess interest rate risk and manage our interest rate exposure on an ongoing basis by comparing our interest rate-sensitive assets to our interest rate-sensitive liabilities. Based on that review, we determine whether or not any hedging transactions are necessary to mitigate exposure to changes in interest rates.

As of June 30, 2017, 91.2% of the investments at fair value in our portfolio were at variable rates, subject to interest rate floors. The Revolving Credit Facility and SPV Asset Facility also bear interest at variable rates.

Assuming that our Consolidated Statements of Assets and Liabilities as of June 30, 2017 were to remain constant and that we took no actions to alter our existing interest rate sensitivity, the following table shows the annualized impact of hypothetical base rate changes in interest rates (considering interest rate floors for floating rate instruments):

($ in millions)

 

Basis Point Change                                                                                  

       Interest Income              Interest Expense              Increase (decrease)    
in net assets
resulting  from
operations
 

Up 300 basis points

    $ 8.2        $ 4.1        $ 4.1   

Up 200 basis points

    $ 5.4        $ 2.7        $ 2.7   

Up 100 basis points

    $ 2.7        $ 1.4        $ 1.3   

Down 25 basis points

    $ (0.7)       $ (0.3)       $ (0.4)  

Although we believe that this analysis is indicative of our existing sensitivity to interest rate changes, it does not adjust for changes in the credit market, credit quality, the size and composition of the assets in our portfolio and other business developments that could affect our net income. Accordingly, we cannot assure you that actual results would not differ materially from the analysis above.

 

See accompanying notes.

 

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We may in the future hedge against interest rate fluctuations by using hedging instruments such as interest rate swaps, futures, options and forward contracts. While hedging activities may mitigate our exposure to adverse fluctuations in interest rates, certain hedging transactions that we may enter into in the future, such as interest rate swap agreements, may also limit our ability to participate in the benefits of lower interest rates with respect to our portfolio investments.

Currency Risk

From time to time, we may make investments that are denominated in a foreign currency. These investments are converted into U.S. dollars at the balance sheet date, exposing us to movements in foreign exchange rates. We may employ hedging techniques to minimize these risks, but we cannot assure you that such strategies will be effective or without risk to us. We may seek to utilize instruments such as, but not limited to, forward contracts to seek to hedge against fluctuations in the relative values of our portfolio positions from changes in currency exchange rates. We also have the ability to borrow in certain foreign currencies under our Revolving Credit Facility. Instead of entering into a foreign exchange forward contract in connection with loans or other investments we have made that are denominated in a foreign currency, we may borrow in that currency to establish a natural hedge against our loan or investment. To the extent the loan or investment is based on a floating rate other than a rate under which we can borrow under our Revolving Credit Facility, we may seek to utilize interest rate derivatives to hedge our exposure to changes in the associated rate. As of June 30, 2017, we had £2.5 million and €1.8 million outstanding on the Revolving Credit Facility II as a natural hedge against a £3.0 million investment and €1.8 million investment, respectively.

 

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures. As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15 under the Securities Exchange Act of 1934). Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our current disclosure controls and procedures are effective in timely alerting them to material information relating to us that is required to be disclosed by us in the reports we file or submit under the Securities Exchange Act of 1934.

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

PART II. OTHER INFORMATION

 

Item 1. Legal Proceedings

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

 

Item 1A. Risk Factors

In addition to the other information set forth in this report, you should carefully consider the risk factors discussed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2016, which could materially affect our business, financial condition and/or operating results. These risks are not the only risks facing our Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially and adversely affect our business, financial condition and/or operating results.

 

See accompanying notes.

 

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

Sales of unregistered securities

(a) None

 

(b) None

(c) Issuer purchases of equity securities

The following table provides information regarding purchases of our common shares by CCG LP for each month in the three month period ended June 30, 2017:

 

Period

       Average Price Paid    
per Share
     Total Number of
    Shares Purchased    
     Total Number of
    Shares Purchased as    
Part of  Publicly
Announced Plans or
Programs
     Maximum Number
(or Approximate
Dollar Value) of
    Shares that May  Yet    
Be Purchased Under
the Plans or
Programs
 

April 2017

    $ —          —          —         $ 4,362,861    

May 2017

     —          —          —          4,362,861    

June 2017

     —          —          —          4,362,861    
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

    $ —          —          —         $ 4,362,861    
  

 

 

    

 

 

    

 

 

    

 

 

 

 

Item 3. Defaults Upon Senior Securities

None.

