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EX-31.1 - EXHIBIT 31.1 - Sierra Income Corpsic-ex311x093017.htm
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
_____________________________________________________
Form 10-Q
 ____________________________________________________
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 2017
or
o
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: 814-00924
 _____________________________________________________
Sierra Income Corporation
(Exact Name of Registrant as Specified in its Charter)
 _____________________________________________________
Maryland
 
45-2544432
(State or Other Jurisdiction of
Incorporation or Organization)
 
(I.R.S. Employer
Identification No.)
280 Park Avenue, 6th Floor East, New York, NY 10017
(Address of Principal Executive Offices)
(212) 759-0777
(Registrant’s Telephone Number, Including Area Code)
  ___________________________________________________

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

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

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act:
Large accelerated filer
o
 
Accelerated filer
o
Non-accelerated filer (Do not check if a smaller reporting company)
x
 
Smaller reporting company
o
Emerging growth company
x
 
 
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. x
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  o    No  x

As of November 6, 2017, the Registrant had 96,773,460 shares of common stock, $0.001 par value, outstanding.
 
 
 
 
 



TABLE OF CONTENTS
 
Part I. Financial Information
 
Part II. Other Information
 





Sierra Income Corporation
Consolidated Statements of Assets and Liabilities
 
 
September 30, 2017
 
December 31, 2016
ASSETS
 
(unaudited)
 
 
Investments at fair value
 
 
 
 
Non-controlled/non-affiliated investments (amortized cost of $969,097,460 and $921,626,572, respectively)
 
$
926,968,867

 
$
885,400,856

Controlled/affiliated investments (amortized cost of $145,702,585 and $104,855,866, respectively)
 
140,093,225

 
97,743,466

Investments at fair value
 
1,067,062,092

 
983,144,322

Cash and cash equivalents
 
82,699,636

 
99,400,794

Cash collateral on total return swap (Note 5)
 
68,000,000

 
79,620,942

Interest receivable from non-controlled/non-affiliated investments
 
9,093,911

 
10,251,559

Receivable due on total return swap (Note 5)
 
1,003,667

 
1,289,163

Receivable for Company shares sold
 
376,741

 
533,123

Interest receivable from controlled/affiliated investments
 
316,056

 
1,028,321

Unsettled trades receivable
 
278,837

 
368,819

Prepaid expenses and other assets
 
215,617

 
201,932

Due from affiliate (Note 7)
 

 
7,892,273

Total assets
 
$
1,229,046,557

 
$
1,183,731,248

 
 
 
 
 
LIABILITIES
 
 
 
 
Revolving credit facilities payable (net of deferred financing costs of $5,747,434 and $4,340,533, respectively) (Note 6)
 
$
414,252,566

 
$
385,659,467

Unsettled trades payable
 
38,922,992

 
466,727

Unrealized depreciation on total return swap (Note 5)
 
5,483,594

 
13,647,330

Base management fees payable (Note 7)
 
5,378,233

 
5,138,107

Accounts payable and accrued expenses
 
1,480,258

 
1,839,497

Incentive fees payable (Note 7)
 
1,323,999

 
1,405,419

Interest payable
 
780,037

 
1,230,530

Administrator fees payable (Note 7)
 
745,816

 
850,678

Deferred tax liability
 
429,991

 
244,622

Due to affiliate (Note 7)
 

 
135,784

Total liabilities
 
$
468,797,486

 
$
410,618,161

 
 
 
 
 
Commitments (Note 11)
 
 
 
 
 
 
 
 
 
NET ASSETS
 
 
 
 
Common shares, par value $0.001 per share, 250,000,000 common shares authorized, 96,300,123 and 94,666,418 common shares issued and outstanding, respectively
 
$
96,300

 
$
94,666

Capital in excess of par value
 
843,971,257

 
830,738,206

Accumulated distribution in excess of net realized gain/(loss) from investments and total return swap
 
(43,284,104
)
 
(20,333,057
)
Accumulated undistributed net investment income
 
13,030,556

 
19,756,740

Net unrealized depreciation on investments and total return swap, net of provision for taxes of $343,391 and $54,205, respectively
 
(53,564,938
)
 
(57,143,468
)
Total net assets
 
760,249,071

 
773,113,087

Total liabilities and net assets
 
$
1,229,046,557

 
$
1,183,731,248

 
 
 
 
 
NET ASSET VALUE PER COMMON SHARE
 
$
7.89

 
$
8.17

See accompanying notes to consolidated financial statements.

F-1


Sierra Income Corporation
Consolidated Statements of Operations
 
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
 
2017
 
2016
 
2017
 
2016
INVESTMENT INCOME
 
(unaudited)
 
(unaudited)
 
(unaudited)
 
(unaudited)
Interest from investments
 
 
 
 
 
 
 
 
Non-controlled/non-affiliated investments:
 
 
 
 
 
 
 
 
Cash
 
$
22,258,477

 
$
20,819,609

 
$
62,982,816

 
$
60,057,210

Payment-in-kind
 
738,691

 
236,353

 
3,262,162

 
3,722,884

Controlled/affiliated investments:
 
 
 
 
 
 
 
 
Cash
 
2,529,894

 
1,602,501

 
7,006,228

 
4,186,500

Payment-in-kind
 
835,813

 

 
1,170,790

 

Total interest income
 
26,362,875

 
22,658,463

 
74,421,996

 
67,966,594

Fee income (Note 12)
 
1,228,131

 
2,464,034

 
4,068,295

 
5,157,787

Interest from cash and cash equivalents
 
49,732

 
26,164

 
85,263

 
47,834

Total investment income
 
27,640,738

 
25,148,661

 
78,575,554

 
73,172,215

EXPENSES
 
 
 
 
 
 
 
 
Base management fees (Note 7)
 
5,378,233

 
5,040,490

 
16,036,068

 
14,790,696

Interest expenses
 
4,434,712

 
3,433,081

 
12,177,674

 
10,095,690

General and administrative expenses
 
1,295,253

 
1,655,295

 
3,783,340

 
4,331,001

Incentive fees (Note 7)
 
1,323,999

 
2,372,355

 
1,872,805

 
7,876,060

Administrator expenses (Note 7)
 
745,817

 
780,166

 
2,333,968

 
1,997,067

Offering costs
 
545,959

 
703,075

 
1,367,343

 
2,074,035

Professional fees
 
415,045

 
943,864

 
1,647,704

 
1,809,418

Total expenses
 
14,139,018

 
14,928,326

 
39,218,902

 
42,973,967

Expense support reimbursement (Note 7)
 

 
(5,389,627
)
 

 
(16,093,129
)
Total expenses, net of expense support reimbursement
 
14,139,018

 
9,538,699

 
39,218,902

 
26,880,838

NET INVESTMENT INCOME
 
13,501,720

 
15,609,962

 
39,356,652

 
46,291,377

REALIZED AND UNREALIZED GAIN/(LOSS) ON INVESTMENTS
 
 
 
 
 
 
 
 
Net realized gain/(loss) from non-controlled/non-affiliated investments
 
(5,275,413
)
 
(11,230,075
)
 
(21,215,145
)
 
(11,065,348
)
Net realized gain/(loss) on total return swap (Note 5)
 
3,134,709

 
761,010

 
(1,735,902
)
 
4,845,649

Net change in unrealized appreciation/(depreciation) on non-controlled/non-affiliated investments
 
(7,466,665
)
 
11,929,831

 
(5,902,877
)
 
4,202,318

Net change in unrealized appreciation/(depreciation) on controlled/affiliated investments
 
1,377,608

 
(1,567,498
)
 
1,503,040

 
(1,724,856
)
Net change in unrealized appreciation/(depreciation) on total return swap (Note 5)
 
(2,032,534
)
 
5,159,214

 
8,163,736

 
9,188,445

Change in provision for deferred taxes on unrealized appreciation/(depreciation) on investments
 
148,949

 
172,128

 
(185,369
)
 
92,495

Net realized and unrealized gain/(loss) on investments
 
(10,113,346
)
 
5,224,610

 
(19,372,517
)
 
5,538,703

NET INCREASE/(DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS
 
$
3,388,374

 
$
20,834,572

 
$
19,984,135

 
$
51,830,080

WEIGHTED AVERAGE - BASIC AND DILUTED EARNINGS PER COMMON SHARE
 
$
0.04

 
$
0.23

 
$
0.21

 
$
0.58

WEIGHTED AVERAGE - BASIC AND DILUTED NET INVESTMENT INCOME PER COMMON SHARE
 
$
0.14

 
$
0.17

 
$
0.41

 
$
0.52

WEIGHTED AVERAGE COMMON STOCK OUTSTANDING - BASIC AND DILUTED (NOTE 10)
 
96,474,233

 
92,516,572

 
96,078,793

 
89,015,100

DISTRIBUTIONS DECLARED PER COMMON SHARE
 
$
0.16

 
$
0.20

 
$
0.48

 
$
0.60

See accompanying notes to the consolidated financial statements.

F-2


Sierra Income Corporation
Consolidated Statements of Changes in Net Assets
 
Nine Months Ended September 30,
 
2017
 
2016
INCREASE/(DECREASE) FROM OPERATIONS
(unaudited)
 
(unaudited)
Net investment income
$
39,356,652

 
$
46,291,377

Net realized gain/(loss) on investments
(21,215,145
)
 
(11,065,348
)
Net realized gain/(loss) on total return swap (Note 5)
(1,735,902
)
 
4,845,649

Net change in unrealized appreciation/(depreciation) on investments
(4,399,837
)
 
2,477,462

Net change in unrealized appreciation/(depreciation) on total return swap (Note 5)
8,163,736

 
9,188,445

Change in provision for deferred taxes on unrealized appreciation/(depreciation) on investments
(185,369
)
 
92,495

Net increase/(decrease) in net assets resulting from operations
19,984,135

 
51,830,080

SHAREHOLDER DISTRIBUTIONS (Note 2)
 
 
 
Distributions from net investment income
(46,082,836
)
 
(53,464,883
)
Distributions from return of capital

 

Distributions from net realized gains

 

Net decrease in net assets from shareholder distributions
(46,082,836
)
 
(53,464,883
)
COMMON SHARE TRANSACTIONS
 
 
 
Issuance of common shares, net of underwriting costs
14,278,662

 
88,652,295

Issuance of common shares pursuant to distribution reinvestment plan
20,964,661

 
25,356,219

Repurchase of common shares
(22,008,638
)
 
(23,367,870
)
Net increase in net assets resulting from common share transactions
13,234,685

 
90,640,644

Total increase/(decrease) in net assets
(12,864,016
)
 
89,005,841

Net assets at beginning of period
773,113,087

 
674,124,099

Net assets at end of period(1)
$
760,249,071

 
$
763,129,940

 
 
 
 
Net asset value per common share
$
7.89

 
$
8.14

Common shares outstanding, beginning of period
94,666,418

 
82,623,649

Issuance of common shares
1,753,686

 
10,840,303

Issuance of common shares pursuant to distribution reinvestment plan
2,598,710

 
3,117,085

Repurchase of common shares
(2,718,691
)
 
(2,864,430
)
Common shares outstanding, end of period
96,300,123

 
93,716,607


(1) Net assets at end of period include accumulated undistributed net investment income of $13,030,556 and $14,004,840 for the nine months ended September 30, 2017 and 2016, respectively.

See accompanying notes to consolidated financial statements.

F-3


Sierra Income Corporation
Consolidated Statements of Cash Flows
 
 
Nine Months Ended September 30,
 
 
2017
 
2016
 
 
(unaudited)
 
(unaudited)
Cash flows from operating activities
 
 
 
 
NET INCREASE/(DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS:
 
$
19,984,135

 
$
51,830,080

ADJUSTMENT TO RECONCILE NET INCREASE/(DECREASE) IN NET ASSETS
FROM OPERATIONS TO NET CASH USED IN OPERATING ACTIVITIES:
 
 
 
 
Payment-in-kind interest income
 
(4,432,952
)
 
(3,722,884
)
Net amortization of premium on investments
 
(883,648
)
 
(632,275
)
Amortization of deferred financing costs
 
1,101,849

 
964,047

Net realized (gain)/loss on investments
 
21,215,145

 
11,065,348

Net change in unrealized (appreciation)/depreciation on investments
 
4,399,837

 
(2,477,462
)
Net change in unrealized (appreciation)/depreciation on total return swap (Note 5)
 
(8,163,736
)
 
(9,188,445
)
Purchases and originations
 
(357,837,423
)
 
(222,987,384
)
Proceeds from sale of investments and principal repayments
 
253,621,271

 
184,383,171

(Increase)/decrease in operating assets:
 
 
 
 
Cash collateral on total return swap (Note 5)
 
11,620,942

 
(1,980,176
)
Unsettled trades receivable
 
89,982

 
(927,603
)
Due from affiliate (Note 7)
 
7,892,273

 
(2,118,170
)
Interest receivable from non-controlled/non-affiliated investments
 
1,157,648

 
288,780

Interest receivable from controlled/affiliated investments
 
712,265

 

Receivable for Company shares sold
 
156,382

 
(1,619,744
)
Receivable due on total return swap (Note 5)
 
285,496

 
1,493,253

Prepaid expenses and other assets
 
(13,685
)
 
(101,581
)
Increase/(decrease) in operating liabilities:
 
 
 
 
Unsettled trades payable
 
38,456,265

 
2,720,000

Management fee payable
 
240,126

 
354,394

Accounts payable and accrued expenses
 
(359,239
)
 
(87,645
)
Incentive fees payable
 
(81,420
)
 
577,087

Administrator fees payable
 
(104,862
)
 
262,235

Interest payable
 
(450,493
)
 
(331,691
)
Deferred tax liability
 
185,369

 
(92,495
)
Due to affiliate (Note 7)
 
(135,784
)
 
(559,749
)
NET CASH PROVIDED BY/(USED IN) OPERATING ACTIVITIES
 
(11,344,257
)
 
7,111,091

Cash flows from financing activities:
 
 
 
 
Borrowings under revolving credit facility
 
225,000,000

 
85,000,000

Repayments of revolving credit facility
 
(195,000,000
)
 
(95,000,000
)
Proceeds from issuance of common stock, net of underwriting costs
 
14,278,662

 
88,652,295

Payment of cash distributions
 
(25,118,175
)
 
(28,108,664
)
Financing costs paid
 
(2,508,750
)
 
(2,401,032
)
Repurchase of common shares
 
(22,008,638
)
 
(23,367,870
)
NET CASH PROVIDED BY/(USED IN) FINANCING ACTIVITIES
 
(5,356,901
)
 
24,774,729

TOTAL INCREASE/(DECREASE) IN CASH
 
(16,701,158
)
 
31,885,820

CASH AT BEGINNING OF PERIOD
 
99,400,794

 
93,658,142

CASH AT END OF PERIOD
 
$
82,699,636

 
$
125,543,962

Supplemental Information:
 
 
 
 
Cash paid during the period for interest
 
$
12,628,167

 
$
10,427,381

Supplemental non-cash information:
 
 
 
 
Non-cash purchase of investments
 
$
22,491,328

 
$
12,007,442

Non-cash sale of investments
 
22,491,328

 
12,007,442

Payment-in-kind interest income
 
4,432,952

 
3,722,884

Amortization of deferred financing costs
 
1,101,849

 
964,047

Net amortization of premium on investments
 
883,648

 
632,275

Issuance of common shares in connection with distribution reinvestment plan
 
20,964,661

 
25,356,219


See accompanying notes to consolidated financial statements.

F-4


Sierra Income Corporation
Consolidated Schedule of Investments
As of September 30, 2017
(unaudited)
Company(1)
 
Industry
 
Type of Investment(18)
 
Maturity
 
Par
Amount
 
Cost
 
Fair Value
 
% of Net Assets(2)
Non-controlled/non-affiliated investments – 121.9%
 
 
 
 
 
 
 
$
760,249,071

AAAHI Acquisition Corporation
 
Transportation: Consumer
 
Senior Secured First Lien Term Loan LIBOR + 7.000%, 1.000% Floor(3) (4)
 
12/15/2021
 
$
7,143,867

 
$
7,143,867

 
$
7,143,867

 
0.9%
 
 
 
 
Senior Secured First Lien Term Loan LIBOR + 7.000%, 1.000% Floor(3) (4) (5)
 
12/14/2018
 
300,093

 
300,093

 
300,093

 
0.0%
 
 
 
 
 
 
 
 
7,443,960

 
7,443,960

 
7,443,960

 
 
Advanced Diagnostic Holdings, LLC
 
Healthcare & Pharmaceuticals
 
Senior Secured First Lien Term Loan LIBOR + 8.500%, 1.000% Floor(4) (8)
 
12/11/2020
 
14,776,538

 
14,776,538

 
14,776,538

 
1.9%
 
 
 
 
 
 
 
 
14,776,538

 
14,776,538

 
14,776,538

 
 
Alpha Media LLC
 
Media: Broadcasting & Subscription
 
Senior Secured First Lien Term Loan LIBOR + 6.000%, 1.000% Floor(8)
 
2/25/2022
 
6,643,240

 
6,411,924

 
6,432,649

 
0.8%
 
 
 
 
 
 
 
 
6,643,240

 
6,411,924

 
6,432,649

 
 
American Dental Partners, Inc.
 
Healthcare & Pharmaceuticals
 
Senior Secured Second Lien Term Loan LIBOR + 8.500%, 1.000% Floor(3) (4)
 
9/25/2023
 
7,250,000

 
7,250,000

 
7,337,000

 
1.0%
 
 
 
 
 
 
 
 
7,250,000

 
7,250,000

 
7,337,000

 
 
Amerijet Holdings, Inc.
 
Transportation: Cargo
 
Senior Secured First Lien Term Loan LIBOR + 8.000%, 1.000% Floor(4) (8)
 
7/15/2021
 
15,468,750

 
15,468,750

 
15,742,547

 
2.1%
 
 
 
 
 
 
 
 
15,468,750

 
15,468,750

 
15,742,547

 
 
AMMC CLO 17, Limited Series 2015-17A
 
Multi-Sector Holdings
 
Subordinated Note 18.446% effective yield(1) (6) (9)(10) 
 
11/15/2027
 
5,000,000

 
3,535,402

 
3,954,500

 
0.5%
 
 
 
 
 
 
 
 
5,000,000

 
3,535,402

 
3,954,500

 
 
Anaren, Inc.
 
Aerospace & Defense
 
Senior Secured Second Lien Term Loan LIBOR + 8.250%, 1.000% Floor(3)
 
8/18/2021
 
10,000,000

 
9,938,799

 
10,000,000

 
1.3%
 
 
 
 
 
 
 
 
10,000,000

 
9,938,799

 
10,000,000

 
 
Answers Finance, LLC
 
High Tech Industries
 
Senior Secured First Lien Term Loan LIBOR + 5.000%, 1.000% Floor(8)
 
4/15/2021
 
1,291,760

 
1,291,760

 
1,291,760

 
0.2%
 
 
 
 
Senior secured second lien term loans LIBOR + 4.400%, Cash, 0.100% Cap, 4.500% PIK(8)
 
9/15/2021
 
2,008,641

 
2,008,641

 
2,008,641

 
0.3%
 
 
 
 
Equity/Warrants (6)
 
 
 

 
5,426,955

 
5,426,195

 
0.7%
 
 
 
 
 
 
 
 
3,300,401

 
8,727,356

 
8,726,596

 
 
APCO Holdings, Inc.
 
Automotive
 
Senior Secured First Lien Term Loan LIBOR + 6.000%, 1.000% Floor(4) (8)
 
1/31/2022
 
4,209,932

 
4,112,112

 
4,209,932

 
0.6%
 
 
 
 
 
 
 
 
4,209,932

 
4,112,112

 
4,209,932

 
 
Apidos CLO XXIV, Series 2016-24A
 
Multi-Sector Holdings
 
Subordinated Note 12.341% effective yield(1) (4) (6) (9) (10)  
 
7/20/2027
 
18,357,647

 
14,614,178

 
13,817,801

 
1.8%
 
 
 
 
 
 
 
 
18,357,647

 
14,614,178

 
13,817,801

 
 
Asurion, LLC
 
Banking, Finance, Insurance & Real Estate
 
Senior Secured Second Lien Term Loan LIBOR + 6.000%, 1.000% Floor(3) (4)
 
8/4/2025
 
5,950,000

 
5,950,000

 
6,069,000

 
0.8%
 
 
 
 
 
 
 
 
5,950,000

 
5,950,000

 
6,069,000

 
 
Avantor Performance Materials Holdings, LLC
 
Chemicals, Plastics & Rubber
 
Senior Secured First Lien Term Loans LIBOR + 4.000%, 1.000% Floor(4) (8)
 
3/11/2024
 
3,990,000

 
3,987,526

 
3,990,000

 
0.5%
 
 
 
 
Senior Secured Second Lien Term Loans LIBOR + 8.250%, 1.000% Floor(4) (8) 
 
3/10/2025
 
1,000,000

 
1,000,000

 
1,020,000

 
0.1%
 
 
 
 
 
 
 
 
4,990,000

 
4,987,526

 
5,010,000

 
 
Aviation Technical Services, Inc.
 
Aerospace & Defense
 
Senior Secured Second Lien Term Loan LIBOR + 8.500%, 1.000% Floor(3) (4) (11)
 
3/31/2022
 
25,000,000

 
25,000,000

 
25,000,000

 
3.3%
 
 
 
 
 
 
 
 
25,000,000

 
25,000,000

 
25,000,000

 
 

F-5


Company(1)
 
Industry
 
Type of Investment(18)
 
Maturity
 
Par
Amount
 
Cost
 
Fair Value
 
% of Net Assets(2)
Barry's Bootcamp Holdings, LLC
 
Services: Consumer
 
Senior Secured First Lien Term Loan LIBOR + 6.500%, 1.000% Floor(3) (4) (5)
 
7/14/2022
 
8,571,429

 
8,571,429

 
8,571,429

 
1.1%
 
 
 
 
 
 
 
 
8,571,429

 
8,571,429

 
8,571,429

 
 
Birch Communications Inc.
 
Telecommunications
 
Senior Secured First Lien Term Loan LIBOR + 7.250%, 1.000% Floor(4) (8)
 
7/17/2020
 
13,253,612

 
13,121,193

 
12,977,937

 
1.7%
 
 
 
 
 
 
 
 
13,253,612

 
13,121,193

 
12,977,937

 
 
Black Angus Steakhouses, LLC
 
Hotel, Gaming & Leisure
 
Senior Secured First Lien Term Loan LIBOR + 9.000%, 1.000% Floor(3) (4) (5) (11)
 
4/24/2020
 
940,899

 
940,899

 
773,712

 
0.1%
 
 
 
 
Senior Secured First Lien Term Loan LIBOR + 9.000%, 1.000% Floor(3) (4) (11)
 
4/24/2020
 
19,252,232

 
19,252,232

 
18,522,573

 
2.4%
 
 
 
 
 
 
 
 
20,193,131

 
20,193,131

 
19,296,285

 
 
Brand Energy & Infrastructure Services, Inc.
 
Construction & Building
 
Senior Secured First Lien Term Loan LIBOR + 4.250%, 1.000% Floor(4) (8)
 
6/21/2024
 
6,000,000

 
6,029,160

 
6,028,800

 
0.8%
 
 
 
 
 
 
 
 
6,000,000

 
6,029,160

 
6,028,800

 
 
Brundage-Bone Concrete Pumping, Inc.
 
Construction & Building
 
Senior Secured First Lien Note 10.375%(9)
 
9/1/2021
 
7,500,000

 
7,593,577

 
7,889,250

 
1.0%
 
 
 
 
 
 
 
 
7,500,000

 
7,593,577

 
7,889,250

 
 
Central States Dermatology Services, LLC
 
Healthcare & Pharmaceuticals
 
Senior Secured First Lien Term Loans LIBOR + 6.500%, 1.000% Floor(4) (5) (8)
 
4/20/2022
 
2,859,310

 
2,859,310

 
2,859,310

 
0.4%
 
 
 
 
 
 
 
 
2,859,310

 
2,859,310

 
2,859,310

 
 
Charming Charlie LLC
 
Retail
 
Senior Secured First Lien Term Loan LIBOR + 8.000%, 1.000% Floor, 1.000% PIK(3)
 
12/24/2019
 
7,908,947

 
7,918,162

 
6,448,955

 
0.8%
 
 
 
 
 
 
 
 
7,908,947

 
7,918,162

 
6,448,955

 
 
Checkers Holdings, Inc.
 
Hotel, Gaming & Leisure
 
Senior Secured First Lien Term Loan LIBOR + 4.250%, 1.000% Floor(3)
 
4/25/2024
 
6,982,500

 
6,952,913

 
6,912,675

 
0.9%
 
 
 
 
 
 
 
 
6,982,500

 
6,952,913

 
6,912,675

 
 
CP Opco, LLC
 
Services: Consumer
 
Senior Secured First Lien Term Loan LIBOR + 6.500%, 1.000% Floor, PIK(3) (4) (12)
 
4/1/2019
 
219,589

 
209,515

 
59,728

 
0.0%
 
 
 
 
Senior Secured First Lien Term Loan LIBOR + 9.500%, 1.000% Floor, PIK(3) (4) (12)
 
4/1/2019
 
1,603,881

 
717,016

 

 
0.0%
 
 
 
 
Preferred Units LIBOR+9.500%, 1.000% Floor, PIK(4)(5)(12)  
 
 
 

 

 

 
0.0%
 
 
 
 
Common Units (4) (6) (7)
 
 
 

 

 

 
0.0%
 
 
 
 
 
 
 
 
1,823,470

 
926,531

 
59,728

 
 
CPI Holdings, Inc.
 
Aerospace & Defense
 
Senior Secured Second Lien Term Loans LIBOR + 7.250%, 1.000% Floor(4) (8)
 
7/28/2025
 
12,345,000

 
12,298,911

 
12,283,275

 
1.6%
 
 
 
 
 
 
 
 
12,345,000

 
12,298,911

 
12,283,275

 
 
CSP Technologies North America, LLC
 
Containers, Packaging & Glass
 
Senior Secured First Lien Term Loan LIBOR + 5.250%, 1.000% Floor(3) (4)
 
1/31/2022
 
4,961,562

 
4,961,562

 
4,959,081

 
0.7%
 
 
 
 
 
 
 
 
4,961,562

 
4,961,562

 
4,959,081

 
 
CSTN Merger Sub Inc.
 
Chemicals, Plastics & Rubber
 
Senior Secured First Lien Note 6.750%(4) (9) (14)
 
8/15/2024
 
4,950,000

 
4,950,000

 
4,930,200

 
0.6%
 
 
 
 
 
 
 
 
4,950,000

 
4,950,000

 
4,930,200

 
 
Deliver Buyer, Inc.
 
Services: Business
 
Senior Secured First Lien Term Loan LIBOR + 5.000%, 1.000% Floor(3)
 
4/26/2024
 
2,992,500

 
2,974,286

 
2,962,575

 
0.4%
 
 
 
 
 
 
 
 
2,992,500

 
2,974,286

 
2,962,575

 
 
DHISCO Electronic Distribution, Inc.
 
Hotel, Gaming & Leisure
 
Senior Secured First Lien Term Loan LIBOR + 6.500%, 1.500% Floor(4) (8)
 
11/10/2019
 
2,503,214

 
2,503,214

 
2,503,214

 
0.3%
 
 
 
 
Senior Secured First Lien Term Loan LIBOR + 9.000%, 1.500% Floor, PIK(4) (8)
 
11/10/2019
 
9,207,947

 
9,207,947

 
9,207,947

 
1.2%

F-6


Company(1)
 
Industry
 
Type of Investment(18)
 
Maturity
 
Par
Amount
 
Cost
 
Fair Value
 
% of Net Assets(2)
 
 
 
 
Senior Secured First Lien Term Loan LIBOR + 10.250%, 1.500% Floor, PIK(4) (8) (12) 
 
11/10/2019
 
7,969,999

 
7,257,481

 
3,984,999

 
0.5%
 
 
 
 
Senior Secured First Lien Term Loan LIBOR + 11.250%, 1.500% Floor, PIK(4) (8) (12) 
 
11/10/2019
 
7,472,575

 
2,940,892

 

 
0.0%
 
 
 
 
Common Units, Class A (4) (6)(7)
 
 
 

 
769,231

 

 
0.0%
 
 
 
 
 
 
 
 
27,153,735

 
22,678,765

 
15,696,160

 
 
Drew Marine Partners, LP
 
Transportation: Cargo
 
Senior Secured Second Lien Term Loan LIBOR + 7.000%, 1.000% Floor(3)
 
5/19/2021
 
10,000,000

 
10,051,092

 
10,000,000

 
1.3%
 
 
 
 
 
 
 
 
10,000,000

 
10,051,092

 
10,000,000

 
 
Dryden 38 Senior Loan Fund, Series 2015-38A
 
Multi-Sector Holdings
 
Subordinated Note 15.522% effective yield(1) (6) (9) (10) 
 
7/15/2027
 
7,000,000

 
4,896,524

 
4,965,800

 
0.7%
 
 
 
 
 
 
 
 
7,000,000

 
4,896,524

 
4,965,800

 
 
Dryden 43 Senior Loan Fund, Series 2016-43A
 
Multi-Sector Holdings
 
Subordinated Note 13.198% effective yield(1) (4) (6) (9) (10) 
 
7/20/2029
 
3,620,000

 
2,937,310

 
2,812,378

 
0.4%
 
 
 
 
 
 
 
 
3,620,000

 
2,937,310

 
2,812,378

 
 
Dryden 49 Senior Loan Fund, Series 2017-49A
 
Multi-Sector Holdings
 
Subordinated Note 16.175% effective yield(1) (4) (6) (9) (10) 
 
7/18/2030
 
17,233,288

 
15,213,374

 
15,213,374

 
2.0%
 
 
 
 
 
 
 
 
17,233,288

 
15,213,374

 
15,213,374

 
 
Dynamic Energy Services International LLC
 
Energy: Oil & Gas
 
Senior Secured First Lien Term Loan 13.500% PIK + LIBOR(4) (8)
 
6/6/2018
 
9,579,554

 
9,579,554

 
8,154,117

 
1.1%
 
 
 
 
 
 
 
 
9,579,554

 
9,579,554

 
8,154,117

 
 
Elite Comfort Solutions LLC
 
Chemicals, Plastics & Rubber
 
Senior Secured First Lien Term Loan LIBOR + 6.500%, 1.000% Floor(5) (8)
 
1/15/2021
 
9,778,689

 
9,778,689

 
9,778,689

 
1.3%
 
 
 
 
 
 
 
 
9,778,689

 
9,778,689

 
9,778,689

 
 
Engineered Machinery Holdings, Inc.
 
Capital Equipment
 
Senior Secured Second Lien Term Loans LIBOR + 6.250%, 1.000% Floor(3) (4)
 
7/18/2025
 
2,010,638

 
1,990,853

 
1,990,532

 
0.3%
 
 
 
 
Senior Secured Second Lien Term Loans LIBOR + 7.250%, 1.000% Floor(3) (4) (5)
 
7/18/2025
 
28,724

 
28,724

 
26,330

 
0.0%
 
 
 
 
 
 
 
 
2,039,362

 
2,019,577

 
2,016,862

 
 
First Boston Construction Holdings, LLC
 
Banking, Finance, Insurance & Real Estate
 
Senior Secured First Lien Note 12.000%(4)
 
12/31/2020
 
6,585,000

 
6,585,000

 
6,631,095

 
0.9%
 
 
 
 
Preferred Equity (4) (6) (7)
 
 
 

 
1,646,250

 
1,646,250

 
0.2%
 
 
 
 
 
 
 
 
6,585,000

 
8,231,250

 
8,277,345

 
 
FKI Security Group, LLC
 
Capital Equipment
 
Senior Secured First Lien Term Loan LIBOR + 8.500%, 1.000% Floor(4) (8)
 
3/30/2020
 
11,656,250

 
11,656,250

 
11,656,250

 
1.5%
 
 
 
 
 
 
 
 
11,656,250

 
11,656,250

 
11,656,250

 
 
Friedrich Holdings, Inc.
 
Construction & Building
 
Senior Secured First Lien Term Loan LIBOR + 7.000%, 1.000% Floor(4) (8)
 
2/7/2023
 
13,806,751

 
13,806,751

 
13,936,534

 
1.8%
 
 
 
 
 
 
 
 
13,806,751

 
13,806,751

 
13,936,534

 
 
Frontier Communications Corp.
 
Telecommunications
 
Senior Secured First Lien Note 10.500%(6) (9)
 
9/15/2022
 
2,000,000

 
2,000,000

 
1,745,000

 
0.2%
 
 
 
 
 
 
 
 
2,000,000

 
2,000,000

 
1,745,000

 
 
Genex Holdings, Inc.
 
Banking, Finance, Insurance & Real Estate
 
Senior Secured First Lien Term Loan LIBOR + 4.250%, 1.000% Floor(3)
 
5/28/2021
 
4,152,657

 
4,102,377

 
4,124,419

 
0.5%
 
 
 
 
Senior Secured Second Lien Term Loan LIBOR + 7.750%, 1.000% Floor(8)
 
5/30/2022
 
9,500,000

 
9,522,302

 
9,387,900

 
1.2%
 
 
 
 
 
 
 
 
13,652,657

 
13,624,679

 
13,512,319

 
 
GK Holdings, Inc.
 
Services: Business
 
Senior Secured Second Lien Term Loan LIBOR + 10.250%, 1.000% Floor(3)
 
1/20/2022
 
10,000,000

 
10,000,000

 
9,913,000

 
1.3%
 
 
 
 
 
 
 
 
10,000,000

 
10,000,000

 
9,913,000

 
 

F-7


Company(1)
 
Industry
 
Type of Investment(18)
 
Maturity
 
Par
Amount
 
Cost
 
Fair Value
 
% of Net Assets(2)
Green Field Energy Services, Inc.
 
Energy: Oil & Gas
 
Senior Secured First Lien Note 13.000%(4)(6) (9) (12)
 
11/15/2016
 
766,616

 
754,616

 
122,658

 
0.0%
 
 
 
 
Warrants (4) (6) (7)
 
 
 

 
29,000

 

 
0.0%
 
 
 
 
 
 
 
 
766,616

 
783,616

 
122,658

 
 
Harbortouch Payments, LLC
 
Banking, Finance, Insurance & Real Estate
 
Senior Secured First Lien Term Loan LIBOR + 4.750%, 1.000% Floor(3) (4)
 
10/13/2023
 
4,962,500

 
4,974,499

 
4,962,500

 
0.7%
 
 
 
 
 
 
 
 
4,962,500

 
4,974,499

 
4,962,500

 
 
HBC Holdings LLC
 
Wholesale
 
Senior Secured First Lien Term Loan LIBOR + 6.500%, 1.000% Floor(3) (4)
 
3/30/2020
 
12,487,500

 
12,487,500

 
12,422,565

 
1.6%
 
 
 
 
 
 
 
 
12,487,500

 
12,487,500

 
12,422,565

 
 
Heligear Acquisition Co.
 
Aerospace & Defense
 
Senior Secured First Lien Note 10.250%(4) (9)
 
10/15/2019
 
15,000,000

 
15,000,000

 
15,358,500

 
2.0%
 
 
 
 
 
 
 
 
15,000,000

 
15,000,000

 
15,358,500

 
 
High Ridge Brands Co.
 
Consumer Goods: Non-Durable
 
Senior Secured First Lien Note 8.875%(4) (9)
 
3/15/2025
 
2,000,000

 
2,000,000

 
1,916,200

 
0.3%
 
 
 
 
 
 
 
 
2,000,000

 
2,000,000

 
1,916,200

 
 
Holland Acquisition Corp.
 
Energy: Oil & Gas
 
Senior Secured First Lien Term Loan LIBOR + 9.000%, 1.000% Floor(3)
 
5/29/2018
 
4,515,605

 
4,498,197

 
3,216,465

 
0.4%
 
 
 
 
 
 
 
 
4,515,605

 
4,498,197

 
3,216,465

 
 
Hylan Datacom & Electrical LLC
 
Construction & Building
 
Senior Secured First Lien Term Loan LIBOR + 7.500%, 1.000% Floor(4) (8)
 
7/25/2021
 
15,258,137

 
15,258,137

 
15,410,718

 
2.0%
 
 
 
 
 
 
 
 
15,258,137

 
15,258,137

 
15,410,718

 
 
Ignite Restaurant Group, Inc.
 
Hotel, Gaming & Leisure
 
Senior Secured First Lien Term Loan LIBOR + 7.000%, 1.000% Floor(3)(6) (12)
 
2/13/2019
 
8,385,496

 
8,342,264

 
2,516,487

 
0.3%
 
 
 
 
 
 
 
 
8,385,496

 
8,342,264

 
2,516,487

 
 
IHS Intermediate, Inc.
 
Services: Business
 
Senior Secured Second Lien Term Loan LIBOR + 8.250%, 1.000% Floor(3)
 
7/20/2022
 
25,000,000

 
25,000,000

 
25,000,000

 
3.3%
 
 
 
 
 
 
 
 
25,000,000

 
25,000,000

 
25,000,000

 
 
Imagine! Print Solutions, LLC
 
Media: Advertising, Printing & Publishing
 
Senior Secured Second Lien Term Loan LIBOR + 8.750%, 1.000% Floor(3) (4) (13)
 
6/21/2023
 
8,950,000

 
8,821,302

 
8,815,750

 
1.2%
 
 
 
 
 
 
 
 
8,950,000

 
8,821,302

 
8,815,750

 
 
Impact Sales, LLC
 
Services: Business
 
Senior Secured First Lien Term Loan LIBOR + 7.000%, 1.000% Floor(3) (4) (5)
 
12/30/2021
 
4,866,114

 
4,866,114

 
4,905,882

 
0.6%
 
 
 
 
 
 
 
 
4,866,114

 
4,866,114

 
4,905,882

 
 
Interflex Acquisition Company, LLC
 
Containers, Packaging & Glass
 
Senior Secured First Lien Term Loans LIBOR + 8.000%, 1.000% Floor(4) (8) 
 
08/18/2022
 
14,318,750

 
14,318,750

 
14,318,750

 
1.9%
 
 
 
 
 
 
 
 
14,318,750

 
14,318,750

 
14,318,750

 
 
Invision Diversified, LLC
 
Services: Business
 
Senior Secured First Lien Term Loan LIBOR + 8.500%, 1.000% Floor(4) (8) (11)
 
6/30/2020
 
24,022,685

 
24,022,685

 
24,262,912

 
3.2%
 
 
 
 
 
 
 
 
24,022,685

 
24,022,685

 
24,262,912

 
 
IOP Monroe Acquisition, Inc.
 
Capital Equipment
 
Senior Secured First Lien Term Loan LIBOR + 5.500%, 1.000% Floor(4) (5) (8)
 
4/1/2022
 
987,500

 
987,500

 
987,500

 
0.1%
 
 
 
 
 
 
 
 
987,500

 
987,500

 
987,500

 
 
Isola USA Corp.
 
High Tech Industries
 
Senior Secured First Lien Term Loan LIBOR + 8.250%, 1.000% Floor(3) (12) (13) 
 
11/29/2018
 
5,453,747

 
5,490,447

 
4,742,033

 
0.6%
 
 
 
 
 
 
 
 
5,453,747

 
5,490,447

 
4,742,033

 
 
Keystone Acquisition Corp.
 
Healthcare & Pharmaceuticals
 
Senior Secured Second Lien Term Loan LIBOR + 9.250%, 1.000% Floor(3) (4) (13)
 
5/1/2025
 
7,000,000

 
6,866,063

 
6,860,000

 
0.9%
 
 
 
 
 
 
 
 
7,000,000

 
6,866,063

 
6,860,000

 
 
L&S Plumbing Partnership, Ltd.
 
Construction & Building
 
Senior Secured First Lien Term Loan LIBOR + 8.500%, 1.000% Floor(3) (4)
 
2/15/2022
 
11,796,875

 
11,796,875

 
11,895,969

 
1.6%
 
 
 
 
 
 
 
 
11,796,875

 
11,796,875

 
11,895,969

 
 

F-8


Company(1)
 
Industry
 
Type of Investment(18)
 
Maturity
 
Par
Amount
 
Cost
 
Fair Value
 
% of Net Assets(2)
Livingston International Inc.
 
Transportation: Cargo
 
Senior Secured Second Lien Term Loan LIBOR + 8.250%, 1.250% Floor(1) (3) (6) (13)
 
4/17/2020
 
2,658,504

 
2,656,071

 
2,605,068

 
0.3%
 
 
 
 
 
 
 
 
2,658,504

 
2,656,071

 
2,605,068

 
 
Loar Group Inc.
 
Aerospace & Defense
 
Senior Secured Second Lien Term Loan LIBOR + 9.250%, 1.000% Floor(8)
 
7/12/2022
 
15,000,000

 
15,000,000

 
15,300,000

 
2.0%
 
 
 
 
 
 
 
 
15,000,000

 
15,000,000

 
15,300,000

 
 
LSF9 Atlantis Holdings, LLC
 
Retail
 
Senior Secured First Lien Term Loan LIBOR + 6.000%, 1.000% Floor(4) (8)
 
5/1/2023
 
11,378,438

 
11,285,388

 
11,402,334

 
1.5%
 
 
 
 
 
 
 
 
11,378,438

 
11,285,388

 
11,402,334

 
 
LTCG Holdings Corp.
 
Banking, Finance, Insurance & Real Estate
 
Senior Secured First Lien Term Loan LIBOR + 5.000%, 1.000% Floor(3)
 
6/6/2020
 
2,838,571

 
2,831,497

 
2,716,513

 
0.4%
 
 
 
 
 
 
 
 
2,838,571

 
2,831,497

 
2,716,513

 
 
Magnetite XIX, Limited
 
Multi-Sector Holdings
 
Subordinated Note LIBOR + 7.610%(1) (3) (6) (9) (10)
 
7/17/2030
 
2,000,000

 
1,875,000

 
1,875,000

 
0.2%
 
 
 
 
Subordinated Note effective yield 14.525%(1) (4) (6) (9) (10)
 
7/17/2030
 
13,730,209

 
12,256,271

 
12,255,585

 
1.6%
 
 
 
 
 
 
 
 
15,730,209

 
14,131,271

 
14,130,585

 
 
Nathan's Famous Inc.
 
Beverage & Food
 
Senior Secured First Lien Note 10.000% (6)
 
3/15/2020
 
7,000,000

 
7,000,000

 
7,333,900

 
1.0%
 
 
 
 
 
 
 
 
7,000,000

 
7,000,000

 
7,333,900

 
 
Nation Safe Drivers Holdings, Inc.
 
Banking, Finance, Insurance & Real Estate
 
Senior Secured Second Lien Term Loan LIBOR + 8.000%, 2.000% Floor(3) (4)
 
9/29/2020
 
20,676,479

 
20,676,479

 
20,676,479

 
2.7%
 
 
 
 
 
 
 
 
20,676,479

 
20,676,479

 
20,676,479

 
 
New Media Holdings II, LLC
 
Media: Advertising, Printing & Publishing
 
Senior Secured First Lien Term Loan LIBOR + 6.250%, 1.000% Floor(3) (4) (13)
 
6/4/2020
 
15,917,083

 
15,906,377

 
15,917,083

 
2.1%
 
 
 
 
 
 
 
 
15,917,083

 
15,906,377

 
15,917,083

 
 
Novetta Solutions, LLC
 
High Tech Industries
 
Senior Secured Second Lien Term Loan LIBOR + 8.500%, 1.000% Floor(3)
 
10/16/2023
 
11,000,000

 
10,912,965

 
10,688,700

 
1.4%
 
 
 
 
 
 
 
 
11,000,000

 
10,912,965

 
10,688,700

 
 
Nuspire, LLC
 
High Tech Industries
 
Senior Secured First Lien Term Loan LIBOR + 6.500%, 1.000% Floor(3) (4) (5)
 
11/8/2022
 
6,310,000

 
6,310,000

 
6,310,000

 
0.8%
 
 
 
 
 
 
 
 
6,310,000

 
6,310,000

 
6,310,000

 
 
Omnitracs, Inc.
 
Telecommunications
 
Senior Secured Second Lien Term Loan LIBOR + 7.750%, 1.000% Floor(3)
 
5/25/2021
 
7,000,000

 
7,009,593

 
7,000,000

 
0.9%
 
 
 
 
 
 
 
 
7,000,000

 
7,009,593

 
7,000,000

 
 
Oxford Mining Company, LLC
 
Metals & Mining
 
Senior Secured First Lien Term Loan LIBOR + 8.500%, 0.750% Floor, 3.000% PIK(3) (4)
 
12/31/2018
 
12,441,670

 
12,441,670

 
12,441,670

 
1.6%
 
 
 
 
Senior Secured First Lien Term Loan LIBOR + 8.500%, 0.750% Floor, 3.000% PIK(3) (4)
 
12/31/2018
 
8,685,661

 
8,685,661

 
8,685,661

 
1.1%
 
 
 
 
 
 
 
 
21,127,331

 
21,127,331

 
21,127,331

 
 
Path Medical, LLC
 
Healthcare & Pharmaceuticals
 
Senior Secured First Lien Term Loan LIBOR + 9.500%, 1.000% Floor(3) (4)
 
10/11/2021
 
15,020,737

 
14,512,340

 
15,100,346

 
2.0%
 
 
 
 
Warrants (4) (7)
 
 
 

 
669,709

 
111,251

 
0.0%
 
 
 
 
 
 
 
 
15,020,737

 
15,182,049

 
15,211,597

 
 
Payless Holdings LLC
 
Retail
 
Equity/Warrants(6) (7)
 
 
 

 
543,120

 
543,152

 
0.1%
 
 
 
 
 
 
 
 

 
543,120

 
543,152

 
 
Petco Animal Supplies, Inc.
 
Retail
 
Senior Secured First Lien Term Loan LIBOR + 3.000%, 1.000% Floor(3) (13)
 
1/26/2023
 
1,989,899

 
1,842,819

 
1,637,488

 
0.2%
 
 
 
 
 
 
 
 
1,989,899

 
1,842,819

 
1,637,488

 
 
PetroChoice Holdings, Inc.
 
Chemicals, Plastics & Rubber
 
Senior Secured Second Lien Term Loan LIBOR + 8.750%, 1.000% Floor(3) (4) (11)
 
9/3/2023
 
9,000,000

 
9,000,000

 
9,000,000

 
1.2%

F-9


Company(1)
 
Industry
 
Type of Investment(18)
 
Maturity
 
Par
Amount
 
Cost
 
Fair Value
 
% of Net Assets(2)
 
 
 
 
 
 
 
 
9,000,000

 
9,000,000

 
9,000,000

 
 
Preferred Proppants, LLC
 
Energy: Oil & Gas
 
Senior Secured First Lien Term Loan LIBOR + 5.750%, 1.000% Floor(3)
 
7/27/2020
 
6,797,322

 
5,522,444

 
6,248,098

 
0.8%
 
 
 
 
 
 
 
 
6,797,322

 
5,522,444

 
6,248,098

 
 
Press Ganey Holdings, Inc
 
Healthcare & Pharmaceuticals
 
Senior Secured Second Lien Term Loan LIBOR + 7.250%, 1.000% Floor(8)
 
10/21/2024
 
13,000,000

 
13,088,767

 
13,044,200

 
1.7%
 
 
 
 
 
 
 
 
13,000,000

 
13,088,767

 
13,044,200

 
 
PT Network, LLC
 
Healthcare & Pharmaceuticals
 
Senior Secured First Lien Term Loan LIBOR + 6.500%, 1.000% Floor(3) (4) (5)
 
11/30/2021
 
5,781,667

 
5,781,667

 
5,843,517

 
0.8%
 
 
 
 
 
 
 
 
5,781,667

 
5,781,667

 
5,843,517

 
 
Reddy Ice Corporation
 
Beverage & Food
 
Senior Secured Second Lien Term Loan LIBOR + 9.500%, 1.250% Floor(3) (4)
 
10/1/2019
 
2,000,000

 
2,000,000

 
1,896,200

 
0.2%
 
 
 
 
 
 
 
 
2,000,000

 
2,000,000

 
1,896,200

 
 
Research Now Group, Inc.
 
Services: Business
 
Senior Secured Second Lien Term Loan LIBOR + 8.750%, 1.000% Floor(3)
 
3/18/2022
 
15,000,000

 
15,000,000

 
15,000,000

 
2.0%
 
 
 
 
 
 
 
 
15,000,000

 
15,000,000

 
15,000,000

 
 
Resolute Investment Managers, Inc.
 
Banking, Finance, Insurance & Real Estate
 
Senior Secured Second Lien Term Loan LIBOR + 8.750%, 1.000% Floor(3) (13)
 
4/30/2023
 
6,000,000

 
5,913,767

 
6,000,000

 
0.8%
 
 
 
 
 
 
 
 
6,000,000

 
5,913,767

 
6,000,000

 
 
Rhombus Cinema Holdings, LP
 
Media: Diversified & Production
 
Preferred Equity 10.000% PIK(4) (6)
 
 
 

 
4,584,207

 
5,530,911

 
0.7%
 
 
 
 
Equity (4) (6) (7)
 
 
 

 
3,162,793

 
2,917,139

 
0.4%
 
 
 
 
 
 
 
 

 
7,747,000

 
8,448,050

 
 
SavATree, LLC
 
Environmental Industries
 
Senior Secured First Lien Term Loan LIBOR + 5.250%, 1.000% Floor(4) (5) (8)
 
6/2/2022
 
2,881,667

 
2,881,667

 
2,881,667

 
0.4%
 
 
 
 
 
 
 
 
2,881,667

 
2,881,667

 
2,881,667

 
 
SFP Holding, Inc.
 
Construction & Building
 
Senior Secured First Lien Term Loans LIBOR + 6.250%, 1.000% Floor(3) (4) (5)
 
9/1/2022
 
4,277,778

 
4,277,778

 
4,277,778

 
0.6%
 
 
 
 
Equity(4) (6) (7)
 
 
 

 
400,000

 
400,000

 
0.1%
 
 
 
 
 
 
 
 
4,277,778

 
4,677,778

 
4,677,778

 
 
Ship Supply Acquisition Corporation
 
Services: Business
 
Senior Secured First Lien Term Loan LIBOR + 8.000%, 1.000% Floor(3) (4)
 
7/31/2020
 
22,500,000

 
22,500,000

 
21,584,250

 
2.8%
 
 
 
 
 
 
 
 
22,500,000

 
22,500,000

 
21,584,250

 
 
Simplified Logistics, LLC
 
Services: Business
 
Senior Secured First Lien Term Loan LIBOR + 6.500%, 1.000% Floor(3) (4)
 
2/28/2022
 
7,462,500

 
7,462,500

 
7,534,886

 
1.0%
 
 
 
 
 
 
 
 
7,462,500

 
7,462,500

 
7,534,886

 
 
Sizzling Platter, LLC
 
Hotel, Gaming & Leisure
 
Senior Secured First Lien Term Loan LIBOR + 7.500%, 1.000% Floor(8)
 
4/28/2020
 
15,000,000

 
15,000,000

 
15,000,000

 
2.0%
 
 
 
 
 
 
 
 
15,000,000

 
15,000,000

 
15,000,000

 
 
SMART Financial Operations, LLC
 
Retail
 
Senior Secured First Lien Term Loan LIBOR + 10.000%, 1.000% Floor(3) (4) (5)
 
11/22/2021
 
3,700,000

 
3,700,000

 
3,798,000

 
0.5%
 
 
 
 
Equity (4) (6) (7)
 
 
 

 
1,000,000

 
1,050,000

 
0.1%
 
 
 
 
 
 
 
 
3,700,000

 
4,700,000

 
4,848,000

 
 
Southwest Dealer Services, Inc.
 
Automotive
 
Senior Secured First Lien Term Loan LIBOR + 6.000%, 1.000% Floor(3) (4)
 
6/2/2022
 
4,869,375

 
4,869,375

 
4,869,375

 
0.6%
 
 
 
 
 
 
 
 
4,869,375

 
4,869,375

 
4,869,375

 
 
SRS Software, LLC
 
High Tech Industries
 
Senior Secured First Lien Term Loan LIBOR + 7.000%, 1.000% Floor(3) (4) (5)
 
2/17/2022
 
19,402,500

 
19,402,500

 
19,571,302

 
2.6%
 
 
 
 
 
 
 
 
19,402,500

 
19,402,500

 
19,571,302

 
 
Starfish Holdco LLC
 
High Tech Industries
 
Senior Secured Second Lien Term Loans LIBOR + 9.000%, 1.000% Floor(3) (4)
 
8/18/2025
 
4,000,000

 
3,940,462

 
3,940,000

 
0.5%

F-10


Company(1)
 
Industry
 
Type of Investment(18)
 
Maturity
 
Par
Amount
 
Cost
 
Fair Value
 
% of Net Assets(2)
 
 
 
 
 
 
 
 
4,000,000


3,940,462

 
3,940,000

 
 
Survey Sampling International, LLC
 
Services: Business
 
Senior Secured Second Lien Term Loan LIBOR + 9.000%, 1.000% Floor(3) (4)
 
12/16/2021
 
24,000,000

 
24,000,000

 
24,000,000

 
3.2%
 
 
 
 
 
 
 
 
24,000,000

 
24,000,000

 
24,000,000

 
 
TCH-2 Holdings, LLC
 
Hotel, Gaming & Leisure
 
Senior Secured Second Lien Term Loan LIBOR + 7.750%, 1.000% Floor(8) (13)
 
11/6/2021
 
3,636,364

 
3,601,422

 
3,672,727

 
0.5%
 
 
 
 
 
 
 
 
3,636,364

 
3,601,422

 
3,672,727

 
 
Techniplas, LLC
 
Automotive
 
Senior Secured First Lien Note 10.000%(9) (14)
 
5/1/2020
 
6,000,000

 
6,000,000

 
4,189,800

 
0.6%
 
 
 
 
 
 
 
 
6,000,000

 
6,000,000

 
4,189,800

 
 
The Garretson Resolution Group, Inc.
 
Services: Business
 
Senior Secured First Lien Term Loan LIBOR + 6.500%, 1.000% Floor(3) (4)
 
5/24/2021
 
9,437,500

 
9,406,086

 
9,496,956

 
1.2%
 
 
 
 
 
 
 
 
9,437,500

 
9,406,086

 
9,496,956

 
 
Touchtunes Interactive Networks, Inc.
 
Media: Diversified & Production
 
Senior Secured Second Lien Term Loan LIBOR + 8.250%, 1.000% Floor(3) (4) (13)
 
5/27/2022
 
7,500,000

 
7,500,000

 
7,462,500

 
1.0%
 
 
 
 
 
 
 
 
7,500,000

 
7,500,000

 
7,462,500

 
 
Transocean Phoenix 2 Ltd.
 
Energy: Oil & Gas
 
Senior Secured First Lien Note 7.750%(4) (9) (14)
 
10/15/2024
 
7,125,000

 
7,018,130

 
7,664,363

 
1.0%
 
 
 
 
 
 
 
 
7,125,000

 
7,018,130

 
7,664,363

 
 
Truco Enterprises, LP
 
Beverage & Food
 
Senior Secured First Lien Term Loan LIBOR + 7.220%, 1.000% Floor(4) (8)
 
4/26/2021
 
9,776,362

 
9,776,362

 
9,776,362

 
1.3%
 
 
 
 
 
 
 
 
9,776,362

 
9,776,362

 
9,776,362

 
 
True Religion Apparel, Inc.
 
Retail
 
Senior Secured Second Lien Term Loan LIBOR + 10.000%, 1.000% Floor(3) (12)
 
1/30/2020
 
4,000,000

 
3,918,977

 

 
0.0%
 
 
 
 
 
 
 
 
4,000,000

 
3,918,977

 

 
 
U.S. Auto Sales Inc.
 
Banking, Finance, Insurance & Real Estate
 
Senior Secured Second Lien Term Loan LIBOR + 11.750%, 1.000% Floor(4) (8) (11) 
 
6/8/2020
 
5,500,000

 
5,500,000

 
5,544,550

 
0.7%
 
 
 
 
 
 
 
 
5,500,000

 
5,500,000

 
5,544,550

 
 
U.S. Well Services, LLC
 
Energy: Oil & Gas
 
Warrants (6) (7)
 
2/21/2019
 

 
173

 

 
0.0%
 
 
 
 
 
 
 
 

 
173

 

 
 
Valence Surface Technologies, Inc.
 
Aerospace & Defense
 
Senior Secured First Lien Term Loan LIBOR + 5.500%, 1.000% Floor(3) (4)
 
6/13/2019
 
4,135,134

 
4,125,602

 
4,083,031

 
0.5%
 
 
 
 
 
 
 
 
4,135,134

 
4,125,602

 
4,083,031

 
 
Velocity Pooling Vehicle, LLC
 
Automotive
 
Senior Secured First Lien Term Loans LIBOR + 4.000%, 1.000% Floor(4) (15)
 
5/14/2021
 
1,683,230

 
958,901

 
938,401

 
0.1%
 
 
 
 
Senior Secured Second Lien Term Loan LIBOR + 7.250%, 1.000% Floor(4) (15)
 
5/13/2022
 
20,625,000

 
18,636,527

 
3,506,250

 
0.5%
 
 
 
 
 
 
 
 
22,308,230

 
19,595,428

 
4,444,651

 
 
Verso Corporation
 
Media: Advertising, Printing & Publishing
 
Common Stock (7) (16)
 
 
 

 
2,238,108

 
949,331

 
0.1%
 
 
 
 
 
 
 
 

 
2,238,108

 
949,331

 
 
VOYA CLO 2016-2, LTD.
 
Multi-Sector Holdings
 
Subordinated Note 11.488% effective yield(1) (4) (6) (9) (10) 
 
7/19/2028
 
22,842,661

 
19,065,140

 
16,417,021

 
2.2%
 
 
 
 
 
 
 
 
22,842,661

 
19,065,140

 
16,417,021

 
 
Watermill-QMC Holdings, Corp.
 
Automotive
 
Partnership Interest (4) (6) (7)
 
 
 

 
902,277

 
1,170,254

 
0.2%
 
 
 
 
 
 
 
 

 
902,277

 
1,170,254

 
 
YRC Worldwide Inc.
 
Transportation: Cargo
 
Senior Secured First Lien Term Loans LIBOR + 7.500%, 1.000% Floor(3)
 
7/26/2022
 
10,620,778

 
10,374,269

 
10,370,127

 
1.4%
 
 
 
 
 
 
 
 
10,620,778

 
10,374,269

 
10,370,127

 
 

F-11


Company(1)
 
Industry
 
Type of Investment(18)
 
Maturity
 
Par
Amount
 
Cost
 
Fair Value
 
% of Net Assets(2)
Z Gallerie, LLC
 
Retail
 
Senior Secured First Lien Term Loan LIBOR + 6.500%, 1.000% Floor(4) (8)
 
10/8/2020
 
4,646,901

 
4,618,125

 
4,646,901

 
0.6%
 
 
 
 
 
 
 
 
4,646,901

 
4,618,125

 
4,646,901

 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total non-controlled/non-affiliated investments
 
 
 


$969,097,460
 
 
$926,968,867
 
121.9%
 
 
 
 
 
 
 
 

 


 
 
 
Controlled/affiliated investments – 18.4%(17)
 
 
 
 
 
 
 

 

 
 
AAR Intermediate Holdings, LLC
 
Energy: Oil & Gas
 
Senior Secured First Lien Term Loans LIBOR + 5.000%, 1.000% Floor(3) (4) (5)
 
9/30/2021
 
3,144,481

 
3,144,481

 
3,144,481

 
0.4%
 
 
 
 
Senior Secured First Lien Term Loans LIBOR + 8.000%, 1.000% Floor, PIK (3) (4) 
 
9/30/2021
 
6,911,202

 
5,848,310

 
6,911,202

 
0.9%
 
 
 
 
 Membership Units (4) (6) (7)
 
 
 

 

 

 
0.0%
 
 
 
 
 
 
 
 
10,055,683

 
8,992,791

 
10,055,683

 
 
Access Media Holdings, LLC
 
Media: Broadcasting & Subscription
 
Senior Secured First Lien Term Loan 5.000%, 5.000% PIK(4)
 
7/22/2020
 
7,297,959

 
7,297,959

 
7,297,959

 
1.0%
 
 
 
 
Common Stock (4) (6) (7)
 
 
 

 

 

 
0.0%
 
 
 
 
Preferred Equity Series A (4) (6) (7) 
 
 
 

 
1,400,000

 

 
0.0%
 
 
 
 
Preferred Equity Series AA (4) (6) (7) 
 
 
 

 
700,000

 

 
0.0%
 
 
 
 
Preferred Equity Series AAA (4) (6) (7) 
 
 
 

 
317,800

 
158,900

 
0.0%
 
 
 
 
 
 
 
 
7,297,959

 
9,715,759

 
7,456,859

 
 
Capstone Nutrition, Inc.
 
Healthcare & Pharmaceuticals
 
Senior Secured First Lien Term Loan LIBOR + 12.500%, 1.000% Floor, PIK(3) (4) (12) 
 
9/25/2020
 
28,071,914

 
22,489,086

 
19,344,356

 
2.5%
 
 
 
 
Common Stock (4) (6) (7)
 
 
 

 
9

 

 
0.0%
 
 
 
 
Common Stock, Class B (4) (6)(7)
 
 
 

 

 

 
0.0%
 
 
 
 
Common Stock, Class C (4) (6)(7)
 
 
 

 
300,002

 

 
0.0%
 
 
 
 
 
 
 
 
28,071,914

 
22,789,097

 
19,344,356

 
 
MCM Capital Office Park Holdings LLC
 
Banking, Finance, Insurance & Real Estate
 
Equity (6) (7)
 
 
 

 
7,032,468

 
7,032,468

 
0.9%
 
 
 
 
 
 
 
 

 
7,032,468

 
7,032,468

 
 
Nomida, LLC
 
Construction & Building
 
Senior Secured First Lien Term Loan 10.000%(6)
 
12/1/2020
 
3,700,000

 
3,700,000

 
3,700,000

 
0.5%
 
 
 
 
Equity (6) (7)
 
 
 

 
5,400,000

 
5,400,000

 
0.7%
 
 
 
 
 
 
 
 
3,700,000

 
9,100,000

 
9,100,000

 
 
Sierra Senior Loan Strategy JV I LLC
 
Multi-Sector Holdings
 
Equity (5)(6)
 
 
 
72,991,250

 
72,991,250

 
72,086,943

 
9.5%
 
 
 
 
 
 
 
 
72,991,250

 
72,991,250

 
72,086,943

 
 
TwentyEighty, Inc.
 
Services: Business
 
Senior Secured First Lien Term Loan 1.000%, 7.000% PIK(3)
 
3/31/2020
 
6,579,632

 
6,579,632

 
6,579,632

 
0.9%
 
 
 
 
Senior Secured First Lien Term Loan 0.250%, 8.750% PIK(3)
 
3/31/2020
 
5,990,198

 
5,442,414

 
5,363,024

 
0.7%
 
 
 
 
Senior Secured First Lien Term Loan LIBOR + 3.500%, 1.000% Floor, 4.500% PIK(3) (5) 
 
3/31/2020
 
3,074,260

 
3,059,174

 
3,074,260

 
0.4%
 
 
 
 
Equity/Warrants (6) (7)
 
 
 

 

 

 
0.0%
 
 
 
 
 
 
 
 
15,644,090

 
15,081,220

 
15,016,916

 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total controlled/affiliated investments
 
 
 
 
$145,702,585
 
$140,093,225
 
 
18.4%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

F-12


Company(1)
 
Industry
 
Type of Investment(18)
 
Maturity
 
Par
Amount
 
Cost
 
Fair Value
 
% of Net Assets(2)
Money market fund – 2.5%
 
 
 
 
 
 
 
 
 
1,114,800,045

 
1,067,062,092

 
 
Federated Institutional Prime Obligations Fund(16)
 
 
 
Money Market 1.190%
 
 
 
18,674,728

 
18,674,728

 
18,674,728

 
2.5%
Total money market fund
 
 
 
 
 
 
 


 
$18,674,728
 
$18,674,728
 
2.5%
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Derivative Instrument - Long Exposure
 
 
 
 
Initial Notional Cost
 
Unrealized Appreciation/(Depreciation)
 
Total return swap with Citibank, N.A. (Note 5)
 
 
 
Total Return Swap
 
 
 
 
218,959,901
 
 
(5,483,594
)
-0.7%
Total derivative instrument - long exposure
 
 
 
 
 
 
218,959,901
 
 
(5,483,594
)
-0.7%

(1)
All of the Company's investments are domiciled in the United States except for Livingston International Inc., which is domiciled in Canada and AMMC CLO 17, Limited Series 2015-17A, Apidos CLO XXIV, Series 2016-24A, Dryden 38 Senior Loan Fund, Series 2015-38A, Dryden 43 Senior Loan Fund, Series 2016-43A, Dryden 49 Senior Loan Fund, 2017-49A, Magnetite CLO Ltd. and VOYA CLO 2016-2, LTD. which are all domiciled in the Cayman Islands. All foreign investments are denominated in US Dollars.
(2)
Percentage is based on net assets of $760,249,071 as of September 30, 2017.
(3)
The interest rate on these loans is subject to a base rate plus 3 Month "3M" LIBOR, which at September 30, 2017 was 1.33%. As the interest rate is subject to a minimum LIBOR floor, the prevailing rate in effect at September 30, 2017 was the base rate plus the greater of the minimum LIBOR floor or 3M LIBOR.
(4)
An affiliated fund that is managed by an affiliate of SIC Advisors LLC also holds an investment in this security.
(5)
The investment has an unfunded commitment as of September 30, 2017. For further details, see Note 11. Fair value includes an analysis of the unfunded commitment.
(6)
The investment is not a qualifying asset under Section 55 of the Investment Company Act of 1940 (the 1940 Act"). Non-qualifying assets represent 25.3% of the Company's portfolio at fair value.
(7)
Security is non-income producing.
(8)
The interest rate on these loans is subject to a base rate plus 1 Month "1M" LIBOR.
(9)
Securities are exempt from registration under Rule 144A of the Securities Act of 1933. These securities represent a fair value of $99,914,056 or 13.1% of net assets as of September 30, 2017 and are considered restricted.
(10)
This investment is in the equity class of a collateralized loan obligation (CLO"). The CLO equity investments are entitled to recurring distributions which are generally equal to the excess cash flow generated from the underlying investments after payment of the contractual payments to debt holders and fund expenses. The current estimated yield is based on the current projections of this excess cash flow taking into account assumptions that have been made regarding expected prepayments
(11)
A portion of this investment was sold via a participation agreement. The listed amount is the portion retained by Sierra Income Corporation.
(12)
The investment was on non-accrual status as of September 30, 2017.
(13)
Security is also held in the underlying portfolio of the total return swap with Citibank, N.A. (see Note 5). The Company's total exposure to Imagine! Print Solutions, Inc., Isola USA Corp., Keystone Acquisition Corp., Livingston International, Inc., New Media Holdings II, LLC, Petco Animal Supplies, Inc., PetroChoice Holdings, LLC, Resolute Investment Managers, Inc., TCH-2 Holdings, LLC, and Touchtunes Interactive Networks, Inc. is $14,740,900 or 1.9%, $8,238,783 or 1.1%, $9,206,000 or 1.2%, $4,574,511 or 0.6%, $16,867,022 or 2.2%, $10,377,191 or 1.4%, $13,974,684 or 1.8%, $7,918,793 or 1.0%, $6,834,490 or 0.9%, and $8,416,005 or 1.1%, respectively, of Net Assets as of September 30, 2017.

(14)
Represents securities in Level 2 in the ASC 820 table (see Note 4).
(15)
The interest rate on these loans is subject to a base rate plus 6 month "6M" LIBOR.
(16)
Represents securities in Level 1 in the ASC 820 table (see Note 4).
(17)
Control Investments are defined by the 1940 Act as investments in companies in which the Company owns more than 25% of the voting securities or maintains greater than 50% of the board representation.
(18)
Unless otherwise indicated, all securities are valued using significant unobservable inputs, which are categorized as Level 3 assets under the definition of ASC 820 fair value hierarchy.

See accompanying notes to consolidated financial statements.

F-13


Sierra Income Corporation
Consolidated Schedule of Investments
As of December 31, 2016

Company(1)
 
Industry
 
Type of Investment
 
Maturity
 
Par
Amount
 
Cost
 
Fair Value
 
% of
Net Assets
(2)
Non-controlled/non-affiliated investments – 114.5%
 
 
 
 
 
 
 
 
 
 
AAAHI Acquisition Corporation
 
Transportation: Consumer
 
Senior Secured First Lien Term Loan LIBOR + 7.000%, 1.000% Floor(3)(4)(5) 
 
12/15/2021
 
$
7,280,374

 
$
7,280,374

 
$
7,280,374

 
0.9%
 
 
 
 
 
 
 
 
7,280,374

 
7,280,374

 
7,280,374

 
 
AAR Intermediate Holdings, LLC
 
Energy: Oil & Gas
 
Senior Secured First Lien Term Loan LIBOR + 5.000%, 1.000% Floor(3) (4) (5)  
 
9/30/2021
 
150,935

 
150,935

 
150,935

 
0.0%
 
 
 
 
Senior Secured First Lien Term Loan LIBOR + 5.000%, 1.000% Floor(3) (4)
 
9/30/2021
 
3,144,481

 
3,144,481

 
3,144,481

 
0.4%
 
 
 
 
Senior Secured First Lien Term Loan LIBOR + 8.000%, 1.000% Floor, PIK(3) (4)  
 
9/30/2021
 
6,457,851

 
5,254,799

 
5,211,292

 
0.7%
 
 
 
 
Membership Units (4) (6) (7)
 
 
 

 

 

 
0.0%
 
 
 
 
 
 
 
 
9,753,267

 
8,550,215

 
8,506,708

 
 
Access Media Holdings, LLC
 
Media: Broadcasting & Subscription
 
Senior Secured First Lien Term Loan 5.000%, 5.000% PIK(4)
 
7/22/2020
 
7,026,014

 
7,026,014

 
6,868,420

 
0.9%
 
 
 
 
Common Stock (4) (6) (7)
 
 
 

 

 

 
0.0%
 
 
 
 
Preferred Equity Series A (4) (6) (7)  
 
 
 

 
1,400,000

 

 
0.0%
 
 
 
 
Preferred Equity Series AA (4) (6) (7)  
 
 
 

 
647,500

 

 
0.0%
 
 
 
 
 
 
 
 
7,026,014

 
9,073,514

 
6,868,420

 
 
Advanced Diagnostic Holdings, LLC
 
Healthcare & Pharmaceuticals
 
Senior Secured First Lien Term Loan LIBOR + 8.750%, 0.875% Floor(3) (4)
 
12/11/2020
 
15,262,608

 
15,262,608

 
15,567,860

 
2.0%
 
 
 
 
 
 
 
 
15,262,608

 
15,262,608

 
15,567,860

 
 
Alpha Media LLC
 
Media: Broadcasting & Subscription
 
Senior Secured First Lien Term Loan LIBOR 5 6.000%, 1.000% Floor(5)(8)
 
2/25/2022
 
9,384,375

 
9,012,061

 
8,962,078

 
1.2%
 
 
 
 
 
 
 
 
9,384,375

 
9,012,061

 
8,962,078

 
 
Amerijet Holdings Inc.
 
Transportation: Cargo
 
Senior Secured First Lien Term Loan LIBOR + 8.000%, 1.000% Floor(3) (4)
 
7/15/2021
 
16,087,500

 
16,087,500

 
16,087,500

 
2.1%
 
 
 
 
 
 
 
 
16,087,500

 
16,087,500

 
16,087,500

 
 
AMMC CLO 17, Limited Series 2015-17A
 
Multi-Sector Holdings
 
Subordinated Note 21.670% effective yield(6) (9) (10)  
 
11/15/2027
 
5,000,000

 
3,553,568

 
4,181,250

 
0.5%
 
 
 
 
 
 
 
 
5,000,000

 
3,553,568

 
4,181,250

 
 
Anaren, Inc.
 
Aerospace & Defense
 
Senior Secured Second Lien Term Loan LIBOR + 8.250%, 1.000% Floor(3)
 
8/18/2021
 
10,000,000

 
9,929,667

 
10,002,500

 
1.3%
 
 
 
 
 
 
 
 
10,000,000

 
9,929,667

 
10,002,500

 
 
APCO Holdings, Inc.
 
Automotive
 
Senior Secured First Lien Term Loan LIBOR + 6.000%, 1.000% Floor(4) (11)
 
1/31/2022
 
4,351,318

 
4,236,463

 
4,369,201

 
0.6%
 
 
 
 
 
 
 
 
4,351,318

 
4,236,463

 
4,369,201

 
 
Apidos CLO XXIV, Series 2016-24A
 
Multi-Sector Holdings
 
Subordinated Note 16.535% effective yield(4) (6) (9) (10)  
 
1/20/2023
 
25,471,800

 
21,625,558

 
21,977,069

 
2.8%
 
 
 
 
 
 
 
 
25,471,800

 
21,625,558

 
21,977,069

 
 
Associated Asphalt Partners, LLC
 
Chemicals, Plastics & Rubber
 
Senior Secured First Lien Note 8.500%(9)
 
2/15/2018
 
1,778,000

 
1,782,303

 
1,795,780

 
0.2%
 
 
 
 
 
 
 
 
1,778,000

 
1,782,303

 
1,795,780

 
 
Astro AB Borrower, Inc.
 
Banking, Finance, Insurance & Real Estate
 
Senior Secured Second Lien Term Loan LIBOR + 8.750%, 1.000% Floor(3)(11)
 
4/30/2023
 
6,000,000

 
5,898,052

 
6,060,000

 
0.8%
 
 
 
 
 
 
 
 
6,000,000

 
5,898,052

 
6,060,000

 
 

F-14


Company(1)
 
Industry
 
Type of Investment
 
Maturity
 
Par
Amount
 
Cost
 
Fair Value
 
% of
Net Assets
(2)
Asurion, LLC
 
Banking, Finance, Insurance & Real Estate
 
Senior Secured Second Lien Term Loan LIBOR + 7.500%, 1.000% Floor(3)(11)
 
3/3/2021
 
7,000,000

 
6,952,364

 
7,087,500

 
0.9%
 
 
 
 
 
 
 
 
7,000,000

 
6,952,364

 
7,087,500

 
 
Atrium Innovations, Inc.
 
Healthcare & Pharmaceuticals
 
Senior Secured Second Lien Term Loan LIBOR + 6.750%, 1.000% Floor (1)(3)(6) 
 
8/13/2021
 
5,000,000

 
4,982,828

 
5,000,000

 
0.6%
 
 
 
 
 
 
 
 
5,000,000

 
4,982,828

 
5,000,000

 
 
Aviation Technical Services, Inc.
 
Aerospace & Defense
 
Senior Secured Second Lien Term Loan LIBOR + 8.500%, 1.000% Floor(3)(4)(17)  
 
3/31/2022
 
25,000,000

 
25,000,000

 
25,500,000

 
3.3%
 
 
 
 
 
 
 
 
25,000,000

 
25,000,000

 
25,500,000

 
 
Backcountry.com, LLC
 
Retail
 
Senior Secured First Lien Term Loan LIBOR + 7.250%, 1.000% Floor(3) (4) (17)  
 
6/30/2020
 
34,589,843

 
34,589,843

 
34,935,742

 
4.5%
 
 
 
 
 
 
 
 
34,589,843

 
34,589,843

 
34,935,742

 
 
Birch Communications, Inc.
 
Telecommunications
 
Senior Secured First Lien Term Loan LIBOR + 7.250%, 1.000% Floor(4) (8)
 
7/17/2020
 
13,816,112

 
13,647,092

 
13,633,601

 
1.8%
 
 
 
 
 
 
 
 
13,816,112

 
13,647,092

 
13,633,601

 
 
Black Angus Steakhouses LLC
 
Hotel, Gaming & Leisure
 
Revolving Credit Facility LIBOR + 9.000%, 1.000% Floor(3) (4) (5) (17)
 
4/24/2020
 
669,643

 
669,643

 
613,326

 
0.1%
 
 
 
 
Senior Secured First Lien Term Loan LIBOR + 9.000%, 1.000% Floor(3) (4) (17)  
 
4/24/2020
 
19,637,277

 
19,637,277

 
19,141,828

 
2.5%
 
 
 
 
 
 
 
 
20,306,920

 
20,306,920

 
19,755,154

 
 
Brundage-Bone Concrete Pumping, Inc.
 
Construction & Building
 
Senior Secured First Lien Note 10.375%(9)
 
9/1/2021
 
7,500,000

 
7,607,418

 
8,025,000

 
1.0%
 
 
 
 
 
 
 
 
7,500,000

 
7,607,418

 
8,025,000

 
 
Charming Charlie LLC
 
Retail
 
Senior Secured First Lien Term Loan LIBOR + 8.000%, 1.000% Floor(3)
 
12/24/2019
 
7,908,765

 
7,920,847

 
6,334,209

 
0.8%
 
 
 
 
 
 
 
 
7,908,765

 
7,920,847

 
6,334,209

 
 
ConvergeOne Holdings Corp.
 
Telecommunications
 
Senior Secured Second Lien Term Loan LIBOR + 9.000%, 1.000% Floor(3) (4) (11) 
 
6/17/2021
 
12,500,000

 
12,410,777

 
12,500,000

 
1.6%
 
 
 
 
 
 
 
 
12,500,000

 
12,410,777

 
12,500,000

 
 
Cornerstone Chemical Company
 
Chemicals, Plastics & Rubber
 
Senior Secured First Lien Note 9.375%(9)
 
3/15/2018
 
4,970,000

 
4,874,178

 
4,963,788

 
0.6%
 
 
 
 
 
 
 
 
4,970,000

 
4,874,178

 
4,963,788

 
 
CP Opco, LLC
 
Services: Consumer
 
Revolver LIBOR + 4.500%, 1.000% Floor(3) (4) (5)
 
3/31/2019
 
128,039

 
128,039

 
128,039

 
0.0%
 
 
 
 
Revolver ABR + 3.500%, 3.750% Floor(3) (4) (5)
 
3/31/2019
 
210,935

 
210,935

 
210,935

 
0.0%
 
 
 
 
Senior Secured First Lien Term Loan LIBOR + 6.500%, 1.000% Floor, PIK(3) (4)  
 
3/31/2019
 
504,597

 
504,597

 
504,597

 
0.1%
 
 
 
 
Senior Secured First Lien Term Loan LIBOR + 6.500%, 1.000% Floor, PIK(3) (4) 
 
3/31/2019
 
210,249

 
210,249

 
210,249

 
0.0%
 
 
 
 
Senior Secured First Lien Term Loan LIBOR + 9.500%, 1.000% Floor, PIK(3) (4) (12) 
 
3/31/2019
 
1,487,033

 
717,016

 
743,516

 
0.1%
 
 
 
 
Preferred Units LIBOR + 9.500%, 1.000% Floor, PIK(4) (12) 
 
3/31/2019
 
205

 

 

 
0.0%
 
 
 
 
Common Units (4) (7)
 
 
 

 

 

 
0.0%
 
 
 
 
 
 
 
 
2,541,058

 
1,770,836

 
1,797,336

 
 
CRGT Inc.
 
High Tech Industries
 
Senior Secured First Lien Term Loan LIBOR + 6.500%, 1.000% Floor(4) (8)
 
12/19/2020
 
3,966,456

 
3,966,456

 
3,966,456

 
0.5%

F-15


Company(1)
 
Industry
 
Type of Investment
 
Maturity
 
Par
Amount
 
Cost
 
Fair Value
 
% of
Net Assets
(2)
 
 
 
 
 
 
 
 
3,966,456

 
3,966,456

 
3,966,456

 
 
DHISCO Electronic Distribution, Inc.
 
Hotel, Gaming & Leisure
 
Senior Secured First Lien Term Loan LIBOR + 6.500%, 1.500% Floor(3) (4)
 
11/10/2019
 
2,380,952

 
2,380,952

 
2,380,952

 
0.3%
 
 
 
 
Senior Secured First Lien Term Loan LIBOR + 11.250% PIK, 1.500% Floor(3) (4) (12)
 
11/10/2019
 
6,680,333

 
2,940,892

 
2,956,515

 
0.4%
 
 
 
 
Senior Secured First Lien Term Loan LIBOR + 9.000% PIK, 1.500% Floor(3) (4) 
 
11/10/2019
 
8,369,792

 
8,369,792

 
8,369,792

 
1.1%
 
 
 
 
Senior Secured First Lien Term Loan LIBOR + 10.250%, PIK 1.500% Floor(3) (4)
 
11/10/2019
 
7,177,827

 
7,177,827

 
7,177,827

 
0.9%
 
 
 
 
Common Units, Class A (4) (7) 
 
 
 

 
769,231

 

 
0.0%
 
 
 
 
 
 
 
 
24,608,904

 
21,638,694

 
20,885,086

 
 
Drew Marine Partners, LP
 
Transportation: Cargo
 
Senior Secured Second Lien Term Loan LIBOR + 7.000%, 1.000% Floor(3)
 
5/19/2021
 
10,000,000

 
10,054,556

 
9,872,800

 
1.3%
 
 
 
 
 
 
 
 
10,000,000

 
10,054,556

 
9,872,800

 
 
Dryden 38 Senior Loan Fund - Series 2015-38A
 
Multi-Sector Holdings
 
Subordinated Note 17.689% effective yield(6) (9) (10) 
 
7/15/2027
 
7,000,000

 
5,011,083

 
5,225,150

 
0.7%
 
 
 
 
 
 
 
 
7,000,000

 
5,011,083

 
5,225,150

 
 
Dryden 43 Senior Loan Fund - Series 2016-43A
 
Multi-Sector Holdings
 
Subordinated Note 18.086% effective yield(4) (6) (9) (10) 
 
7/20/2029
 
3,620,000

 
2,932,200

 
3,250,579

 
0.4%
 
 
 
 
 
 
 
 
3,620,000

 
2,932,200

 
3,250,579

 
 
Dryden 49 Senior Loan Fund
 
Multi-Sector Holdings
 
Preferred Shares(4) (6)
 
 
 

 
14,500,000

 
14,500,000

 
1.9%
 
 
 
 
 
 
 
 

 
14,500,000

 
14,500,000

 
 
Dynamic Energy Services International LLC
 
Energy: Oil & Gas
 
Senior Secured First Lien Term Loan 13.500% PIK + LIBOR(4) (8)
 
3/6/2018
 
8,662,161

 
8,662,161

 
7,373,318

 
1.0%
 
 
 
 
 
 
 
 
8,662,161

 
8,662,161

 
7,373,318

 
 
EarthLink, Inc.
 
Telecommunications
 
Senior Secured First Lien Note 7.375%(6) (9) (13)
 
6/1/2020
 
2,450,000

 
2,442,601

 
2,575,563

 
0.3%
 
 
 
 
 
 
 
 
2,450,000

 
2,442,601

 
2,575,563

 
 
Elite Comfort Solutions LLC
 
Chemicals, Plastics & Rubber
 
Senior Secured First Lien Term Loan LIBOR + 6.500%, 1.000% Floor(3) (5)
 
1/15/2021
 
8,858,643

 
8,858,643

 
8,966,622

 
1.2%
 
 
 
 
 
 
 
 
8,858,643

 
8,858,643

 
8,966,622

 
 
First Boston Construction Holdings, LLC
 
Banking, Finance, Insurance & Real Estate
 
Senior Secured First Lien Note 12.000%(4) (5)
 
12/31/2020
 
6,105,000

 
6,105,000

 
6,105,000

 
0.8%
 
 
 
 
Preferred Equity (4) (7)
 
 
 

 
1,526,250

 
1,526,250

 
0.2%
 
 
 
 
 
 
 
 
6,105,000

 
7,631,250

 
7,631,250

 
 
FKI Security Group, LLC
 
Capital Equipment
 
Senior Secured First Lien Term Loan LIBOR + 8.500%, 1.000% Floor(3) (4)
 
3/30/2020
 
11,937,500

 
11,937,500

 
12,088,629

 
1.6%
 
 
 
 
 
 
 
 
11,937,500

 
11,937,500

 
12,088,629

 
 
Frontier Communications Corp.
 
Telecommunications
 
Senior Secured First Lien Note 10.500%(6) (9) (13)
 
9/15/2022
 
2,000,000

 
2,000,000

 
2,107,500

 
0.3%
 
 
 
 
 
 
 
 
2,000,000

 
2,000,000

 
2,107,500

 
 
Gastar Exploration Inc.
 
Energy: Oil & Gas
 
Senior Secured First Lien Note 8.625%(9) (13)
 
5/15/2018
 
5,400,000

 
5,405,735

 
5,325,750

 
0.7%
 
 
 
 
 
 
 
 
5,400,000

 
5,405,735

 
5,325,750

 
 
Genex Holdings, Inc.
 
Banking, Finance, Insurance & Real Estate
 
Senior Secured Second Lien Term Loan LIBOR + 7.750%, 1.000% Floor(3)(11)
 
5/30/2022
 
9,500,000

 
9,525,097

 
9,500,000

 
1.2%
 
 
 
 
 
 
 
 
9,500,000

 
9,525,097

 
9,500,000

 
 
GK Holdings, Inc.
 
Services: Business
 
Senior Secured Second Lien Term Loan LIBOR + 9.500%, 1.000% Floor(3)
 
1/30/2022
 
10,000,000

 
10,000,000

 
10,200,000

 
1.3%
 
 
 
 
 
 
 
 
10,000,000

 
10,000,000

 
10,200,000

 
 

F-16


Company(1)
 
Industry
 
Type of Investment
 
Maturity
 
Par
Amount
 
Cost
 
Fair Value
 
% of
Net Assets
(2)
Green Field Energy Services, Inc.
 
Energy: Oil & Gas
 
Senior Secured First Lien Note 13.000%(4) (9) (12)
 
11/15/2016
 
766,615

 
754,615

 
157,156

 
0.0%
 
 
 
 
Warrants (4) (7)
 
 
 

 
29,000

 

 
0.0%
 
 
 
 
 
 
 
 
766,615

 
783,615

 
157,156

 
 
HBC Holdings LLC
 
Wholesale
 
Senior Secured First Lien Term Loan LIBOR + 5.750%, 1.000% Floor(3) (4)
 
3/30/2020
 
13,162,500

 
13,162,500

 
12,461,860

 
1.6%
 
 
 
 
 
 
 
 
13,162,500

 
13,162,500

 
12,461,860

 
 
Heligear Acquisition Co.
 
Aerospace & Defense
 
Senior Secured First Lien Note 10.250%(4) (9)
 
10/15/2019
 
15,000,000

 
15,000,000

 
15,785,550

 
2.0%
 
 
 
 
 
 
 
 
15,000,000

 
15,000,000

 
15,785,550

 
 
Hill International, Inc.
 
Construction & Building
 
Senior Secured First Lien Term Loan LIBOR + 6.750%, 1.000% Floor(3) (4) (17) 
 
9/28/2020
 
16,617,500

 
16,617,500

 
16,617,500

 
2.2%
 
 
 
 
 
 
 
 
16,617,500

 
16,617,500

 
16,617,500

 
 
Holland Acquisition Corp.
 
Energy: Oil & Gas
 
Senior Secured First Lien Term Loan LIBOR + 9.000%, 1.000% Floor(3)
 
5/29/2018
 
4,515,605

 
4,482,170

 
2,791,682

 
0.4%
 
 
 
 
 
 
 
 
4,515,605

 
4,482,170

 
2,791,682

 
 
Hylan Datacom & Electrical LLC
 
Construction & Building
 
Senior Secured First Lien Term Loan LIBOR + 7.500%, 1.000% Floor(3) (4)
 
7/25/2021
 
15,799,862

 
15,799,862

 
15,799,862

 
2.0%
 
 
 
 
 
 
 
 
15,799,862

 
15,799,862

 
15,799,862

 
 
Ignite Restaurant Group, Inc.
 
Hotel, Gaming & Leisure
 
Senior Secured First Lien Term Loan LIBOR + 7.000%, 1.000% Floor(3)
 
2/13/2019
 
8,385,496

 
8,316,629

 
8,009,658

 
1.0%
 
 
 
 
 
 
 
 
8,385,496

 
8,316,629

 
8,009,658

 
 
IHS Intermediate, Inc.
 
Services: Business
 
Senior Secured Second Lien Term Loan LIBOR + 8.250%, 1.000% Floor(3)
 
7/20/2022
 
25,000,000

 
25,000,000

 
25,163,250

 
3.3%
 
 
 
 
 
 
 
 
25,000,000

 
25,000,000

 
25,163,250

 
 
Impact Sales, LLC
 
Services: Business
 
Senior Secured First Lien Term Loan LIBOR + 7.000%, 1.000% Floor(3) (4) (5) 
 
12/30/2021
 
4,687,500

 
4,687,500

 
4,687,500

 
0.6%
 
 
 
 
 
 
 
 
4,687,500

 
4,687,500

 
4,687,500

 
 
Interface Security Systems Holdings, Inc.
 
Services: Consumer
 
Senior Secured First Lien Note 9.250%(9)
 
1/15/2018
 
3,417,000

 
3,434,380

 
3,404,186

 
0.4%
 
 
 
 
 
 
 
 
3,417,000

 
3,434,380

 
3,404,186

 
 
Invision Diversified, LLC
 
Services: Business
 
Senior Secured First Lien Term Loan LIBOR + 9.000%, 1.000% Floor(3) (4) (17) 
 
6/30/2020
 
24,491,435

 
24,491,435

 
24,807,130

 
3.2%
 
 
 
 
 
 
 
 
24,491,435

 
24,491,435

 
24,807,130

 
 
IronGate Energy Services, LLC
 
Energy: Oil & Gas
 
Senior Secured First Lien Note 11.000%(9) (12)
 
7/1/2018
 
3,000,000

 
2,973,811

 
975,000

 
0.1%
 
 
 
 
 
 
 
 
3,000,000

 
2,973,811

 
975,000

 
 
Isola USA Corp.
 
High Tech Industries
 
Senior Secured First Lien Term Loan LIBOR + 8.250%, 1.000% Floor(3)(11)
 
11/29/2018
 
5,493,504

 
5,551,082

 
5,113,299

 
0.7%
 
 
 
 
 
 
 
 
5,493,504

 
5,551,082

 
5,113,299

 
 
Jordan Reses Supply Company, LLC
 
Healthcare & Pharmaceuticals
 
Senior Secured Second Lien Term Loan LIBOR + 11.000%, 1.000% Floor(3) (4)
 
4/24/2020
 
5,000,000

 
5,000,000

 
5,050,000

 
0.7%
 
 
 
 
 
 
 
 
5,000,000

 
5,000,000

 
5,050,000

 
 
Liquidnet Holdings, Inc.
 
Banking, Finance, Insurance & Real Estate
 
Senior Secured First Lien Term Loan LIBOR + 6.750%, 1.000% Floor(3)
 
5/22/2019
 
6,125,000

 
6,075,286

 
6,160,586

 
0.8%
 
 
 
 
 
 
 
 
6,125,000

 
6,075,286

 
6,160,586

 
 
Livingston International Inc.
 
Transportation: Cargo
 
Senior Secured Second Lien Term Loan LIBOR + 8.250%, 1.250% Floor(3) (6) (11) 
 
4/17/2020
 
2,658,504

 
2,655,528

 
2,532,757

 
0.3%
 
 
 
 
 
 
 
 
2,658,504

 
2,655,528

 
2,532,757

 
 
Loar Group Inc.
 