 

Item 4. [Reserved]

 

Item 5. Other Information

None.

 

See accompanying notes.

 

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Item 6. Exhibits.

(a)    Exhibits.

 

  3.1    Amended and Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.1 to the Company’s Registration Statement on Form 10 (File No. 000-55380) filed on June 5, 2015).
  3.2    Bylaws (incorporated by reference to Exhibit 3.2 to the Company’s Registration Statement on Form 10 (File No. 000-55380) filed on June 5, 2015).
  4.1    Dividend Reinvestment Plan (incorporated by reference to Exhibit 10.6 to the Company’s Registration Statement on Form 10 (File No. 000-55380) filed on June 5, 2015).
10.1    Investment Advisory Agreement, dated June 2, 2015, by and between the Company and the Advisor (incorporated by reference to Exhibit 10.1 to the Company’s Registration Statement on Form 10 (File No. 000-55380) filed on June 5, 2015).
10.2    Administration Agreement, dated June 2, 2015, by and between the Company and the Administrator (incorporated by reference to Exhibit 10.2 to the Company’s Registration Statement on Form 10 (File No. 000-55380) filed on June 5, 2015).
10.3    Trademark License Agreement, dated April 30, 2015, by and between the Company and CCG LP (incorporated by reference to Exhibit 10.3 to the Company’s Registration Statement on Form 10 (File No. 000-55380) filed on June 5, 2015).
10.4    Form of Advisory Fee Waiver Agreement by and between the Company and the Advisor (incorporated by reference to Exhibit 10.4 to the Company’s Registration Statement on Form 10 (File No. 000-55380) filed on June 5, 2015).
10.5    Form of Subscription Agreement (incorporated by reference to Exhibit 10.5 to the Company’s Registration Statement on Form 10 (File No. 000-55380) filed on June 5, 2015).
10.6    Custodian Agreement by and between the Company and State Street Bank and Trust Company (incorporated by reference to Exhibit 10.7 to the Company’s Registration Statement on Form 10 (File No. 000-55380) filed on June 5, 2015).
10.7    Revolving Credit Agreement, dated June 29, 2015, among the Company, as Borrower, Natixis, New York Branch, as Administrative Agent and Lender (incorporated by reference to Exhibit 3.2 to the Company’s Registration Statement on Form 8-K filed on July 2, 2015).
10.8    Revolving Credit Agreement, dated March 28, 2016, among the Company as the Collateral Manager, Seller and Equityholder, Crescent Capital BDC Funding, LLC as the Borrower, the banks and other financial institutions from time to time party thereto as Lenders, and Wells Fargo Bank, National Association, as Administrative Agent, Collateral Agent, and Lender (incorporated by reference to Exhibit 10.1 to the Company’s copy of the Revolving Credit Agreement on Form 8-K filed on March 28, 2016).
10.9    Revolving Credit Agreement, dated June 29, 2017, with the Company, as Initial Borrower and Capital One, National Association, as Administrative Agent, Lead Arranger, Managing Agent and Committed Lender (incorporated by reference to Item 1.01 to the Company’s Registration Statement on Form 8-K filed on June 30, 2017).
31.1    Certification of Chief Executive Officer, Pursuant to Rule 13a-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).
31.2    Certification of Chief Financial Officer, Pursuant to Rule 13a-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).
32    Certification of Chief Executive Officer and Chief Financial Officer, Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith).

 

See accompanying notes.

 

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SIGNATURES

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

 

    Crescent Capital BDC, INC.
Date: August 11, 2017     By:  

/s/ Jason A. Breaux

      Jason A. Breaux
      Chief Executive Officer
Date: August 11, 2017     By:  

/s/ Mike L. Wilhelms

      Mike L. Wilhelms
      Chief Financial Officer

 

See accompanying notes.

 

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