Aerospace & Defense
 
Senior Secured Second Lien Term Loan LIBOR + 9.250%, 1.000% Floor(8)
 
7/12/2022
 
15,000,000

 
15,000,000

 
15,450,000

 
2.0%

F-17


Company(1)
 
Industry
 
Type of Investment
 
Maturity
 
Par
Amount
 
Cost
 
Fair Value
 
% of
Net Assets
(2)
 
 
 
 
 
 
 
 
15,000,000

 
15,000,000

 
15,450,000

 
 
LSF9 Atlantis Holdings, LLC
 
Retail
 
Senior Secured First Lien Term Loan LIBOR + 9.000%, 1.000% Floor(3) (4)
 
1/15/2021
 
9,625,000

 
9,546,319

 
9,739,634

 
1.3%
 
 
 
 
 
 
 
 
9,625,000

 
9,546,319

 
9,739,634

 
 
LTCG Holdings Corp.
 
Banking, Finance, Insurance & Real Estate
 
Senior Secured First Lien Term Loan LIBOR + 5.000%, 1.000% Floor(3)
 
6/6/2020
 
2,838,571

 
2,829,766

 
2,664,170

 
0.3%
 
 
 
 
 
 
 
 
2,838,571

 
2,829,766

 
2,664,170

 
 
Miller Heiman, Inc.
 
Services: Business
 
Senior Secured First Lien Term Loan LIBOR + 6.000%, 1.000% Floor(3) (12)
 
9/30/2019
 
23,593,750

 
23,593,750

 
12,976,563

 
1.7%
 
 
 
 
 
 
 
 
23,593,750

 
23,593,750

 
12,976,563

 
 
Nathan's Famous, Inc.
 
Beverage & Food
 
Senior Secured First Lien Note 10.000%(13)
 
3/15/2020
 
7,000,000

 
7,000,000

 
7,612,500

 
1.0%
 
 
 
 
 
 
 
 
7,000,000

 
7,000,000

 
7,612,500

 
 
Nation Safe Drivers Holdings, Inc.
 
Banking, Finance, Insurance & Real Estate
 
Senior Secured Second Lien Term Loan LIBOR + 8.000%, 2.000% Floor(3) (4)
 
9/29/2020
 
20,676,479

 
20,676,479

 
20,883,243

 
2.7%
 
 
 
 
 
 
 
 
20,676,479

 
20,676,479

 
20,883,243

 
 
New Media Holdings II LLC
 
Media: Advertising, Printing & Publishing
 
Senior Secured First Lien Term Loan LIBOR + 6.250%, 1.000% Floor(3)
 
6/4/2020
 
18,043,921

 
18,029,645

 
18,043,921

 
2.3%
 
 
 
 
 
 
 
 
18,043,921

 
18,029,645

 
18,043,921

 
 
Novetta Solutions, LLC
 
High Tech Industries
 
Senior Secured Second Lien Term Loan LIBOR + 8.500%, 1.000% Floor(3)
 
10/16/2023
 
11,000,000

 
10,905,938

 
10,499,170

 
1.4%
 
 
 
 
 
 
 
 
11,000,000

 
10,905,938

 
10,499,170

 
 
Nuspire, LLC
 
High Tech Industries
 
Senior Secured First Lien Term Loan LIBOR + 6.500%, 1.000% Floor(3) (4) (5)
 
11/8/2021
 

 

 

 
0.0%
 
 
 
 
Senior Secured First Lien Term Loan LIBOR + 6.500%, 1.000% Floor(3) (4)
 
11/8/2022
 
6,310,000

 
6,310,000

 
6,310,000

 
0.8%
 
 
 
 
 
 
 
 
6,310,000

 
6,310,000

 
6,310,000

 
 
Omnitracs, Inc.
 
Telecommunications
 
Senior Secured Second Lien Term Loan LIBOR + 7.750%, 1.000% Floor(3)
 
5/25/2021
 
7,000,000

 
7,010,819

 
6,763,750

 
0.9%
 
 
 
 
 
 
 
 
7,000,000

 
7,010,819

 
6,763,750

 
 
Oxford Mining Company, LLC
 
Metals & Mining
 
Senior Secured First Lien Term Loan LIBOR + 8.500%, 0.750% Floor, 3.000% PIK(3) (4)
 
12/31/2018
 
20,756,843

 
20,756,842

 
20,518,139

 
2.7%
 
 
 
 
 
 
 
 
20,756,843

 
20,756,842

 
20,518,139

 
 
Path Medical, LLC
 
Healthcare & Pharmaceuticals
 
Senior Secured First Lien Term Loan LIBOR + 9.500%, 1.000% Floor(4) (8)
 
10/11/2021
 
16,195,000

 
15,560,824

 
15,542,666

 
2.0%
 
 
 
 
Warrants (4) (7)
 
 
 

 
669,709

 
669,709

 
0.1%
 
 
 
 
 
 
 
 
16,195,000

 
16,230,533

 
16,212,375

 
 
Payless Inc.
 
Retail
 
Senior Secured Second Lien Term Loan LIBOR + 7.500%, 1.000% Floor(3)
 
3/11/2022
 
6,000,000

 
6,014,579

 
900,000

 
0.1%
 
 
 
 
 
 
 
 
6,000,000

 
6,014,579

 
900,000

 
 
Preferred Proppants, LLC
 
Construction & Building
 
Senior Secured First Lien Term Loan LIBOR + 5.750%, 1.000% Floor(3)(11)
 
7/27/2020
 
3,979,645

 
2,738,781

 
3,357,825

 
0.4%
 
 
 
 
 
 
 
 
3,979,645

 
2,738,781

 
3,357,825

 
 
Press Ganey Holding, Inc.
 
Healthcare & Pharmaceuticals
 
Senior Secured Second Lien Term Loan LIBOR + 7.250%, 1.000% Floor(3)(11)
 
10/21/2024
 
6,500,000

 
6,473,059

 
6,472,505

 
0.8%
 
 
 
 
 
 
 
 
6,500,000

 
6,473,059

 
6,472,505

 
 
PT Network, LLC
 
Healthcare & Pharmaceuticals
 
Senior Secured First Lien Term Loan LIBOR + 6.500%, 1.000% Floor(3) (4) (5) 
 
11/30/2021
 
4,833,334

 
4,833,334

 
4,833,334

 
0.6%
 
 
 
 
 
 
 
 
4,833,334

 
4,833,334

 
4,833,334

 
 

F-18


Company(1)
 
Industry
 
Type of Investment
 
Maturity
 
Par
Amount
 
Cost
 
Fair Value
 
% of
Net Assets
(2)
Reddy Ice Corporation
 
Beverage & Food
 
Senior Secured Second Lien Term Loan LIBOR + 9.500%, 1.250% Floor(4) (8)
 
11/1/2019
 
2,000,000

 
2,000,000

 
1,720,000

 
0.2%
 
 
 
 
 
 
 
 
2,000,000

 
2,000,000

 
1,720,000

 
 
Research Now Group, Inc.
 
Services: Business
 
Senior Secured Second Lien Term Loan LIBOR + 8.750%, 1.000% Floor(3)
 
3/18/2022
 
15,000,000

 
15,000,000

 
14,983,200

 
1.9%
 
 
 
 
 
 
 
 
15,000,000

 
15,000,000

 
14,983,200

 
 
Response Team Holdings, LLC
 
Construction & Building
 
Preferred Equity 12% PIK(4) (6) (12)  
 
 
 

 
3,384,734

 
967,238

 
0.1%
 
 
 
 
Warrants (4) (6) (7)
 
 
 

 
257,407

 

 
0.0%
 
 
 
 
 
 
 
 

 
3,642,141

 
967,238

 
 
Rhombus Cinema Holdings, LP
 
Media: Diversified & Production
 
Preferred Equity 10.000% PIK(4) (6)
 
 
 

 
4,584,207

 
5,051,193

 
0.7%
 
 
 
 
Equity (4) (6) (7)
 
 
 

 
3,162,793

 
3,162,793

 
0.4%
 
 
 
 
 
 
 
 

 
7,747,000

 
8,213,986

 
 
School Specialty, Inc.
 
Wholesale
 
Senior Secured First Lien Term Loan LIBOR + 8.500%, 1.000% Floor(3)
 
6/11/2019
 
9,198,434

 
9,169,670

 
9,198,434

 
1.2%
 
 
 
 
 
 
 
 
9,198,434

 
9,169,670

 
9,198,434

 
 
Ship Supply Acquisition Corporation
 
Services: Business
 
Senior Secured First Lien Term Loan LIBOR + 8.000%, 1.000% Floor(3) (4)
 
7/31/2020
 
23,437,500

 
23,437,500

 
22,970,391

 
3.0%
 
 
 
 
 
 
 
 
23,437,500

 
23,437,500

 
22,970,391

 
 
Sizzling Platter, LLC
 
Hotel, Gaming & Leisure
 
Senior Secured First Lien Term Loan LIBOR + 7.500%, 1.000% Floor(3)
 
4/28/2020
 
15,000,000

 
15,000,000

 
15,091,200

 
2.0%
 
 
 
 
 
 
 
 
15,000,000

 
15,000,000

 
15,091,200

 
 
SMART Financial Operations, LLC
 
Retail
 
Senior Secured First Lien Term Loan LIBOR + 10.000%, 1.000% Floor(3) (4) (5) 
 
11/22/2021
 
3,700,000

 
3,700,000

 
3,700,000

 
0.5%
 
 
 
 
Equity (4) (7)
 
 
 

 
1,000,000

 
1,000,000

 
0.1%
 
 
 
 
 
 
 
 
3,700,000

 
4,700,000

 
4,700,000

 
 
Southwest Dealer Services, Inc.
 
Automotive
 
Senior Secured First Lien Term Loan LIBOR + 6.000%, 1.000% Floor(3) (4) (17) 
 
3/16/2020
 
2,538,823

 
2,538,823

 
2,535,878

 
0.3%
 
 
 
 
 
 
 
 
2,538,823

 
2,538,823

 
2,535,878

 
 
Survey Sampling International, LLC
 
Services: Business
 
Senior Secured Second Lien Term Loan LIBOR + 9.000%, 1.000% Floor(3)
 
12/16/2021
 
24,000,000

 
24,000,000

 
24,000,000

 
3.1%
 
 
 
 
 
 
 
 
24,000,000

 
24,000,000

 
24,000,000

 
 
Techniplas, LLC
 
Automotive
 
Senior Secured First Lien Note 10.000%(9)
 
5/1/2020
 
6,000,000

 
6,000,000

 
5,218,500

 
0.7%
 
 
 
 
 
 
 
 
6,000,000

 
6,000,000

 
5,218,500

 
 
The Garretson Resolution Group, Inc.
 
Services: Business
 
Senior Secured First Lien Term Loan LIBOR + 6.500%, 1.000% Floor(3)
 
5/22/2021
 
9,625,000

 
9,587,577

 
9,663,115

 
1.2%
 
 
 
 
 
 
 
 
9,625,000

 
9,587,577

 
9,663,115

 
 
Touchtunes Interactive Networks, Inc.
 
Media: Diversified & Production
 
Senior Secured Second Lien Term Loan LIBOR + 8.250%, 1.000% Floor(3)
 
5/27/2022
 
7,500,000

 
7,500,000

 
7,519,800

 
1.0%
 
 
 
 
 
 
 
 
7,500,000

 
7,500,000

 
7,519,800

 
 
Transocean Phoenix 2 Ltd.
 
Energy: Oil & Gas
 
Senior Secured First Lien Note 7.750%(4) (9) (13)
 
10/15/2024
 
7,500,000

 
7,387,506

 
7,919,325

 
1.0%
 
 
 
 
 
 
 
 
7,500,000

 
7,387,506

 
7,919,325

 
 
TravelCLICK, Inc.
 
Hotel, Gaming & Leisure
 
Senior Secured Second Lien Term Loan LIBOR + 7.750%, 1.000% Floor(3)(11)
 
11/6/2021
 
6,000,000

 
5,935,400

 
5,899,740

 
0.8%
 
 
 
 
 
 
 
 
6,000,000

 
5,935,400

 
5,899,740

 
 
Truco Enterprises, LP
 
Beverage & Food
 
Senior Secured First Lien Term Loan 8.240% Fixed(4) (8)
 
4/26/2021
 
9,949,580

 
9,949,580

 
9,949,580

 
1.3%
 
 
 
 
 
 
 
 
9,949,580

 
9,949,580

 
9,949,580

 
 

F-19


Company(1)
 
Industry
 
Type of Investment
 
Maturity
 
Par
Amount
 
Cost
 
Fair Value
 
% of
Net Assets
(2)
True Religion Apparel, Inc.
 
Retail
 
Senior Secured Second Lien Term Loan LIBOR + 10.000%, 1.000% Floor(14)
 
1/30/2020
 
4,000,000

 
3,899,083

 

 
0.0%
 
 
 
 
 
 
 
 
4,000,000

 
3,899,083

 

 
 
U.S. Auto Sales, Inc.
 
Banking, Finance, Insurance & Real Estate
 
Senior Secured Second Lien Term Loan LIBOR + 11.750%, 1.000% Floor(4) (8) (17) 
 
6/5/2020
 
5,500,000

 
5,500,000

 
5,452,095

 
0.7%
 
 
 
 
 
 
 
 
5,500,000

 
5,500,000

 
5,452,095

 
 
U.S. Well Services, LLC
 
Energy: Oil & Gas
 
Warrants (7)
 
 
 

 
173

 

 
0.0%
 
 
 
 
 
 
 
 

 
173

 

 
 
Valence Surface Technologies, Inc.
 
Aerospace & Defense
 
Senior Secured First Lien Term Loan LIBOR + 5.500%, 1.000% Floor(4) (8)
 
6/13/2019
 
3,499,128

 
3,486,054

 
3,388,590

 
0.4%
 
 
 
 
 
 
 
 
3,499,128

 
3,486,054

 
3,388,590

 
 
Velocity Pooling Vehicle, LLC
 
Automotive
 
Senior Secured Second Lien Term Loan LIBOR + 7.250%, 1.000% Floor(3) (4)
 
5/13/2022
 
20,625,000

 
18,591,706

 
10,996,425

 
1.4%
 
 
 
 
 
 
 
 
20,625,000

 
18,591,706

 
10,996,425

 
 
Verso Corporation
 
Media: Advertising, Printing & Publishing
 
Common Stock (7) (15)
 
 
 

 
2,238,108

 
1,262,666

 
0.2%
 
 
 
 
 
 
 
 

 
2,238,108

 
1,262,666

 
 
VOYA CLO 2016-2, LTD.
 
Multi-Sector Holdings
 
Subordinated Note 16.185% effective yield(6) (9) (10) 
 
7/19/2028
 
22,842,661

 
19,918,800

 
20,551,542

 
2.7%
 
 
 
 
 
 
 
 
22,842,661

 
19,918,800

 
20,551,542

 
 
Watermill-QMC Midco, Inc.
 
Automotive
 
Partnership Interest (4) (6) (7)
 
 
 

 
850,136

 
1,102,626

 
0.1%
 
 
 
 
 
 
 
 

 
850,136

 
1,102,626

 
 
Z Gallerie, LLC
 
Retail
 
Senior Secured First Lien Term Loan LIBOR + 6.500%, 1.000% Floor(4) (8)
 
10/8/2020
 
4,682,646

 
4,645,211

 
4,682,647

 
0.6%
 
 
 
 
 
 
 
 
4,682,646

 
4,645,211

 
4,682,647

 
 
   
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total non-controlled/non-affiliated investments
 
 
 
 
 
$
921,626,572

 
$
885,400,856

 
114.5%
Controlled/affiliated investments – 9.5%(16)
 
 
 
 
 
 
 
 
 
 
Capstone Nutrition
 
Healthcare & Pharmaceuticals
 
Senior Secured First Lien Term Loan LIBOR + 12.500%, 1.000% Floor, PIK(4) (8) (12)
 
4/28/2019
 
25,327,876

 
22,770,855

 
16,246,819

 
2.1%
 
 
 
 
Common Stock (4) (7)
 
 
 

 
300,002

 

 
0.0%
 
 
 
 
Common Stock, Class B (4) (7) 
 
 
 

 
9

 

 
0.0%
 
 
 
 
Common Stock, Class C (4) (7) 
 
 
 

 

 

 
0.0%
 
 
 
 
 
 
 
 
25,327,876

 
23,070,866

 
16,246,819

 
 
MCM Capital Office Park Holdings LLC
 
Banking, Finance, Insurance & Real Estate
 
Equity (6) (7)
 
 
 

 
7,500,000

 
7,500,000

 
1.0%
 
 
 
 
 
 
 
 

 
7,500,000

 
7,500,000

 
 
Nomida LLC
 
Construction & Building
 
Equity (6) (7)
 
 
 

 
5,400,000

 
5,400,000

 
0.7%
 
 
 
 
Senior Secured First Lien Term Loan 10.000%(6)
 
12/1/2020
 
8,100,000

 
8,100,000

 
8,100,000

 
1.0%
 
 
 
 
 
 
 
 
8,100,000

 
13,500,000

 
13,500,000

 
 
Sierra Senior Loan Strategy JV I LLC
 
Multi-Sector Holdings
 
Equity(5)(6)
 
 
 
60,785,000

 
60,785,000

 
60,496,647

 
7.8%
 
 
 
 
 
 
 
 
60,785,000

 
60,785,000

 
60,496,647

 
 
Total controlled/affiliated investments
 
 
 
 
 
$
104,855,866

 
$
97,743,466

 
12.6%
Money market fund – 3.0%
 
 
 
 
 
 
 
 
 
 
Federated Institutional Prime Obligations Fund
 
 
 
Money Market 0.49%(15)
 
 
 
22,966,981

 
22,966,981

 
22,966,981

 
3.0%
Total money market fund
 
 
 
 
 
$
22,966,981

 
$
22,966,981

 
3.0%
 
 
 
 
 
 
 
 
 
 
 

F-20


Company(1)
 
Industry
 
Type of Investment
 
Maturity
 
Par
Amount
 
Cost
 
Fair Value
 
% of
Net Assets
(2)
Derivative Instrument - Long Exposure
 
 
 
 
 
Notional
Amount
 
Unrealized
Appreciation (Depreciation)
 
 
Total return swap with Citibank, N.A. (Note 5)
 
 
 
Total Return Swap
 
 
 
 
 
227,513,679

 
(13,647,330
)
 
1.8%
Total derivative instrument - long exposure
 
 
 
 
 
$
227,513,679

 
$
(13,647,330
)
 
1.8%
___________________________________ 
(1)
All of the Company's investments are domiciled in the United States except for Livingston International Inc. and Atrium Innovations, Inc., which are domiciled in Canada, and AMMC CLO 17, Limited Series 2015-17A, Apidos CLO XXIV, Series 2016-24A, Dryden 38 Senior Loan Fund, Series 2015-38A, Dryden 43 Senior Loan Fund, Series 2016-43A, Dryden 49 Senior Loan Fund and VOYA CLO 2016-2, LTD. each of which are domiciled in the Cayman Islands. All foreign investments are denominated in US Dollars.
(2)
Percentage is based on net assets of $773,113,087 as of December 31, 2016.
(3)
The interest rate on these loans is subject to a base rate plus 3 Month “3M” LIBOR, which at December 31, 2016 was 1.00%. As the interest rate is subject to a minimum LIBOR floor which was greater than the 3M LIBOR rate at December 31, 2016, the prevailing rate in effect at December 31, 2016 was the base rate plus the LIBOR floor.
(4)
An affiliated Company that is managed by an affiliate of SIC Advisors LLC also holds an investment in this security.
(5)
The investment has an unfunded commitment as of December 31, 2016. For further details (see Note 11). Fair value includes an analysis of the unfunded commitment.
(6)
The investment is not a qualifying asset under Section 55 of the Investment Company Act of 1940, as amended, (the "1940 Act"). Non-qualifying assets represent 22.4% of the Company's portfolio at fair value.
(7)
Security is non-income producing.
(8)
The interest rate on these loans is subject to a base rate plus 1 Month "1M" LIBOR, which at December 31, 2016 was 0.77%. As the interest rate is subject to a minimum LIBOR floor, which was greater than the 1M LIBOR rate at December 31, 2016, the prevailing rate in effect at December 31, 2016 was the base rate plus the LIBOR floor.
(9)
Securities are exempt from registration under Rule 144A of the Securities Act of 1933. These securities represent a fair value of $113,438,688 or 14.7% of net assets as of December 31, 2016 and are considered restricted.
(10)
This investment is in the equity class of a collateralized loan obligation ("CLO") security. The CLO equity investments are entitled to recurring distributions, which are generally equal to the excess cash flow generated from the underlying investments after payment of the contractual payments to debt holders and fund expenses. The current estimated yield is based on the current projections of this excess cash flow taking into account assumptions that have been made regarding expected prepayments, losses and future reinvestment rates. These assumptions are periodically reviewed and adjusted. Ultimately, the actual yield may be higher or lower than the estimated yield if actual results differ from those used for the assumptions.
(11)
Security is also held in the underlying portfolio of the total return swap with Citibank, N.A. (see Note 5) or the Sierra Senior Loan Strategy JV I LLC portfolio (see Note 3). The Company's total exposure to APCO Holdings, Inc., Astro AB Borrower, Inc., Asurion LLC, ConvergeOne Holdings Corp., Genex Holdings, Inc., Isola USA Corp., Livingston International, Inc., Preferred Proppants LLC, LLC, Press Ganey Holdings Inc., and TravelCLICK, Inc. is $7,020,932 or 0.9%, 9,123,869 or 1.2%, $8,082,500 or 1.0%, $14,962,500 or 1.9%, $12,427,662 or 1.6%, $8,708,549 or 1.1%, $4,502,200 or 0.6%, $6,199,301 or 0.8%, $15,930,005 or 2.1%, and $10,585,217 or 1.4%, respectively, of net assets as of December 31, 2016.
(12)
The investment was on non-accrual status as of December 31, 2016.
(13)
Represents securities in Level 2 in the ASC 820 table (see Note 4).
(14)
The interest rate on these loans is subject to a base rate plus 6 month "6M" LIBOR, which at December 31, 2016 was 1.32%. As the interest rate is subject to a minimum LIBOR floor, which was greater than the 6M LIBOR rate at December 31, 2016, the prevailing rate in effect at December 31, 2016 was the base rate plus the LIBOR floor.
(15)
Represents securities in Level 1 in the ASC 820 table (see Note 4).
(16)
Control Investments are defined by the 1940 Act as investments in companies in which the Company owns more than 25% of the voting securities or maintains greater than 50% of the board representation.
(17)
A portion of this investment was sold via a participation agreement. The listed amount is the portion retained by Sierra Income Corporation.


See accompanying notes to consolidated financial statements.



F-21


SIERRA INCOME CORPORATION
Notes to Consolidated Financial Statements
September 30, 2017
(unaudited)
Note 1. Organization
Sierra Income Corporation (the “Company”) was incorporated under the general corporation laws of the State of Maryland on June 13, 2011 and formally commenced operations on April 17, 2012. The Company is an externally managed, non-diversified closed-end management investment company that has elected to be treated as a business development company (“BDC”) under the Investment Company Act of 1940 (the "1940 Act"). The Company is externally managed by SIC Advisors LLC (“SIC Advisors”), a registered investment adviser under the Investment Advisers Act of 1940, as amended (the “Advisers Act”). SIC Advisors is a majority owned subsidiary of Medley LLC, which is controlled by Medley Management Inc., a publicly traded asset management firm (NYSE: MDLY), which in turn is controlled by Medley Group LLC, an entity wholly-owned by the senior professionals of Medley LLC. The term “Medley” refers to the collective activities of Medley Capital LLC, Medley LLC, Medley Management Inc., Medley Group LLC, SIC Advisors, associated investment funds and their respective affiliates. The Company has elected and intends to continue to qualify to be treated for U.S. federal income tax purposes as a regulated investment company (“RIC”) under Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”). The Company’s fiscal year-end is December 31st.
On April 17, 2012, the Company successfully reached its minimum escrow requirement and officially commenced operations by issuing 1,108,033 shares of common stock to SIC Advisors for gross proceeds of $10,000,000. The Company’s offering period is currently scheduled to terminate on April 17, 2018, unless further extended. As of September 30, 2017, the Company has sold a total of 96,300,123 shares of common stock, which includes shares issued as part of the distribution reinvestment plan (see Note 13), for total proceeds of $1.0 billion, which includes the shares sold to SIC Advisors. The proceeds from the issuance of common stock are presented in the Company’s consolidated statements of changes in net assets and consolidated statements of cash flows and are presented net of selling commissions and dealer manager fees.
On August 15, 2013, the Company formed Arbor Funding LLC ("Arbor"), a wholly-owned financing subsidiary.
On June 18, 2014, the Company formed Alpine Funding LLC ("Alpine"), a wholly-owned financing subsidiary.
The Company has formed and expects to continue to form certain taxable subsidiaries (the “Taxable Subsidiaries”), which are taxed as corporations for U.S. federal income tax purposes. Taxable Subsidiaries allow the Company to hold equity securities of portfolio companies organized as pass-through entities while continuing to satisfy the requirements of a RIC under the Code.
The Company’s investment objective is to generate current income, and to a lesser extent, long-term capital appreciation. The Company intends to meet its investment objective by investing primarily in the debt of privately owned U.S. companies with a focus on senior secured debt, second lien debt and, to a lesser extent, subordinated debt. The Company will originate transactions sourced through SIC Advisors’ direct origination network, and also expects to acquire debt securities through the secondary market. The Company may make equity investments in companies that it believes will generate appropriate risk adjusted returns, although it does not expect such investments to be a substantial portion of the portfolio.

Note 2. Significant Accounting Policies

Basis of Presentation
The Company follows the accounting and reporting guidance in the Financial Accounting Standards Board Accounting Standards Codification ("ASC") Topic 946 - Financial Services, Investment Companies ("ASC 946"). The accompanying consolidated financial statements have been prepared on the accrual basis of accounting in conformity with U.S. generally accepted accounting principles ("GAAP") and include the accounts of the Company and its wholly-owned subsidiaries, Alpine, Arbor, and the Taxable Subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. All references made to the "Company," "we," and "us" herein include Sierra Income Corporation and its consolidated subsidiaries, except as stated otherwise. 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 financial statements prepared in accordance with GAAP are omitted. In the opinion of management, the unaudited interim financial results contain all adjustments and reclassifications, which are of a normal recurring nature, that are necessary for the fair presentation of financial statements for the periods presented. Therefore, this Form 10-Q should be read in conjunction with the Company’s annual report on Form 10-K for the year ended December 31, 2016, which was filed with the U.S. Securities and Exchange Commission ("SEC") on March 7, 2017. The current period’s results of operations will not necessarily be indicative of results that ultimately may be achieved for the fiscal year ending December 31, 2017.

F-22


Cash and Cash Equivalents
The Company considers cash equivalents to be highly liquid investments or investments with original maturities of three months or less. Cash and cash equivalents include deposits in money market mutual funds. The Company deposits its cash in major United States financial institutions which, at times, may be in excess of the Federal Deposit Insurance Corporation insurance limits.

Offering Costs
Offering costs incurred directly by the Company are expensed in the period incurred.

Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Deferred Financing Costs
Financing costs, incurred in connection with the Company’s credit facilities (see Note 6), are deferred and amortized over the life of each corresponding facility.

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

Revenue Recognition
Interest income, adjusted for amortization of premiums and accretion of discounts, is recorded on an accrual basis. The Company records amortized or accreted discounts or premiums as interest income using the effective interest method. Dividend income, which represents dividends from equity investments and distributions from subsidiaries, if any, is recognized on an accrual basis to the extent that the Company expects to collect such amount.

Fee income associated with investments in portfolio companies is recognized as income in the period that the Company becomes entitled to such fees. Other fees related to loan administration requirements are capitalized as deferred revenue and recorded into income over the respective period.

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

The Company holds debt investments that contain a payment-in-kind (PIK) interest provision. PIK interest, which represents contractually deferred interest added to the investment balance that is generally due at maturity, is recorded on an accrual basis to the extent such amounts are expected to be collected. PIK interest is not accrued if the Company does not expect the issuer to be able to pay all principal and interest when due. For the three and nine months ended September 30, 2017, the Company earned $1,574,504 and $4,432,952 in PIK interest, respectively. For the three and nine months ended September 30, 2016, the Company earned $236,353 and $3,722,884 in PIK interest, respectively.

Investment transactions are accounted for on a trade-date basis. Realized gains or losses on investments are measured by the difference between the net proceeds from the disposition and the amortized cost basis of investment, without regard to unrealized gains or losses previously recognized. During the three and nine months ended September 30, 2017, the Company recognized $5,469,025 and $16,230,521 in realized losses, respectively, related to certain non-cash restructuring transactions, which is recorded on the consolidated statements of operations as a component of net realized gain/(loss) from non-controlled/non-affiliated investments. During the three and nine months ended September 30, 2016, the Company recognized $11,844,083 in realized losses, respectively, related to certain non-cash restructuring transactions, which is recorded on the consolidated statements of operations as a component of net realized gain/(loss) from non-controlled/non-affiliated investments.. The Company reports changes in fair value of investments that are measured at fair value as a component of the net change in unrealized appreciation/(depreciation) on investments in the consolidated statements of operations. For total return swap transactions (see Note 5), periodic payments are received or made at the

F-23


end of each settlement period, but prior to settlement are recorded as realized gains or losses on total return swap in the consolidated statements of operations.

Management reviews all loans that become 90 days or more past due on principal and interest or when there is reasonable doubt that principal or interest will be collected for possible placement on management's designation of non-accrual status. Accrued interest is generally reserved 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 and, in management’s judgment, are likely to remain current, although the Company may make exceptions to this general rule if the loan has sufficient collateral value and is in the process of collection. As of September 30, 2017, seven portfolio companies were on non-accrual status with a cost of $52,120,295 and a fair value of $30,770,262, or 2.88% of the fair value of the Company's portfolio. As of December 31, 2016, seven portfolio companies were on non-accrual status with a cost of $57,135,673 and a fair value of $35,022,807, or 3.56% of the fair value of the Company's portfolio.

Interest income from investments in the “equity” class of a collateralized loan obligation ("CLO") security (typically subordinated notes) is recorded based upon an estimation of an effective yield to expected maturity utilizing assumed cash flows in accordance with ASC 325-40, Beneficial Interests in Securitized Financial Assets. The Company monitors the expected cash flows from these investments, including the expected residual payments, and the effective yield is determined and updated periodically. Any difference between the cash distribution received and the amount calculated pursuant to the effective interest method is recorded as an adjustment to the cost basis of such investments.

Investment Classification
The Company classifies its investments in accordance with the requirements of the 1940 Act. Under the 1940 Act, the Company would be deemed to “control” a portfolio company if it owns more than 25% of its outstanding voting securities and/or had the power to exercise control over the management or policies of such portfolio company. The Company refers to such investments in portfolio companies that it “controls” as “Controlled Investments.” Under the 1940 Act, the Company would be deemed to be an “Affiliated Person” of a portfolio company if it owns at least 5%, but no more than 25%, of the portfolio company’s outstanding voting securities or if it is under common control with such portfolio company. The Company refers to such investments in Affiliated Persons as “Affiliated Investments.”

Valuation of Investments
The Company applies fair value accounting to all of its financial instruments in accordance with the 1940 Act and ASC Topic 820 - Fair Value Measurements and Disclosures (“ASC 820”). ASC 820 defines fair value, establishes a framework used to measure fair value and requires disclosures for fair value measurements. In accordance with ASC 820, the Company has categorized its financial instruments carried at fair value, based on the priority of the valuation technique, into a three-level fair value hierarchy as discussed in Note 4. Fair value is a market-based measure considered from the perspective of the market participant who holds the financial instrument rather than an entity specific measure. Therefore, when market assumptions are not readily available, the Company’s own assumptions are set to reflect those that management believes market participants would use in pricing the financial instrument at the measurement date.     
Investments for which market quotations are readily available are valued at such market quotations, which are generally obtained from an independent pricing service or multiple broker-dealers or market makers. The Company weighs the use of third-party broker quotations, if any, in determining fair value based on management's understanding of the level of actual transactions used by the broker to develop the quote and whether the quote was an indicative price or binding offer. However, debt investments with remaining maturities within 60 days that are not credit impaired are valued at cost plus accreted discount, or minus amortized premium, which approximates fair value. Investments for which market quotations are not readily available are valued at fair value as determined by the Company’s board of directors based upon input from management and third party valuation firms. Because these investments are illiquid and because there may not be any directly comparable companies whose financial instruments have observable market values, these loans are valued using a fundamental valuation methodology, consistent with traditional asset pricing standards, that is objective and consistently applied across all loans and through time.
Investments in investment companies are valued at fair value. Fair values are generally determined utilizing the net asset value ("NAV") supplied by, or on behalf of, management of each investment company, which is net of management and incentive fees or allocations charged by the investment company and is in accordance with the "practical expedient", as defined by ASC 820. NAVs received by, or on behalf of, management of each investment company are based on the fair value of the investment company's underlying investments in accordance with policies established by management of each investment company, as described in each of their financial statements and offering memorandum.

F-24


The methodologies utilized by the Company in estimating the fair value of its investments categorized as Level 3 generally fall into the following two categories:
The “Market Approach” uses prices and other relevant information generated by market transactions involving identical or comparable assets, liabilities, or a group of assets and liabilities, such as a business.
The “Income Approach” converts future amounts (for example, cash flows or income and expenses) to a single current (that is, discounted) amount. When the Income Approach is used, the fair value measurement reflects current market expectations about those future amounts.
The Company uses third-party valuation firms to assist the board of directors in the valuation of its portfolio investments. The valuation reports generated by the third-party valuation firms consider the evaluation of financing and sale transactions with third parties, expected cash flows and market based information, including comparable transactions, performance multiples, and movement in yields of debt instruments, among other factors. Based on market data obtained from the third-party valuation firms, the Company uses a combined market yield analysis and an enterprise model of valuation. In applying the market yield analysis, the value of the Company’s loans is determined based upon inputs such as the coupon rate, current market yield, interest rate spreads of similar securities, the stated value of the loan, and the length to maturity. In applying the enterprise model, the Company uses a waterfall analysis which takes into account the specific capital structure of the borrower and the related seniority of the instruments within the borrower’s capital structure into consideration. To estimate the enterprise value of the portfolio company, the Company weighs some or all of the traditional market valuation methods and factors based on the individual circumstances of the portfolio company in order to estimate the enterprise value. The methodologies for performing investments may be based on, among other things: valuations of comparable public companies, recent sales of private and public comparable companies, discounting the forecasted cash flows of the portfolio company, third party valuations of the portfolio company, considering offers from third parties to buy the company, estimating the value to potential strategic buyers and considering the value of recent investments in the equity securities of the portfolio company. For non-performing investments, the Company may estimate the liquidation or collateral value of the portfolio company’s assets and liabilities using an expected recovery model. The Company may estimate the fair value of warrants based on a model such as the Black-Scholes model or simulation models or a combination thereof.

The methodologies and information that the Company utilizes when applying the Market Approach for performing investments includes, among other things:

valuations of comparable public companies (“Guideline Comparable Approach”);
recent sales of private and public comparable companies (“Guideline Comparable Approach”);
recent acquisition prices of the company, debt securities or equity securities (“Acquisition Price Approach”);
external valuations of the portfolio company, offers from third parties to buy the company (“Estimated Sales Proceeds Approach”);
subsequent sales made by the company of its investments (“Expected Sales Proceeds Approach”); and
estimating the value to potential buyers.

The methodologies and information that the Company utilizes when applying the Income Approach for performing investments includes:

discounting the forecasted cash flows of the portfolio company or securities (“Discounted Cash Flow” or “DCF” Approach); and
Black-Scholes model or simulation models or a combination thereof (Income Approach – Option Model) with respect to the valuation of warrants.

Over-the-counter derivative contracts, such as total return swaps (see Note 5) are fair valued using models that measure the change in fair value of reference assets underlying the swaps offset against any fees payable to the swap counterparty. The fair values of the reference assets underlying the swaps are determined using similar methods as described above for debt and equity investments where the Company also invests directly in such assets.

The Company undertakes a multi-step valuation process each quarter when valuing investments for which market quotations are not readily available, as described below:

the quarterly valuation process begins with each portfolio investment being initially valued by the Company's valuation professionals;
preliminary valuation conclusions are then documented and discussed with senior management; and
an independent valuation firm engaged by the Company’s board of directors prepares an independent valuation report for approximately one-third of the portfolio investments each quarter on a rotating quarterly basis on non-

F-25


fiscal year-end quarters, such that each of these investments will be valued by an independent valuation firm at least twice per annum when combined with the fiscal year-end review of all the investments by independent valuation firms.
In addition, all of the Company’s investments are subject to the following valuation process:
management reviews preliminary valuations and its own independent assessment;
the independent audit committee of the Company’s board of directors reviews the preliminary valuations of senior management and independent valuation firms; and
the Company’s board of directors discusses valuations and determines the fair value of each investment in the Company’s portfolio in good faith based on the input of SIC Advisors, the respective independent valuation firms and the audit committee.
The Company’s investments in subordinated notes are carried at fair value, which is based on a discounted cash flow model. The discounted cash flow model models both the underlying collateral (assets) and the liabilities of the CLO capital structure. The discounted cash flow model uses a set of assumptions including projected default rates, recovery rates, reinvestment rates and prepayment rates in order to arrive at estimated cash flows of the assets. The discounted cash flow model distributes the asset cash flows to the liability structure based on the payment priorities and discounts them back using appropriate market discount rates based on discount rates for comparable CLOs. The assumptions are based on available market data as well as management estimates. Additional data is used to validate the results from the discounted cash flow method, such as analysis of relevant data observed in the CLO market, review of quotes, where available, recent acquisitions and observable transactions in the subordinated notes, among other factors.
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 differ significantly from the values that would have been used had a readily available market value existed for such investments, and the differences could be material.

Fair Value of Financial Instruments
The carrying amounts of certain of the Company’s financial instruments, including cash and accounts payable and accrued expenses, approximate fair value due to their short-term nature. The carrying amounts and fair values of the Company’s long-term obligations are discussed in Note 4.

U.S. Federal Income Taxes
The Company has elected to be treated as a RIC under Subchapter M of the Code and operate in a manner so as to continue to qualify for the tax treatment applicable to RICs. In order to continue to qualify as a RIC, among other things, the Company is required to meet certain source of income and asset diversification requirements and timely distribute to its stockholders at least 90% of the sum of its investment company taxable income ("ICTI") including PIK, as defined by the Code, and net tax-exempt interest income (which is the excess of the Company’s gross tax-exempt interest income over certain disallowed deductions) for each taxable year in order to be eligible for tax treatment under Subchapter M of the Code. Depending on the level of ICTI earned in a tax year, the Company may choose to carry forward ICTI in excess of current year dividend distributions into the next tax year. Any such carryover ICTI must be distributed before the end of that next tax year through a dividend declared prior to filing the final tax return related to the year which generated such ICTI.
The Company will be subject to a nondeductible U.S. federal excise tax of 4% on undistributed income if it does not distribute at least 98% of its ordinary income in any calendar year and 98.2% of its capital gain net income for each one-year period ending on October 31 of such calendar year. To the extent the Company determines that its estimated current year annual taxable income will be in excess of estimated current year dividend distributions for U.S. federal excise tax purposes, the Company accrues U.S. federal excise tax, if any, on estimated excess taxable income as taxable income is earned.
The Taxable Subsidiaries accrue income taxes payable based on the applicable corporate rates on the unrealized gains generated by the investments held by the Taxable Subsidiaries. As of September 30, 2017 and December 31, 2016, the Company recorded a deferred tax liability of $429,991 and $244,622, respectively, on the consolidated statements of assets and liabilities. The change in deferred tax liabilities is included as a component of net realized and unrealized gain/(loss) on investments on the consolidated statements of operations.
ICTI generally differs from net investment income for financial reporting purposes due to temporary and permanent differences in the recognition of income and expenses. The Company may be required to recognize ICTI in certain circumstances in which it does not receive cash. For example, if the Company holds debt obligations that are treated under applicable tax rules as having original issue discount, the Company must include in ICTI each year a portion of the original issue discount that accrues over the life of the obligation, regardless of whether cash representing such income is received by the Company in the same taxable year. The Company may also have to include in ICTI other amounts that it has not yet received in cash, such as PIK interest income and interest

F-26


income from investments that have been classified as non-accrual for financial reporting purposes. Interest income on non-accrual investments is not recognized for financial reporting purposes, but generally is recognized in ICTI. Because any original issue discount or other amounts accrued will be included in the Company’s ICTI for the year of accrual, the Company may be required to make a distribution to its stockholders in order to satisfy the minimum distribution requirements, even though the Company will not have received and may not ever receive any corresponding cash amount. ICTI also excludes net unrealized appreciation or depreciation, as investment gains or losses are not included in taxable income until they are realized.

Although the Company files federal and state tax returns, the Company's major tax jurisdiction is the United States federal jurisdiction. The Company’s federal and state tax returns for the prior three fiscal years remain open, subject to examination by the Internal Revenue Service.

The Company accounts for income taxes in conformity with ASC Topic 740 - Income Taxes (“ASC 740”). ASC 740 provides guidelines for how uncertain tax positions should be recognized, measured, presented and disclosed in financial statements. ASC 740 requires the evaluation of tax positions taken or expected to be taken in the course of preparing the Company’s tax returns to determine whether the tax positions are “more-likely-than-not” to be sustained by the applicable tax authority. Tax positions deemed to meet the “more-likely-than-not” threshold would be recorded as a tax benefit or expense in the current period. The Company recognizes interest and penalties, if any, related to unrecognized tax benefits as income tax expense in the consolidated statements of operations. There were no interest or penalties due to material uncertain income tax positions at September 30, 2017 and 2016.
The following table reflects, for U.S. federal income tax purposes, the sources of the cash distributions that the Company has paid on its common stock for the nine months ended September 30, 2017 and 2016 :
 
 
Nine Months Ended September 30, 2017
 
Nine Months Ended September 30, 2016
Source of Distribution
 
Distribution
Amount
 
Percentage
 
Distribution
Amount(1)
 
Percentage
Ordinary income
 
$
46,082,836

 
100.0
%
 
$
53,464,883

 
100.0
%
Net realized gain
 

 

 

 

Return of capital
 

 

 

 

Distributions on a tax basis
 
$
46,082,836

 
100.0
%
 
$
53,464,883

 
100.0
%

(1) For the nine months ended September 30, 2016, if expense support payments of $16,093,129 were not made by SIC Advisors, 30% of the distributions would have been a return of capital for GAAP purposes.

As of September 30, 2017, for federal income tax purposes, the aggregate gross unrealized appreciation and depreciation is $8,341,062 and $56,079,015, respectively. As of September 30, 2017, net unrealized depreciation is $45,794,014 based on a tax basis cost of $1,112,856,106.
Segments
The Company invests in various industries. The Company separately evaluates the performance of each of its investment relationships. However, because each of these investment relationships has similar business and economic characteristics, they have been aggregated into a single investment segment. All applicable segment disclosures are included in or can be derived from the Company’s consolidated financial statements (See Note 3).

Company Investment Risk, Concentration of Credit Risk, and Liquidity Risk
SIC Advisors has broad discretion in making investments for the Company. Investments generally consist of debt instruments that may be affected by business, financial market or legal uncertainties. Prices of investments may be volatile, and a variety of factors that are inherently difficult to predict, such as domestic or international economic and political developments, may significantly affect the results of the Company’s activities and the value of its investments. In addition, the value of the Company’s portfolio may fluctuate as the general level of interest rates fluctuates.
The value of the Company’s investments in loans and bonds may be detrimentally affected to the extent, among other things, that a borrower defaults on its obligations, there is insufficient collateral and/or there are extensive legal and other costs incurred in collecting on a defaulted loan, observable secondary or primary market yields for similar instruments issued by comparable companies increase materially or risk premiums required in the market between smaller companies, such as the Company’s borrowers, and those for which market yields are observable, increase materially.
The Company’s assets 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.

F-27


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.

Recent Accounting Pronouncements

In March 2016, the FASB issued ASU 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net), which clarified the implementation guidance on principal versus agent considerations. In April 2016, the FASB issued ASU 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing, which clarified the implementation guidance regarding performance obligations and licensing arrangements. The new standard will become effective for the Company on January 1, 2018, with early application permitted to the effective date of January 1, 2017. The Company is evaluating the effect that the above referenced guidance will have on its consolidated financial statements and related disclosures. The Company has not yet selected a transition method nor has it determined the effect of the standard on its ongoing financial reporting. The guidance does not apply to revenue associated with financial instruments, including loans and notes that are accounted for under other U.S. GAAP. As a result, the Company does not expect the new revenue recognition guidance to have a material impact on the elements of its consolidated statements of operations, most closely associated with financial instruments, including realized gains, fees, interest and dividend income. The Company plans to adopt the revenue recognition guidance in the first quarter of 2018. The Company’s implementation efforts include the identification of revenue within the scope of the guidance, as well as the evaluation of revenue contracts and related accounting policies. While the Company has not yet identified any material changes in the timing of revenue recognition, the Company's review is ongoing, and it continues to evaluate the presentation of certain contract costs.

Note 3. Investments
The following table summarizes the amortized cost and the fair value of the Company’s portfolio investments as of September 30, 2017:
 
Amortized Cost
 
Percentage
 
Fair Value
 
Percentage
Senior secured first lien term loans
$
572,860,454

 
51.4
%
 
$
553,428,971

 
51.9
%
Senior secured second lien term loans
304,081,717

 
27.3

 
285,048,102

 
26.7

Senior secured first lien notes
53,951,323

 
4.8

 
52,850,766

 
5.0

Subordinated notes
74,393,199

 
6.7

 
71,311,459

 
6.7

Sierra Senior Loan Strategy JV I LLC
72,991,250

 
6.5

 
72,086,943

 
6.8

Warrants/Equity
36,522,102

 
3.3

 
32,335,851

 
3.0

Total
$
1,114,800,045

 
100.0
%
 
$
1,067,062,092

 
100.0
%

The following table summarizes the amortized cost and the fair value of the Company’s portfolio investments as of December 31, 2016: 
 
Amortized Cost
 
Percentage
 
Fair Value
 
Percentage
Senior secured first lien term loans
$
515,753,491

 
50.2
%
 
$
493,340,277

 
50.2
%
Senior secured second lien term loans
275,915,932

 
26.9

 
260,008,735

 
26.4

Senior secured first lien notes
72,767,547

 
7.1

 
71,970,598

 
7.3

Subordinated notes
53,041,209

 
5.2

 
55,185,590

 
5.6

Sierra Senior Loan Strategy JV I LLC
60,785,000

 
5.9

 
60,496,647

 
6.2

Warrants/Equity
48,219,259

 
4.7

 
42,142,475

 
4.3

Total
$
1,026,482,438

 
100.0
%
 
$
983,144,322

 
100.0
%


F-28


The following table shows the composition of the Company’s portfolio investments by industry classification at amortized cost and fair value as of September 30, 2017:
Industry Classification
 
Amortized Cost
 
Percentage
 
Fair Value
 
Percentage
Services: Business
 
$
160,312,891

 
14.4
%
 
$
159,677,377

 
15.0
%
Multi-Sector Holdings
 
147,384,449

 
13.2
%
 
143,398,402

 
13.4
%
Healthcare & Pharmaceuticals
 
88,593,491

 
7.9
%
 
85,276,518

 
8.0
%
Aerospace & Defense
 
81,363,312

 
7.3
%
 
82,024,806

 
7.7
%
Banking, Finance, Insurance & Real Estate
 
74,734,639

 
6.7
%
 
74,791,174

 
7.0
%
Construction & Building
 
68,262,278

 
6.1
%
 
68,939,049

 
6.5
%
Hotel, Gaming & Leisure
 
76,768,495

 
6.9
%
 
63,094,334

 
5.9
%
High Tech Industries
 
54,783,730

 
4.9
%
 
53,978,631

 
5.1
%
Transportation: Cargo
 
38,550,182

 
3.5
%
 
38,717,742

 
3.6
%
Energy: Oil & Gas
 
36,394,905

 
3.3
%
 
35,461,384

 
3.3
%
Retail
 
34,826,591

 
3.1
%
 
29,526,830

 
2.8
%
Chemicals, Plastics & Rubber
 
28,716,215

 
2.6
%
 
28,718,889

 
2.7
%
Media: Advertising, Printing & Publishing
 
26,965,787

 
2.4
%
 
25,682,164

 
2.4
%
Telecommunications
 
22,130,786

 
2.0
%
 
21,722,937

 
2.0
%
Metals & Mining
 
21,127,331

 
1.9
%
 
21,127,331

 
2.0
%
Containers, Packaging & Glass
 
19,280,312

 
1.7
%
 
19,277,831

 
1.8
%
Beverage & Food
 
18,776,362

 
1.7
%
 
19,006,462

 
1.8
%
Automotive
 
35,479,192

 
3.2
%
 
18,884,012

 
1.8
%
Media: Diversified & Production
 
15,247,000

 
1.4
%
 
15,910,550

 
1.5
%
Capital Equipment
 
14,663,327

 
1.3
%
 
14,660,612

 
1.4
%
Media: Broadcasting & Subscription
 
16,127,683

 
1.4
%
 
13,889,508

 
1.3
%
Wholesale
 
12,487,500

 
1.1
%
 
12,422,565

 
1.2
%
Services: Consumer
 
9,497,960

 
0.9
%
 
8,631,157

 
0.8
%
Transportation: Consumer
 
7,443,960

 
0.7
%
 
7,443,960

 
0.7
%
Environmental Industries
 
2,881,667

 
0.3
%
 
2,881,667

 
0.3
%
Consumer Goods: Non-Durable
 
2,000,000

 
0.2
%
 
1,916,200

 
0.2
%
Total
 
$
1,114,800,045

 
100.0
%
 
$
1,067,062,092

 
100.0
%


F-29


The following table shows the composition of the Company’s portfolio investments by industry classification at amortized cost and fair value as of December 31, 2016:
Industry Classification
 
Amortized Cost
 
Percentage
 
Fair Value
 
Percentage
Services: Business
 
$
159,797,762

 
15.6
%
 
$
149,451,149

 
15.2
%
Multi-Sector Holdings
 
128,326,209

 
12.5

 
130,182,237

 
13.3

Banking, Finance, Insurance & Real Estate
 
72,588,294

 
7.1

 
72,938,844

 
7.4

Aerospace & Defense
 
68,415,721

 
6.7

 
70,126,640

 
7.1

Hotel, Gaming & Leisure
 
71,197,643

 
6.9

 
69,640,838

 
7.1

Healthcare & Pharmaceuticals
 
75,853,228

 
7.4

 
69,382,894

 
7.1

Retail
 
71,315,882

 
6.9

 
61,292,231

 
6.2

Construction & Building
 
59,905,702

 
5.8

 
58,267,425

 
5.9

Telecommunications
 
37,511,289

 
3.7

 
37,580,414

 
3.8

Energy: Oil & Gas
 
38,245,386

 
3.7

 
33,048,939

 
3.4

Transportation: Cargo
 
28,797,584

 
2.8

 
28,493,057

 
2.9

High Tech Industries
 
26,733,476

 
2.6

 
25,888,925

 
2.6

Automotive
 
32,217,128

 
3.1

 
24,222,630

 
2.5

Wholesale
 
22,332,170

 
2.2

 
21,660,294

 
2.2

Metals & Mining
 
20,756,842

 
2.0

 
20,518,139

 
2.1

Media: Advertising, Printing & Publishing
 
20,267,753

 
2.0

 
19,306,587

 
2.0

Beverage & Food
 
18,949,580

 
1.8

 
19,282,080

 
2.0

Media: Broadcasting & Subscription
 
18,085,575

 
1.8

 
15,830,498

 
1.6

Media: Diversified & Production
 
15,247,000

 
1.5

 
15,733,786

 
1.6

Chemicals, Plastics & Rubber
 
15,515,124

 
1.5

 
15,726,190

 
1.6

Capital Equipment
 
11,937,500

 
1.2

 
12,088,629

 
1.2

Transportation: Consumer
 
7,280,374

 
0.7

 
7,280,374

 
0.7

Services: Consumer
 
5,205,216

 
0.5

 
5,201,522

 
0.5

Total
 
$
1,026,482,438

 
100.0
%
 
$
983,144,322

 
100.0
%
See Note 5 for industry classifications of the underlying total return swap ("TRS") reference assets as of September 30, 2017 and December 31, 2016.
The following table shows the composition of the Company’s portfolio investments by geography classification at fair value as of September 30, 2017 and December 31, 2016: 
 
September 30, 2017
 
December 31, 2016
Geography
Fair Value
 
Percentage
 
Fair Value
 
Percentage
United States
$
993,145,565

 
93.1
%
 
$
905,925,975

 
92.1
%
Canada
2,605,068

 
0.2

 
7,532,757

 
0.8

Cayman Islands
71,311,459

 
6.7

 
69,685,590

 
7.1

Total
$
1,067,062,092

 
100.0
%
 
$
983,144,322

 
100.0
%


F-30


Transactions With Controlled/Affiliated Companies

During the nine months ended September 30, 2017 and 2016, the Company had investments in portfolio companies designated as controlled/affiliated investments under the 1940 Act. Transactions with controlled/affiliated investments were as follows: 
Name of Investment (3)
 
Type of Investment
 
Fair Value at December 31, 2016
 
Purchases/
(Sales)
of Investments
 
Transfers
In/(Out)
of Investments
 
Net change in
unrealized
appreciation/
(depreciation)
 
Realized Gain/(Loss)
 
Fair Value at September 30, 2017
 
Income
Earned
AAR Intermediate Holdings, LLC
 
Senior Secured First Lien Term Loans
 
$

 
$
(150,935
)
 
$
150,935

 
$

 
$

 
$

 
$
9,015

 
 
Senior Secured First Lien Term Loans
 

 

 
3,144,481

 

 

 
3,144,481

 
146,648

 
 
Senior Secured First Lien Term Loans
 

 
593,511

 
5,254,799

 
1,062,892

 

 
6,911,202

 
469,183

 
 
 Membership Units
 

 

 

 

 

 

 

Access Media Holdings, LLC
 
Senior Secured First Lien Term Loan
 

 
271,946

 
7,026,014

 

 

 
7,297,960

 
541,307

 
 
Common Stock
 

 

 

 

 

 

 

 
 
Preferred Equity Series A
 

 

 
1,400,000

 
(1,400,000
)
 

 

 

 
 
Preferred Equity Series AA
 

 
52,500

 
647,500

 
(700,000
)
 

 

 

 
 
Preferred Equity Series AAA
 

 
317,800

 
 
 
(158,900
)
 

 
158,900

 

Capstone Nutrition
 
Senior Secured First Lien Term Loans
 
16,246,819

 
(281,769
)
 

 
3,379,306

 

 
19,344,356

 

 
 
Common Stock
 

 

 

 

 

 

 

 
 
Common Stock, Class B
 

 

 

 

 

 

 

 
 
Common Stock, Class C
 

 

 

 

 

 

 

MCM Capital Office Park Holdings LLC
 
Equity
 
7,500,000

 
(467,532
)
 

 

 

 
7,032,468

 

Nomida LLC(1)
 
Senior Secured First Lien Term Loan
 
8,100,000

 
(4,400,000
)
 

 

 

 
3,700,000

 
611,806

 
 
Equity
 
5,400,000

 

 

 

 

 
5,400,000

 

Sierra Senior Loan Strategy JV I LLC(2)
 
Equity
 
60,496,647

 
12,206,250

 

 
(615,954
)
 

 
72,086,943

 
5,512,500

TwentyEighty, Inc.
 
Senior Secured First Lien Term Loan
 

 
5,442,414

 

 
(79,390
)
 

 
5,363,024

 
350,142

 
 
Senior Secured First Lien Term Loan
 

 
6,579,632

 

 

 

 
6,579,632

 
344,482

 
 
Senior Secured First Lien Term Loan
 

 
3,059,173

 

 
15,086

 

 
3,074,259

 
183,364

 
 
Senior Secured First Lien Term Loan
 

 

 

 

 

 

 
8,571

 
 
Equity
 

 

 

 

 

 

 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total
 
 
 
$
97,743,466

 
$
23,222,990

 
$
17,623,729

 
$
1,503,040

 
$

 
$
140,093,225

 
$
8,177,018

 
Name of Investment
 
Type of Investment
 
Fair Value at December 31, 2015
 
Purchases/
(Sales)
of Investments
 
Transfers
In/(Out)
of Investments
 
Net change in
unrealized
appreciation/
(depreciation)
 
Realized Gain/(Loss)
 
Fair Value at September 30, 2016
 
Income
Earned
Nomida LLC(1)
 
Senior Secured First Lien Term Loan
 
$
8,100,042

 
$

 
$

 
$
14,700

 
$

 
$
8,114,742

 
$
616,500

 
 
Equity
 
5,400,000

 

 

 

 

 
5,400,000

 

Sierra Senior Loan Strategy JV I LLC(2)
 
Equity
 
34,362,191

 
19,950,000

 

 
(1,739,556
)
 

 
52,572,635

 
3,570,000

Total
 
 
 
$
47,862,233

 
$
19,950,000

 
$

 
$
(1,724,856
)
 
$

 
$
66,087,377

 
$
4,186,500


F-31


_______________________________
(1)
Nomida, LLC ("Nomida") is a non-public real estate investment formed by the Company to purchase and develop a residential property. The Company is the sole equity shareholder of Nomida and has provided 100% of the debt financing to the entity. The Company is Nomida’s sole member responsible for Nomida’s daily operations. In addition, the Chief Financial Officer and Secretary of the Company also serves as President of Nomida. The assets of Nomida are comprised of a residential development property in the city of Chicago, IL and the proceeds of the loan from the Company; the liabilities of Nomida consist of the loan payable to the Company.
(2)
The Company and Great American Life Insurance Company ("GALIC") are the members of Sierra Senior Loan Strategy JV I LLC ("Sierra JV"), a joint venture formed as a Delaware limited liability company that is not consolidated by either member for financial reporting purposes. The members of Sierra JV make capital contributions as investments by Sierra JV are completed, and all portfolio and other material decisions regarding Sierra JV must be submitted to Sierra JV’s board of managers, which is comprised of an equal number of members appointed by each of the Company and GALIC. Approval of Sierra JV’s board of managers requires the unanimous approval of a quorum of the board of managers, with a quorum consisting of equal representation of members appointed by each of the Company and GALIC. Because management of Sierra JV is shared equally between the Company and GALIC, the Company does not have operational control over the Sierra JV for purposes of the 1940 Act or otherwise.
(3)
The par amount and additional detail are shown in the consolidated schedule of investments.

Purchases/(sales) of investments in controlled/affiliates are included in the purchases and sales presented on the consolidated statements of cash flows for the nine months ended September 30, 2017 and 2016. Transfers in/(out) of controlled/affiliated represents the fair value for the month an investment became or was removed as a controlled/affiliates investment. Income received from controlled/affiliated is included in total investment income on the consolidated statements of operations for the three and nine months ended September 30, 2017 and 2016.

Sierra Senior Loan Strategy JV I LLC
On March 27, 2015, the Company and GALIC entered into a limited liability company operating agreement to co-manage Sierra JV. All portfolio and other material decisions regarding Sierra JV must be submitted to Sierra JV's board of managers, which is comprised of four members, two of whom are selected by the Company and the other two are selected by GALIC. The Company has concluded that it does not operationally control Sierra JV. As the Company does not operationally control Sierra JV, it does not consolidate the operations of Sierra JV within the consolidated financial statements. As a practical expedient, the Company uses NAV to determine the fair value of its investment in Sierra JV; therefore, this investment has been presented as a reconciling item within the fair value hierarchy (see Note 4).

As of September 30, 2017 and December 31, 2016, Sierra JV had total capital commitments of $100 million, with the Company providing $87.5 million and GALIC providing $12.5 million. $83.4 million and $69.5 million was funded as of September 30, 2017 and December 31, 2016, relating to these commitments, of which $72.9 million and $60.8 million were from the Company, respectively. The Company does not have the right to withdraw any of their respective capital commitment, unless in connection with a transfer of its membership interests. The Company may transfer full membership interests as long as it is approved by all members and transferred in a transaction exempt from the registration requirements of the Securities Act of 1933, as amended, or applicable state securities laws.

On August 4, 2015, Sierra JV entered into a senior secured revolving credit facility the ("JV Facility") led by Credit Suisse, AG ("CS") with commitments of $100 million subject to certain leverage and borrowing base restrictions. On December 29, 2015, the JV Facility was amended and the total commitments were increased to $135 million. On March 30, 2017, the Company amended the JV Facility previously administered by CS and facilitated the assignment of all rights and obligations of CS under the JV Facility to Deutsche Bank AG, New York Branch, ("DB") and increased the total loan commitments to $240 million. On May 26, 2017 commitments to the JV facility were increased from $240 million to $250 million. The JV Facility bears interest at a rate of LIBOR (with no minimum) plus 2.50% per annum. The JV Facility reinvestment period ends on March 30, 2019 and the stated maturity date is March 30, 2022. As of September 30, 2017 and December 31, 2016, there were $159.9 million and $123.9 million outstanding under the JV Facility, respectively.

The following table shows a summary of Sierra JV's portfolio as of September 30, 2017 and December 31, 2016:
 
September 30, 2017
 
December 31, 2016
Senior secured loans(1)
$
234,429,783

 
$
187,314,127

Weighted average current interest rate on senior secured loans(2)
6.74
%
 
6.73
%
Number of borrowers in the Sierra JV
49

 
40

Investments at fair value
$
229,247,389

 
$
183,657,487

Largest loan to a single borrower(1)
$
11,346,929

 
$
10,000,000

Total of five largest loans to borrowers(1)
$
46,991,289

 
$
39,387,481

_____________________________
(1)
At par value.
(2)
Computed as the (a) annual stated interest rate on accruing senior secured loans, divided by (b) total senior secured loans at principal amount.

F-32



The following is a listing of the individual investments in Sierra JV's portfolio as of September 30, 2017:
Company
 
Industry
 
Type of Investment
 
Maturity
 
Par Amount
 
Cost
 
Fair Value(1)
4 Over International, LLC
 
Media: Advertising, Printing & Publishing
 
Senior Secured First Lien Term loans(2) LIBOR + 6.000%, 1.000% Floor
 
6/7/2022
 
$
11,346,928

 
$
11,346,928

 
$
11,346,928

AccentCare, Inc.
 
Healthcare & Pharmaceuticals
 
Senior Secured First Lien Term loans(3) LIBOR + 5.750%, 1.000% Floor
 
10/1/2021
 
6,727,866

 
6,688,579

 
6,694,228

Acrisure, LLC
 
Banking, Finance, Insurance & Real Estate
 
Senior Secured First Lien Term loans(3) LIBOR + 5.000%, 1.000% Floor
 
11/22/2023
 
497,500

 
496,327

 
502,475

Amplify Snack Brands, Inc.
 
Beverage & Food
 
Senior Secured First Lien Term loans(2) LIBOR + 5.500%, 1.000% Floor
 
9/4/2023
 
2,717,369

 
2,694,347

 
2,672,533

APCO Holdings, Inc.
 
Automotive
 
Senior Secured First Lien Term loans(2) LIBOR + 6.000%, 1.000% Floor
 
1/31/2022
 
4,677,702

 
4,576,111

 
4,677,704

API Technologies Corp.
 
Aerospace & Defense
 
Senior Secured First Lien Term loans(3) LIBOR + 6.500%, 1.000% Floor
 
4/22/2022
 
5,902,500

 
5,812,255

 
5,902,500

Associated Asphalt Partners, LLC
 
Construction & Building
 
Senior Secured First Lien Term loans(2) LIBOR + 5.250%, 1.000% Floor
 
4/5/2024
 
997,500

 
992,848

 
992,513

Avantor Performance Materials Holdings, LLC
 
Chemicals, Plastics & Rubber
 
Senior Secured First Lien Term loans(2) LIBOR + 4.000%, 1.000% Floor
 
3/11/2024
 
2,985,000

 
2,978,115

 
2,985,000

Blount International, Inc.
 
Capital Equipment
 
Senior Secured First Lien Term Loans(2) LIBOR + 5.000%, 1.000% Floor
 
4/12/2023
 
1,980,000

 
1,948,912

 
1,980,000

Canyon Valor Companies, Inc.
 
Media: Diversified & Production
 
Senior Secured First Lien Term Loans(2) LIBOR + 4.250%, 1.000% Floor
 
6/16/2023
 
2,475,000

 
2,468,952

 
2,499,750

Cardenas Markets LLC
 
Retail
 
Senior Secured First Lien Term loans(3) LIBOR + 5.750%, 1.000% Floor
 
11/29/2023
 
6,451,250

 
6,394,436

 
6,440,928

CD&R TZ Purchaser, Inc.
 
Services: Consumer
 
Senior Secured First Lien Term loans(3) LIBOR + 6.000%, 1.000% Floor
 
7/21/2023
 
6,435,000

 
6,354,404

 
6,418,913

CP Opco, LLC
 
Services: Consumer
 
Senior Secured First Lien Term loans(3)(5) LIBOR + 4.500%, 1.000% Floor
 
4/1/2019
 
365,980

 
355,848

 
99,546

CP Opco, LLC
 
Services: Consumer
 
Senior Secured First Lien Term loans(3)(5) LIBOR + 6.000%, 1.000% Floor
 
4/1/2019
 
2,673,135

 
1,195,026

 

CP Opco, LLC
 
Services: Consumer
 
Senior Secured First Lien Term loans(2)(5) LIBOR + 8.000%, 1.000% Floor
 
4/1/2019
 
1,558,081

 

 

CP Opco, LLC
 
Services: Consumer
 
Common Stock
 

 

 

 

CP Opco, LLC
 
Services: Consumer
 
Senior Secured First Lien Term loans(2)(5) LIBOR + 9.500%, 1.000% Floor, PIK
 
4/1/2019
 

 

 

CSP Technologies North America, LLC
 
Containers, Packaging & Glass
 
Senior Secured First Lien Term loans(3) LIBOR + 5.250%, 1.000% Floor
 
1/31/2022
 
4,719,321

 
4,719,321

 
4,719,321

CT Technologies Intermediate Holdings, Inc.
 
Healthcare & Pharmaceuticals
 
Senior Secured First Lien Term loans(2) LIBOR + 4.250%, 1.000% Floor
 
12/1/2021
 
5,218,206

 
5,058,140

 
5,218,206

Elite Comfort Solutions LLC
 
Chemicals, Plastics & Rubber
 
Senior Secured First Lien Term Loans(3) LIBOR + 6.500%, 1.000% Floor
 
1/15/2021
 
9,684,360

 
9,684,360

 
9,684,360

EVO Payments International, LLC
 
Banking, Finance, Insurance & Real Estate
 
Senior Secured First Lien Term loans(2) LIBOR + 5.000%, 1.000% Floor
 
12/22/2023
 
3,482,500

 
3,451,297

 
3,517,325

Explorer Holdings, Inc.
 
Healthcare & Pharmaceuticals
 
Senior Secured First Lien Term loans(3) LIBOR + 5.000%, 1.000% Floor
 
5/2/2023
 
407,932

 
404,671

 
409,482

GK Holdings, Inc.
 
Services: Business
 
Senior Secured First Lien Term Loans(3) LIBOR + 6.000%, 1.000% Floor
 
1/20/2021
 
3,998,461

 
3,982,582

 
3,916,493


F-33


Company
 
Industry
 
Type of Investment
 
Maturity
 
Par Amount
 
Cost
 
Fair Value(1)
Global Eagle Entertainment, Inc.
 
Telecommunications
 
Senior Secured First Lien Term loans(4) LIBOR + 7.000%, 1.000% Floor
 
1/6/2023
 
4,147,500

 
4,079,691

 
4,116,394

Golden West Packaging Group LLC
 
Forrest Products & Paper
 
Senior Secured First Lien Term Loans(2) LIBOR + 5.250%, 1.000% Floor
 
6/20/2023
 
6,708,187

 
6,708,187

 
6,708,187

Harbortouch Payments, LLC
 
Banking, Finance, Insurance & Real Estate
 
Senior Secured First Lien Term Loans(2) LIBOR + 4.750%, 1.000% Floor
 
10/13/2023
 
2,977,500

 
2,952,750

 
2,977,500

High Ridge Brands Co.
 
Consumer Goods: Non-Durable
 
Senior Secured First Lien Term loans(3) LIBOR + 5.000%, 1.000% Floor
 
6/30/2022
 
3,085,937

 
3,047,844

 
2,956,637

Highline Aftermarket Acquisitions, LLC
 
Automotive
 
Senior Secured First Lien Term loans(3) LIBOR + 4.250%, 1.000% Floor
 
3/18/2024
 
3,110,895

 
3,096,668

 
3,110,895

Imagine! Print Solutions, LLC
 
Media: Advertising, Printing & Publishing
 
Senior Secured First Lien Term loans(3) LIBOR + 4.750%, 1.000% Floor
 
6/21/2022
 
7,960,000

 
7,884,361

 
7,880,400

InfoGroup, Inc
 
Services: Business
 
Senior Secured First Lien Term loans(3) LIBOR + 5.000%, 1.000% Floor
 
4/3/2023
 
4,975,000

 
4,928,990

 
4,925,250

Keystone Acquisition Corp.
 
Healthcare & Pharmaceuticals
 
Senior Secured First Lien Term loans(3) LIBOR + 5.250%, 1.000% Floor
 
5/1/2024
 
8,000,000

 
7,857,693

 
8,000,000

KNB Holdings Corporation
 
Consumer Goods: Durable
 
Senior Secured First Lien Term loans(3) LIBOR + 5.500%, 1.000% Floor
 
4/26/2024
 
6,500,000

 
6,377,785

 
6,516,250

LifeMiles, Ltd.
 
Services: Consumer
 
Senior Secured First Lien Term loans(3) LIBOR + 5.500%, 1.000% Floor
 
8/18/2022
 
5,000,000

 
4,950,691

 
4,950,000

MB Aerospace ACP Holdings II Corp.
 
Aerospace and Defense
 
Senior Secured First Lien Term loans(2) LIBOR + 5.500%, 1.000% Floor
 
12/15/2022
 
6,879,963

 
6,828,081

 
6,879,962

MHVC Acquisition Corp.
 
Aerospace and Defense
 
Senior Secured First Lien Term loans(2) LIBOR + 5.250%, 1.000% Floor
 
4/29/2024
 
4,987,500

 
4,963,982

 
4,962,563

New Media Holdings II LLC
 
Media: Advertising, Printing & Publishing
 
Senior Secured First Lien Term loans(2) LIBOR + 6.250%, 1.000% Floor
 
7/14/2022
 
5,864,702

 
5,848,389

 
5,864,702

PetroChoice Holdings, Inc.
 
Chemicals, Plastics & Rubber
 
Senior Secured First Lien Term loans(2) LIBOR + 5.000%, 1.000% Floor
 
8/22/2022
 
4,962,025

 
4,962,025

 
4,962,025

Pomeroy Group LLC
 
Services: Business
 
Senior Secured First Lien Term loans(4) LIBOR + 6.000%, 1.000% Floor
 
11/30/2021
 
5,131,440

 
5,011,161

 
5,101,677

PT Network, LLC
 
Healthcare & Pharmaceuticals
 
Senior Secured First Lien Term loans(3) LIBOR + 6.500%, 1.000% Floor
 
11/30/2021
 
2,977,500

 
2,977,500

 
2,998,045

Quorum Health Corporation
 
Healthcare & Pharmaceuticals
 
Senior Secured First Lien Term Loans(2) LIBOR + 6.750%, 1.000% Floor
 
4/29/2022
 
2,117,046

 
2,084,573

 
2,144,145

Rough Country, LLC
 
Automotive
 
Senior Secured First Lien Term loans(2) LIBOR + 4.500%, 1.000% Floor
 
5/25/2023
 
4,987,500

 
4,940,019

 
4,937,625

Salient CRGT Inc.
 
High Tech Industries
 
Senior Secured First Lien Term loans(2) LIBOR + 5.750%, 1.000% Floor
 
2/28/2022
 
4,913,690

 
4,826,214

 
4,893,053

SCS Holdings I Inc.
 
Wholesale
 
Senior Secured First Lien Term Loans(2) LIBOR + 4.250%, 1.000% Floor
 
10/31/2022
 
3,694,139

 
3,640,153

 
3,731,081

Starfish Holdco LLC
 
High Tech Industries
 
Senior Secured First Lien Term loans(3) LIBOR + 5.000%, 1.000% Floor
 
8/18/2025
 
5,000,000

 
4,950,345

 
4,950,000

Sundial Group Holdings LLC
 
Consumer Goods: Non-Durable
 
Senior Secured First Lien Term loans(2) LIBOR + 4.750%, 1.000% Floor
 
8/15/2024
 
10,000,000

 
9,853,369

 
9,850,000

Survey Sampling International, LLC
 
Services: Business
 
Senior Secured First Lien Term loans(3) LIBOR + 5.000%, 1.000% Floor
 
12/16/2020
 
2,954,530

 
2,934,263

 
2,954,530


F-34


Company
 
Industry
 
Type of Investment
 
Maturity
 
Par Amount
 
Cost
 
Fair Value(1)
The Garretson Resolution Group, Inc.
 
Services: Business
 
Senior Secured First Lien Term loans(2) LIBOR + 6.500%, 1.000% Floor
 
5/24/2021
 
4,718,750

 
4,718,750

 
4,748,478

TouchTunes Interactive Networks, Inc.
 
Media: Diversified & Production
 
Senior Secured First Lien Term loans(2) LIBOR + 4.750%, 1.000% Floor
 
5/28/2021
 
4,974,554

 
4,974,554

 
5,005,894

TrialCard Incorporated
 
Services: Consumer
 
Senior Secured First Lien Term loans(2) LIBOR + 5.000%, 1.000% Floor
 
10/26/2021
 
6,600,149

 
6,546,431

 
6,600,149

Valence Surface Technologies, Inc.
 
Aerospace and Defense
 
Senior Secured First Lien Term loans(3) LIBOR + 5.500%, 1.000% Floor
 
6/13/2019
 
4,359,300

 
4,343,457

 
4,304,373

VCVH Holding Corp.
 
Healthcare & Pharmaceuticals
 
Senior Secured First Lien Term Loan(3) LIBOR + 5.000%, 1.000% Floor
 
6/1/2023
 
5,925,000

 
5,876,195

 
5,916,705

VIP Cinema Holdings, Inc.
 
Consumer Goods: Durable
 
Senior Secured First Lien Term loans(3) LIBOR + 6.000%, 1.000% Floor
 
3/1/2023
 
728,165

 
724,860

 
735,446

Z Gallerie, LLC
 
Retail
 
Senior Secured First Lien Term loans(2) LIBOR + 6.500%, 1.000% Floor
 
10/8/2020
 
4,887,218

 
4,887,220

 
4,887,218

Total
 
 
 
 
 
 
 
$
234,429,783

 
$
229,379,660

 
$
229,247,389

___________________________ 
(1)
Represents the fair value in accordance with ASC 820 as determined by the board of managers of Sierra JV. The approval of the fair value of the portfolio investments held by Sierra JV is not included in the valuation process of the Company's board of directors described elsewhere herein.
(2)
The interest rate on these loans is subject to a base rate plus 1 Month (“1M”) LIBOR, which at September 30, 2017 was 1.23%. As the interest rate is subject to a minimum LIBOR floor, which was greater than the 1M LIBOR rate at September 30, 2017, the prevailing rate in effect at September 30, 2017 was the base rate plus the LIBOR floor.
(3)
The interest rate on these loans is subject to a base rate plus 3 Month (“3M”) LIBOR, which at September 30, 2017 was 1.33%. As the interest rate is subject to a minimum LIBOR floor, which was greater than the 3M LIBOR rate at September 30, 2017, the prevailing rate in effect at September 30, 2017 was the base rate plus the LIBOR floor.
(4)
The interest rate on these loans is subject to a base rate plus 6 Month (“6M”) LIBOR, which at September 30, 2017 was 1.51%. As the interest rate is subject to a minimum LIBOR floor, which was greater than the 6M LIBOR rate at September 30, 2017, the prevailing rate in effect at September 30, 2017 was the base rate plus the LIBOR floor.
(5)
The investment was on non-accrual status as of September 30, 2017.

The following is a listing of the individual investments in Sierra JV's portfolio as of December 31, 2016:
Company
 
Industry
 
Type of Investment
 
Maturity
 
Par Amount
 
Cost
 
Fair Value(1)
4 Over International, LLC
 
Media: Advertising, Printing & Publishing
 
Senior Secured First Lien Term loans(4) LIBOR + 6.000%, 1.000% Floor
 
6/7/2022

 
$
2,475,000

 
$
2,475,000

 
$
2,475,000

AccentCare, Inc.
 
Healthcare & Pharmaceuticals
 
Senior Secured First Lien Term loans(4) LIBOR + 5.750%, 1.000% Floor
 
9/3/2021

 
4,582,500

 
4,546,589

 
4,582,500

Amplify Snack Brands, Inc.
 
Beverage & Food
 
Senior Secured First Lien Term loans(4) LIBOR + 5.500%, 1.000% Floor
 
9/2/2023

 
5,985,000

 
5,927,893

 
5,810,418

APCO Holdings, Inc.
 
Automotive
 
Senior Secured First Lien Term loans(4) LIBOR + 6.000%, 1.000% Floor
 
1/31/2022

 
4,834,797

 
4,711,696

 
4,854,668

API Technologies Corp.
 
Aerospace & Defense
 
Senior Secured First Lien Term loans(2)(4) LIBOR + 6.500%, 1.000% Floor
 
4/22/2022

 
5,970,000

 
5,863,757

 
5,915,434

Blount International, Inc.
 
Capital Equipment
 
Senior Secured First Lien Term loans(4) LIBOR + 6.250%, 1.000% Floor
 
4/12/2023

 
1,995,000

 
1,959,438

 
1,981,634

Cardenas Markets LLC
 
Retail
 
Senior Secured First Lien Term loans(4) LIBOR + 5.750%, 1.000% Floor
 
11/29/2023

 
6,500,000

 
6,435,814

 
6,435,000

CD&R TZ Purchaser, Inc.
 
Services: Consumer
 
Senior Secured First Lien Term loans(4) LIBOR + 6.000%, 1.000% Floor
 
7/21/2023

 
6,483,750

 
6,392,086

 
6,289,238

CP OpCo, LLC
 
Services: Consumer
 
Senior Secured First Lien Term loans(3)(4) LIBOR + 4.500%, 1.000% Floor
 
3/31/2019

 
564,956

 
564,956

 
564,956

CP OpCo, LLC
 
Services: Consumer
 
Senior Secured First Lien Term loans(4) LIBOR + 4.500%, 1.000% Floor
 
3/31/2019

 
840,996

 
840,996

 
840,996


F-35


Company
 
Industry
 
Type of Investment
 
Maturity
 
Par Amount
 
Cost
 
Fair Value(1)
CP OpCo, LLC
 
Services: Consumer
 
Senior Secured First Lien Term loans(4)(5) LIBOR + 4.500%, 1.000% Floor
 
3/31/2019

 
350,415

 
350,415

 
350,415

CP OpCo, LLC
 
Services: Consumer
 
Senior Secured First Lien Term loans(4)(5) LIBOR + 6.000%, 1.000% Floor
 
3/31/2019

 
2,478,388

 
1,195,026

 
1,239,194

CP OpCo, LLC
 
Services: Consumer
 
Senior Secured First Lien Term loans(4)(5) LIBOR + 6.000%, 1.000% Floor
 
3/31/2019

 
1,558,081

 

 

CP OpCo, LLC
 
Services: Consumer
 
Common Units
 

 

 

 

CRGT Inc.
 
High Tech Industries
 
Senior Secured First Lien Term loans(4) LIBOR + 6.500%, 1.000% Floor
 
12/19/2020

 
4,068,160

 
4,060,486

 
4,068,160

Elite Comfort Solutions LLC
 
Chemicals, Plastics & Rubber
 
Senior Secured First Lien Term loans(4) LIBOR + 6.500%, 1.000% Floor
 
1/15/2021

 
10,000,000

 
10,000,000

 
10,100,000

Explorer Holdings, Inc.
 
Healthcare & Pharmaceuticals
 
Senior Secured First Lien Term loans(4) LIBOR + 5.000%, 1.000% Floor
 
5/2/2023

 
1,243,750

 
1,232,468

 
1,252,208

GK Holdings, Inc.
 
Services: Business
 
Senior Secured First Lien Term loan(4) LIBOR + 5.500%, 1.000% Floor
 
1/20/2021

 
4,029,298

 
4,009,681

 
4,109,884

GTCR Valor Companies, Inc.
 
Media: Diversified & Production
 
Senior Secured First Lien Term loans(4) LIBOR + 6.000%, 1.000% Floor
 
6/16/2023

 
8,955,000

 
8,621,284

 
8,843,063

Harbortouch Payments, LLC
 
Banking, Finance, Insurance & Real Estate
 
Senior Secured First Lien Term loans(4) LIBOR + 4.750%, 1.000% Floor
 
10/31/2023

 
3,000,000

 
2,971,068

 
2,970,000

High Ridge Brands Co.
 
Consumer Goods: Non-Durable
 
Senior Secured First Lien Term loans(4) LIBOR + 5.250%, 1.000% Floor
 
6/30/2022

 
3,109,375

 
3,064,948

 
3,062,734

HNC Holdings, Inc.
 
Construction & Building
 
Senior Secured First Lien Term loans(4) LIBOR + 4.500%, 1.000% Floor
 
10/5/2023

 
165,000

 
164,199

 
166,650

Imagine! Print Solutions, LLC
 
Media: Advertising, Printing & Publishing
 
Senior Secured First Lien Term loans(4) LIBOR + 6.000%, 1.000% Floor
 
3/30/2022

 
5,961,841

 
5,913,053

 
6,021,459

Keurig Green Mountain, Inc.
 
Beverage & Food
 
Senior Secured First Lien Term loans(4) LIBOR + 5.500%, 1.000% Floor
 
3/3/2023

 
3,100,783

 
3,063,634

 
3,100,783

Keystone Peer Review Organization Holdings, Inc.
 
Healthcare & Pharmaceuticals
 
Senior Secured First Lien Term loans(4) ABR + 4.00%, 3.75% ABR Floor
 
12/28/2022

 
6,000,000

 
6,000,000

 
5,940,000

Kraton Polymers LLC
 
Chemicals, Plastics & Rubber
 
Senior Secured First Lien Term loans(4) LIBOR + 5.000%, 1.000% Floor
 
1/6/2022

 
5,000,000

 
4,828,278

 
5,050,000

MB Aerospace ACP Holdings II Corp.
 
Aerospace and Defense
 
Senior Secured First Lien Term loans(4) LIBOR + 5.500%, 1.000% Floor
 
12/15/2022

 
6,932,481

 
6,872,697

 
6,932,481

MWI Holdings, Inc.
 
Capital Equipment
 
Senior Secured First Lien Term loans(4) LIBOR + 5.500%, 1.000% Floor
 
6/29/2020

 
3,980,000

 
3,944,879

 
3,970,050

New Media Holdings II LLC
 
Media: Advertising, Printing & Publishing
 
Senior Secured First Lien Term loans(4) LIBOR + 6.250%, 1.000% Floor
 
6/4/2020

 
5,909,552

 
5,888,526

 
5,909,552

O2 Partners, LLC
 
Consumer Goods: Non-Durable
 
Senior Secured First Lien Term loans(4) LIBOR + 5.000%, 1.000% Floor
 
10/7/2022

 
6,483,750

 
6,421,171

 
6,418,913

Pomeroy Group LLC
 
Services: Business
 
Senior Secured First Lien Term loans(4) LIBOR + 6.000%, 1.000% Floor
 
11/30/2021

 
5,170,611

 
5,027,692

 
5,015,493

PT Network, LLC
 
Healthcare & Pharmaceuticals
 
Senior Secured First Lien Term loans(4) LIBOR + 6.500%, 1.000% Floor
 
11/30/2021

 
3,000,000

 
3,000,000

 
3,000,000

Quorum Health Corporation
 
Healthcare & Pharmaceuticals
 
Senior Secured First Lien Term loans(4) LIBOR + 5.750%, 1.000% Floor
 
4/29/2022

 
4,440,779

 
4,361,538

 
4,340,862

SCS Holdings I Inc.
 
Wholesale
 
Senior Secured First Lien Term loans(4) LIBOR + 4.250%, 1.000% Floor
 
10/30/2022

 
3,933,849

 
3,867,902

 
3,924,014


F-36


Company
 
Industry
 
Type of Investment
 
Maturity
 
Par Amount
 
Cost
 
Fair Value(1)
Southwest Dealer Services, Inc.
 
Automotive
 
Senior Secured First Lien Term loans(4) LIBOR + 6.000%, 1.000% Floor
 
3/16/2020

 
4,620,675

 
4,620,675

 
4,615,315

Sundial Group Holdings LLC
 
Consumer Goods: Non-Durable
 
Senior Secured First Lien Term loans(4) LIBOR + 6.250%, 1.000% Floor
 
10/19/2021

 
5,775,000

 
5,682,389

 
5,775,000

Survey Sampling International, LLC
 
Services: Business
 
Senior Secured First Lien Term loans(4) LIBOR + 6.000%, 1.000% Floor
 
12/16/2020

 
2,977,265

 
2,952,089

 
2,996,349

TaxAct, Inc.
 
Banking, Finance, Insurance & Real Estate
 
Senior Secured First Lien Term loans(4) LIBOR + 6.000%, 1.000% Floor
 
1/3/2023

 
3,009,259

 
2,938,091

 
3,009,259

The Garretson Resolution Group, Inc.
 
Services: Business
 
Senior Secured First Lien Term loans(4) LIBOR + 6.500%, 1.000% Floor
 
5/22/2021

 
4,843,750

 
4,843,750

 
4,862,931

TrialCard Incorporated
 
Services: Consumer
 
Senior Secured First Lien Term loans(4) LIBOR + 5.250%, 1.000% Floor
 
10/26/2021

 
7,000,000

 
6,932,567

 
7,000,000

Valence Surface Technologies, Inc.
 
Aerospace and Defense
 
Senior Secured First Lien Term loans(4) LIBOR + 5.500%, 1.000% Floor
 
6/13/2019

 
3,688,249

 
3,664,493

 
3,571,737

VCVH Holding Corp.
 
Healthcare & Pharmaceuticals
 
Senior Secured First Lien Term loans(4) LIBOR + 5.000%, 1.000% Floor
 
6/1/2023

 
5,970,000

 
5,914,339

 
5,910,300

Victory Capital Operating, LLC
 
Banking, Finance, Insurance & Real Estate
 
Senior Secured First Lien Term loans(4) LIBOR + 7.500%, 1.000% Floor
 
10/29/2021

 
1,621,005

 
1,598,430

 
1,637,215

Western Digital Corporation
 
High Tech Industries
 
Senior Secured First Lien Term loans(4) LIBOR + 3.750%, 0.750% Floor
 
4/29/2023

 
3,781,000

 
3,707,843

 
3,818,810

Z Gallerie, LLC
 
Retail
 
Senior Secured First Lien Term loans(4) LIBOR + 6.500%, 1.000% Floor
 
10/8/2020

 
4,924,812

 
4,924,812

 
4,924,812

Total
 
 
 
 
 
 
 
$
187,314,127

 
$
182,356,648

 
$
183,657,487

___________________________ 
(1)
Represents the fair value in accordance with ASC 820 as determined by the board of managers of Sierra JV. The approval of the fair value of the portfolio investments held by Sierra JV is not included in the valuation process of the Board of Directors of the Company described elsewhere herein.
(2)
The interest rate on these loans is subject to a base rate plus 1 Month (“1M”) LIBOR, which at December 31, 2016 was 0.77%. As the interest rate is subject to a minimum LIBOR floor, which was greater than the 1M LIBOR rate at December 31, 2016, the prevailing rate in effect at December 31, 2016 was the base rate plus the LIBOR floor.
(3)
The interest rate on a portion of these loans is subject to a base rate plus Alternate Base Rate ("ABR"). As the interest rate is subject to a minimum ABR Floor which was greater than the ABR rate at December 31, 2016, the prevailing rate in effect at December 31, 2016 was the base rate plus the ABR Floor.
(4)
The interest rate on these loans is subject to a base rate plus 3 Month (“3M”) LIBOR, which at December 31, 2016 was 1.00%. As the interest rate is subject to a minimum LIBOR floor, which was greater than the 3M LIBOR rate at December 31, 2016, the prevailing rate in effect at December 31, 2016 was the base rate plus the LIBOR floor.
(5)
The investment was on non-accrual status as of December 31, 2016.

Below is certain summarized financial information for the Sierra JV as of September 30, 2017 and December 31, 2016 and for the three and nine months ended September 30, 2017 and 2016.
 
September 30, 2017
 
December 31, 2016
Selected Consolidated Statement of Assets and Liabilities Information:
 
 
 
Investments in loans at fair value (cost: $229,379,660 and $182,356,648, respectively)
$
229,247,389

 
$
183,657,487

Cash and cash equivalents
11,226,260

 
8,222,344

Other assets
794,688

 
700,901

Total assets
$
241,268,337

 
$
192,580,732

 
 
 
 
Senior credit facility payable (net of deferred financing costs of $2,186,875 and $1,286,453, respectively)
157,763,125

 
122,624,547

Other liabilities
565,367

 
442,541

Interest payable
456,105

 
369,942

Total liabilities
$
158,784,597

 
$
123,437,030

Members’ capital
82,483,740

 
69,143,702

Total liabilities and members' capital
$
241,268,337

 
$
192,580,732


F-37


 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2017
 
2016
 
2017
 
2016
Selected Consolidated Statement of Operations Information:
 
 
 
 
 
 
 
Total investment income
$
4,257,065

 
$
2,770,260

 
$
11,616,536

 
$
6,993,705

Total expenses
(2,149,027
)
 
(1,390,816
)
 
(5,601,906
)
 
(3,479,173
)
Net change in unrealized appreciation/(depreciation) of investments
(29,971
)
 
938,125

 
(1,332,377
)
 
938,362

Net realized gain/(loss) of investments
516,140

 
(2,498,871
)
 
1,108,517

 
(2,406,857
)
Net income/(loss)
$
2,594,207

 
$
(181,302
)
 
$
5,790,770

 
$
2,046,037


Note 4. Fair Value Measurements
The Company follows ASC 820 for measuring the fair value of portfolio investments. Fair value is the price that would be received in the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Where available, fair value is based on observable market prices or parameters, or derived from such prices or parameters. Where observable prices or inputs are not available, valuation models are applied. These valuation models involve some level of management estimation and judgment, the degree of which is dependent on the price transparency for the instruments or market and the instruments’ complexity. The Company’s fair value analysis includes an analysis of the value of any unfunded loan commitments. Financial investments recorded at fair value in the consolidated financial statements are categorized for disclosure purposes based upon the level of judgment associated with the inputs used to measure their value. The valuation hierarchical levels are based upon the transparency of the inputs to the valuation of the investment as of the measurement date. The three levels are defined as follows. Investments which are valued using NAV as a practical expedient are excluded from this hierarchy:
Level 1 — Valuations based on quoted prices in active markets for identical assets or liabilities at the measurement date.
Level 2 — Valuations based on inputs other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable at the measurement date. This category includes quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in non-active markets including actionable bids from third parties for privately held assets or liabilities, and observable inputs other than quoted prices such as yield curves and forward currency rates that are entered directly into valuation models to determine the value of derivatives or other assets or liabilities.
Level 3 — Valuations based on inputs that are unobservable and where there is little, if any, market activity at the measurement date. The inputs for the determination of fair value may require significant management judgment or estimation and is based upon management’s assessment of the assumptions that market participants would use in pricing the assets or liabilities. These investments include debt and equity investments in private companies or assets valued using the Market or Income Approach and may involve pricing models whose inputs require significant judgment or estimation because of the absence of any meaningful current market data for identical or similar investments. The inputs in these valuations may include, but are not limited to, capitalization and discount rates, beta and Earnings Before Interest, Taxes, Depreciation and Amortization ("EBITDA") multiples. The information may also include pricing information or broker quotes which include a disclaimer that the broker would not be held to such a price in an actual transaction. The non-binding nature of consensus pricing and/or quotes accompanied by disclaimer would result in classification as Level 3 information, assuming no additional corroborating evidence.
In addition to using the above inputs in investment valuations, the Company employs the valuation policy approved by the board of directors that is consistent with ASC 820 (see Note 2). Consistent with the Company’s valuation policy, the Company evaluates the source of inputs, including any markets in which the Company’s investments are trading, in determining fair value.
The following table presents the fair value measurements of the Company’s total investments, by major class according to the fair value hierarchy, as of September 30, 2017:
 

F-38


Type of Investment (1)
 
Level 1
 
Level 2
 
Level 3
 
Total
Asset
 
 
 
 
 
 
 
 
Senior secured first lien term loans
 
$

 
$
4,930,200

 
$
548,498,771

 
$
553,428,971

Senior secured first lien notes
 

 
11,854,163

 
40,996,603

 
52,850,766

Senior secured second lien term loans
 

 

 
285,048,102

 
285,048,102

Subordinated notes
 

 

 
71,311,459

 
71,311,459

Warrants/equity
 
949,331

 

 
31,386,520

 
32,335,851

Money market fund
 
18,674,728

 

 

 
18,674,728

Total
 
$
19,624,059

 
$
16,784,363

 
$
977,241,455

 
$
1,013,649,877

Sierra Senior Loan Strategy JV I LLC
 
 
 
 
 
 
 
$
72,086,943

Total Investments, at fair value
 
 
 
 
 
 
 
$
1,085,736,820

 ________________________________
(1)
Certain investments that are measured at fair value using NAV have not been categorized in the fair value hierarchy. The fair value amounts presented in
the table are intended to permit reconciliation of the fair value hierarchy to the amount presented in the Consolidated Statements of Assets and Liabilities.

Derivative Instrument-Long Exposure
 
Level 1
 
Level 2
 
Level 3
 
Total
Liability
 
 
 
 
 
 
 
 
Total return swap with Citibank, N.A.
 
$

 
$

 
$
5,483,594

 
$
5,483,594


The following table presents the fair value measurements of the Company’s total investments, by major class according to the fair value hierarchy, as of December 31, 2016: 
Type of Investment(1)
 
Level 1
 
Level 2
 
Level 3
 
Total
Asset
 
 
 
 
 
 
 
 
Senior secured first lien term loans
 
$

 
$

 
$
493,340,277

 
$
493,340,277

Senior secured first lien notes
 

 
25,540,638

 
46,429,960

 
71,970,598

Senior secured second lien term loans
 

 

 
260,008,735

 
260,008,735

Subordinated notes
 

 

 
55,185,590

 
55,185,590

Warrants/equity
 
1,262,666

 

 
40,879,809

 
42,142,475

Money market fund
 
22,966,981

 

 

 
22,966,981

Total
 
$
24,229,647

 
$
25,540,638

 
$
895,844,371

 
$
945,614,656

Sierra Senior Loan Strategy JV I LLC
 
 
 
 
 
 
 
$
60,496,647

Total Investments, at fair value
 
 
 
 
 
 
 
$
1,006,111,303

 ________________________________
(1)
Certain investments that are measured at fair value using NAV have not been categorized in the fair value hierarchy. The fair value amounts presented in
the table are intended to permit reconciliation of the fair value hierarchy to the amount presented in the Consolidated Statements of Assets and Liabilities.

Derivative Instrument-Long Exposure
 
Level 1
 
Level 2
 
Level 3
 
Total
Liability
 
 
 
 
 
 
 
 
Total return swap with Citibank, N.A.
 
$

 
$

 
$
13,647,330

 
$
13,647,330


F-39



The following table provides a reconciliation of the beginning and ending balances for total investments that use Level 3 inputs for the nine months ended September 30, 2017:
 
 
Senior
Secured
First Lien
Term Loans
 
Senior
Secured
First Lien
Notes
 
Senior
Secured
Second Lien
Term Loans
 
Subordinated Notes
 
Warrants/
Equity
 
Total
Return
Swap
 
Total
Balance, December 31, 2016
$
493,340,277

 
$
46,429,960

 
$
260,008,735

 
$
55,185,590

 
$
40,879,809

 
$
(13,647,330
)
 
$
882,197,041

Purchases
166,644,769

 
2,480,000

 
63,746,687

 
29,344,643

 
1,433,172

 

 
263,649,271

Sales
(108,227,784
)
 
(7,860,699
)
 
(30,398,116
)
 
(7,885,523
)
 
(9,488,187
)
 

 
(163,860,309
)
Transfers in

 
9,720,000

 

 

 

 

 
9,720,000

Transfers out

 
(8,622,686
)
 

 

 

 

 
(8,622,686
)
Amortization of discount/(premium)
703,060

 
67,631

 
119,917

 

 

 

 
890,608

Paid-in-kind interest income
4,432,952

 

 

 

 

 

 
4,432,952

Net realized gains/(losses)
(11,396,034
)
 
(1,851,063
)
 
(5,302,703
)
 
(107,130
)
 
(3,642,142
)
 

 
(22,299,072
)
Net change in unrealized appreciation/(depreciation)
3,001,531

 
633,460

 
(3,126,418
)
 
(5,226,121
)
 
2,203,868

 
8,163,736

 
5,650,056

Balance, September 30, 2017
$
548,498,771

 
$
40,996,603

 
$
285,048,102

 
$
71,311,459

 
$
31,386,520

 
$
(5,483,594
)
 
$
971,757,861

Change in net unrealized appreciation/(depreciation) in investments held as of September 30, 2017(1)  
$
(4,196,861
)
 
$
(1,262,262
)
 
$
(7,763,514
)
 
$
(5,127,949
)
 
$
(471,036
)
 
$
8,163,736

 
$
(10,657,886
)
 __________________________
(1) Amount is included in the related amount on investments and derivative instruments in the condensed consolidated statements of operations.

Transfers between levels of the fair value hierarchy are reported at the beginning of the reporting period in which they occur. During the nine months ended September 30, 2017, the Company recorded $8,622,686 in transfers from Level 3 to Level 2 and $9,720,000 in transfers from Level 2 to Level 3 due to availability of market data and observable valuation inputs to support the valuation. The Company recorded no other transfers between levels.

The following table provides a reconciliation of the beginning and ending balances for total investments that use Level 3 inputs for the nine months ended September 30, 2016:
 
 
Senior
Secured
First Lien
Term Loans
 
Senior
Secured
First Lien
Notes
 
Senior
Secured
Second Lien
Term Loans
 
Subordinated Notes
 
Warrants/
Equity
 
Total
Return
Swap
 
Total
Balance, December 31, 2015
$
514,638,092

 
$
47,477,500

 
$
278,645,464

 
$

 
$
13,243,836

 
$
(27,365,819
)
 
$
826,639,073

Purchases
93,833,456

 
2,109,376

 
23,788,748

 
63,389,058

 
9,149,285

 

 
192,269,923

Sales
(128,395,615
)
 
(557,303
)
 
(45,408,193
)
 
(3,731,087
)
 

 

 
(178,092,198
)
Transfers in

 
1,786,890

 

 

 

 

 
1,786,890

Transfers out

 
(14,773,468
)
 

 

 

 

 
(14,773,468
)
Amortization of discount/(premium)
268,365

 
3,897

 
347,733

 

 

 

 
619,995

Paid-in-kind interest income
3,461,879

 

 
82,123

 

 
178,882

 

 
3,722,884

Net realized gains/(losses)
(10,981,656
)
 
30,303

 
222,827

 
435,388

 
(790,778
)
 

 
(11,083,916
)
Net change in unrealized appreciation/(depreciation)
1,947,197

 
(156,484
)
 
2,303,176

 
1,059,397

 
(3,827,464
)
 
9,188,445

 
10,514,267

Balance, September 30, 2016
$
474,771,718

 
$
35,920,711

 
$
259,981,878

 
$
61,152,756

 
$
17,953,761

 
$
(18,177,374
)
 
$
831,603,450

Change in net unrealized appreciation/(depreciation) in investments held as of September 30, 2016(1)
$
(7,859,130
)
 
$
(148,478
)
 
$
54,279

 
$
1,059,397

 
$
(4,618,243
)
 
$
9,188,445

 
$
(2,323,730
)
 _____________________
(1) Amount is included in the related amount on investments and derivative instruments in the condensed consolidated statements of operations.

Transfers between levels of the fair value hierarchy are reported at the beginning of the reporting period in which they occur. During the nine months ended September 30, 2016, the Company recorded $14,773,468 in transfers from Level 3 to Level 2 and

F-40


$1,786,890 in transfers from Level 2 to Level 3 due to availability of market data and observable valuation inputs to support the valuation. The Company recorded no other transfers between levels.

The following table presents the quantitative information about Level 3 fair value measurements of the Company’s total investments, as of September 30, 2017:
Type of Investment
 
Fair Value
 
Valuation techniques
 
Unobservable input(1)
 
Range (weighted average)
Senior Secured First Lien Term Loan
 
$
427,209,139

 
Income Approach (DCF)
 
Market yield
 
6.00% - 22.21% (9.62%)
Senior Secured First Lien Term Loan
 
2,576,215

 
Enterprise Value Analysis
 
Expected Proceeds
 
$0.0M - $2.5M ($2.4M)
Senior Secured First Lien Term Loan
 
74,754,872

 
Market Approach (Guideline Comparable)/Market Approach (Comparable Transactions)/Income Approach (DCF)
 
Revenue Multiple, EBITDA Multiple, Discount Rate
 
0.60x - 3.00x (1.46x) / 4.50x-8.00x (6.92x) / 15.00% - 18.50% (17.08%)
Senior Secured First Lien Term Loan
 
43,958,545

 
Recent Arms-length transaction
 
Recent Arms-length transaction
 
N/A
Senior Secured First Lien Note
 
40,873,945

 
Income Approach (DCF)
 
Market Yield
 
7.83% - 13.83% (9.36%)
Senior Secured First Lien Note
 
122,658

 
Enterprise Valuation Analysis
 
Expected Proceeds
 
$0.1M - $0.1M ($0.1M)
Senior Secured Second Lien Term Loan
 
245,617,325

 
Income Approach (DCF)
 
Market yield
 
7.71% - 13.82% (9.68%)
Senior Secured Second Lien Term Loan
 
35,924,527

 
Recent Arms-length transaction
 
Recent Arms-length transaction
 
N/A
Senior Secured Second Lien Term Loan
 
3,506,250

 
Market Approach (Guideline Comparable)/Income Approach (DCF)
 
Revenue Multiple, EBITDA Multiple, Discount Rate
 
0.40x-0.55x(0.55x) / 3.50x-9.13x(9.13x) / 18.00%-18.00% (18.00%)
Equity/Warrants
 

 
Enterprise Valuation Analysis
 
Expected Proceeds
 
$0.0M - $0.0M ($0.0M)
Preferred Equity
 
5,530,911

 
Income Approach (DCF)
 
Market Yield
 
16.63%-16.63% (16.63%)
Equity/Warrants
 
12,453,793

 
Market Approach (Guideline Comparable)/Market Approach (Comparable Transactions)/Income Approach (DCF)
 
Revenue Multiple, EBITDA Multiple, Discount Rate, Book Value Multiple, Average List Price
 
0.98x-3.00x (1.35x) / 5.00x-13.00x (8.02x) / 15.00% - 23.00% (13.65%) / 1.25x - 1.25x (1.25x) / $1.0M - $1.0M ($1.0M)
Equity/Warrants
 
13,401,816

 
Recent Arms-length transaction
 
Recent Arms-length transaction
 
N/A
Subordinated Notes
 
41,967,500

 
Income Approach (DCF)
 
Discount Rate
 
13.00% - 14.00% (13.28%)
Subordinated Notes
 
29,343,959

 
Recent Arms-length transaction
 
Recent Arms-length transaction
 
N/A
Total
 
$
977,241,455

 
 
 
 
 
 
Total Return Swap
 
(5,483,594
)
 
Income Approach (DCF)
 
Market yield
 
5.16% - 47.94% (7.99%)
Total
 
$
971,757,861

 
 
 
 
 
 
 _________________________________
(1)
Represents the method used when the Company has determined that market participants would use such inputs when measuring the fair value of these investments.

The following table presents the quantitative information about Level 3 fair value measurements of the Company’s total investments, as of December 31, 2016:
Type of Investment
 
Fair Value
 
Valuation techniques
 
Unobservable input(1)
 
Range (weighted average)
Senior Secured First Lien Term Loan
 
$
339,728,530

 
Income Approach (DCF)
 
Market yield
 
7.44% - 18.50% (9.65%)
Senior Secured First Lien Term Loan
 
7,373,318

 
Market Approach (Guideline Comparable)
 
2016 and NTM Revenue Multiple
 
0.50x - 0.75x (0.63x)/0.50x - 0.75x (0.63x)
Senior Secured First Lien Term Loan
 
6,868,420

 
Market Approach (Guideline Comparable)
 
Revenue Generating Units
 
 $393.75 - $525.00 ($459.38)
Senior Secured First Lien Term Loan
 
23,280,607

 
Market Approach (Guideline Comparable)/Income Approach (DCF)
 
NTM Revenue Multiple, NTM EBITDA Multiple Discount Rate
 
0.40x - 1.25x (1.09x) / 5.00x - 7.00x (6.57x) / 17.50% - 20.00% (18.93%)
Senior Secured First Lien Term Loan
 
20,885,087

 
Market Approach (Guideline Comparable)
 
NTM Revenue Multiple, Discount Rate
 
2.75x-3.25x (3.00x) /14.00%-16.00% (15.00%)
Senior Secured First Lien Term Loan
 
16,246,819

 
Market Approach (Guideline Comparable)/Income Approach (DCF)
 
Run-Rate Revenue Multiple, Run-Rate EBITDA Multiple, Discount Rate
 
0.50x - 1.00x (0.75x)/5.50x - 6.50x (6.00x)/18.50% - 21.50% (20.00%)
Senior Secured First Lien Term Loan
 
2,791,682

 
Market Approach (Guideline Comparable)
 
NTM Revenue Multiple, NTM EBITDA Multiple
 
0.5x - 1.00x (0.75x) /4.00x-5.00x (4.50x)

F-41


Type of Investment
 
Fair Value
 
Valuation techniques
 
Unobservable input(1)
 
Range (weighted average)
Senior Secured First Lien Term Loan
 
84,190,814

 
Recent Arms-length transaction
 
Recent Arms-length transaction
 
N/A
Senior Secured First Lien Notes
 
32,142,804

 
Income Approach (DCF)
 
Market yield
 
7.57% - 115.94% (12.85%)
Senior Secured First Lien Notes
 
6,105,000

 
Recent Arms-length transaction
 
Recent Arms-length transaction
 
N/A
Senior Secured First Lien Notes
 
157,156

 
 Enterprise Valuation Analysis
 
Estimated Liquidation Proceeds
 
$45.9M - $73.2M ($59.7M)
Senior Secured Second Lien Term Loan
 
242,539,805

 
Income Approach (DCF)
 
Market yield
 
8.29% - 10.05% (73.13%)
Senior Secured Second Lien Term Loan
 
6,472,505

 
Recent Arms-length transaction
 
Recent Arms-length transaction
 
N/A
Senior Secured Second Lien Term Loan
 

 
Market Approach (Guideline Comparable)
 
LTM Revenue Multiple, LTM EBITDA Multiple
 
0.5 - 1.0x (0.75x) / 6.0x - 7.0x (6.5x)
Senior Secured Second Lien Term Loan
 
10,996,425

 
Market Approach (Guideline Comparable)/Income Approach (DCF)
 
LTM Revenue Multiple, NTM Revenue Multiple, LTM EBITDA Multiple, NTM EBITDA Multiple, Discount Rate
 
0.40x-0.60x(0.50x) /0.40x-0.60x(0.50x) / 8.25x-9.25x (8.75x)/ 7.50x-8.50x (8.00x)/17.50%-21.50% (19.50%)
Equity/Warrants
 

 
Enterprise Valuation Analysis
 
Estimated Liquidation Proceeds
 
$45.9M - $73.2M ($59.7M)
Equity/Warrants
 
967,238

 
Market Approach (Guideline Comparable)/Income Approach (DCF)
 
LTM EBITDA, Run-Rate Multiple, Discount rate
 
7.00x - 8.00x (7.50x)/7.00x - 8.00x (7.50x) / 16.00%-18.00% (17.00%)
Equity/Warrants
 
5,051,193

 
Income Approach (DCF)
 
Market Yield
 
17.45%-17.45% (17.45%)
Equity/Warrants
 

 
Market Approach (Guideline Comparable)/Income Approach (DCF)
 
NTM Revenue Multiple, NTM EBITDA Multiple, Discount Rate
 
0.40x - 1.00x (0.90x)/5.00x - 7.00x (6.65x)/17.50% - 18.00% (17.59%)
Equity/Warrants
 

 
Market Approach (Guideline Comparable)/Income Approach (DCF)
 
Run-Rate Revenue Multiple, Run-Rate EBITDA Multiple, Discount Rate
 
0.50x - 1.00x (0.75x)/5.50x - 6.50x (6.00x)/18.50% - 21.50% (20.00%)
Equity/Warrants
 

 
Market Approach (Guideline Comparable)
 
Revenue Generating Units
 
$393.75 - $525.00 ($459.38)
Equity/Warrants
 

 
Market Approach (Guideline Comparable)
 
NTM Revenue Multiple, Discount Rate
 
2.75x-3.25x (3.00x) /14.00%-16.00% (15.00%)
Equity/Warrants
 

 
Market Approach (Guideline Comparable)
 
LTM EBITDA Multiple
 
12.5x - 13.5x (0.0x)
Equity/Warrants
 
4,265,419

 
Market Approach (Guideline Comparable) / Precedent Transaction
 
LTM and NTM EBITDA Multiple
 
4.50x-8.00x (7.10x) /4.50x-7.50x (6.72x)
Equity/Warrants
 
16,095,959

 
Recent Arms-length transaction
 
Recent Arms-length transaction
 
N/A
Subordinated Notes
 
55,185,590

 
Income Approach (DCF)
 
Discount Rate
 
11.50% - 15.00% (13.21%)
Subordinated Notes
 
14,500,000

 
Recent Arms-length transaction
 
Recent Arms-length transaction
 
N/A
Total
 
$
895,844,371

 
 
 
 
 
 
Total Return Swap
 
(13,647,330
)
 
Income Approach (DCF)
 
Market yield
 
4.43% - 73.13% (9.56%)
Total
 
$
882,197,041

 
 
 
 
 
 
 ________________________________
(1)
Represents the method used when the Company has determined that market participants would use such inputs when measuring the fair value of these investments.
The significant unobservable inputs used in the fair value measurement of the Company’s debt and derivative investments are market yields. Increases in market yields would result in lower fair value measurements.
The significant unobservable inputs used in the fair value measurement of the Company’s warrants/equity investments are comparable company multiples of revenue or EBITDA for the latest twelve months (“LTM”), next twelve months (“NTM”) or a reasonable period a market participant would consider. Increases in EBITDA multiples in isolation would result in higher fair value measurement.

Note 5. Total Return Swap
On August 27, 2013, the Company, through its wholly-owned financing subsidiary, Arbor, entered into a TRS with Citibank, N.A. (“Citibank”) that is indexed to a basket of loans.

F-42


The TRS with Citibank enables Arbor to obtain the economic benefit of the loans underlying the TRS, despite the fact that such loans will not be directly held or otherwise owned by Arbor, in return for an interest-type payment to Citibank.
SIC Advisors acts as the investment manager of Arbor and has discretion over the composition of the basket of loans underlying the TRS. The terms of the TRS are governed by an ISDA 2002 Master Agreement, the Schedule thereto and Credit Support Annex to such Schedule, and the Confirmation exchanged thereunder, between Arbor and Citibank, which collectively establish the TRS, and are collectively referred to herein as the “TRS Agreement”. On March 21, 2014, Arbor amended and restated its Confirmation Letter Agreement (the “Amended Confirmation Agreement”) with Citibank. The Amended Confirmation Agreement increased the maximum market value (determined at the time each such loan becomes subject to the TRS) of the portfolio of loans that Arbor may select from $100 million to $200 million, and increased the interest rate payable to Citibank from LIBOR plus 1.30% per annum to LIBOR plus 1.35% per annum. On July 23, 2014, Arbor entered into the Second Amended and Restated Confirmation Letter Agreement with CitiBank to increase the maximum market value (determined at the time each such loan becomes subject to the TRS) of the portfolio of loans that Arbor may select from $200 million to $350 million. On June 8, 2015, Arbor entered into the Third Amended and Restated Confirmation Letter Agreement with CitiBank to decrease the maximum market value (determined at the time each such loan becomes subject to the TRS) of the portfolio of loans that Arbor may select from $350 million to $300 million. On March 21, 2016, Arbor entered into the Fourth Amended and Restated Confirmation Letter Agreement (the “Fourth Amended Confirmation Agreement”) with Citibank to extended the term of the TRS from March 21, 2016 through March 21, 2019 and increased the interest rate payable to Citi from LIBOR plus 1.35% per annum to LIBOR plus 1.65% per annum. On September 29, 2017, Arbor entered into the Fifth Amended and Restated Confirmation Letter Agreement (the “Fifth Amended Confirmation Agreement”) with Citibank to reduce the maximum portfolio notional (determined at the time each such loan becomes subject to the TRS) from $300,000,000 to $180,000,000, through incremental reductions of $60,000,000 on October 3, 2017 and $20,000,000 on each of November 3, 2017, December 3, 2017 and January 3, 2018. The Fifth Amended Confirmation Agreement also decreased the interest rate payable to Citibank from LIBOR plus 1.65% per annum to LIBOR plus 1.60% per annum. 
Pursuant to the terms of the TRS Agreement, as amended and subject to conditions customary for transactions of this nature, Arbor may select a portfolio of loans with a maximum market value (determined at the time each such loan becomes subject to the TRS) of $300 million, subject to the reduction provided for in the Fifth Amended Confirmation Agreement, which is also referred to as the maximum notional amount of the TRS. Arbor receives from Citibank a periodic payment on set dates that is based upon any coupons, both earned and accrued, generated by the loans underlying the TRS, subject to limitations described in the TRS Agreement as well as any fees associated with the loans included in the portfolio. Arbor pays to Citibank interest at a rate equal to one-month LIBOR plus 1.60% per annum. In addition, upon the termination or repayment of any loan subject to the TRS, Arbor either receives from Citibank the appreciation in the value of such loan, or pays to Citibank any depreciation in the value of such loan.
Citibank may terminate the TRS on or after the second anniversary of the effectiveness of the TRS. SIC Advisors may terminate the TRS on behalf of Arbor at any time upon providing 10 days prior notice to Citibank.
Arbor is required to pay a minimum usage fee in connection with the TRS of 1.60% on the amount equal to 85% of the average daily unused portion of the maximum amount permitted under the TRS. Such minimum usage fee will not apply during the first 365 days and last 60 days of the term of the TRS. Arbor will also pay Citibank customary fees in connection with the establishment and maintenance of the TRS. During the three and nine months ended September 30, 2017, Arbor paid $12,823 and $67,961 in minimum usage fees, respectively. During the three and nine months ended September 30, 2016, Arbor paid $193,194 and $534,170, respectively, in minimum usage fees.
Arbor is required to initially cash collateralize a specified percentage of each loan (generally 20% to 30% of the market value of such loan) included under the TRS in accordance with margin requirements described in the TRS Agreement. As of September 30, 2017 and December 31, 2016, Arbor has posted $68,000,000 and $79,620,942, respectively, in collateral to Citibank in relation to the TRS which is recorded on the consolidated statements of assets and liabilities as cash collateral on total return swap. Arbor may be required to post additional collateral from time to time as a result of a decline in the mark-to-market value of the portfolio of loans subject to the TRS. The obligations of Arbor under the TRS Agreement are non-recourse to the Company and the Company’s exposure under the TRS Agreement is limited to the value of the Company’s investment in Arbor, which generally equals the value of cash collateral provided by Arbor under the TRS Agreement.
In connection with the TRS, Arbor has made customary representations and warranties and is required to comply with various covenants, reporting requirements and other customary requirements for similar transactions. In addition to customary events of default and termination events included in the form ISDA 2002 Master Agreement, the TRS Agreement contains the following termination events: (a) a failure to satisfy the portfolio criteria for at least 30 days; (b) a failure to post initial cash collateral or additional collateral as required by the TRS Agreement; (c) a default by Arbor or the Company with respect to indebtedness in an amount equal to or greater than the lesser of $10,000,000 and 2% of the Company’s NAV at such time; (d) a merger of Arbor or the Company meeting certain criteria; (e) the Company or Arbor amending their respective constituent documents to alter their investment strategy in a manner that has or could reasonably be expected to have a material adverse effect; and (f) SIC Advisors ceasing to be

F-43


the investment manager of Arbor or to have authority to enter into transactions under the TRS Agreement on behalf of Arbor, and not being replaced by an entity reasonably acceptable to Citibank. As of September 30, 2017 and December 31, 2016, the Company did not have any derivatives with contingent features in net liability positions; therefore, if a trigger event had occurred, no amount would have been required to be posted by the Company.
The Company’s maximum credit risk exposure as of September 30, 2017 and December 31, 2016 is $69,003,667 and $80,910,105, respectively, which is recorded on the consolidated statements of assets and liabilities as cash collateral on total return swap and receivable due on total return swap.
The Company’s receivable from Citibank represents realized amounts from payments on underlying loans in the TRS portfolio that as of September 30, 2017 and December 31, 2016 was $1,003,667 and $1,289,163, respectively, which is recorded on the consolidated statements of assets and liabilities as receivable due on total return swap. The Company does not offset collateral posted in relation to the TRS with any unrealized appreciation or depreciation outstanding in the consolidated statements of assets and liabilities as of September 30, 2017 or December 31, 2016.
Transactions in TRS contracts during the three and nine months ended September 30, 2017 and 2016 were as follows:
 
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
 
2017
 
2016
 
2017
 
2016
Interest income and settlement from TRS portfolio
 
$
2,348,862

 
$
(1,463,792
)
 
$
6,746,607

 
$
(1,821,535
)
Traded gains/(loss) on TRS loan sales
 
785,847

 
2,224,803

 
(8,482,509
)
 
6,667,185

Net realized gains/(loss) on TRS portfolio
 
$
3,134,709

 
$
761,011

 
$
(1,735,902
)
 
$
4,845,650

 
 
 
 
 
 
 
 
 
Net change in unrealized appreciation/(depreciation) on TRS portfolio
 
$
(2,032,534
)
 
$
5,159,214

 
$
8,163,736

 
$
9,188,445

The Company held one derivative position as of September 30, 2017 and December 31, 2016 subject to a Master Agreement (“MA”). The following table represents the Company’s gross and net amounts after offset under the MA, of the derivative assets and liabilities presented by derivative type net of the related collateral pledged by the Company as of September 30, 2017 and December 31, 2016:
 
 
Gross
Derivative  Assets/
(Liabilities)
Subject to MA
 
Derivative Amount
Available for
Offset
 
Net Amount Presented
in the Consolidated
Statements of Assets
and Liabilities
 
Cash Collateral (received)/pledged (1)
 
Net Amount of
Derivative
Assets/(Liabilities)
September 30, 2017
 
 
 
 
 
 
 
 
 
Total Return Swap(1) 
$
(5,483,594
)
 
$

 
$
(5,483,594
)
 
$
5,483,594

 
$

December 31, 2016
 
 
 
 
 
 
 
 
 
Total Return Swap(1) 
$
(13,647,330
)
 
$

 
$
(13,647,330
)
 
$
13,647,330

 
$

 ______________________________
(1)
As of September 30, 2017 and December 31, 2016, $68,000,000 and $79,620,942, respectively, of cash was posted for initial margin requirements for the TRS as reported on the consolidated statements of assets and liabilities as cash collateral on total return swap.
The following table shows the volume of the Company’s derivative transactions for the three and nine months ended September 30, 2017 and 2016.
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
2017
 
2016
 
2017
 
2016
Average notional par amount of contracts
$
246,554,568

 
$
208,253,776

 
$
248,738,019

 
$
210,765,232

The following is a summary of the TRS reference assets as of September 30, 2017: 
Company(1)
 
Industry
 
Type of Investment
 
Maturity
 
Par Amount
 
Initial Notional
Cost(2)
 
Fair Value
 
Unrealized Appreciation/ (Depreciation)
Acrisure, LLC
 
Banking, Finance, Insurance & Real Estate
 
Senior Secured First Lien Term Loans(5)   LIBOR + 5.000%, 1.000% Floor
 
11/22/2023
 
$
2,493,750

 
$
2,468,813

 
$
2,518,688

 
$
49,875

AMF Bowling Worldwide, Inc.
 
Hotel, Gaming & Leisure
 
Senior Secured First Lien Term Loans(7)   LIBOR + 4.250%, 1.000% Floor
 
6/29/2024
 
4,950,000

 
4,925,250

 
4,900,500

 
(24,750
)

F-44


Company(1)
 
Industry
 
Type of Investment
 
Maturity
 
Par Amount
 
Initial Notional
Cost(2)
 
Fair Value
 
Unrealized Appreciation/ (Depreciation)
Amplify Snack Brands, Inc.
 
Beverage & Food
 
Senior Secured First Lien Term Loans(4)  LIBOR + 5.500%, 1.000% Floor
 
9/4/2023
 
1,362,115

 
1,348,494

 
1,339,640

 
(8,854
)
AmWINS Group, Inc.
 
Banking, Finance, Insurance & Real Estate
 
Senior Secured Second Lien Term Loans(4)   LIBOR + 6.750%, 1.000% Floor
 
1/25/2025
 
4,000,000

 
3,970,000

 
4,077,600

 
107,600

Anaren, Inc.
 
Aerospace & Defense
 
Senior Secured First Lien Term Loans(6)   LIBOR + 4.500%, 1.000% Floor
 
2/18/2021
 
4,643,220

 
4,596,788

 
4,666,436

 
69,648

AP Gaming I, LLC
 
Hotel, Gaming & Leisure
 
Senior Secured First Lien Term Loans(4)   LIBOR + 5.500%, 1.000% Floor
 
2/15/2024
 
4,000,000

 
3,990,000

 
4,065,000

 
75,000

Atrium Innovations, Inc.
 
Healthcare & Pharmaceuticals
 
Senior Secured First Lien Term Loans(3)(6)   LIBOR + 3.500%, 1.000% Floor
 
2/15/2021
 
4,974,546

 
4,968,328

 
4,999,419

 
31,091

Blucora, Inc.
 
Banking, Finance, Insurance & Real Estate
 
Senior Secured First Lien Term Loans(3)(6)   LIBOR + 3.750%, 1.000% Floor
 
5/22/2024
 
2,333,333

 
2,321,667

 
2,350,833

 
29,167

BCPE Eagle Buyer LLC
 
Healthcare & Pharmaceuticals
 
Senior Secured First Lien Term Loans(4)   LIBOR + 4.250%, 1.000% Floor
 
3/16/2024
 
4,987,500

 
4,937,625

 
4,950,094

 
12,469

Comfort Holding, LLC
 
Consumer Goods:  Durable
 
Senior Secured First Lien Term Loans(4)   LIBOR + 4.750%, 1.000% Floor
 
2/5/2024
 
6,982,500

 
6,912,675

 
6,240,609

 
(672,066
)
Comfort Holding, LLC
 
Consumer Goods:  Durable
 
Senior Secured Second Lien Term Loans(5)   LIBOR + 10.000%, 1.000% Floor
 
2/3/2025
 
1,500,000

 
1,440,000

 
1,275,300

 
(164,700
)
CPI Holdco, LLC
 
Capital Equipment
 
Senior Secured First Lien Term Loans(6)   LIBOR + 4.000%, 1.000% Floor
 
3/21/2024
 
5,975,000

 
5,945,125

 
6,019,813

 
74,688

CPI Holdings, Inc.
 
High Tech Industries
 
Senior Secured First Lien Term Loans(4)   LIBOR + 3.500%, 1.000% Floor
 
7/26/2024
 
9,000,000

 
9,000,000

 
8,994,420

 
(5,580
)
CT Technologies Intermediate Holdings, Inc.
 
Healthcare & Pharmaceuticals
 
Senior Secured First Lien Term Loans(4)   LIBOR + 4.250%, 1.000% Floor
 
12/1/2021
 
997,455

 
977,506

 
997,455

 
19,949

DiversiTech Holdings, Inc.
 
Wholesale
 
Senior Secured First Lien Term Loans(6)   LIBOR + 3.500%, 1.000% Floor
 
6/3/2024
 
2,000,000

 
1,995,000

 
2,004,160

 
9,160

Encompass Digital Media, Inc
 
Media:  Broadcasting & Subscription
 
Senior Secured First Lien Term Loans(6)   LIBOR + 4.500%, 1.000% Floor
 
6/6/2021
 
4,850,000

 
4,825,750

 
4,595,375

 
(230,375
)
EVO Payments International, LLC
 
Banking, Finance, Insurance & Real Estate
 
Senior Secured First Lien Term Loans(4)   LIBOR + 5.000%, 1.000% Floor
 
12/22/2023
 
2,985,000

 
2,955,150

 
3,014,850

 
59,700

Explorer Holdings, Inc.
 
Healthcare & Pharmaceuticals
 
Senior Secured First Lien Term Loans(6)   LIBOR + 3.750%, 1.000% Floor
 
5/2/2023
 
1,817,019

 
1,812,476

 
1,823,923

 
11,447

Fieldwood Energy LLC
 
Energy:  Oil & Gas
 
Senior Secured First Lien Term Loans(6)   LIBOR + 7.000%, 1.000% Floor
 
8/31/2020
 
1,222,222

 
1,100,000

 
1,069,444

 
(30,556
)
Fieldwood Energy LLC
 
Energy:  Oil & Gas
 
Senior Secured First Lien Term Loans(6)   LIBOR + 7.125%, 1.250% Floor
 
9/30/2020
 
1,650,000

 
1,641,125

 
1,130,250

 
(510,875
)
Fieldwood Energy LLC
 
Energy:  Oil & Gas
 
Senior Secured Second Lien Term Loans(6)   LIBOR + 7.125%, 1.250% Floor
 
9/30/2020
 
2,596,305

 
2,676,375

 
1,022,944

 
(1,653,431
)
Freedom Mortgage Corporation
 
Banking, Finance, Insurance & Real Estate
 
Senior Secured First Lien Term Loans(8)   LIBOR + 5.500%, 1.000% Floor
 
2/17/2022
 
450,000

 
450,000

 
450,000

 

Global Eagle Entertainment Inc.
 
Telecommunications
 
Senior Secured First Lien Term Loans(3)(8)   LIBOR + 7.000%, 1.000% Floor
 
1/6/2023
 
4,173,750

 
4,096,238

 
4,142,447

 
46,209

Imagine! Print Solutions, LLC
 
Media: Advertising, Printing & Publishing
 
Senior Secured First Lien Term Loans(6)   LIBOR + 4.750%, 1.000% Floor
 
6/21/2022
 
5,985,000

 
5,925,150

 
5,925,150

 

Iqor US Inc.
 
Services:  Business
 
Senior Secured First Lien Term Loans(6)   LIBOR + 5.000%, 1.000% Floor
 
4/1/2021
 
4,533,016

 
4,442,356

 
4,483,153

 
40,797

Isola USA Corp.
 
High Tech Industries
 
Senior Secured First Lien Term Loans(6)   LIBOR + 8.250%, 1.000% Floor
 
11/29/2018
 
3,620,650

 
3,496,750

 
3,148,155

 
(348,595
)

F-45


Company(1)
 
Industry
 
Type of Investment
 
Maturity
 
Par Amount
 
Initial Notional
Cost(2)
 
Fair Value
 
Unrealized Appreciation/ (Depreciation)
Keystone Acquisition Corp.
 
Healthcare & Pharmaceuticals
 
Senior Secured First Lien Term Loans(6)   LIBOR + 5.250%, 1.000% Floor
 
5/1/2024
 
2,346,000

 
2,346,000

 
2,346,000

 

KNB Holdings Corporation
 
Consumer Goods:  Durable
 
Senior Secured First Lien Term Loans(8)   LIBOR + 5.500%, 1.000% Floor
 
4/26/2024
 
2,950,000

 
2,912,375

 
2,957,375

 
45,000

Kronos Incorporated
 
Services:  Business
 
Senior Secured First Lien Term Loans(3)(6)   LIBOR + 3.500%, 1.000% Floor
 
11/1/2023
 
2,985,019

 
2,970,094

 
3,000,750

 
30,656

Kronos Incorporated
 
Services:  Business
 
Senior Secured Second Lien Term Loans(3)(6)   LIBOR + 8.250%, 1.000% Floor
 
11/1/2024
 
2,000,000

 
1,980,000

 
2,061,780

 
81,780

LifeMiles Ltd.
 
Services:  Consumer
 
Senior Secured First Lien Term Loans(6)   LIBOR + 5.500%, 1.000% Floor
 
8/18/2022
 
4,950,000

 
4,900,500

 
4,900,500

 

Lightstone HoldCo LLC
 
Utilities:  Electric
 
Senior Secured First Lien Term Loans(4)   LIBOR + 4.500%, 1.000% Floor
 
1/30/2024
 
2,965,000

 
2,905,700

 
2,950,175

 
44,475

Liquidnet Holdings, Inc.
 
Banking, Finance, Insurance & Real Estate
 
Senior Secured First Lien Term Loans(4)   LIBOR + 4.250%, 1.000% Floor
 
7/11/2024
 
3,000,000

 
2,970,000

 
3,007,500

 
37,500

Livingston International, Inc.
 
Transportation:  Cargo
 
Senior Secured Second Lien Term Loans(1)(6)   LIBOR + 8.250%, 1.250% Floor
 
4/17/2020
 
1,954,783

 
1,969,443

 
1,915,491

 
(53,952
)
Midwest Physician Administrative Services, LLC
 
Healthcare & Pharmaceuticals
 
Senior Secured Second Lien Term Loans(6)   LIBOR + 7.000%, 1.000% Floor
 
8/15/2025
 
3,950,000

 
3,910,500

 
3,910,500

 

Melissa & Doug, LLC
 
Consumer Goods:  Durable
 
Senior Secured First Lien Term Loans(6)   LIBOR + 4.500%, 1.000% Floor
 
6/19/2024
 
1,500,000

 
1,492,500

 
1,516,875

 
24,375

MH SUB I, LLC
 
Services:  Consumer
 
Senior Secured Second Lien Term Loans(6)   LIBOR + 7.500%, 1.000% Floor
 
9/15/2025
 
1,950,000

 
1,930,500

 
1,932,119

 
1,619

MH SUB I, LLC
 
Services:  Consumer
 
Senior Secured First Lien Term Loans(6)   LIBOR + 3.750%, 1.000% Floor
 
9/13/2024
 
6,600,000

 
6,567,000

 
6,555,978

 
(11,022
)
MPH Acquisition Holdings LLC
 
Healthcare & Pharmaceuticals
 
Senior Secured First Lien Term Loans(6)   LIBOR + 3.000%, 1.000% Floor
 
6/7/2023
 
4,721,347

 
4,707,708

 
4,755,293

 
47,585

MWI Holdings, Inc.
 
Capital Equipment
 
Senior Secured First Lien Term Loans(6)   LIBOR + 5.500%, 1.000% Floor
 
6/29/2020
 
3,960,000

 
3,920,400

 
3,960,000

 
39,600

Neustar, Inc.
 
High Tech Industries
 
Senior Secured First Lien Term Loans(3)(6)   LIBOR + 3.750%, 1.000% Floor
 
3/1/2024
 
2,000,000

 
1,990,000

 
2,014,160

 
24,160

Neustar, Inc.
 
High Tech Industries
 
Senior Secured Second Lien Term Loans(3)(6)   LIBOR + 8.000%, 1.000% Floor
 
3/1/2025
 
1,000,000

 
985,000

 
1,010,000

 
25,000

New Media Holdings II LLC
 
Media: Advertising, Printing & Publishing
 
Senior Secured First Lien Term Loans(4)   LIBOR + 6.250%, 1.000% Floor
 
6/4/2020
 
947,570

 
949,939

 
947,570

 
(2,369
)
Nine West Holdings, Inc.
 
Consumer Goods:  Non-durable
 
Senior Secured First Lien Term Loans(6)   LIBOR + 3.750%, 1.000% Floor
 
10/8/2019
 
5,758,716

 
5,744,319

 
4,843,080

 
(901,239
)
Petco Animal Supplies, Inc.
 
Retail
 
Senior Secured First Lien Term Loans(6)   LIBOR + 3.000%, 1.000% Floor
 
1/26/2023
 
8,877,505

 
8,739,703

 
7,305,477

 
(1,434,226
)
PetroChoice Holdings, Inc.
 
Chemicals, Plastics & Rubber
 
Senior Secured First Lien Term Loans(5)   LIBOR + 4.500%, 1.000% Floor
 
8/22/2022
 
4,974,684

 
4,974,684

 
4,974,684

 

Resolute Investment Managers, Inc.
 
Banking, Finance, Insurance & Real Estate
 
Senior Secured First Lien Term Loans(6)   LIBOR + 4.250%, 1.000% Floor
 
4/30/2022
 
1,924,735

 
1,918,793

 
1,943,983

 
25,190

Rough Country, LLC
 
Automotive
 
Senior Secured First Lien Term Loans(4)   LIBOR + 4.500%, 1.000% Floor
 
5/25/2023
 
2,950,000

 
2,920,500

 
2,920,500

 

SCS Holdings I Inc.
 
Wholesale
 
Senior Secured First Lien Term Loans(4)   LIBOR + 4.250%, 1.000% Floor
 
10/31/2022
 
1,405,036

 
1,401,524

 
1,419,087

 
17,563

SESAC Holdco II LLC
 
Media:  Broadcasting & Subscription
 
Senior Secured Second Lien Term Loans(4)   LIBOR + 7.250%, 1.000% Floor
 
2/24/2025
 
2,000,000

 
1,980,000

 
1,985,000

 
5,000


F-46


Company(1)
 
Industry
 
Type of Investment
 
Maturity
 
Par Amount
 
Initial Notional
Cost(2)
 
Fair Value
 
Unrealized Appreciation/ (Depreciation)
Silversea Cruise Finance Ltd.
 
Hotel, Gaming & Leisure
 
Senior Secured First Lien Notes 7.250%
 
2/1/2025
 
1,000,000

 
1,000,000

 
1,071,250

 
71,250

Sparta Systems, Inc.
 
High Tech Industries
 
Senior Secured First Lien Term Loans(6)   LIBOR + 4.000%, 1.000% Floor
 
8/21/2024
 
5,000,000

 
4,987,500

 
5,006,250

 
18,750

Sundial Group Holdings LLC
 
Services:  Consumer
 
Senior Secured First Lien Term Loans(4)   LIBOR + 4.750%, 1.000% Floor
 
8/15/2024
 
5,000,000

 
4,925,000

 
4,925,000

 

Sungard Availability Services Capital Inc.
 
Services:  Business
 
Senior Secured First Lien Term Loans(4)   LIBOR + 7.000%, 1.000% Floor
 
9/29/2021
 
7,989,438

 
7,956,046

 
7,430,177

 
(525,869
)
Tensar Corporation
 
Capital Equipment
 
Senior Secured First Lien Term Loans(6)   LIBOR + 4.750%, 1.000% Floor
 
7/9/2021
 
11,114,962

 
11,003,812

 
10,309,127

 
(694,685
)
TouchTunes Interactive Networks, Inc.
 
Media: Diversified & Production
 
Senior Secured First Lien Term Loans(6)   LIBOR + 4.750%, 1.000% Floor
 
5/28/2021
 
947,583

 
953,505

 
953,552

 
47

TCH-2 Holdings, LLC
 
Hotel, Gaming & Leisure
 
Senior Secured First Lien Term Loans(4)   LIBOR + 4.000%, 1.250% Floor
 
5/6/2021
 
3,193,700

 
3,161,763

 
3,205,677

 
43,913

Traverse Midstream Partners LLC
 
Energy:  Oil & Gas
 
Senior Secured First Lien Term Loans(6)   LIBOR + 4.000%, 1.000% Floor
 
9/27/2024
 
1,950,000

 
1,940,250

 
1,969,500

 
29,250

tronc, Inc.
 
Media: Advertising, Printing & Publishing
 
Senior Secured First Lien Term Loans(3)(4)   LIBOR + 4.750%, 1.000% Floor
 
8/4/2021
 
6,708,333

 
6,641,250

 
6,750,260

 
109,010

UFC Holdings, LLC
 
Hotel, Gaming & Leisure
 
Senior Secured Second Lien Term Loans(4)   LIBOR + 7.500%, 1.000% Floor
 
8/18/2024
 
500,000

 
495,000

 
507,000

 
12,000

US Shipping Partners LP
 
Transportation:  Cargo
 
Senior Secured First Lien Term Loans(4)   LIBOR + 4.250%, 1.000% Floor
 
6/26/2021
 
1,688,831

 
1,676,165

 
1,427,062

 
(249,103
)
VCVH Holding Corp.
 
Healthcare & Pharmaceuticals
 
Senior Secured First Lien Term Loans(6)   LIBOR + 5.000%, 1.000% Floor
 
6/1/2023
 
990,000

 
980,100

 
988,614

 
8,514

Veresen Midstream Limited Partnership
 
Energy:  Oil & Gas
 
Senior Secured First Lien Term Loans(3)(4)   LIBOR + 3.500%, 1.000% Floor
 
3/31/2022
 
2,969,620

 
2,933,688

 
2,991,892

 
58,205

Total
 
 
 
220,805,243

 
218,959,901

 
212,874,898

 
(6,085,003
)
Total accrued interest income, net of expenses
 
 
 
 
 
 
 
 
 
601,409

Total unrealized depreciation on total return swap
 
 
 
 
 
 
 
 
 
$
(5,483,594
)
 _____________________________
(1)
All investments are domiciled in the United States except for Livingston International, Inc., which is domiciled in Canada. All foreign investments are denominated in US Dollars.
(2)
Represents the initial amount of par of an investment in which the TRS is referenced.
(3)
The investment is not a qualifying asset under the 1940 Act.
(4)
The interest rate on these loans is subject to a base rate plus 1 Month (“1M”) LIBOR, which at September 30, 2017 was 1.23%. As the interest rate is subject to a minimum LIBOR floor which was greater than the 1M LIBOR rate at September 30, 2017, the prevailing rate in effect at September 30, 2017 was the base rate plus the LIBOR floor.
(5)
The interest rate on these loans is subject to a base rate plus 2 Month (“2M”) LIBOR, which at September 30, 2017 was 1.27%. As the interest rate is subject to a minimum LIBOR floor which was greater than the 2M LIBOR rate at September 30, 2017, the prevailing rate in effect at September 30, 2017 was the base rate plus the LIBOR floor.
(6)
The interest rate on these loans is subject to a base rate plus 3 Month (“3M”) LIBOR, which at September 30, 2017 was 1.33%. As the interest rate is subject to a minimum LIBOR floor which was greater than the 3M LIBOR rate at September 30, 2017, the prevailing rate in effect at September 30, 2017 was the base rate plus the LIBOR floor.

F-47


The following is a summary of the TRS reference assets as of December 31, 2016:
Company(1)
 
Industry
 
Type of Investment
 
Maturity
 
Par Amount
 
Initial Notional
Cost
(2)
 
Fair Value
 
Unrealized Appreciation/(Depreciation)
Acrisure, LLC
 
Banking, Finance, Insurance & Real Estate
 
Senior Secured First Lien Term Loans(7) LIBOR + 4.750%, 1.000% Floor
 
11/22/2023
 
$
2,500,000

 
$
2,475,000

 
$
2,527,350

 
$
52,350

Albertson's LLC
 
Retail
 
Senior Secured First Lien Term Loans(3)(5) LIBOR + 3.000%, 0.750% Floor
 
8/25/2021
 
2,000,000

 
2,000,000

 
2,022,080

 
22,080

AMC Entertainment Holdings, Inc.
 
Hotel, Gaming & Leisure
 
Senior Secured First Lien Term Loans(5) LIBOR + 2.750%, 0.750% Floor
 
12/15/2023
 
2,000,000

 
1,995,000

 
2,018,500

 
23,500

AMF Bowling Centers, Inc
 
Services:  Consumer
 
Senior Secured First Lien Term Loans(7) LIBOR + 5.000%, 1.000% Floor
 
9/19/2023
 
6,842,500

 
6,739,863

 
6,821,151

 
81,288

Amplify Snack Brands, Inc.
 
Beverage & Food
 
Senior Secured First Lien Term Loans(7) LIBOR + 5.500%, 1.000% Floor
 
9/2/2023
 
3,000,000

 
2,970,000

 
2,912,490

 
(57,510
)
Answsers Corporation
 
High Tech Industries
 
Senior Secured First Lien Term Loans(5) LIBOR + 5.250%, 1.000% Floor
 
10/1/2021
 
14,775,000

 
14,257,875

 
7,313,625

 
(6,944,250
)
ANVC Merger Corp.
 
Aerospace & Defense
 
Senior Secured First Lien Term Loans(7) LIBOR + 4.500%, 1.000% Floor
 
2/18/2021
 
4,691,841

 
4,644,923

 
4,656,653

 
11,730

AP Gaming I, LLC
 
Hotel, Gaming & Leisure
 
Senior Secured First Lien Term Loans(7) LIBOR + 8.250%, 1.000% Floor
 
12/21/2020
 
10,645,102

 
10,476,828

 
10,574,099

 
97,271

Astro AB Borrower, Inc.
 
Banking, Finance, Insurance & Real Estate
 
Senior Secured First Lien Term Loans(7) LIBOR + 4.500%, 1.000% Floor
 
4/30/2022
 
965,761

 
960,932

 
974,211

 
13,279

Asurion, LLC
 
Banking, Finance, Insurance & Real Estate
 
Senior Secured First Lien Term Loans(5) LIBOR + 3.750%, 1.000% Floor
 
11/3/2023
 
1,000,000

 
995,000

 
1,013,750

 
18,750

Atkore International, Inc
 
Wholesale
 
Senior Secured First Lien Term Loans(3)(7) LIBOR + 3.000%, 1.000% Floor
 
12/22/2023
 
3,000,000

 
2,992,500

 
3,022,500

 
30,000

ConvergeOne Holdings Corp.
 
Telecommunications
 
Senior Secured First Lien Term Loans(7) LIBOR + 5.375%, 1.000% Floor
 
6/17/2020
 
2,500,000

 
2,462,500

 
2,487,500

 
25,000

CSP Technologies North America, LLC
 
Containers, Packaging & Glass
 
Senior Secured First Lien Term Loans(7) LIBOR + 6.000%, 1.000% Floor
 
1/29/2022
 
9,780,882

 
9,585,265

 
9,634,169

 
48,904

Encompass Digital Media, Inc
 
Media:  Broadcasting & Subscription
 
Senior Secured First Lien Term Loans(7) LIBOR + 4.500%, 1.000% Floor
 
6/6/2021
 
4,887,500

 
4,863,063

 
4,618,688

 
(244,375
)
EVO Payments International, LLC
 
Banking, Finance, Insurance & Real Estate
 
Senior Secured First Lien Term Loans(3) LIBOR + 5.000%, 1.000% Floor
 
12/22/2023
 
3,000,000

 
2,970,000

 
2,970,000

 

Fieldwood Energy LLC
 
Energy:  Oil & Gas
 
Senior Secured First Lien Term Loans(7) LIBOR + 7.000%, 1.000% Floor
 
8/31/2020
 
1,222,222

 
1,100,000

 
1,155,000

 
55,000

Fieldwood Energy LLC
 
Energy:  Oil & Gas
 
Senior Secured First Lien Term Loans(7) LIBOR + 7.125%, 1.250% Floor
 
9/30/2020
 
1,650,000

 
1,641,125

 
1,431,375

 
(209,750
)
Fieldwood Energy LLC
 
Energy:  Oil & Gas
 
Senior Secured Second Lien Term Loans(7) LIBOR + 7.125%, 1.250% Floor
 
9/30/2020
 
2,596,305

 
2,676,375

 
1,817,414

 
(858,961
)
First Data Corporation
 
Banking, Finance, Insurance & Real Estate
 
Senior Secured First Lien Term Loans(5) LIBOR + 3.000%, 0.000% Floor
 
7/8/2022
 
1,000,000

 
1,000,000

 
1,010,210

 
10,210

Flex Acquisition Company, Inc.
 
Containers, Packaging & Glass
 
Senior Secured First Lien Term Loans(3)(7) LIBOR + 3.250%, 1.000% Floor
 
12/29/2023
 
1,000,000

 
995,000

 
1,008,330

 
13,330

Four Seasons Holdings Inc.
 
Hotel, Gaming & Leisure
 
Senior Secured First Lien Term Loans(7) LIBOR + 3.000%, 0.750% Floor
 
11/30/2023
 
1,000,000

 
995,000

 
1,011,250

 
16,250

Genex Services, Inc.
 
Banking, Finance, Insurance & Real Estate
 
Senior Secured First Lien Term Loans(5) LIBOR + 4.250%, 1.000% Floor
 
5/28/2021
 
2,942,374

 
2,927,662

 
2,920,306

 
(7,356
)
GTCR Valor Companies, Inc.
 
Media:  Diversified & Production
 
Senior Secured First Lien Term Loans(7) LIBOR + 6.000%, 1.000% Floor
 
6/16/2023
 
4,987,500

 
4,788,000

 
4,925,156

 
137,156

Harbortouch Payments, LLC
 
Banking, Finance, Insurance & Real Estate
 
Senior Secured First Lien Term Loans(7) LIBOR + 4.750%, 1.000% Floor
 
10/13/2023
 
5,000,000

 
4,950,000

 
4,950,000

 


F-48


Company(1)
 
Industry
 
Type of Investment
 
Maturity
 
Par Amount
 
Initial Notional
Cost
(2)
 
Fair Value
 
Unrealized Appreciation/(Depreciation)
HNC Holdings, Inc.
 
Construction & Building
 
Senior Secured First Lien Term Loans(7) LIBOR + 4.500%, 1.000% Floor
 
10/5/2023
 
572,000

 
569,140

 
577,720

 
8,580

Hudson Products Holdings Inc
 
Capital Equipment
 
Senior Secured First Lien Term Loans(7) LIBOR + 4.000%, 1.000% Floor
 
3/15/2019
 
1,862,892

 
1,853,578

 
1,632,360

 
(221,218
)
Imagine! Print Solutions, LLC
 
Media: Advertising, Printing & Publishing
 
Senior Secured First Lien Term Loans(7) LIBOR + 6.000%, 1.000% Floor
 
3/30/2022
 
4,977,182

 
4,916,266

 
5,026,954

 
110,688

Iqor US Inc.
 
Services:  Business
 
Senior Secured First Lien Term Loans(7) LIBOR + 5.000%, 1.000% Floor
 
4/1/2021
 
7,591,111

 
7,439,289

 
7,230,533

 
(208,756
)
Isola USA Corp.
 
High Tech Industries
 
Senior Secured First Lien Term Loans(7) LIBOR + 8.250%, 1.000% Floor
 
11/29/2018
 
3,697,045

 
3,595,250

 
3,441,172

 
(154,078
)
J.D. Power and Associates
 
Services:  Consumer
 
Senior Secured First Lien Term Loans(7) LIBOR + 4.250%, 1.000% Floor
 
9/7/2023
 
2,000,000

 
1,990,000

 
2,017,500

 
27,500

Kronos Incorporated
 
Services:  Business
 
Senior Secured First Lien Term Loans(7) LIBOR + 4.000%, 1.000% Floor
 
11/1/2023
 
3,000,000

 
2,985,000

 
3,035,160

 
50,160

Kronos Incorporated
 
Services:  Business
 
Senior Secured Second Lien Term Loans(7) LIBOR + 8.250%, 1.000% Floor
 
11/1/2024
 
2,000,000

 
1,980,000

 
2,058,760

 
78,760

Lightstone HoldCo LLC
 
Utilities:  Electric
 
Senior Secured First Lien Term Loans(3) LIBOR + 5.500%, 1.000% Floor
 
1/30/2024
 
2,739,130

 
2,684,348

 
2,769,946

 
85,598

Lightstone HoldCo LLC
 
Utilities:  Electric
 
Senior Secured First Lien Term Loans(3) LIBOR + 5.500%, 1.000% Floor
 
1/30/2024
 
260,870

 
255,652

 
263,804

 
8,152

Livingston International, Inc.
 
Transportation:  Cargo
 
Senior Secured Second Lien Term Loans(4)(7) LIBOR + 8.250%, 1.250% Floor
 
4/17/2020
 
1,954,783

 
1,969,443

 
1,862,321

 
(107,122
)
MPH Acquisition Holdings LLC
 
Healthcare & Pharmaceuticals
 
Senior Secured First Lien Term Loans(7) LIBOR + 4.000%, 1.000% Floor
 
6/7/2023
 
2,870,317

 
2,855,965

 
2,917,993

 
62,028

MWI Holdings, Inc.
 
Capital Equipment
 
Senior Secured First Lien Term Loans(7) LIBOR + 5.500%, 1.000% Floor
 
6/29/2020
 
3,990,000

 
3,950,100

 
3,980,025

 
29,925

Nine West Holdings, Inc.
 
Consumer goods:  Non-durable
 
Senior Secured First Lien Term Loans(7) LIBOR + 3.750%, 1.000% Floor
 
10/8/2019
 
5,865,000

 
5,850,338

 
3,606,975

 
(2,243,363
)
O2 Partners, LLC
 
Consumer goods:  Non-durable
 
Senior Secured First Lien Term Loans(6) LIBOR + 5.000%, 1.000% Floor
 
10/7/2022
 
1,500,000

 
1,485,000

 
1,485,000

 

Payless Inc.
 
Retail
 
Senior Secured First Lien Term Loans(7) LIBOR + 4.000%, 1.000% Floor
 
3/11/2021
 
5,850,000

 
5,828,063

 
3,017,606

 
(2,810,457
)
Petco Animal Supplies, Inc.
 
Retail
 
Senior Secured First Lien Term Loans(7) LIBOR + 4.000%, 1.000% Floor
 
1/26/2023
 
5,940,050

 
5,821,249

 
5,965,533

 
144,284

Polycom, Inc.
 
Wholesale
 
Senior Secured First Lien Term Loans(7) LIBOR + 6.500%, 1.000% Floor
 
9/27/2023
 
1,946,667

 
1,868,800

 
1,953,967

 
85,167

Preferred Proppants, LLC
 
Construction & Building
 
Senior Secured First Lien Term Loans(7) LIBOR + 5.750%, 1.000% Floor
 
7/27/2020
 
2,870,178

 
2,841,476

 
2,421,713

 
(419,763
)
Press Ganey Holdings, Inc.
 
Healthcare & Pharmaceuticals
 
Senior Secured First Lien Term Loans(5) LIBOR + 3.250%, 1.000% Floor
 
10/23/2023
 
3,000,000

 
2,985,000

 
3,015,000

 
30,000

Press Ganey Holdings, Inc.
 
Healthcare & Pharmaceuticals
 
Senior Secured Second Lien Term Loans(5) LIBOR + 7.250%, 1.000% Floor
 
10/21/2024
 
6,500,000

 
6,472,500

 
6,472,505

 
5

Rackspace Hosting, Inc.
 
Services:  Business
 
Senior Secured First Lien Term Loans(3) LIBOR + 3.500%, 1.000% Floor
 
11/3/2023
 
1,000,000

 
1,000,000

 
1,000,000

 

Rackspace Hosting, Inc.
 
Services:  Business
 
Senior Secured First Lien Term Loans(7) LIBOR + 4.000%, 1.000% Floor
 
11/3/2023
 
2,500,000

 
2,487,500

 
2,530,200

 
42,700

SCS Holdings I Inc.
 
High Tech Industries
 
Senior Secured First Lien Term Loans(5) LIBOR + 4.250%, 1.000% Floor
 
10/30/2022
 
1,500,000

 
1,496,250

 
1,496,250

 


F-49


Company(1)
 
Industry
 
Type of Investment
 
Maturity
 
Par Amount
 
Initial Notional
Cost
(2)
 
Fair Value
 
Unrealized Appreciation/(Depreciation)
Sungard Availability Services Capital Inc.
 
Services:  Business
 
Senior Secured First Lien Term Loans(5) LIBOR + 5.000%, 1.000% Floor
 
4/1/2019
 
7,989,438

 
7,956,046

 
7,716,439

 
(239,607
)
TaxACT Inc.
 
Banking, Finance, Insurance & Real Estate
 
Senior Secured First Lien Term Loans(5) LIBOR + 6.000%, 1.000% Floor
 
1/3/2023
 
2,705,882

 
2,634,706

 
2,705,882

 
71,176

Tensar Corporation
 
Capital Equipment
 
Senior Secured First Lien Term Loans(7) LIBOR + 4.750%, 1.000% Floor
 
7/9/2021
 
11,574,536

 
11,458,791

 
10,417,083

 
(1,041,708
)
TravelCLICK, Inc
 
Hotel, Gaming & Leisure
 
Senior Secured First Lien Term Loans(5) LIBOR + 4.500%, 1.250% Floor
 
5/6/2021
 
4,732,805

 
4,685,477

 
4,738,721

 
53,244

tronc, Inc.
 
Media: Advertising, Printing & Publishing
 
Senior Secured First Lien Term Loans(4)(5) LIBOR + 4.750%, 1.000% Floor
 
8/4/2021
 
7,000,000

 
6,930,000

 
6,973,750

 
43,750

UFC Holdings, LLC
 
Hotel, Gaming & Leisure
 
Senior Secured First Lien Term Loans(7) LIBOR + 4.000%, 1.000% Floor
 
8/18/2023
 
1,000,000

 
995,000

 
1,012,000

 
17,000

UFC Holdings, LLC
 
Hotel, Gaming & Leisure
 
Senior Secured Second Lien Term Loans(7) LIBOR + 7.500%, 1.000% Floor
 
8/18/2024
 
500,000

 
495,000

 
513,125

 
18,125

US Shipping Partners LP
 
Transportation:  Cargo
 
Senior Secured First Lien Term Loans(5) LIBOR + 4.250%, 1.000% Floor
 
6/26/2021
 
1,856,284

 
1,842,362

 
1,786,673

 
(55,689
)
VCVH Holding Corp.
 
Healthcare & Pharmaceuticals
 
Senior Secured First Lien Term Loans(7) LIBOR + 5.000%, 1.000% Floor
 
6/1/2023
 
997,500

 
987,525

 
987,525

 

Veresen Midstream Limited Partnership
 
Energy:  Oil & Gas
 
Senior Secured First Lien Term Loans(7) LIBOR + 4.250%, 1.000% Floor
 
3/31/2022
 
2,992,405

 
2,956,197

 
3,009,851

 
53,654

Victory Capital Operating, LLC
 
Banking, Finance, Insurance & Real Estate
 
Senior Secured First Lien Term Loans(7) LIBOR + 7.500%, 1.000% Floor
 
10/29/2021
 
1,625,357

 
1,600,977

 
1,641,611

 
40,634

Vistra Operations Company LLC
 
Energy:  Electricity
 
Senior Secured First Lien Term Loans(7) LIBOR + 4.000%, 1.000% Floor
 
8/4/2023
 
3,257,143

 
3,224,571

 
3,294,307

 
69,736

Vistra Operations Company LLC
 
Energy:  Electricity
 
Senior Secured First Lien Term Loans(7) LIBOR + 4.000%, 1.000% Floor
 
8/4/2023
 
742,857

 
735,429

 
751,334

 
15,905

Vistra Operations Company LLC
 
Energy:  Electricity
 
Senior Secured First Lien Term Loans(3)(5) LIBOR + 3.250%, 0.750% Floor
 
12/14/2023
 
1,500,000

 
1,496,250

 
1,518,750

 
22,500

Western Digital Corporation
 
High Tech Industries
 
Senior Secured First Lien Term Loans(5) LIBOR + 3.750%, 0.750% Floor
 
4/29/2023
 
3,192,000

 
3,148,110

 
3,223,920

 
75,810

YRC Worldwide Inc.
 
Transportation:  Cargo
 
Senior Secured First Lien Term loans(4)(7) LIBOR + 7.000%, 1.000% Floor
 
2/13/2019
 
9,737,187

 
9,725,122

 
9,627,643

 
(97,479
)
Total
 
 
 
$
230,377,606

 
$
227,513,681

 
$
213,493,418

 
$
(14,020,263
)
Total accrued interest income, net of expenses
 
 
 
 
 
 
 
 
 
372,933
Total unrealized depreciation on total return swap
 
 
 
 
 
 
 
 
 
$
(13,647,330
)
 _____________________________
(1)
All investments are domiciled in the United States except for Livingston International, Inc., which is domiciled in Canada. All foreign investments are denominated in US Dollars.
(2)
Represents the initial amount of par of an investment in which the TRS is referenced.
(3)
The referenced asset or portion thereof is unsettled as of December 31, 2016.
(4)
The investment is not a qualifying asset under the 1940 Act.
(5)
The interest rate on these loans is subject to a base rate plus 1 Month (“1M”) LIBOR, which at December 31, 2016 was 0.77%. As the interest rate is subject to a minimum LIBOR floor, which was greater than the 1M LIBOR rate at December 31, 2016, the prevailing rate in effect at December 31, 2016 was the base rate plus the LIBOR floor.
(6)
The interest rate on these loans is subject to a base rate plus 2 Month (“2M”) LIBOR, which at December 31, 2016 was 0.82%. As the interest rate is subject to a minimum LIBOR floor, which was greater than the 2M LIBOR rate at December 31, 2016, the prevailing rate in effect at December 31, 2016 was the base rate plus the LIBOR floor.
(7)
The interest rate on these loans is subject to a base rate plus 3 Month (“3M”) LIBOR, which at December 31, 2016 was 1.00%. As the interest rate is subject to a minimum LIBOR floor, which was greater than the 3M LIBOR rate at December 31, 2016, the prevailing rate in effect at December 31, 2016 was the base rate plus the LIBOR floor.


F-50


Note 6. Borrowings
The following table shows the Company's outstanding debt as of September 30, 2017 and December 31, 2016:
 
September 30, 2017
 
December 31, 2016
 
Total
Commitment
 
Balance
Outstanding 
 
Unused
Commitment 
 
Total
Commitment
 
Balance
Outstanding
 
Unused
Commitment
ING Credit Facility
$
220,000,000

 
$
180,000,000

 
$
40,000,000

 
$
175,000,000

 
$
150,000,000

 
$
25,000,000

Alpine Credit Facility
300,000,000

 
240,000,000

 
60,000,000

 
300,000,000

 
240,000,000

 
60,000,000

Total before deferred financing costs
520,000,000

 
420,000,000

 
100,000,000

 
475,000,000

 
390,000,000

 
85,000,000

Unamortized deferred financing costs

 
(5,747,434
)
 

 

 
(4,340,533
)
 

Total borrowings outstanding, net
$
520,000,000

 
$
414,252,566

 
$
100,000,000

 
$
475,000,000

 
$
385,659,467

 
$
85,000,000

As a BDC, the Company is only allowed to employ leverage to the extent that its asset coverage, as defined in the 1940 Act, equals at least 200% after giving effect to such leverage. The amount of leverage that the Company employs at any time depends on its assessment of the market and other factors at the time of any proposed borrowing.
The fair value of the Company’s debt obligation is determined in accordance with ASC 820, which defines fair value in terms of the price that would be paid to transfer a liability in an orderly transaction between market participants at the measurement date under current market conditions. The fair value of the Company’s margin borrowings are estimated based upon market interest rates for its own borrowings or entities with similar credit risk, adjusted for nonperformance risk, if any. The Company’s debt obligation is recorded at its carrying value, which approximates fair value.

ING Credit Facility
On August 12, 2016, the Company amended its existing senior secured syndicated revolving credit facility (the “ING Credit Facility”) pursuant to a Senior Secured Revolving Credit Agreement (the “Revolving Credit Agreement”) with certain lenders party thereto from time to time and ING Capital LLC, as administrative agent. The ING Credit Facility matures on August 12, 2020 and is secured by substantially all of the Company’s assets, subject to certain exclusions as further set forth in an Amended and Restated Guarantee, Pledge and Security Agreement (the “Security Agreement”) entered into in connection with the Revolving Credit Agreement, among the Company, the subsidiary guarantors party thereto, ING Capital LLC, as Administrative Agent, each Financial Agent and Designated Indebtedness Holder party thereto and ING Capital LLC, as Collateral Agent. The ING Credit Facility also includes usual and customary representations, covenants and events of default for senior secured revolving credit facilities of this nature. On February 13, 2015, commitments to the ING credit facility were expanded from $150,000,000 to $170,000.000. On August 12, 2016, commitments to the ING credit facility were expanded from $170,000,000 to $175,000,000. On April 20, 2017, commitments to the ING Credit Facility were expanded from $175,000,000 to $220,000,000.
The ING Credit Facility allows for the Company, at its option, to borrow money at a rate of either (i) an alternate base rate plus 1.50% per annum or (ii) LIBOR plus 2.50% per annum. The interest rate margins are subject to certain step-downs upon the satisfaction of certain conditions described in the Revolving Credit Agreement. The alternate base rate will be the greatest of (i) the U.S. Prime Rate set forth in the Wall Street Journal, (ii) the federal funds effective rate plus 1/2 of 1%, and (iii) three month LIBOR plus 1.00%. As of September 30, 2017 and December 31, 2016, the commitment under the ING Credit Facility was $220,000,000 and $175,000,000, respectively, and the ING Credit Facility includes an accordion feature that allows for potential future expansion of the ING Credit Facility up to a total of $500,000,000. Availability of loans under the ING Credit Facility is linked to the valuation of the collateral pursuant to a borrowing base mechanism.
The Company is also required to pay a commitment fee to the lenders based on the daily unused portion of the aggregate commitments under the ING Credit Facility. The commitment fee is (i) 1.50% if the used portion of the aggregate commitments is less than or equal to 40%, (ii) 0.75% if the used portion of the aggregate commitments is greater than 40% and less than or equal to 65% or (iii) 0.50% if the used portion of the aggregate commitments is greater than 65%. The ING Credit Facility provides that the Company may use the proceeds of the facility for general corporate purposes, including making investments in accordance with the Company’s investment objective and strategy.
Borrowings under the Revolving Credit Agreement are subject to, among other things, a minimum borrowing base. Substantially all of the Company’s assets are pledged as collateral under the Revolving Credit Agreement. The ING Credit Facility requires the Company to, among other things (i) make representations and warranties regarding the collateral as well the Company’s business and operations, (ii) agree to certain indemnification obligations, and (iii) agree to comply with various affirmative and negative covenants. The documents for the Revolving Credit Agreement also include default provisions, such as the failure to make timely payments under the Revolving Credit Agreement, the occurrence of a change in control, and the failure by the Company to materially perform under the operative agreements governing the Revolving Credit Agreement, which, if not complied with, could accelerate repayment under the Revolving Credit Agreement, thereby materially and adversely affecting the Company’s liquidity, financial condition and results of operations.

F-51


In connection with the security interest established under the Security Agreement, the Company, ING Capital LLC, in its capacity as collateral agent, and State Street Bank and Trust Company, in its capacity as the Company’s custodian, entered into a control agreement dated as of December 4, 2013, in order to, among other things, perfect the security interest granted pursuant to the Security Agreement in, and provide for control over, the related collateral.
As of September 30, 2017 and December 31, 2016, the carrying amount of the Company’s borrowings under the ING Credit Facility approximated their fair value. The fair value of the Company’s debt obligation is determined in accordance with ASC 820, which defines fair value in terms of the price that would be paid to transfer a liability in an orderly transaction between market participants at the measurement date under current market conditions. The fair value of the Company’s borrowing under the ING Credit Facility is estimated based upon market interest rates of the Company’s borrowing or entities with similar credit risk, adjusted for nonperformance risk, if any. As of September 30, 2017 and December 31, 2016, the ING Credit Facility would be deemed to be Level 3, as defined in Note 4.
As of September 30, 2017 and December 31, 2016, $2,491,430 and $2,746,766, respectively, of financing costs related to the ING Credit Facility have been capitalized and are being amortized over the respective terms. The following table shows additional information about the interest and financing costs related to the ING Credit Facility for the three and nine months ended September 30, 2017 and 2016:
 
For the Three Months Ended
September 30,
 
For the Nine Months Ended
September 30,
 
2017
 
2016
 
2017
 
2016
Interest expense related to the ING Credit Facility
$
1,621,142

 
$
1,061,353

 
$
4,086,172

 
$
3,111,502

Financing expenses related to the ING Credit Facility
234,636

 
190,439

 
664,086

 
526,813

Total Interest and financing expenses related to the ING Credit Facility
$
1,855,778

 
$
1,251,792

 
$
4,750,258

 
$
3,638,315

 
 
 
 
 
 
 
 
Weighted average outstanding debt balance of the ING Credit Facility
$
153,260,870

 
$
120,163,043

 
$
137,527,473

 
$
113,576,642

Weighted average interest rate of the ING Credit Facility
4.1
%
 
3.3
%
 
3.9
%
 
3.4
%

Alpine Credit Facility
On September 29, 2017, the Company’s wholly-owned, special purpose financing subsidiary, Alpine, amended it's existing revolving credit facility (the “Alpine Credit Facility”) pursuant to an Amended and Restated Loan Agreement (the “Amendment”) with JPMorgan Chase Bank, National Association (“JPMorgan”), as administrative agent and lender, the Financing Providers from time to time party thereto, SIC Advisors, as the portfolio manager, and the Collateral Administrator, Collateral Agent and Securities Intermediary party thereto (the “Loan Agreement”). The Loan Agreement was amended to, among other things, (i) extend the reinvestment period until December 29, 2020, (ii) extend the scheduled termination date until March 29, 2022, (iii) decrease the applicable margin for advances to 2.85% per annum and (iv) increase the compliance condition for net advances to 55% of net asset value. Alpine’s obligations to JPMorgan under the Alpine Credit Facility are secured by a first priority security interest in substantially all of the assets of Alpine, including its portfolio of loans. The obligations of Alpine under the Alpine Credit Facility are non-recourse to the Company.
The Alpine Credit Facility provides for borrowings in an aggregate principal amount up to $300,000,000 on a committed basis. Borrowings under the Alpine Credit Facility are subject to compliance with a NAV coverage ratio with respect to the current value of Alpine’s portfolio and various eligibility criteria must be satisfied with respect to the initial acquisition of each loan in Alpine’s portfolio. Any amounts borrowed under the Alpine Credit Facility will mature, and all accrued and unpaid interest thereunder will be due and payable, on March 29, 2022.
Pricing under the Alpine Credit Facility for each one month calculation period is based on LIBOR for an interest period of one month, plus a spread of 2.85% per annum. If LIBOR is unavailable, pricing will be determined at the prime rate offered by JPMorgan or the federal funds effective rate, plus a spread of 2.85% per annum. Interest is payable monthly in arrears. Alpine is also required to pay a commitment fee of 1.00% on the average daily unused amount of the financing commitments to the extent that $300,000,000 has not been borrowed.
Borrowings of Alpine are considered borrowings of the Company for purposes of complying with the asset coverage requirements under the 1940 Act, applicable to BDCs.
Pursuant to a Sale and Contribution Agreement entered into between the Company and Alpine (the “Sale Agreement”) in connection with the Alpine Credit Facility, the Company may sell loans or contribute cash or loans to Alpine from time to time and will retain a residual interest in any assets contributed through its ownership of Alpine or will receive fair market value for any assets sold to Alpine. In certain circumstances the Company may be required to repurchase certain loans sold to Alpine. In addition to the acquisition of loans pursuant to the Sale Agreement, Alpine may purchase additional assets from various sources. Alpine has appointed

F-52


SIC Advisors to manage its portfolio of assets pursuant to the terms of a Portfolio Management Agreement between SIC Advisors and Alpine.
As of September 30, 2017 and December 31, 2016, the carrying amount of the Company’s borrowings under the Alpine Credit Facility approximated the fair value of the Company’s debt obligation. The fair value of the Company’s debt obligation is determined in accordance with ASC 820, which defines fair value in terms of the price that would be paid to transfer a liability in an orderly transaction between market participants at the measurement date under current market conditions. The fair value of the Company’s borrowings under the Alpine Credit Facility is estimated based upon market interest rates of the Company’s borrowings or entities with similar credit risk, adjusted for nonperformance risk, if any. As of September 30, 2017 and December 31, 2016, the Alpine Credit Facility would be deemed to be Level 3, as defined in Note 4.
As of September 30, 2017 and December 31, 2016, $3,256,004 and $1,593,767, respectively, of financing costs related to the Alpine Credit Facility has been capitalized and is being amortized over the respective terms. The following table shows additional information about the interest and financing costs related to the Alpine Credit Facility for the three and nine months ended September 30, 2017 and 2016:
 
For the Three Months Ended
September 30,
 
For the Nine Months Ended
September 30,
 
2017
 
2016
 
2017
 
2016
Interest expense related to the Alpine Credit Facility
$
2,813,570

 
$
2,371,728

 
$
8,091,502

 
$
6,984,188

Financing expenses related to the Alpine Credit Facility
148,933

 
146,808

 
437,763

 
437,234

Total Interest and financing expenses related to the Alpine Credit Facility
$
2,962,503

 
$
2,518,536

 
$
8,529,265

 
$
7,421,422

 
 
 
 
 
 
 
 
Weighted average outstanding debt balance of the Alpine Credit Facility
$
240,000,000

 
$
240,000,000

 
$
243,406,593

 
$
240,000,000

Weighted average interest rate of the Alpine Credit Facility
4.6
%
 
3.8
%
 
4.4
%
 
3.8
%

Note 7. Agreements
Investment Advisory Agreement
On April 5, 2012, the Company entered into an investment advisory agreement (the “Investment Advisory Agreement”) with SIC Advisors to manage the Company’s investment activities. The Investment Advisory Agreement became effective as of April 17, 2012, the date that the Company met its minimum offering requirement. Pursuant to the 1940 Act, the initial term of the Investment Advisory Agreement was for two years from its effective date, with one-year renewals subject to approval by the Company’s board of directors, a majority of whom must be independent directors. On March 1, 2017, the Company’s board of directors approved the renewal of the Investment Advisory Agreement for an additional one-year term at an in-person meeting. Pursuant to the Investment Advisory Agreement, SIC Advisors implements the Company’s business strategy on a day-to-day basis and performs certain services for the Company, subject to oversight by the Company’s board of directors. SIC Advisors is responsible for, among other duties, determining investment criteria, sourcing, analyzing and executing investment transactions, asset sales, financings and performing asset management duties. Under the Investment Advisory Agreement, the Company has agreed to pay SIC Advisors a management fee for investment advisory and management services consisting of a base management fee and an incentive fee.
The base management fee is calculated at an annual rate of 1.75% of the Company’s gross assets payable quarterly in arrears. For purposes of calculating the base management fee, the term “gross assets” includes any assets acquired with the proceeds of leverage. "Gross assets" also includes any cash collateral posted with respect to the TRS, adjusted for realized and unrealized appreciation. The base management fee is calculated based on the gross assets at the end of each completed calendar quarter. Base management fees for any partial quarter are appropriately prorated. For the three and nine months ended September 30, 2017, the Company recorded an expense for base management fees of $5,378,233 and $16,036,068, respectively. For the three and nine months ended September 30, 2016, the Company recorded an expense for base management fees of $5,040,490 and $14,790,696, respectively. As of September 30, 2017 and December 31, 2016, the Company recorded a base management fee payable of $5,378,233 and $5,138,107, respectively.
The incentive fee consists of the following two parts:
An incentive fee on net investment income (“Subordinated Incentive Fee on Income”) is calculated and payable quarterly in arrears and is based upon pre-incentive fee net investment income for the immediately preceding quarter. No Subordinated Incentive Fee on Income is payable in any calendar quarter in which pre-incentive fee net investment income does not exceed a quarterly return to stockholders of 1.75% per quarter on the Company’s net assets at the end of the immediately preceding fiscal quarter (the “Preferred Quarterly Return”). All pre-incentive fee net investment income, if any, that exceeds the Preferred Quarterly Return, but is less than or equal to 2.1875% of net assets at the end of the immediately preceding fiscal quarter in any quarter, will be payable to SIC Advisors. The Company refers to this portion of its Subordinated Incentive Fee on Income as the “Catch Up”. It is intended to provide an

F-53


incentive fee of 20% on pre-incentive fee net investment income when pre-incentive fee net investment income exceeds 2.1875% of net assets at the end of the immediately preceding quarter in any quarter. For any quarter in which the Company’s pre-incentive fee net investment income exceeds 2.1875% of net assets at the end of the immediately preceding quarter, the Subordinated Incentive Fee on Income shall equal 20% of the amount of pre-incentive fee net investment income, because the Preferred Quarterly Return and Catch Up will have been achieved. There is no incentive fee on net investment income earned on the TRS.
For the three and nine months ended September 30, 2017, the Company recorded a Subordinated Incentive Fee on Income of $1,323,999 and $1,872,805, respectively. For the three and nine months ended September 30, 2016, the Company recorded a Subordinated Incentive Fee on Income of $2,372,355 and $7,876,060, respectively. As of September 30, 2017 and December 31, 2016, the Company recorded incentive fees payable of $1,323,999 and $1,405,419, respectively.
A capital gains incentive fee will be earned on realized investments and shall be payable in arrears as of the end of each calendar year during which the Investment Advisory Agreement is in effect. If the Investment Advisory Agreement is terminated, the fee will also become payable as of the effective date of such termination. The fee equals 20% of the realized capital gains, less the aggregate amount of any previously paid capital gains incentive fees. The incentive fee on capital gains is equal to realized capital gains on a cumulative basis from inception, computed net of all realized capital losses and unrealized capital depreciation on a cumulative basis.
Under GAAP, the Company calculates capital gains incentive fees as if the Company had realized all assets at their fair values and liabilities at their settlement amounts as of the reporting date. GAAP requires that the capital gains incentive fee accrual assume the cumulative aggregate unrealized capital appreciation is realized, even though such unrealized capital appreciation is not payable under the Investment Advisory Agreement. Accordingly, the Company accrues a provisional capital gains incentive fee taking into account any unrealized gains or losses. There can be no assurance that such unrealized capital appreciation will be realized in the future and that the provisional capital gains incentive fee will become payable.
For the three and nine months ended September 30, 2017 and 2016, the Company recorded no capital gains incentive fee. As of September 30, 2017 and December 31, 2016, the Company recorded no capital gains incentive fee payable.
In the event that other organizational and offering expenses exceed 5.25% of the gross proceeds from the sale of shares of the Company’s common stock pursuant to its public offering or one or more private offerings at the time of the completion of the offering or other organizational and offering expenses, together with selling commissions, dealer manager fees and any discounts paid to members of the Financial Industry Regulatory Authority, exceed 15% of the gross proceeds from the sale of shares of the Company’s common stock pursuant to its public offering or one or more private offerings at the time of the completion of the offering, then SIC Advisors shall be required to pay without reimbursement from the Company, or, if already paid by the Company, reimburse the Company, for amounts exceeding such 5.25% and 15% limit, as appropriate.

Administration Agreement
On April 5, 2012, the Company entered into an administration agreement (the “Administration Agreement”) with Medley Capital LLC, pursuant to which Medley Capital LLC furnishes the Company with administrative services necessary to conduct its day-to-day operations. On February 28, 2013, Medley Capital LLC entered into a Sub-Administration Agreement with State Street Bank Global Fund Accounting and Custody to perform certain financial, accounting, administrative and other services on behalf of the Company. On March 1, 2017, the Company’s board of directors approved the renewal of the Administration Agreement for an additional one-year term at an in-person meeting. Medley Capital LLC is reimbursed for administrative expenses it incurs on the Company’s behalf in performing its obligations. Such costs are reasonably allocated to the Company on the basis of assets, revenues, time records or other reasonable methods. The Company does not reimburse Medley Capital LLC for any services for which it receives a separate fee or for rent, depreciation, utilities, capital equipment or other administrative items allocated to a controlling person of Medley Capital LLC. For the three and nine months ended September 30, 2017, the Company recorded administrator expenses of $745,817 and $2,333,968, respectively. For the three and nine months ended September 30, 2016, the Company recorded administrator expenses of $780,166 and $1,997,067, respectively. As of September 30, 2017 and December 31, 2016, the Company had $745,817 and $850,678, respectively, in administrator fees payable.

Expense Support and Reimbursement Agreement
From June 29, 2012 through December 31, 2016, the Company was party to an Expense Support and Reimbursement Agreement with SIC Advisors (the “Expense Support Agreement”). During the term of the Expense Support Agreement, SIC Advisors reimbursed the Company for operating expenses in an amount equal to the difference between the Company’s distributions paid to its stockholders in each month, less the sum of the Company’s net investment income, net realized capital gains and dividends paid to the Company from its portfolio companies, not included in net income and net realized capital gains, during such period (“Expense Support Reimbursement”). To the extent that no dividends or other distributions were paid to the Company’s stockholders in any given month, then the Expense Support Reimbursement for such month was equal to such amount necessary in order for available operating funds for the month to equal zero. From April 1, 2016 until the expiration of the Expense Support Agreement on December 31, 2016, SIC Advisors made expense support payments on a discretionary basis by making an election on the last day of each month to fund an

F-54


expense support payment in an amount equal to the difference between the Company’s distributions paid to stockholders during such month less the sum of the Company’s net investment income, net realized capital gains and dividends paid to the Company from its portfolio companies, not included in net income and net realized capital gains during such period.
The purpose of the Expense Support Agreement was to cover distributions to stockholders so as to ensure that the distributions did not constitute a return of capital for GAAP purposes and to reduce operating expenses until the Company had raised sufficient capital to be able to absorb such expenses. The Expense Support Agreement expired on December 31, 2016.
Pursuant to the Expense Support Agreement, the Company will reimburse SIC Advisors for expense support payments it previously made following any calendar quarter for which the Company received net investment income, net realized capital gains and dividends from its portfolio companies (not included in net income and net realized capital gains) in excess of the distributions paid to the Company’s stockholders during such calendar quarter (the “Excess Operating Funds”). Any such reimbursement will be made within three years of the date that the expense support payment obligation was incurred by SIC Advisors, subject to the conditions described below. The amount of the reimbursement during any calendar quarter will equal the lesser of (i) the Excess Operating Funds received during the quarter and (ii) the aggregate amount of all expense payments made by SIC Advisors that have not yet been reimbursed. In addition, the Company will only make reimbursement payments to the extent its current annualized “operating expense ratio” (as described in footnote 1 to the table below) is equal to or less than its operating expense ratio for the quarter during which the corresponding expense obligation was incurred and to the extent the annualized rate of its regular cash dividends to the Company’s stockholders for the month is equal to or greater than the annualized rate of the Company’s regular cash distributions to stockholders for the month during which the corresponding expense payment was incurred.
For the three and nine months ended September 30, 2017, the Company recorded no Expense Support Reimbursements on the consolidated statements of operations. For the three and nine months ended September 30, 2016, the Company recorded net Expense Support Reimbursements of $5,389,627 and $16,093,129, respectively, on the consolidated statements of operations. Repayments of amounts paid by SIC Advisors to the Company under the Expense Support Agreement will be accrued as they become probable and estimable. As of September 30, 2017 and December 31, 2016, the Company recorded $0 and $7,892,273, respectively, in its consolidated statements of assets and liabilities as due from affiliate relating to the Expense Support Agreement. The Company refers to Expense Support Reimbursements that are eligible for reimbursement to SIC Advisors by virtue of having satisfied the conditions described above as a “Crystalized Reimbursement.” As of September 30, 2017 and December 31, 2016, the Company recorded $0 and $135,784, respectively, of Crystalized Reimbursements, and $0 and $135,784 was included in Due to Affiliate on the respective consolidated statements of assets and liabilities. As of September 30, 2017 and December 31, 2016, the total amounts eligible for reimbursement of the Company to SIC Advisors, net of Crystalized Reimbursements was $26,559,011 and $31,474,331, respectively.
The following table provides information regarding liabilities incurred by SIC Advisors pursuant to the Expense Support Agreement as well as other information relating to the Company’s ability to reimburse SIC Advisors for such payments:  
Quarter Ended
 
Amount of Expense Payment Obligation
 
Amount Repaid to SIC Advisors
 
Operating Expense Ratio(1)
 
Annualized Distribution Rate(2)
 
Eligible to be 
Repaid Through
June 30, 2012
 
$
454,874

 
$
454,874

 
6.13
%
 
8.00
%
 
June 30, 2015
September 30, 2012
 
437,303

 
437,303

 
4.05
%
 
8.00
%
 
September 30, 2015
December 31, 2012
 
573,733

 
573,733

 
3.91
%
 
8.00
%
 
December 31, 2015
March 31, 2013
 
685,404

 
685,404

 
1.71
%
 
8.00
%
 
March 31, 2016
June 30, 2013
 
732,425

 
732,425

 
1.00
%
 
7.84
%
 
June 30, 2016
September 30, 2013(3)
 
1,262,848

 
1,078,500

 
0.83
%
 
7.84
%
 
September 30, 2016
December 31, 2013(3)
 
1,258,575

 

 
0.45
%
 
7.84
%
 
December 31, 2016
March 31, 2014(3)
 
1,177,686

 
135,784

 
0.45
%
 
7.80
%
 
March 31, 2017
June 30, 2014(3)
 
2,143,066

 

 
0.38
%
 
7.80
%
 
June 30, 2017
September 30, 2014(3)
 
1,717,593

 
123,025

 
0.38
%
 
7.77
%
 
September 30, 2017
December 31, 2014
 
1,585,471

 

 
0.47
%
 
8.00
%
 
December 31, 2017
March 31, 2015
 
1,993,518

 

 
0.43
%
 
8.00
%
 
March 31, 2018
June 30, 2015
 
2,148,462

 

 
0.31
%
 
8.00
%
 
June 30, 2018
September 30, 2015
 
627,752

 

 
0.32
%
 
8.25
%
 
September 30, 2018
December 31, 2015
 
3,974,895

 

 
0.40
%
 
8.65
%
 
December 31, 2018
March 31, 2016
 
5,204,896

 

 
0.37
%
 
8.89
%
 
March 31, 2019
June 30, 2016
 
5,634,390

 

 
0.29
%
 
8.89
%
 
June 30, 2019
September 30, 2016
 
5,389,627

 

 
0.45
%
 
8.84
%
 
September 30, 2019
 _____________________________

F-55


(1)
“Operating Expense Ratio” is as of the date the expense support payment obligation was incurred by the Company’s Advisor and includes all expenses borne by the Company, except for organizational and offering expenses, base management and incentive fees owed to SIC Advisors, and interest expense, as a percentage of net assets.
(2)
“Annualized Distribution Rate” equals the annualized rate of distributions paid to stockholders based on the amount of the regular cash distribution paid immediately prior to the date the expense support payment obligation was incurred by SIC Advisors. “Annualized Distribution Rate” does not include special cash or stock distributions paid to stockholders.
(3)
The unreimbursed part of the expense payment obligation has expired as of September 30, 2017.

Note 8. Related Party Transactions
On October 19, 2011, SIC Advisors entered into a subscription agreement to purchase 110.80 shares of common stock for cash consideration of $1,000. The consideration represents $9.025 per share.
On March 31, 2012, SIC Advisors entered into a subscription agreement to purchase 1,108,033.24 shares of common stock for cash consideration of $10,000,000. The purchase was made on April 17, 2012. The consideration represents $9.025 per share.
Due from affiliate relates to amounts due from SIC Advisors pursuant to the Expense Support Agreement as discussed in Note 7. Due to affiliate relates to reimbursements of expense support reimbursement pursuant to the Investment Advisory Agreement paid to/from SIC Advisors as discussed in Note 7.
An affiliate of the Company’s dealer manager has an ownership interest in SIC Advisors.
Opportunities for co-investments may arise when SIC Advisors or an affiliated adviser becomes aware of investment opportunities that may be appropriate for the Company and other clients or affiliated funds. The Company obtained an exemptive order from the SEC on November 25, 2013 (the “Prior Exemptive Order”). On March 29, 2017, the Company, SIC Advisors and certain other affiliated funds and investment advisers received an exemptive order (the "Exemptive Order") that supersedes the Prior Exemptive Order and allows affiliated registered investment companies to participate in co-investment transactions with us that would otherwise have been prohibited under Section 17(d) and 57(a)(4) and Rule 17d-1. The terms of the Exemptive Order are otherwise substantially similar to the Prior Exemptive Order. Co-investment under the Exemptive Order is subject to certain conditions, including the condition that, in the case of each co-investment transaction, our board of directors determines that it would to be in our best interest to participate in the transaction. However, neither we nor the affiliated funds are obligated to invest or co-invest when investment opportunities are referred to us or them. On May 24, 2017, the Company, SIC Advisors and certain of our affiliates filed an exemptive application for a co-investment order that would supersede the Exemptive Order (the “New Exemptive Order”) and would allow, in addition to the entities already covered by the Exemptive Order, Medley LLC and its subsidiary, Medley Capital LLC, to the extent they hold financial assets in a principal capacity, and any direct or indirect, wholly- or majority-owned subsidiary of Medley LLC that is formed in the future, to participate in co-investment transactions with us that would otherwise be prohibited by either or both of Sections 17(d) and 57(a)(4) of the 1940 Act. There can be no assurance if and when we will receive the Exemptive Order. The Exemptive Order will remain in effect unless and until the New Exemptive Order is granted by the SEC. The terms of the New Exemptive Order, if received, would be substantially similar to the Exemptive Order.
Please see footnote 4 to the consolidated schedule of investments as of September 30, 2017 and December 31, 2016 for disclosures regarding securities also held by affiliated funds.

Note 9. Directors Fees
Effective January 1, 2017, each independent director will be compensated as follows: (i) an annual retainer of $85,000; (ii) a fee of $3,000 for each in-person board meeting in which they participate; (iii) a fee of $1,000 for each telephonic board meeting in which they participate; (iv) a fee of $2,500 for each in-person audit committee meeting in which they participate; (v) a fee $1,000 for each telephonic audit committee meeting in which they participate; (vi) a fee of $2,000 for each in-person nominating and corporate governance committee meeting in which they participate; and (vii) a fee of $1,000 for each telephonic nominating and corporate governance committee meeting in which they participate. In addition, each independent director will be reimbursed for reasonable and documented out-of-pocket expenses incurred in connection with attending each board or committee meeting. In addition, the Chair of the audit committee receives an annual retainer of $15,000, while the Chair of any other committee receives an annual retainer of $5,000. The Lead Independent Director receives an annual retainer of $10,000.
Prior to January 1, 2017, each independent director received an annual retainer fee of $50,000, and further received a fee of $4,000 ($2,000 for telephonic attendance) for each regularly scheduled board meeting attended, a fee of $2,000 for each special board meeting and all committee meetings attended, as well as reimbursement of reasonable and documented out-of-pocket expenses incurred in connection with attending each board or committee meeting. For the three and nine months ended September 30, 2017, the Company recorded directors' fees expenses in General and Administrative expenses on the consolidated statement of operations of $89,750 and $299,750, respectively. For the three and nine months ended September 30, 2016, the Company recorded directors' fees expenses in General and Administrative expenses on the consolidated statements of operations of $66,500 and $218,472, respectively.

F-56


Note 10. Earnings Per Share
In accordance with the provisions of ASC Topic 260 - Earnings per Share, basic earnings per share is computed by dividing earnings available to common stockholders 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.
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 three and nine months ended September 30, 2017 and 2016: 
 
For the Three Months Ended September 30,
 
For the Nine Months Ended September 30,
 
2017
 
2016
 
2017
 
2016
Net increase in net assets from operations
$
3,388,374

 
$
20,834,572

 
$
19,984,135

 
$
51,830,080

Weighted average common shares outstanding
96,474,233

 
92,516,572

 
96,078,793

 
89,015,100

Weighted average basic and diluted earnings per common share
$
0.04

 
$
0.23

 
$
0.21

 
$
0.58


Note 11. Commitments
As of September 30, 2017 and December 31, 2016, the Company had $50,564,113 and $26,944,304, respectively, of unfunded commitments under loan and financing agreements. These amounts are primarily composed of commitments for senior secured term loans, revolvers, and additional capital contributions for the Sierra JV. The unrealized gain or loss associated with unfunded commitments is recorded in the financial statements and reflected as an adjustment to the valuation of the related security in the Consolidated Schedule of Investments. The par amount of the unfunded commitments are not recognized by the Company until the commitment is funded.
 
As of
 
September 30, 2017
 
December 31, 2016
AAAHI Acquisition Corporation
$
1,917,757

 
$
2,219,626

AAR Intermediate Holdings, LLC
628,896

 
477,961

Barrys Bootcamp Holdings, LLC
7,028,571

 

Black Angus Steakhouses LLC
3,523,387

 
3,794,643

Central States Dermatology Services, LLC
583,514

 

CP Opco, LLC
348,265

 
9,291

Elite Comfort Solutions LLC
3,238,955

 
4,438,616

Engineered Machinery Holdings, Inc.
210,638

 

First Boston Construction Holdings, LLC

 
600,000

Impact Sales, LLC
1,347,656

 
1,562,500

IOP Monroe Acquisition, Inc.
2,500,000

 

Nuspire, LLC
2,500,000

 
2,500,000

PT Network, LLC
3,182,083

 
4,166,667

SavATree, LLC
361,111

 

SFP Holdings, Inc.
3,722,222

 

Sierra Senior Loan Strategy JV I LLC
7,700,000

 
875,000

SMART Financial Operations, LLC
6,300,000

 
6,300,000

SRS Software, LLC
5,000,000

 

TwentyEighty, Inc.
471,058

 

Total Commitments
$
50,564,113

 
$
26,944,304


Note 12. Fee Income
Fee income consists of origination fees, amendment fees, prepayment fees, administrative agent fees, transaction break-up fees and other miscellaneous fees. Origination fees, prepayment fees, amendment fees, and other similar fees are non-recurring fee sources. Such fees are received on a transaction by transaction basis and do not constitute a regular stream of income. The following table shows the Company’s fee income for the three and nine months ended September 30, 2017 and 2016:

F-57


 
For the Three Months Ended September 30,
 
For the Nine Months Ended September 30,
 
2017
 
2016
 
2017
 
2016
Origination fee
$
754,118

 
$
787,985

 
$
2,611,500

 
$
1,693,342

Prepayment fee
50,000

 
1,290,750

 
489,434

 
2,548,396

Amendment fee
395,593

 
273,566

 
849,730

 
774,628

Administrative agent fee
28,420

 
47,721

 
100,539

 
47,721

Other fees

 
64,012

 
17,092

 
93,700

Fee income
$
1,228,131

 
$
2,464,034

 
$
4,068,295

 
$
5,157,787


Note 13. Distributions and Share Repurchase Program Distributions
Distributions to common stockholders are recorded on the ex-dividend date. The amount to be paid out as a distribution is determined by the Company’s board of directors.
The Company has adopted an “opt in” distribution reinvestment plan (“DRIP”) pursuant to which the Company’s common stockholders may elect to have the full amount of any cash distributions reinvested in additional shares of the Company’s common stock. On June 30, 2017, the Board approved an amendment to the DRIP, pursuant to which the number of newly-issued shares of the Company’s common stock to be issued to a participating stockholder shall be determined by dividing the total dollar amount of the distribution payable to such stockholder by a price equal to 94.5%, rather than 90%, of the Company’s then current offering price. The Company amended the DRIP as a result of the Company’s recently revised fee structure, which went into effect on June 16, 2017. Under the Company’s new fee structure the upfront selling commission was reduced from 7.00% of gross proceeds to up to 3.00% of gross proceeds and the dealer manager fee was reduced from 2.75% of gross proceeds to up to 2.50% of gross proceeds. As a result, if the Company declares a cash dividend or other distribution, each stockholder that has “opted in” to the Company’s reinvestment plan will have their distributions automatically reinvested in additional shares of the Company’s common stock rather than receiving cash distributions. Stockholders who receive distributions in the form of shares of common stock will be subject to the same federal, state and local tax consequences as if they received cash distributions. For the nine months ended September 30, 2017, the Company distributed a total of $46,082,836, of which $25,118,175 was in cash and $20,964,661 was in the form of common stock associated with the DRIP. For the nine months ended September 30, 2016, the Company distributed a total of $53,464,883, of which $28,108,664, was in cash and $25,356,219 was in the form of common stock associated with the DRIP.
The following table reflects the cash distributions per share that the Company has declared or paid to its stockholders for the current and prior fiscal years. Stockholders of record as of each respective record date were entitled to receive the distribution. 
Record Date
 
Payment Date
 
Amount per share
January 15 and 29, 2016
 
January 29, 2016
 
$
0.03333

February 12 and 29, 2016
 
February 29, 2016
 
0.03333

March 15 and 31, 2016
 
March 31, 2016
 
0.03333

April 15 and 29, 2016
 
April 29, 2016
 
0.03333

May 13 and 31, 2016
 
May 31, 2016
 
0.03333

June 15 and 30, 2016
 
June 30, 2016
 
0.03333

July 15 and 29, 2016
 
July 29, 2016
 
0.03333

August 15 and 31, 2016
 
August 31, 2016
 
0.03333

September 15 and 30, 2016
 
September 30, 2016
 
0.03333

October 14 and 31, 2016
 
October 31, 2016
 
0.02667

November 15 and 30, 2016
 
November 30, 2016
 
0.02667

December 15 and 30, 2016
 
December 31, 2016
 
0.02667

January 13 and 31, 2017
 
January 31, 2017
 
0.02667

February 15 and 28, 2017
 
February 28, 2017
 
0.02667

March 15 and 31, 2017
 
March 31, 2017
 
0.02667

April 14 and 28, 2017
 
April 28, 2017
 
0.02667

May 15 and 31, 2017
 
May 31, 2017
 
0.02667

June 15 and 30, 2017
 
June 30, 2017
 
0.02667

July 14 and 31, 2017
 
July 31, 2017
 
0.02667

August 15 and 31, 2017
 
August 31, 2017
 
0.02667

September 15 and 29, 2017
 
September 29, 2017
 
0.02667


F-58


The Company’s distributions may be funded from offering proceeds or borrowings, which may constitute a return of capital and reduce the amount of capital available to the Company for investment. Any capital returned to stockholders through distributions will be distributed after payment of fees and expenses.
The Company’s previous distributions to stockholders may have been funded from temporary Expense Support Reimbursements that may be subject to repayment to SIC Advisors. The portion of these distributions derived from temporary Expense Support Reimbursements were not based on the Company's investment performance and may not continue in the future. If SIC Advisors had not agreed to make Expense Support Reimbursements, these distributions would have come from paid-in-capital. The repayments of eligible reimbursements owed to SIC Advisors will reduce the future distributions to which stockholders would otherwise be entitled. The Expense Support Agreement expired on December 31, 2016. The Company's contingent obligation to repay eligible reimbursements to SIC Advisors will expire on September 30, 2019. See Note 7 for more information.
The determination of the tax attributes (i.e., paid from ordinary income, paid from net capital gains on the sale of securities, and/or a return of paid-in-capital surplus which is a nontaxable distribution) of distributions is made annually as of the end of the Company’s fiscal year based upon its taxable income earned and distributions paid during the fiscal year.

Share Repurchase Program
In June 2013, the Company commenced a share repurchase program pursuant to which it intends to conduct quarterly share repurchases of up to 2.5% of the weighted average number of outstanding shares of its common stock in the prior four calendar quarters or 10% of the weighted average number of outstanding shares in the prior 12-month period. The purpose of the share repurchase program is to allow stockholders to sell their shares back to the Company at a price equal to the most recently disclosed NAV per share of the Company's common stock immediately prior to the date of repurchase. Shares will be purchased from stockholders participating in the program on a pro rata basis. Unless the Company's board of directors determines otherwise, the number of shares to be repurchased during any calendar year will be limited to the proceeds received in association with the sale of shares of common stock under the distribution reinvestment plan.
The following table reflects activity under the Company’s Share Repurchase Program:
Offer Date
 
Quantity Offered
 
Price per Share
 
Repurchase Date
 
Repurchase Quantity
6/4/2013
 
16,652

 
$
9.18

 

 

8/8/2013
 
32,627

 
9.13

 
9/27/2013

 
3,642

11/7/2013
 
60,966

 
9.14

 
12/19/2013

 
5,826

3/12/2014
 
120,816

 
9.18

 
4/25/2014

 
9,835

5/6/2014
 
199,476

 
9.20

 
6/13/2014

 
17,777

8/5/2014
 
294,068

 
9.25

 
9/12/2014

 
35,887

11/5/2014
 
411,894

 
9.22

 
12/24/2014

 
411,894

3/4/2015
 
535,571

 
8.97

 
4/24/2015

 
68,472

5/6/2015
 
620,420

 
8.98

 
6/24/2015

 
90,916

8/5/2015
 
727,654

 
8.96

 
9/29/2015

 
328,353

11/3/2015
 
853,688

 
8.56

 
12/23/2015

 
285,559

3/2/2016
 
959,436

 
8.16

 
4/29/2016

 
959,436

5/5/2016
 
1,005,447

 
8.04

 
6/30/2016

 
855,215

8/4/2016
 
1,048,412

 
8.11

 
9/28/2016

 
1,048,407

11/25/2016
 
1,077,370

 
8.14

 
12/27/2016

 
1,077,352

4/4/2017
 
871,815

 
8.17

 
5/4/2017

 
871,806

5/23/2017
 
876,277

 
8.10

 
6/23/2017

 
876,254

8/24/2017
 
870,360

 
8.02

 
9/25/2017

 
870,337

In the event of the death or disability of a stockholder, the Company will repurchase the shares held by such stockholder at a price equal to the NAV per share of our shares as disclosed in the periodic report the Company files with the SEC immediately following the date of the death or disability of such stockholder. During the three and nine months ended September 30, 2017, the Company repurchased 64,880 and 100,213 shares, respectively, of certain shareholders due to death. During the three and nine months ended September 30, 2016, the Company repurchased 1,373 and 2,362 shares, respectively, of certain shareholders due to death.

F-59


Note 14. Financial Highlights
The following is a schedule of financial highlights of the Company for the nine months ended September 30, 2017 and 2016:
 
2017
 
2016
Per Share Data:(1)
Net asset value at beginning of period
$
8.17

 
$
8.16

Net investment income
0.40

 
0.52

Net realized gains/(losses) on investments and total return swap
(0.24
)
 
(0.07
)
Net unrealized appreciation/(depreciation) on investments and total return swap
0.04

 
0.13

Net increase in net assets
$
0.20

 
$
0.58

Distributions from return of capital

 

Distributions declared from net investment income(2)
(0.48
)
 
(0.60
)
Distributions from net realized capital gains

 

Total distributions to shareholders
$
(0.48
)
 
$
(0.60
)
Issuance of common shares above net asset value(3)

 

Net asset value at end of period
$
7.89

 
$
8.14

Total return based on net asset value(4)(5)(6)
2.56
%
 
7.42
%
Portfolio turnover rate(6)
24.47
%
 
19.82
%
Shares outstanding at end of period
96,300,123

 
93,716,607

Net assets at end of period
$
763,961,571

 
$
763,129,940

Ratio/Supplemental Data (annualized):
 
 
 
Ratio of net investment income to average net assets(5)
6.90
%
 
9.07
%
Ratio of net expenses (including incentive fees) to average net assets(5)
6.71
%
 
4.53
%
Ratio of incentive fees to average net assets (6)
0.24
%
 
1.10
%
Supplemental Data (annualized):
 
 
 
Asset coverage ratio per unit(7)
$
2,345

 
$
2,585

Percentage of non-recurring fee income(8)
6.75
%
 
6.98
%
Ratio of net expenses (excluding incentive fees) to average net assets
6.47
%
 
3.43
%
Ratio of interest related expenses to average net assets
2.11
%
 
1.88
%
 ________________________________
(1)
The per share data was derived by using the weighted average shares outstanding during the nine months ended September 30, 2017 and 2016, which were 96,078,793 and 89,015,100 respectively.
(2)
The per share data for distributions is the actual amount of paid distributions per share during the period.
(3)
Shares issued under the DRIP (see Note 13) as well as the continuous issuance of common shares may cause on incremental increase/decrease in NAV per share due to the effect of issuing shares at amounts that differ from the prevailing NAV at each issuance.
(4)
Total annual returns are historical and assume reinvestments of all dividends and distributions at prices obtained under the Company’s DRIP, and no sales charge.
(5)
Total returns, ratios of net investment income and ratios of gross expenses to average net assets for the nine months ended September 30, 2016, prior to the effect of the Expense Support Agreement were as follows: total return 5.14% and ratio of net investment income: 6.15% and ratio of net expenses to average net assets: 7.62%, respectively.
(6)
Not annualized.
(7)
Asset coverage per unit is the ratio of the carrying value of the Company's total consolidated assets for regulatory purposes, which includes the underlying fair value of net TRS, less all liabilities and indebtedness not represented by senior securities to the aggregate amount of Senior Securities representing indebtedness and the implied leverage on the TRS. Asset coverage per unit is expressed in terms of dollars per $1,000 of indebtedness. As of September 30, 2017 and 2016, the Company's Asset Coverage Per Unit including unfunded commitments was $2,153 and $2,528, respectively.
(8)
Represents the impact of non-recurring fees over total investment income.

Note 15. Subsequent Events
Management has 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 and for the nine months ended September 30, 2017, except as disclosed below.
On October 4, 2017, the Company, SIC Advisors and certain of our affiliates received an exemptive order that supersedes the Exemptive Order (the “New Exemptive Order”) and allows, in addition to the entities already covered by the Exemptive Order, Medley LLC and its subsidiary, Medley Capital LLC, to the extent they hold financial assets in a principal capacity, and any direct or indirect, wholly- or majority-owned subsidiary of Medley LLC that is formed in the future, to participate in co-investment

F-60


transactions with us that would otherwise be prohibited by either or both of Sections 17(d) and 57(a)(4) of the 1940 Act. The terms of the New Exemptive Order are substantially similar to the Exemptive Order.
On October 10, 2017, our board of directors declared a series of semi-monthly distributions for October, November and December 2017 in the amount of $0.02667 per share. These distributions represent an annualized yield of 7.49% based on our then-current offering price of $8.55 per share. Stockholders of record as of each respective record date will be entitled to receive the distribution. Below are the details for each respective distribution:
Record Date
 
Payment Date
 
Amount per share
October 13 and 31, 2017
 
October 31, 2017
 
$
0.02667

November 15 and 30, 2017
 
November 30, 2017
 
0.02667

December 15 and 29, 2017
 
December 29, 2017
 
0.02667


The Company issued common shares and received gross proceeds of $2.0 million subsequent to September 30, 2017 through November 6, 2017.

F-61


Item 2.    Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis should be read in conjunction with our financial statements and related notes and other financial information appearing elsewhere in this quarterly report on Form 10-Q.
Except as otherwise specified, references to “we,” “us,” “our,” or the “Company,” refers to Sierra Income Corporation. “SIC Advisors” or “Adviser” refers to SIC Advisors LLC, our investment adviser. SIC Advisors is a majority owned subsidiary of Medley LLC, which is controlled by Medley Management Inc., a publicly traded asset management firm, which in turn is controlled by Medley Group LLC, an entity wholly-owned by the senior professionals of Medley LLC. “Medley” refers, collectively, to the activities and operations of Medley Capital LLC, Medley LLC, Medley Management Inc., Medley Group LLC, SIC Advisors, associated investment funds and their respective affiliates.

Some of the statements in this quarterly report on Form 10-Q constitute forward-looking statements, which relate to future events or our performance or financial condition. The forward-looking statements contained in this quarterly report on Form 10-Q involve risks and uncertainties, including, but not limited to, statements as to:

our future operating results;
our business prospects and the prospects of our portfolio companies;
changes in the economy;
risks associated with possible disruptions in our operations or the economy generally;
the effect of investments that we expect to make;
our contractual arrangements and relationships with third parties;
actual and potential conflicts of interest with SIC Advisors and its affiliates;
the dependence of our future success on the general economy and its effect on the industries in which we invest;
the ability of our portfolio companies to achieve their objectives;
the use of borrowed money to finance a portion of our investments;
the adequacy of our financing sources and working capital;
the timing of cash flows, if any, from the operations of our portfolio companies;
the ability of SIC Advisors to locate suitable investments for us and to monitor and administer our investments;
the ability of SIC Advisors and its affiliates to attract and retain highly talented professionals;
our ability to maintain our qualification as a RIC and as a BDC; and
the effect of changes in laws or regulations affecting our operations.

Such forward-looking statements may include statements preceded by, followed by or that otherwise include the words “trend,” “opportunity,” “pipeline,” “believe,” “comfortable,” “expect,” “anticipate,” “current,” “intention,” “estimate,” “position,” “assume,” “potential,” “outlook,” “continue,” “remain,” “maintain,” “sustain,” “seek,” “achieve,” and similar expressions, or future or conditional verbs such as “will,” “would,” “should,” “could,” “may,” or similar expressions. The forward-looking statements contained in this quarterly report involve risks and uncertainties. Our actual results could differ materially from those implied or expressed in the forward-looking statements for any reason, including due to the factors set forth as “Risk Factors” in this quarterly report on Form 10-Q and in Item 1A “Risk Factors” in Part 1 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2016.
We have based the forward-looking statements included in this report on information available to us on the date of this report, and we assume no obligation to update any such forward-looking statements. Actual results could differ materially from those anticipated in our forward-looking statements, and future results could differ materially from historical performance. Although we undertake no obligation to revise or update any forward-looking statements, whether as a result of new information, future events or otherwise, you are advised to consult any additional disclosures that we may make directly to you or through reports that we have filed or in the future may file with the SEC, including quarterly reports on Form 10-Q, annual reports on Form 10-K, and current reports on Form 8-K.
Overview
We are an externally managed non-diversified closed-end management investment company that has elected to be treated as a BDC under the 1940 Act. We are externally managed by SIC Advisors, which is a registered investment adviser under the Advisers Act. SIC Advisors is responsible for sourcing potential investments, conducting due diligence on prospective investments, analyzing investment opportunities, structuring investments and monitoring our portfolio on an ongoing basis. In addition, we have qualified and intend to continue to qualify to be treated, for U.S. federal income tax purposes, as a RIC under Subchapter M of the Code.


1


Under our Investment Advisory Agreement, we pay SIC Advisors a base management fee as well as an incentive fee based on our investment performance. Also, under the Administration Agreement, we reimburse Medley for the allocable portion of overhead and other expenses incurred by Medley Capital LLC in performing its obligations under the Administration Agreement, including our allocable portion of the costs of compensation and related expenses of our Chief Compliance Officer, Chief Financial Officer and their respective staffs.
We intend to meet our investment objective by primarily lending to, and investing in, the debt of privately owned U.S. middle market companies, which we define as companies with annual revenue between $50 million and $1 billion. We intend to focus primarily on making investments in first lien senior secured debt, second lien secured debt, and to a lesser extent, subordinated debt, of middle market companies in a broad range of industries. We expect that the majority of our debt investments will bear interest at floating interest rates, but our portfolio may also include fixed-rate investments. We will originate transactions sourced through SIC Advisors’ existing network, and, to a lesser extent, expect to acquire debt securities through the secondary market. We may make equity investments in companies that we believe will generate appropriate risk adjusted returns, although we do not expect such investments to be a substantial portion of our portfolio.
The level of our investment activity depends on many factors, including the amount of debt and equity capital available to prospective portfolio companies, the level of merger, acquisition and refinancing activity for such portfolio companies, the availability of credit to finance transactions, the general economic environment and the competitive environment for the types of investments we make. Based on prevailing market conditions, we anticipate that we will invest the proceeds from each subscription closing generally within 30-90 days. The precise timing will depend on the availability of investment opportunities that are consistent with our investment objectives and strategies.

As a BDC, we are required to comply with certain regulatory requirements. For instance, we generally have to invest at least 70% of our total assets in “qualifying assets,” including securities of private or thinly traded public U.S. companies, cash, cash equivalents, U.S. government securities and high-quality debt investments that mature in one year or less. In addition, we are only allowed to borrow money such that our asset coverage, as defined in the 1940 Act, equals at least 200% after such borrowing, with certain limited exceptions. To obtain and maintain our RIC status, we must meet specified source-of-income and asset diversification requirements. To be eligible for tax treatment under Subchapter M for U.S. federal income tax purposes, we must distribute at least 90% of our net ordinary income and realized net short-term capital gains in excess of realized net long-term capital losses, if any, for the taxable year.
Revenues
We generate revenue in the form of interest on the debt securities that we hold and distributions and capital gains on other interests that we acquire in our portfolio companies. We expect that the senior debt we invest in will generally have stated terms of three to ten years and that the subordinated debt we invest in will generally have stated terms of five to ten years. Our senior and subordinated debt investments bear interest at a fixed or floating rate. Interest on debt securities is generally payable monthly, quarterly or semiannually. In addition, some of our investments provide for deferred interest payments or PIK interest. The principal amount of the debt securities and any accrued but unpaid interest generally will become due at the maturity date. In addition, we may generate revenue in the form of commitment and other fees in connection with transactions. Original issue discounts and market discounts or premiums will be capitalized, and we will accrete or amortize such amounts as interest income. We will record prepayment premiums on loans and debt securities as fee income. Dividend income, if any, will be recognized on an accrual basis to the extent that we expect to collect such amounts.
Expenses
Our primary annual operating expenses consist of the payment of advisory fees and the reimbursement of expenses under our Investment Advisory Agreement with SIC Advisors and our Administration Agreement with Medley Capital LLC. We bear other expenses, which include, among other things:

corporate, organizational and offering expenses relating to offerings of our common stock, subject to limitations included in our Investment Advisory Agreement;
the cost of calculating our NAV, including the related fees and cost of any third-party valuation services;
the cost of effecting sales and repurchases of shares of our common stock and other securities;
fees payable to third parties relating to, or associated with, monitoring our financial and legal affairs, making investments, and valuing investments, including fees and expenses associated with performing due diligence reviews of prospective investments;
interest payable on debt, if any, incurred to finance our investments;
transfer agent and custodial fees;

2


fees and expenses associated with marketing efforts subject to limitations included in the Investment Advisory Agreement;
federal and state registration fees and any stock exchange listing fees;
federal, state and local taxes;
independent directors’ fees and expenses, including travel expenses;
costs of director and stockholder meetings, proxy statements, stockholders’ reports and notices;
costs of fidelity bonds, directors and officers/errors and omissions liability insurance and other types of insurance;
direct costs, including those relating to printing of stockholder reports and advertising or sales materials, mailing, long distance telephone and staff subject to limitations included in the Investment Advisory Agreement;
fees and expenses associated with independent audits and outside legal costs, including compliance with the Sarbanes-Oxley Act of 2002, the 1940 Act and applicable federal and state securities laws;
brokerage commissions for our investments;
all other expenses incurred by us or SIC Advisors in connection with administering our investment portfolio, including expenses incurred by SIC Advisors in performing certain of its obligations under the Investment Advisory Agreement; and
the reimbursement of the compensation of our Chief Financial Officer and Chief Compliance Officer, whose compensation is paid by Medley Capital LLC, to the extent that each such reimbursement amount is annually approved by our independent director committee and subject to the limitations included in our Administration Agreement.

Administrative Services
We reimburse Medley Capital LLC for the administrative expenses necessary for its performance of services to us. However, such reimbursement is made at an amount equal to the lower of Medley Capital LLC’s actual costs or the amount that we would be required to pay for comparable administrative services in the same geographic location. Also, such costs will be reasonably allocated to us on the basis of assets, revenues, time records or other reasonable methods. We will not reimburse Medley Capital LLC for any services for which it receives a separate fee or for rent, depreciation, utilities, capital equipment or other administrative items allocated to a controlling person of Medley Capital LLC.

Portfolio and Investment Activity
The following table shows the amortized cost and the fair value of our investment portfolio as of September 30, 2017:
 
Amortized Cost
 
Percentage
 
Fair Value
 
Percentage
Senior secured first lien term loans
$
572,860,454

 
51.4
%
 
$
553,428,971

 
51.9
%
Senior secured second lien term loans
304,081,717

 
27.3

 
285,048,102

 
26.7

Senior secured first lien notes
53,951,323

 
4.8

 
52,850,766

 
5.0

Subordinated notes
74,393,199

 
6.7

 
71,311,459

 
6.7

Sierra Senior Loan Strategy JV I LLC
72,991,250

 
6.5

 
72,086,943

 
6.8

Warrants/equity
36,522,102

 
3.3

 
32,335,851

 
3.0

Total
$
1,114,800,045

 
100.0
%
 
$
1,067,062,092

 
100.0
%
As of September 30, 2017, our income-bearing investment portfolio, which represented 94.6% of our total portfolio, had a weighted average yield based upon the cost of our investment portfolio of 9.2%, and 9.7% of our income-bearing portfolio bore interest based on fixed rates, while 90.3% of our income-bearing portfolio bore interest at floating rates, such as LIBOR.
For the three months ended September 30, 2017, we invested $48.1 million of principal in directly originated transactions across 10 portfolio companies and $68.2 million of principal in syndicated transactions across 14 portfolio companies. As of September 30, 2017, the investment portfolio was comprised of $906.3 million of principal in directly originated transactions across 75 portfolio companies and $219.9 million of principal in syndicated transactions across 41 portfolio companies.

3


The following table shows the amortized cost and the fair value of our investment portfolio as of December 31, 2016:
 
Amortized Cost
 
Percentage
 
Fair Value
 
Percentage
Senior secured first lien term loans
$
515,753,491

 
50.2
%
 
$
493,340,277

 
50.2
%
Senior secured first lien notes
72,767,547

 
7.1

 
71,970,598

 
7.3

Senior secured second lien term loans
275,915,932

 
26.9

 
260,008,735

 
26.4

Subordinated notes
53,041,209

 
5.2

 
55,185,590

 
5.6

Sierra Senior Loan Strategy JV I LLC
60,785,000

 
5.9

 
60,496,647

 
6.2

Warrants/equity
48,219,259

 
4.7

 
42,142,475

 
4.3

Total
$
1,026,482,438

 
100.0
%
 
$
983,144,322

 
100.0
%
As of December 31, 2016, our income-bearing investment portfolio, which represented 97.8% of our total portfolio, had a weighted average yield based upon the cost of our investment portfolio of approximately 9.3%, and 11.0% of our income-bearing portfolio bore interest based on fixed rates, while 89.0% of our income-bearing portfolio bore interest at floating rates, such as LIBOR.
The following table shows weighted average current yield to maturity, including the yield of cash collateral on the TRS, based on fair value as of September 30, 2017 and December 31, 2016:
 
September 30, 2017
 
December 31, 2016
 
Percentage
of Total
Investments
 
Weighted
Average
Current
Yield for
Total
Investments
 
Percentage
of Total
Investments
 
Weighted
Average
Current
Yield for
Total
Investments
Senior secured first lien term loans
50.0
%
 
9.1
%
 
48.1
%
 
9.5
%
Senior secured first lien notes
4.8

 
10.3

 
7.0

 
8.8

Senior secured second lien term loans
25.7

 
10.0

 
25.3

 
10.7

Subordinated notes
6.4

 
13.8

 
5.4

 
17.0

Sierra Senior Loan Strategy JV I LLC
6.5

 
10.5

 
5.9

 
10.3

Warrants/Equity
6.6

 
13.5

 
8.3

 
12.5

Total
100.0
%
 
10.1
%
 
100.0
%
 
10.4
%


4


The following table shows the portfolio composition by industry grouping, including the TRS underlying loans, based on fair value as of September 30, 2017:
Industry Classification
 
Investments
at Fair
Value(1)
 
Percentage
of Total
Portfolio
(1)
 
Value of
TRS
Underlying
Loans
 
Percentage
of TRS
Underlying
Loans
 
Total
Investments
at Fair Value
including the
value of TRS
Underlying
Loans
 
Percentage
of Total
Portfolio
Including
the value
of TRS
Underlying
Loans
Services:  Business
 
$
159,677,377

 
15.0
%
 
$
16,975,860

 
8.0
%
 
$
176,653,237

 
13.8
%
Multi-Sector Holdings
 
143,398,402

 
13.4

 

 

 
143,398,402

 
11.2

Healthcare & Pharmaceuticals
 
85,276,518

 
8.0

 
24,771,298

 
11.6

 
110,047,816

 
8.6

Banking, Finance, Insurance & Real Estate
 
74,791,174

 
7.0

 
17,363,454

 
8.2

 
92,154,628

 
7.2

Aerospace & Defense
 
82,024,806

 
7.7

 
4,666,436

 
2.2

 
86,691,242

 
6.8

Hotel, Gaming & Leisure
 
63,094,334

 
5.9

 
13,749,427

 
6.5

 
76,843,761

 
6.0

High Tech Industries
 
53,978,631

 
5.1

 
20,172,985

 
9.5

 
74,151,616

 
5.8

Construction & Building
 
68,939,049

 
6.5

 

 

 
68,939,049

 
5.4

Energy:  Oil & Gas
 
35,461,384

 
3.3

 
8,184,031

 
3.8

 
43,645,415

 
3.4

Transportation:  Cargo
 
38,717,742

 
3.6

 
3,342,554

 
1.6

 
42,060,296

 
3.3

Media: Advertising, Printing & Publishing
 
25,682,164

 
2.4

 
13,622,981

 
6.4

 
39,305,145

 
3.1

Retail
 
29,526,830

 
2.8

 
7,305,477

 
3.4

 
36,832,307

 
2.9

Capital Equipment
 
14,660,612

 
1.4

 
20,288,939

 
9.5

 
34,949,551

 
2.7

Chemicals, Plastics & Rubber
 
28,718,889

 
2.7

 
4,974,684

 
2.3

 
33,693,573

 
2.6

Services:  Consumer
 
8,631,157

 
0.8

 
18,313,597

 
8.6

 
26,944,754

 
2.1

Telecommunications
 
21,722,937

 
2.0

 
4,142,447

 
1.9

 
25,865,384

 
2.0

Automotive
 
18,884,012

 
1.8

 
2,920,500

 
1.4

 
21,804,512

 
1.7

Metals & Mining
 
21,127,331

 
2.0

 

 

 
21,127,331

 
1.7

Media:  Broadcasting & Subscription
 
13,889,508

 
1.3

 
6,580,375

 
3.1

 
20,469,883

 
1.6

Beverage & Food
 
19,006,462

 
1.8

 
1,339,640

 
0.6

 
20,346,102

 
1.6

Containers, Packaging & Glass
 
19,277,831

 
1.8

 

 

 
19,277,831

 
1.5

Media: Diversified & Production
 
15,910,550

 
1.5

 
953,552

 
0.4

 
16,864,102

 
1.3

Wholesale
 
12,422,565

 
1.2

 
3,423,247

 
1.6

 
15,845,812

 
1.2

Consumer Goods:  Durable
 

 

 
11,990,159

 
5.6

 
11,990,159

 
0.9

Transportation:  Consumer
 
7,443,960

 
0.7

 

 

 
7,443,960

 
0.6

Consumer Goods:  Non-durable
 
1,916,200

 
0.2

 
4,843,080

 
2.3

 
6,759,280

 
0.5

Utilities:  Electric
 

 

 
2,950,175

 
1.4

 
2,950,175

 
0.2

Environmental Industries
 
2,881,667

 
0.3

 

 

 
2,881,667

 
0.2

Total
 
$
1,067,062,092

 
100.0
%
 
$
212,874,898

 
100.0
%
 
$
1,279,936,990

 
100.0
%
_______________________ 
(1)
Does not include TRS underlying loans

5


The following table shows the portfolio composition by industry grouping, including the TRS underlying loans, based on fair value as of December 31, 2016:
Industry Classification
 
Investments
at Fair
Value(1)
 
Percentage
of Total
Portfolio
(1)
 
Value of
TRS
Underlying
Loans
 
Percentage
of TRS
Underlying
Loans
 
Total
Investments
at Fair Value
including the
value of TRS
Underlying
Loans
 
Percentage
of Total
Portfolio
Including
the value
of TRS
Underlying
Loans
Services: Business
 
$
149,451,149

 
15.2
%
 
$
23,571,092

 
11.0
%
 
$
173,022,241

 
14.5
%
Multi-Sector Holdings
 
130,182,237

 
13.3

 

 

 
130,182,237

 
10.9

Banking, Finance, Insurance & Real Estate
 
72,938,844

 
7.4

 
20,713,321.0

 
9.7

 
93,652,165

 
7.8

Hotel, Gaming & Leisure
 
69,640,838

 
7.1

 
19,867,696

 
9.3

 
89,508,534

 
7.5

Healthcare & Pharmaceuticals
 
69,382,894

 
7.1

 
13,393,023

 
6.3

 
82,775,917

 
6.9

Aerospace & Defense
 
70,126,640

 
7.1

 
4,656,652

 
2.2

 
74,783,292

 
6.2

Retail
 
61,292,231

 
6.2

 
11,005,219

 
5.2

 
72,297,450

 
6.0

Construction & Building
 
58,267,425

 
5.9

 
2,999,433

 
1.4

 
61,266,858

 
5.1

Transportation: Cargo
 
28,493,057

 
2.9

 
13,276,638.0

 
6.2

 
41,769,695

 
3.5

High Tech Industries
 
25,888,925

 
2.6

 
15,474,967

 
7.2

 
41,363,892

 
3.5

Energy: Oil & Gas
 
33,048,939

 
3.4

 
7,413,640

 
3.5

 
40,462,579

 
3.4

Telecommunications
 
37,580,414

 
3.8

 
2,487,500.0

 
1.2

 
40,067,914

 
3.3

Media: Advertising, Printing & Publishing
 
19,306,587

 
2.0

 
12,000,704.0

 
5.6

 
31,307,291

 
2.6

Capital Equipment
 
12,088,629

 
1.2

 
16,029,467

 
7.5

 
28,118,096

 
2.4

Wholesale
 
21,660,294

 
2.2

 
4,976,467

 
2.3

 
26,636,761

 
2.2

Automotive
 
24,222,630

 
2.5

 

 

 
24,222,630

 
2.0

Beverage & Food
 
19,282,080

 
2.0

 
2,912,490

 
1.4

 
22,194,570

 
1.9

Media: Diversified & Production
 
15,733,786

 
1.6

 
4,925,156.0

 
2.3

 
20,658,942

 
1.7

Metals & Mining
 
20,518,139

 
2.1

 

 

 
20,518,139

 
1.7

Media: Broadcasting & Subscription
 
15,830,498

 
1.6

 
4,618,688

 
2.2

 
20,449,186

 
1.7

Chemicals, Plastics & Rubber
 
15,726,190

 
1.6

 

 

 
15,726,190

 
1.3

Services: Consumer
 
5,201,522

 
0.5

 
8,838,651.0

 
4.1

 
14,040,173

 
1.2

Containers, Packaging & Glass
 

 

 
10,642,499.0

 
5.0

 
10,642,499

 
0.9

Transportation: Consumer
 
7,280,374

 
0.7

 

 

 
7,280,374

 
0.6

Energy: Electricity
 

 

 
5,564,390.0

 
2.6

 
5,564,390

 
0.5

Consumer goods: Non-Durable
 

 

 
5,091,975.0

 
2.4

 
5,091,975

 
0.4

Utilities: Electric
 

 

 
3,033,750.0

 
1.4

 
3,033,750

 
0.3

Total
 
$
983,144,322

 
100.0
%
 
$
213,493,418

 
100.0
%
 
$
1,196,637,740

 
100.0
%
_______________________ 
(1)
Does not include TRS underlying loans
SIC Advisors regularly assesses the risk profile of our portfolio investments and rates each of them based on the categories set forth below, which we refer to as SIC Advisors’ investment credit rating. Credit Ratings are assigned to each of the investments in our portfolio that are directly held by the Company, but exclude any off-balance sheet interests of the Company, such as the loans underlying the TRS:
Investment
Credit Rating
Definition
1
Investments that are performing above expectations.
 
 
2
Investments that are performing within expectations, with risks that are neutral or favorable compared to risks at the time of origination or purchase. All new loans are rated ‘2’.
 
 
3
Investments that are performing below expectations and that require closer monitoring, but where no loss of interest, dividend or principal is expected. Companies rated ‘3’ may be out of compliance with financial covenants, however, loan payments are generally not past due.
 
 

6


4
Investments that are performing below expectations and for which risk has increased materially since origination or purchase. Some loss of interest or dividend is expected, but no loss of principal. 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).
 
 
5
Investments that are performing substantially below expectations and whose risks have increased substantially since origination or purchase. Most or all of the debt covenants are out of compliance and payments are substantially delinquent. Some loss of principal is expected.
The following table shows the distribution of our investment portfolio, not including cash and cash equivalents, on the 1 to 5 investment credit rating scale at fair value as of September 30, 2017 and December 31, 2016:
 
 
September 30, 2017
 
December 31, 2016
Investment
Credit Rating
 
Investments at
Fair Value
 
Percentage
 
Investments at
Fair Value
 
Percentage
1
 
$
35,899,629

 
3.4
%
 
$
57,356,293

 
5.8
%
2
 
872,752,279

 
81.8

 
798,629,992

 
81.2

3
 
104,027,251

 
9.7

 
77,762,796

 
7.9

4
 
34,825,963

 
3.3

 
35,294,284

 
3.6

5
 
19,556,970

 
1.8

 
14,100,957

 
1.4

Total
 
$
1,067,062,092

 
100.0
%
 
$
983,144,322

 
100.0
%
Results of Operations
The following table shows operating results for the three and nine months ended September 30, 2017 and 2016:
 
For the Three Months Ended September 30,
 
For the Nine Months Ended September 30,
 
2017
 
2016
 
2017
 
2016
Total investment income
$
27,640,738

 
$
25,148,661

 
$
78,575,554

 
$
73,172,215

Total expenses, net
14,139,018

 
9,538,699

 
39,218,902

 
26,880,838

Net investment income
13,501,720

 
15,609,962

 
39,356,652

 
46,291,377

Net realized gain/(loss) from investments and total return swap
(2,140,704
)
 
(10,469,065
)
 
(22,951,047
)
 
(6,219,699
)
Net change in unrealized appreciation/(depreciation) on investments and total return swap
(8,121,591
)
 
15,521,547

 
3,763,899

 
11,665,907

Change in provision for deferred taxes on unrealized gain on investments
148,949

 
172,128

 
(185,369
)
 
92,495

Net increase in net assets resulting from operations
$
3,388,374

 
$
20,834,572

 
$
19,984,135

 
$
51,830,080


Investment Income
Total investment income increased $2,492,077, or 9.9%, to $27,640,738 for the three months ended September 30, 2017, compared to $25,148,661 for the three months ended September 30, 2016. Total investment income consisted primarily of portfolio interest, which increased $3,517,090, or 15.5%, to $26,362,875 for the three months ended September 30, 2017, compared to $22,658,463 for the three months ended September 30, 2016. This increase was primarily due to a $114 million, or 11.5%, increase in our average investment portfolio. Fee income decreased $1,235,903, or 50.2%, to $1,228,131 for the three months ended September 30, 2017, compared to $2,464,034 for the three months ended September 30, 2016, primarily due to a decrease in fees associated with loan originations and loan prepayments.
Total investment income increased $5,403,339, or 7.4%, to $78,575,554 for the nine months ended September 30, 2017, compared to $73,172,215 for the nine months ended September 30, 2016. Total investment income consisted primarily of portfolio interest, which increased $6,455,402, or 9.5%, to $74,421,996 for the nine months ended September 30, 2017, compared to $67,966,594 for the nine months ended September 30, 2016. This increase was primarily due to a $95.3 million, or 9.8%, increase in our average investment portfolio. Fee income decreased $1,089,492, or 21.1%, to $4,068,295 for the nine months ended September 30, 2017, compared to $5,157,787 for the nine months ended September 30, 2016, primarily due to an increase in fees associated with loan originations and loan prepayments.
    

7


Operating Expenses
The following table shows operating expenses for the three and nine months ended September 30, 2017 and 2016 :
 
 
For the Three Months Ended September 30,
 
For the Nine Months Ended September 30,
 
2017
 
2016
 
2017
 
2016
Base management fees
$
5,378,233

 
$
5,040,490

 
$
16,036,068

 
$
14,790,696

Interest expenses
4,434,712

 
3,433,081

 
12,177,674

 
10,095,690

Incentive fees
1,323,999

 
2,372,355

 
1,872,805

 
7,876,060

General and administrative expenses
1,295,253

 
1,655,295

 
3,783,340

 
4,331,001

Administrator expenses
745,817

 
780,166

 
2,333,968

 
1,997,067

Offering costs
545,959

 
703,075

 
1,367,343

 
2,074,035

Professional fees
415,045

 
943,864

 
1,647,704

 
1,809,418

Total expenses
14,139,018

 
14,928,326

 
39,218,902

 
42,973,967

Expense support reimbursement

 
(5,389,627
)
 

 
(16,093,129
)
Total expenses, net of expense support reimbursement
$
14,139,018

 
$
9,538,699

 
$
39,218,902

 
$
26,880,838

Total expenses decreased $789,308, or 5.3%, to $14,139,018 for the three months ended September 30, 2017, as compared to $14,928,326 for the three months ended September 30, 2016, primarily due to lower incentive fees. Total expenses decreased $3,755,065, or 8.7%, to $39,218,902 for the nine months ended September 30, 2017, as compared to $42,973,967 for the nine months ended September 30, 2016, primarily due to lower incentive fees.
Base management fees increased $337,743, or 6.7%, to $5,378,233 for the three months ended September 30, 2017, as compared to $5,040,490 for the three months ended September 30, 2016, primarily due to an increase in our gross assets of $67 million, or 5.7%. Base management fees increased $1,245,372, or 8.4%, to $16,036,068 for the nine months ended September 30, 2017, as compared to $14,790,696 for the nine months ended September 30, 2016, primarily due to an increase in our average gross assets of $78 million, or 6.9%.
Interest expenses increased $1,001,631, or 29.2%, to $4,434,712 for the three months ended September 30, 2017, as compared to $3,433,081 for the three months ended September 30, 2016, primarily due to an increase in the weighted average outstanding debt balance of our credit facilities of $55,219,780, or a 16.6% increase. Interest expenses increased 2,081,984, or 20.6%, to $12,177,674 for the nine months ended September 30, 2017, as compared to $10,095,690 for the nine months ended September 30, 2016, primarily due to an increase in the weighted average interest rate on our credit facilities of 0.7%, or a 21.2% increase.

Expense Support and Reimbursement Agreement
From June 29, 2012 through December 31, 2016, we were party to an Expense Support and Reimbursement Agreement with SIC Advisors (the “Expense Support Agreement”). During the term of the Expense Support Agreement, SIC Advisors reimbursed us for operating expenses in an amount equal to the difference between our distributions paid to stockholders in each month, less the sum of our net investment income, net realized capital gains and dividends paid to us from our portfolio companies, not included in net income and net realized capital gains, during such period (“Expense Support Reimbursement”). To the extent that no dividends or other distributions were paid to our stockholders in any given month, then the Expense Support Reimbursement for such month was equal to such amount necessary in order for available operating funds for the month to equal zero. From April 1, 2016 until the expiration of the Expense Support Agreement on December 31, 2016, SIC Advisors made expense support payments on a discretionary basis by making an election on the last day of each month to fund an expense support payment in an amount equal to the difference between our distributions paid to stockholders during such month less the sum of our net investment income, net realized capital gains and dividends paid to us from our portfolio companies, not included in net income and net realized capital gains during such period.
The purpose of the Expense Support Agreement was to cover distributions to stockholders so as to ensure that the distributions did not constitute a return of capital for GAAP purposes and to reduce operating expenses until we had raised sufficient capital to be able to absorb such expenses. The Expense Support Agreement expired on December 31, 2016.
Pursuant to the Expense Support Agreement, we will reimburse SIC Advisors for expense support payments it previously made following any calendar quarter for which we received net investment income, net realized capital gains and dividends from our portfolio companies (not included in net income and net realized capital gains) in excess of the distributions paid to our stockholders during such calendar quarter (the “Excess Operating Funds”). Any such reimbursement will be made within three years of the date that the expense support payment obligation was incurred by SIC Advisors, subject to the conditions described below. The amount of the reimbursement during any calendar quarter will equal the lesser of (i) the Excess Operating Funds received during the quarter and (ii) the aggregate amount of all expense payments made by SIC Advisors that have not yet been

8


reimbursed. In addition, we will only make reimbursement payments to the extent our current annualized “operating expense ratio” is equal to or less than our operating expense ratio for the quarter during which the corresponding expense obligation was incurred and to the extent the annualized rate of its regular cash dividends to our stockholders for the month is equal to or greater than the annualized rate of our regular cash distributions to stockholders for the month during which the corresponding expense payment was incurred.
As of September 30, 2017 and December 31, 2016, we recorded $0 and $7,892,273, respectively, in our consolidated statement of assets and liabilities as due from affiliate relating to the Expense Support Agreement.
Net Realized Gains/Losses from Investments
We measure realized gains or losses by the difference between the net proceeds from the disposition and the amortized cost basis of an investment, without regard to unrealized gains or losses previously recognized. For the three and nine months ended September 30, 2017, we recognized net realized gain/(loss) of $(2,140,704) and $(22,951,047), respectively, primarily due to certain non-cash restructuring transactions net of realized gains on the TRS. For the three and nine months ended September 30, 2016, we recognized net realized gain/(loss) of $(10,469,065) and $(6,219,699), respectively, primarily due to certain non-cash restructuring transactions net of realized gains on the TRS.
Net Unrealized Appreciation/Depreciation on Investments
Net change in unrealized appreciation/depreciation on investments reflects the net change in the fair value of our total investments including the total return swap and provision for deferred taxes. For the three and nine months ended September 30, 2017, we recorded a net change in unrealized appreciation/(depreciation) of $(7,972,642) and $3,578,530, respectively. For the three and nine months ended September 30, 2016, we recorded a net change in unrealized appreciation/(depreciation) of $15,693,675 and $11,758,402, respectively.

Changes in Net Assets from Operations
For the three and nine months ended September 30, 2017, we recorded a net increase in net assets resulting from operations of $3,388,374 and $19,984,135, respectively. Based on 96,474,233 and 96,078,793 weighted average common shares outstanding for the three and nine months ended September 30, 2017, respectively, our per share net increase in net assets resulting from operations was $0.04 and $0.21, respectively. For the three and nine months ended September 30, 2016, we recorded a net increase in net assets resulting from operations of $20,834,572 and $51,830,080, respectively. Based on 92,516,572 and 89,015,100 weighted average common shares outstanding for the three and nine months ended September 30, 2016, respectively, our per share net increase in net assets resulting from operations was $0.23 and $0.58, respectively.

Financial Condition, Liquidity and Capital Resources
As a BDC, we distribute substantially all of our net income to our stockholders and have an ongoing need to raise additional capital for investment purposes. To fund growth, we have a number of alternatives available to increase capital; including raising equity, increasing debt, and funding from operational cash flow.
Our liquidity and capital resources have been generated primarily from the net proceeds of our public offering of common stock, use of our credit facilities and our TRS.
As of September 30, 2017 and December 31, 2016, we had $82,699,636 and $99,400,794, respectively, in cash and cash equivalents. In the future, we may generate cash from future offerings of securities, future borrowings and cash flows from operations, including interest earned from the temporary investment of cash in U.S. government securities and other high-quality debt investments that mature in one year or less. Our primary use of funds is investments in our targeted asset classes, cash distributions to our stockholders, and other general corporate purposes.
In order to satisfy the Code requirements applicable to a RIC, we intend to distribute to our stockholders substantially all of our taxable income, but we may also elect to periodically spillover certain excess undistributed taxable income from one tax year into the next tax year. In addition, as a BDC, we generally are required to meet a coverage ratio of total assets to total senior securities, which include borrowings and any preferred stock we may issue in the future, of at least 200%. This requirement limits the amount that we may borrow.


9


The following table shows our net borrowings as of September 30, 2017 and December 31, 2016:
 
September 30, 2017
 
December 31, 2016
 
Total
Commitment
 
Balance
Outstanding
 
Unused
Commitment
 
Total
Commitment
 
Balance
Outstanding
 
Unused
Commitment
ING Credit Facility
$
220,000,000

 
$
180,000,000

 
$
40,000,000

 
$
175,000,000

 
$
150,000,000

 
$
25,000,000

Alpine Credit Facility
300,000,000

 
240,000,000

 
60,000,000

 
300,000,000

 
240,000,000

 
60,000,000

Total before deferred financing costs
520,000,000

 
420,000,000

 
100,000,000

 
475,000,000

 
390,000,000

 
85,000,000

Unamortized deferred financing costs

 
(5,747,434
)
 

 

 
(4,340,533
)
 

Total borrowings outstanding, net
$
520,000,000

 
$
414,252,566

 
$
100,000,000

 
$
475,000,000

 
$
385,659,467

 
$
85,000,000


On August 12, 2016, we amended our ING Credit Facility pursuant to the Revolving Credit Agreement with certain lenders party thereto from time to time and ING Capital LLC, as administrative agent. The ING Credit Facility matures on August 12, 2020 and is secured by substantially all of our assets, subject to certain exclusions as further set forth in the Security Agreement entered into in connection with the Revolving Credit Agreement, among us, the Subsidiary Guarantors party thereto, ING Capital LLC, as Administrative Agent, each Financial Agent and Designated Indebtedness Holder party thereto and ING Capital LLC, as Collateral Agent. The ING Credit Facility also includes usual and customary representations, covenants and events of default for senior secured revolving credit facilities of this nature. On February 13, 2015, commitments to the ING credit facility were expanded from $150 million to $170 million. On August 12, 2016, commitments to the ING credit facility were expanded from $170 million to $175 million. On April 20, 2017, commitments to the ING Credit Facility were expanded from $175 million to $220 million.
The ING Credit Facility allows for us, at our option, to borrow money at a rate of either (i) an alternate base rate plus 1.50% per annum or (ii) LIBOR plus 2.50% per annum. The interest rate margins are subject to certain step-downs upon the satisfaction of certain conditions described in the Revolving Credit Agreement. The alternate base rate will be the greatest of (i) the U.S. Prime Rate set forth in the Wall Street Journal, (ii) the federal funds effective rate plus 1/2 of 1%, and (iii) three month LIBOR plus 1%. As of September 30, 2017 and December 31, 2016, the commitment under the ING Credit Facility was $220 million and $175 million, respectively, and the ING Credit Facility includes an accordion feature that allows for potential future expansion of the ING Credit Facility up to a total of $500 million. Availability of loans under the ING Credit Facility is linked to the valuation of the collateral pursuant to a borrowing base mechanism.

We are also required to pay a commitment fee to the lenders based on the daily unused portion of the aggregate commitments under the ING Credit Facility. The commitment fee is (i) 1.50% if the used portion of the aggregate commitments is less than or equal to 40%, (ii) 0.75% if the used portion of the aggregate commitments is greater than 40% and less than or equal to 65% or (iii) 0.50% if the used portion of the aggregate commitments is greater than 65%. The ING Credit Facility provides that we may use the proceeds of the facility for general corporate purposes, including making investments in accordance with our investment objective and strategy. As of September 30, 2017, our borrowings under the ING Facility totaled $180,000,000 and were recorded as part of revolving credit facility payable on our consolidated statements of assets and liabilities.
On September 29, 2017, the Company’s wholly-owned, special purpose financing subsidiary, Alpine, amended it's existing revolving credit facility (the “Alpine Credit Facility”) pursuant to an Amended and Restated Loan Agreement (the “Amendment”) with JPMorgan Chase Bank, National Association (“JPMorgan”), as administrative agent and lender, the Financing Providers from time to time party thereto, SIC Advisors, as the portfolio manager, and the Collateral Administrator, Collateral Agent and Securities Intermediary party thereto (the “Loan Agreement”). The Loan Agreement was amended to, among other things, (i) extend the reinvestment period until December 29, 2020, (ii) extend the scheduled termination date until March 29, 2022, (iii) decrease the applicable margin for advances to 2.85% per annum and (iv) increase the compliance condition for net advances to 55% of net asset value. Alpine’s obligations to JPMorgan under the Alpine Credit Facility are secured by a first priority security interest in substantially all of the assets of Alpine, including its portfolio of loans. The obligations of Alpine under the Alpine Credit Facility are non-recourse to the Company.
Borrowings under the Alpine Credit Facility are subject to compliance with a NAV coverage ratio with respect to the current value of Alpine’s portfolio and various eligibility criteria must be satisfied with respect to the initial acquisition of each loan in Alpine’s portfolio. Any amounts borrowed under the Alpine Credit Facility will mature, and all accrued and unpaid interest thereunder will be due and payable, on March 29, 2022. As of September 30, 2017, Alpine’s borrowings under the Alpine Credit Facility totaled $240,000,000 and were recorded as part of revolving credit facility payable on our consolidated statements of assets and liabilities.



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Contractual Obligations
The following table shows our payment obligations for repayment of debt, which total our contractual obligations at September 30, 2017:
 
Payment Due By Period 
 
Total 
 
Less than
1 Year 
 
1 - 3 Years
 
3 - 5 Years 
 
More than
5 Years
ING Credit Facility
$
180,000,000

 
$

 
$

 
$
180,000,000

 
$

Alpine Credit Facility
240,000,000

 

 
 
 
240,000,000

 

Total Contractual Obligations
$
420,000,000

 
$

 
$

 
$
420,000,000

 
$

We have entered into certain contracts under which we have material future commitments. On April 5, 2012, we entered into the Investment Advisory Agreement with SIC Advisors in accordance with the 1940 Act. The Investment Advisory Agreement became effective as of April 17, 2012, the date that we met the minimum offering requirement. Pursuant to the 1940 Act, the initial term of the Investment Advisory Agreement was for two years from its effective date, with one-year renewals subject to approval by our board of directors, a majority of whom must be independent directors. On March 1, 2017, the board of directors approved the renewal of the Investment Advisory Agreement for an additional one-year term at an in-person meeting. SIC Advisors serves as our investment adviser in accordance with the terms of the Investment Advisory Agreement. Payments under our Investment Advisory Agreement in each reporting period consist of (i) a management fee equal to a percentage of the value of our gross assets and (ii) an incentive fee based on our performance.
On April 5, 2012, we entered into the Administration Agreement with Medley Capital LLC with an initial term of two years, pursuant to which Medley Capital LLC furnishes us with administrative services necessary to conduct our day-to-day operations. On March 1, 2017, the board of directors approved the renewal of the Administration Agreement for an additional one-year term at an in-person meeting. Medley Capital LLC is reimbursed for administrative expenses it incurs on our behalf in performing its obligations. Such costs are reasonably allocated to us on the basis of assets, revenues, time records or other reasonable methods. We do not reimburse Medley Capital LLC for any services for which it receives a separate fee or for rent, depreciation, utilities, capital equipment or other administrative items allocated to a controlling person of Medley Capital LLC.
If any of our contractual obligations discussed above are terminated, our costs may increase under any new agreements that we enter into as replacements. We would also likely incur expenses in locating alternative parties to provide the services we expect to receive under the investment advisory agreement and administration agreement. Any new investment advisory agreement would also be subject to approval by our stockholders.

Off-Balance Sheet Arrangements
On August 27, 2013, Arbor, a wholly-owned financing subsidiary of the Company, entered into a TRS with Citibank.
On September 29, 2017, Arbor entered into the Fifth Amended Confirmation Letter Agreement with Citibank. The Fifth Amended Confirmation Agreement reduces the maximum portfolio notional (determined at the time each such loan becomes subject to the TRS) from $300,000,000 to $180,000,000, through incremental reductions of $60,000,000 on October 3, 2017 and $20,000,000 on each of November 3, 2017, December 3, 2017 and January 3, 2018. The Fifth Amended Confirmation Agreement also decreases the interest rate payable to Citibank from LIBOR plus 1.65% per annum to LIBOR plus 1.60% per annum. Other than the foregoing, the Fifth Amended Confirmation Agreement did not change any of the other material terms of the TRS.
The TRS with Citibank enables Arbor to obtain the economic benefit of the loans underlying the TRS, despite the fact that such loans will not be directly held or otherwise owned by Arbor, in return for an interest-type payment to Citibank. Accordingly, the TRS is analogous to Arbor utilizing leverage to acquire loans and incurring an interest expense to a lender.
SIC Advisors acts as the investment manager of Arbor and has discretion over the composition of the basket of loans underlying the TRS. The terms of the TRS are governed by an ISDA 2002 Master Agreement, the Schedule thereto and Credit Support Annex to such Schedule, and the Confirmation exchanged thereunder, between Arbor and Citibank, which collectively establish the TRS, and are collectively referred to herein as the “TRS Agreement”.
Transactions in TRS contracts during the three months ended September 30, 2017 were $3.1 million in realized gains and $2.0 million in unrealized depreciation, which are recorded on the consolidated statements of operations.
Transactions in TRS contracts during the three months ended September 30, 2016 were $0.8 million in realized gains and $5.2 million in unrealized appreciation, which are recorded on the consolidated statements of operations.

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Our derivative asset from Citibank, net of amounts available for offset under a master netting agreement as of September 30, 2017, was $1.0 million, which is recorded on the consolidated statements of assets and liabilities as a receivable due on total return swap.
The following table shows the volume of the Company’s derivative transactions for the three and nine months ended September 30, 2017 and 2016: 
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
2017
 
2016
 
2017
 
2016
Average notional par amount of contracts
$
246,554,568

 
$
208,253,776

 
$
248,738,019

 
$
210,765,232

On March 27, 2015, the Company and GALIC entered into a limited liability company operating agreement to co-manage Sierra JV. The Company and GALIC have committed to provide $100 million of equity to Sierra JV, with the Company providing $87.5 million and GALIC providing $12.5 million. Sierra JV commenced operations on July 15, 2015. On August 4, 2015, Sierra JV entered into the JV Facility led by Credit Suisse, AG with initial commitments of $100 million. On December 29, 2015, the JV Facility was amended and the commitment increased to $135 million. On March 31, 2017, Credit Suisse, AG assigned its commitment in the JV Facility to Deutsche Bank AG and the JV Facility was amended to increase commitments to $240 million and extend the maturity to March 30, 2022. On May 26, 2017, commitments to the JV facility were increased from $240 million to $250 million. As of September 30, 2017, there was $159.9 million outstanding under the JV Facility and the Sierra JV had total assets at fair value of $241.3 million. As of September 30, 2017, Sierra JV’s portfolio was comprised of 100.0% of senior secured first lien term loans to 49 different portfolio companies with one portfolio company on non-accrual status.
We have determined that the Sierra JV is an investment company under ASC 946, however in accordance with such guidance, we will generally not consolidate its investment in a company other than a wholly owned investment company subsidiary or a controlled operating company whose business consists of providing services to us. Accordingly, we do not consolidate our interest in the Sierra JV.

Distributions
We have elected and intend to continue to qualify to be treated, for U.S. federal income tax purposes, as a RIC under Subchapter M of the Code. To obtain and maintain RIC tax treatment, we must, among others things, distribute at least 90% of our net ordinary income and net short-term capital gains in excess of net long-term capital losses, if any, to our stockholders. In order to avoid certain U.S. federal excise taxes imposed on RICs, we must distribute during each calendar year an amount at least equal to the sum of: (i) 98% of our ordinary income for the calendar year, (ii) 98.2% of our capital gains in excess of capital losses for the one-year period generally ending on October 31 of the calendar year (unless an election is made by us to use our taxable year) and (iii) any ordinary income and net capital gains for preceding years that were not distributed during such years and on which we paid no U.S. federal income tax.
While we intend to distribute any income and capital gains in the manner necessary to minimize imposition of the 4% U.S. federal excise tax, sufficient amounts of our taxable income and capital gains may not be distributed to avoid entirely the imposition of the tax. In that event, we will be liable for the tax only on the amount by which we do not meet the foregoing distribution requirement.
We currently intend to distribute net capital gains (i.e., net long-term capital gains in excess of net short-term capital losses), if any, at least annually out of the assets legally available for such distributions. However, we may decide in the future to retain such capital gains for investment and elect to treat such gains as deemed distributions to you. If this happens, you will be treated for U.S. federal income tax purposes as if you had received an actual distribution of the capital gains that we retain and reinvested the net after tax proceeds in us. In this situation, you would be eligible to claim a tax credit (or, in certain circumstances, a tax refund) equal to your allocable share of the tax we paid on the capital gains deemed distributed to you. We can offer no assurance that we will continue to achieve results that will permit the payment of any cash distributions and, if we issue senior securities, we may be prohibited from making distributions if doing so causes us to fail to maintain the asset coverage ratios stipulated by the 1940 Act or if distributions are limited by the terms of any of our borrowings.
Subject to our board of directors’ discretion and applicable legal restrictions, we expect to authorize and pay monthly distributions to our stockholders. Any distributions to our stockholders will be declared out of assets legally available for distribution. We expect to continue making monthly distributions unless our results of operations, our general financial condition, general economic conditions, or other factors prohibit us from doing so. From time to time, but not less than quarterly, we will review our accounts to determine whether distributions to our stockholders are appropriate. We have not established limits on the amount of funds we may use from available sources to make distributions. From the commencement of our offering through September 30, 2016, a portion of our distributions were comprised in part of expense support payments made by SIC Advisors that may be subject

12


to repayment by us within three years of the date of such support payment. The purpose of this arrangement was to cover distributions to stockholders so as to ensure that the distributions did not constitute a return of capital for GAAP purposes. In the future, we may have distributions which could be characterized as a return of capital. Such distributions are not based on our investment performance and can only be sustained if we achieve positive investment performance in future periods and/or SIC Advisors elects to make expense support payments under an expense support agreement. Any future reimbursements to SIC Advisors will reduce the net investment income that may otherwise be available for distribution to stockholders. There can be no assurance that we will achieve the performance necessary to sustain our distributions or that we will be able to pay distributions at all. SIC Advisors has no obligation to enter into a renewed expense support agreement. For the three and nine months ended September 30, 2016, if net expense support payments of $5,389,627 and $16,093,129 were not made by SIC Advisors, 30% and 30% of the distributions would have been a return of capital for GAAP purposes, respectively.
Our distributions may exceed our earnings, which we refer to as a return of capital, especially during the period before we have invested substantially all of the proceeds of our offering. As a result, a portion of the distributions we make may represent a return of capital. Our use of the term “return of capital” merely means distributions in excess of our earnings and as such may constitute a return on your individual investments and does not mean a return on capital. Therefore stockholders are advised that they should be aware of the differences with our use of the term “return of capital” and “return on capital.”
The following table reflects the cash distributions per share that we have declared or paid to our stockholders for the current and prior fiscal years. Stockholders of record as of each respective record date were entitled to receive the distribution.
Record Date
 
Payment Date
 
Amount per share
January 15 and 29, 2016
 
January 29, 2016
 
$
0.03333

February 12 and 29, 2016
 
February 29, 2016
 
0.03333

March 15 and 31, 2016
 
March 31, 2016
 
0.03333

April 15 and 29, 2016
 
April 29, 2016
 
0.03333

May 13 and 31, 2016
 
May 31, 2016
 
0.03333

June 15 and 30, 2016
 
June 30, 2016
 
0.03333

July 15 and 29, 2016
 
July 29, 2016
 
0.03333

August 15 and 31, 2016
 
August 31, 2016
 
0.03333

September 15 and 30, 2016
 
September 30, 2016
 
0.03333

October 14 and 31, 2016
 
October 31, 2016
 
0.02667

November 15 and 30, 2016
 
November 30, 2016
 
0.02667

December 15 and 31, 2016
 
December 31, 2016
 
0.02667

January 13 and 31, 2017
 
January 31, 2017
 
0.02667

February 15 and 28, 2017
 
February 28, 2017
 
0.02667

March 15 and 31, 2017
 
March 31, 2017
 
0.02667

April 14 and 28, 2017
 
April 28, 2017
 
0.02667

May 15 and 31, 2017
 
May 31, 2017
 
0.02667

June 15 and 30, 2017
 
June 30, 2017
 
0.02667

July 14 and 31, 2017
 
July 31, 2017
 
0.02667

August 15 and 31, 2017
 
August 31, 2017
 
0.02667

September 15 and 29, 2017
 
September 29, 2017
 
0.02667

We have adopted an “opt in” distribution reinvestment plan pursuant to which common stockholders may elect to have the full amount of any cash distributions reinvested in additional shares of our common stock. As a result, if we declare a cash distribution, stockholders that have “opted in” to our distribution reinvestment plan will have their distribution automatically reinvested in additional shares of our common stock rather than receiving cash dividends. Stockholders who receive distributions in the form of shares of common stock will be subject to the same federal, state and local tax consequences as if they received cash distributions.

Each year a statement on Internal Revenue Service Form 1099-DIV (or such successor form) identifying the source of the distribution (i.e., paid from ordinary income, paid from net capital gain on the sale of securities, or a return of capital) will be mailed to our stockholders. The tax basis of shares must be reduced by the amount of any return of capital distributions, which will result in an increase in the amount of any taxable gain (or a reduction in any deductible loss) on the sale of shares.

13



Related Party Transactions
On October 19, 2011, SIC Advisors entered into a subscription agreement to purchase 110.80 shares of common stock for cash consideration of $1,000. The consideration represents $9.025 per share.
On April 17, 2012, SIC Advisors purchased 1,108,033.24 shares of our common stock for aggregate gross proceeds of $10,000,000. The consideration represents $9.025 per share.
We have entered into an Investment Advisory Agreement with SIC Advisors in which our senior management holds an equity interest and were party to the Expense Support Agreement through December 31, 2016. Members of our senior management also serve as principals of other investment managers affiliated with SIC Advisors that do, and may in the future, manage investment funds, accounts or other investment vehicles with investment objectives similar to ours.
We have entered into an Administration Agreement with Medley Capital LLC, pursuant to which Medley Capital LLC furnishes us with administrative services necessary to conduct our day-to-day operations. Medley Capital LLC is reimbursed for administrative expenses it incurs on our behalf. We do not reimburse Medley Capital LLC for any services for which it receives a separate fee or for rent, depreciation, utilities, capital equipment or other administrative items allocated to a controlling person of Medley Capital LLC. Medley Capital LLC is an affiliate of SIC Advisors.
We have entered into a dealer manager agreement with SC Distributors, LLC who receives a dealer manager fee of up to 2.50% of gross proceeds raised in the offering. An affiliated entity of SC Distributors, LLC owns an equity interest in SIC Advisors, which provides the right to receive a fixed percentage of the management fees received by SIC Advisors.
On March 20, 2017, the Company, SIC Advisors LLC, and SC Distributors, LLC agreed to remove any dealer manager fee payable to SC Distributors, LLC by investors with respect to shares of common stock sold to investors under a placement agreement through a registered investment advisor. In connection with any such sales, SIC Advisors LLC has agreed to pay SC Distributors LLC a platform placement fee in an amount equal to 1.50% of the gross offering proceeds from such sales.

On June 15, 2017, the Company, SIC Advisors and SC Distributors LLC entered into the First Amendment to the Second Amended and Restated Dealer Manager Agreement (the “First Amendment”). The terms of the First Amendment became effective with respect to subscriptions of Class A shares submitted beginning on June 16, 2017. Pursuant to the First Amendment, the upfront selling commission was reduced from 7.00% of gross proceeds to up to 3.00% of gross proceeds and the dealer manager fee was reduced from 2.75% of gross proceeds to up to 2.50% of gross proceeds. Further, in connection with the sale of Class A shares by participating broker-dealers, SC Distributors LLC will reallow and pay participating broker-dealers up to: (a) 3.00% of the gross proceeds from their allocated sales of Class A shares; and (b) 2.50% of the gross proceeds for dealer manager fees of Class A shares. In addition, SIC Advisors will pay the SC Distributors LLC, without reimbursement from the Company, an ongoing distribution and stockholder servicing fee that accrues daily in an amount equal to 1/365th of up to 1.0% of the net asset value per Class A share as of the end of each quarterly period following the date of purchase on a continuous basis from year to year for certain services.
We have entered into a license agreement with SIC Advisors under which SIC Advisors has agreed to grant us a non-exclusive, royalty-free license to use the name “Sierra” for specified purposes in our business. Under this agreement, we will have a right to use the “Sierra” name, subject to certain conditions, for so long as SIC Advisors or one of its affiliates remains our investment adviser. Other than with respect to this limited license, we will have no legal right to the “Sierra” name.

Management Fee
We pay SIC Advisors a fee for its services under the Investment Advisory Agreement. The fee consists of two components: a base management fee and an incentive fee.
The base management fee is calculated at an annual rate of 1.75% of our gross assets and is payable quarterly in arrears. The incentive fee consists of:
An incentive fee on net investment income (“subordinated incentive fee on income”) is calculated and payable quarterly in arrears and is based upon pre-incentive fee net investment income for the immediately preceding quarter. No subordinated incentive fee on income is payable in any calendar quarter in which pre-incentive fee net investment income does not exceed a quarterly return to stockholders of 1.75% per quarter on our net assets at the end of the immediately preceding fiscal quarter, or the preferred quarterly return. All pre-incentive fee net investment income, if any, that exceeds the quarterly preferred return, but is less than or equal to 2.1875% of net assets at the end of the immediately preceding fiscal quarter in any quarter, will be payable to SIC Advisors. We refer to this portion of our subordinated incentive fee on income as the catch up. It is intended to provide an

14


incentive fee of 20% on pre-incentive fee net investment income when pre-incentive fee net investment income exceeds 2.1875% of net assets at the end of the immediately preceding quarter in any quarter. For any quarter in which our pre-incentive fee net investment income exceeds 2.1875% of net assets at the end of the immediately preceding quarter, the subordinated incentive fee on income shall equal 20% of the amount of pre-incentive fee net investment income, because the preferred return and catch up will have been achieved.
A capital gains incentive fee will be earned on realized investments and shall be payable in arrears as of the end of each calendar year during which the Investment Advisory Agreement is in effect. If the Investment Advisory Agreement is terminated, the fee will become payable as of the effective date of such termination. The capital gains incentive fee is based on our realized capital gains on a cumulative basis from inception, computed net of all realized capital losses and unrealized capital depreciation on a cumulative basis, which we refer to as “net realized capital gains.” The capital gains incentive fee equals 20% of net realized capital gains, less the aggregate amount of any previously paid capital gains incentive fee.
Under the terms of the Investment Advisory Agreement, SIC Advisors bears all organization and offering expenses on our behalf. Since June 2, 2014, the date that we raised $300 million in gross proceeds in connection with the sale of shares of our common stock, SIC Advisors has no longer been obligated to bear, pay or otherwise be responsible for any ongoing organization and offering expenses on our behalf, and we have been responsible for paying or otherwise incurring all such organization and offering expenses. Pursuant to the terms of the Investment Advisory Agreement, we have agreed to reimburse SIC Advisors for any such organizational and offering expenses incurred by SIC Advisors not to exceed 1.25% of the gross subscriptions raised by us over the course of the offering period, which was initially scheduled to terminate two years from the initial offering date, unless extended. Most recently, at a meeting held on March 1, 2017, our board of directors approved another extension of our offering for an additional year, which will extend the offering through April 17, 2018, unless further extended. Notwithstanding the foregoing, in the event that organizational and offering expenses, together with sales commissions, the dealer manager fee and any discounts paid to members of the Financial Industry Regulatory Authority, exceed 15% of the gross proceeds from the sale of shares of our common stock pursuant to our registration statement or otherwise at the time of the completion of our offering, then SIC Advisors shall be required to pay or, if already paid by us, reimburse us for amounts exceeding such 15% limit.

Critical Accounting Policies
This discussion of our expected operating plans is based upon our expected consolidated financial statements, which will be prepared in accordance with accounting principles generally accepted in the United States, or GAAP. The preparation of these consolidated financial statements will require our 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. In addition to the discussion below, we will describe our critical accounting policies in the notes to our future consolidated financial statements.

Valuation of Investments
We apply fair value accounting to all of its financial instruments in accordance with the 1940 Act and ASC Topic 820 — Fair Value Measurements and Disclosures (“ASC 820”). ASC 820 defines fair value, establishes a framework used to measure fair value and requires disclosures for fair value measurements. In accordance with ASC 820, we have categorized its financial instruments carried at fair value, based on the priority of the valuation technique, into a three-level fair value hierarchy as identified below and discussed in Note 4.
Level 1 — Quoted prices are available in active markets for identical investments as of the reporting date. Publicly listed equities and publicly listed derivatives will be included in Level 1. In addition, securities sold, but not yet purchased and call options will be included in Level 1. We will not adjust the quoted price for these investments, even in situations where we hold a large position and a sale could reasonably affect the quoted price.
Level 2 — Pricing inputs are other than quoted prices in active markets, which are either directly or indirectly observable as of the reporting date, and fair value is determined through the use of models or other valuation methodologies. In certain cases, debt and equity securities are valued on the basis of prices from an orderly transaction between market participants provided by reputable dealers or pricing services. In determining the value of a particular investment, pricing services may use certain information with respect to transactions in such investments, quotations from dealers, pricing matrices, market transactions in comparable investments, and various relationships between investments. Investments which are generally expected to be included in this category include corporate bonds and loans, convertible debt indexed to publicly listed securities, and certain over-the-counter derivatives.

15


Level 3 — Pricing inputs are unobservable for the investment and include situations where there is little, if any, market activity for the investment. The inputs into the determination of fair value require significant judgment or estimation. Investments that are expected to be included in this category are our private portfolio companies.
Fair value is a market-based measure considered from the perspective of the market participant who holds the financial instrument rather than an entity specific measure. Therefore, when market assumptions are not readily available, our own assumptions are set to reflect those that management believes market participants would use in pricing the financial instrument at the measurement date.
Investments for which market quotations are readily available are valued at such market quotations, which are generally obtained from an independent pricing service or multiple broker-dealers or market makers. We weight the use of third-party broker quotes, if any, in determining fair value based on our understanding of the level of actual transactions used by the broker to develop the quote and whether the quote was an indicative price or binding offer. However, debt investments with remaining maturities within 60 days that are not credit impaired are valued at cost plus accreted discount, or minus amortized premium, which approximates fair value. Investments for which market quotations are not readily available are valued at fair value as determined by our board of directors based upon input from management and third party valuation firms. Because these investments are illiquid and because there may not be any directly comparable companies whose financial instruments have observable market values, these loans are valued using a fundamental valuation methodology, consistent with traditional asset pricing standards, that is objective and consistently applied across all loans and through time.
We use third-party valuation firms to assist the board of directors in the valuation of its portfolio investments. The valuation reports generated by the third-party valuation firms consider the evaluation of financing and sale transactions with third parties, expected cash flows and market based information, including comparable transactions, performance multiples, and movement in yields of debt instruments, among other factors. Based on market data obtained from the third-party valuation firms, we use a combined market yield analysis and an enterprise model of valuation. In applying the market yield analysis, the value of our loans are determined based upon inputs such as the coupon rate, current market yield, interest rate spreads of similar securities, the stated value of the loan, and the length to maturity. In applying the enterprise model, we use a waterfall analysis which takes into account the specific capital structure of the borrower and the related seniority of the instruments within the borrower’s capital structure into consideration. To estimate the enterprise value of the portfolio company, we weigh some or all of the traditional market valuation methods and factors based on the individual circumstances of the portfolio company in order to estimate the enterprise value. The methodologies for performing investments may be based on, among other things: valuations of comparable public companies, recent sales of private and public comparable companies, discounting the forecasted cash flows of the portfolio company, third party valuations of the portfolio company, considering offers from third parties to buy the company, estimating the value to potential strategic buyers and considering the value of recent investments in the equity securities of the portfolio company. For non-performing investments, we may estimate the liquidation or collateral value of the portfolio company’s assets and liabilities using an expected recovery model. We may estimate the fair value of warrants based on a model such as the Black-Scholes model or simulation models or a combination thereof.
We undertake a multi-step valuation process each quarter when valuing investments for which market quotations are not readily available, as described below:

our quarterly valuation process begins with each portfolio investment being initially valued by the valuation professionals;
conclusions are then documented and discussed with senior management; and
an independent valuation firm engaged by our board of directors prepares an independent valuation report for approximately one third of the portfolio investments each quarter on a rotating quarterly basis on non fiscal year-end quarters, such that each of these investments will be valued by an independent valuation firm at least twice per annum when combined with the fiscal year-end review of all the investments by independent valuation firms, exclusive of the TRS underlying portfolio.

In addition, all of our investments are subject to the following valuation process:

management reviews preliminary valuations and their own independent assessment;
the audit committee of our board of directors reviews the preliminary valuations of senior management and independent valuation firms; and
our board of directors discusses valuations and determines the fair value of each investment in our portfolio in good faith based on the input of SIC Advisors, the respective independent valuation firms and the audit committee.


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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 our investments may differ significantly from the values that would have been used had a readily available market value existed for such investments, and the differences could be material.
The valuation procedures described are generally applied to the loans underlying the TRS, except that such assets are not reviewed by independent third party valuation firms. We will value the TRS in accordance with the TRS Agreement. Pursuant to the TRS Agreement, the value of the TRS will be based on the increase or decrease in the value of the assets underlying the TRS, together with accrued interest income, interest expense and certain other expenses incurred under the TRS. The assets underlying the TRS will be valued by Citibank. Citibank will base its valuation on the indicative bid prices provided by an independent third-party pricing service. Bid prices reflect the highest price that market participants may be willing to pay. These valuations are sent to us for review and testing. Our board of directors will review and approve the value of the TRS, as well as the value of the assets underlying the TRS, on a quarterly basis as part of their quarterly determination of NAV. To the extent our board of directors has any questions or concerns regarding the valuation of the assets underlying the TRS, such valuation will be discussed or challenged pursuant to the terms of the TRS. For additional disclosures on the TRS, see “Off-Balance Sheet Arrangements.”
 
Our investments in subordinated notes are carried at fair value, which is based on a discounted cash flow model. The discounted cash flow model models both the underlying collateral (“assets”) and the liabilities of the CLO capital structure. The discounted cash flow model uses a set of assumptions including projected default rates, recovery rates, reinvestment rates and prepayment rates in order to arrive at estimated cash flows of the assets. The discounted cash flow model distributes the asset cash flows to the liability structure based on the payment priorities and discounts them back using appropriate market discount rates based on discount rates for comparable CLOs. The assumptions are based on available market data as well as management estimates. Additional data is used to validate the results from the discounted cash flow method, such as analysis of relevant data observed in the CLO market, review of quotes, where available, recent acquisitions and observable transactions in the subordinated notes, among other factors.

Revenue Recognition
We record interest income on an accrual basis to the extent that we expect to collect such amounts. For loans and debt securities with contractual PIK interest, which represents contractual interest accrued and added to the principal balance, we generally will not accrue PIK interest for accounting purposes if the portfolio company valuation indicates that such PIK interest is not collectible. We do not accrue as a receivable interest on loans and debt securities or accounting purposes if we have reason to doubt our ability to collect such interest. Original issue discounts, market discounts or premiums are accreted or amortized using the effective interest method as interest income. We record prepayment premiums on loans and debt securities as fee income. Dividend income, if any, is recognized on an accrual basis to the extent that we expect to collect such amount.

Net Realized Gains or Losses and Net Change in Unrealized Appreciation or Depreciation
We measure net realized gains or losses by the difference between the net proceeds from the repayment or sale and the amortized cost basis of the investment, without regard to unrealized appreciation or depreciation previously recognized. Net change in unrealized appreciation or depreciation reflects the change in portfolio investment values during the reporting period, including any reversal of previously recorded unrealized appreciation or depreciation, when gains or losses are realized.

Payment-in-Kind Interest
We have investments in our portfolio that contain a PIK interest provision. Any PIK interest is added to the principal balance of such investments and is recorded as income, if the portfolio company valuation indicates that such PIK interest is collectible. In order to maintain our status as a RIC, substantially all of this income must be paid out to stockholders in the form of dividends, even if we have not collected any cash.

Organization and Offering Expenses
We have been responsible for all ongoing organization and offering expenses since June 2, 2014.

U.S. Federal Income Taxes
We have elected to be treated for U.S. federal income tax purposes, and intend to qualify annually thereafter, as a RIC under Subchapter M of the Code. As a RIC, we generally will not have to pay corporate-level U.S. federal income taxes on any ordinary income or capital gains that we distribute to our stockholders from our tax earnings and profits. To obtain and maintain our RIC tax treatment, we must, among other things, meet specified source-of-income and asset diversification requirements and distribute annually at least 90% of our ordinary income and realized net short-term capital gains in excess of realized net long-term capital losses, if any.


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Recent Developments
On October 4, 2017, the Company, SIC Advisors and certain of our affiliates received an exemptive order that supersedes the Exemptive Order (the “New Exemptive Order”) and allows, in addition to the entities already covered by the Exemptive Order, Medley LLC and its subsidiary, Medley Capital LLC, to the extent they hold financial assets in a principal capacity, and any direct or indirect, wholly- or majority-owned subsidiary of Medley LLC that is formed in the future, to participate in co-investment transactions with us that would otherwise be prohibited by either or both of Sections 17(d) and 57(a)(4) of the 1940 Act. The terms of the New Exemptive Order are substantially similar to the Exemptive Order.
On October 10, 2017, our board of directors declared a series of semi-monthly distributions for October, November and December 2017 in the amount of $0.02667 per share. Stockholders of record as of each respective record date will be entitled to receive the distribution. Below are the details for each respective distribution:
Record Date
 
Payment Date
 
Amount per share
July 14 and 31, 2017
 
October 31, 2017
 
$
0.02667

August 15 and 31, 2017
 
November 30, 2017
 
0.02667

September 15 and 30, 2017
 
December 29, 2017
 
0.02667


In addition, we have issued common shares and received gross proceeds of $2 million subsequent to September 30, 2017 through November 6, 2017.

Item 3. Quantitative and Qualitative Disclosures About Market Risk
We are subject to financial market risks, including changes in interest rates. As of September 30, 2017, 90.3% of our portfolio investments (based on fair value) paid floating interest rates, 9.7% paid fixed interest rates, 5.1% were non-income producing equity or other investments and the remaining 94.9% were income producing equity or other investments. A rise in the general level of interest rates can be expected to lead to higher interest rates applicable to any variable rate investments we hold and to declines in the value of any fixed rate investments we hold. However, many of our variable rate investments provide for an interest rate floor, which may prevent our interest income from increasing until benchmark interest rates increase beyond a threshold amount. To the extent that a substantial portion of our investments may be in variable rate investments, an increase in interest rates beyond this threshold would make it easier for us to meet or exceed the hurdle rate applicable to the subordinated incentive fee on income under the Investment Advisory Agreement we have entered into with SIC Advisors, and may result in a substantial increase in our net investment income and to the amount of incentive fees payable to SIC Advisors with respect to our increased pre-incentive fee net investment income.
Under the terms of the TRS between Arbor and Citibank, Arbor will pay fees to Citibank at a floating rate based on LIBOR in exchange for the right to receive the economic benefit of a portfolio of assets having a maximum notional amount of $300 million. Our interest expense will also be affected by changes in the published LIBOR rate in connection with our credit facilities. We expect any future credit facilities, total return swap agreements or other financing arrangements that we or any of our subsidiaries may enter into will also be based on a floating interest rate. As a result, we are subject to risks relating to changes in market interest rates. In periods of rising interest rates, when we or our subsidiaries have debt outstanding or financing arrangements in effect, our cost of funds would increase, which could reduce our net investment income, especially to the extent we hold fixed rate investments.
In addition, any investments we make that are denominated in a foreign currency will be subject to risks associated with changes in currency exchange rates. These risks include the possibility of significant fluctuations in the foreign currency markets, the imposition or modification of foreign exchange controls and potential illiquidity in the secondary market. These risks will vary depending upon the currency or currencies involved.
Based on our Consolidated Statement of Assets and Liabilities as of September 30, 2017, the following table shows the approximate annual impact on the change in net interest income of hypothetical base rate changes in interest rates, assuming no changes in our investment portfolio and capital structure:
 
 
 
Change in
Basis point increase
 
Interest Income (1)
 
Interest Expense
 
Net Interest Income
100
 
$
11,055,230

 
$
4,200,000

 
$
6,855,230

200
 
19,715,474

 
8,400,000

 
11,315,474

300
 
28,375,718

 
12,600,000

 
15,775,718

400
 
37,035,962

 
16,800,000

 
20,235,962

500
 
45,696,206

 
21,000,000

 
24,696,206


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(1) Assumes no defaults or prepayments by portfolio companies over the next twelve months.
We expect that our long-term investments will be financed primarily with equity and debt. If deemed prudent, we may use interest rate risk management techniques in an effort to minimize our exposure to interest rate fluctuations. These techniques may include various interest rate hedging activities to the extent permitted by the 1940 Act. Adverse developments resulting from changes in interest rates or hedging transactions could have a material adverse effect on our business, financial condition and results of operations. During the three months ended September 30, 2017, we did not engage in interest rate hedging activities.
In addition, we may have risk regarding portfolio valuation. See “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations-Critical Accounting Policies-Valuation of Investments” and “Item 1A. Risk Factors.”

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Item 4.    Controls and Procedures

Evaluation of Disclosure Controls and Procedures
Our management, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, conducted an evaluation of the effectiveness of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act. Based on that evaluation, as of the end of the period covered by this quarterly report on Form 10-Q, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures are effective to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control Over Financial Reporting
There have been no changes in our internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act, 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
There are no material pending legal proceedings to which we or any of our subsidiaries are a party or of which any of our property or any of our subsidiaries' property is the subject.

Item 1A. Risk Factors
In addition to other information set forth in this report, you should carefully consider the “Risk Factors” discussed in our annual report on Form 10-K for the fiscal year ended December 31, 2016, filed with the SEC on March 7, 2017, which could materially affect our business, financial condition and/or operating results. There have been no material changes during the nine months ended September 30, 2017 to the risk factors discussed in “Item 1A. Risk Factors” of our annual report on Form 10-K. Additional risks or uncertainties not currently known to us or that we currently deem to be immaterial also may materially affect our business, financial
condition and/or operating results.
 
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

In June 2013, we commenced a share repurchase program pursuant to which it intends to conduct quarterly share repurchases, of up to 2.5% of the weighted average number of outstanding shares in any 3-month period or 10% of the weighted average number of outstanding shares in any 12-month period. The purpose of the share repurchase program is to allow stockholders to sell their shares back to us at a price equal to the most recently disclosed NAV per share of our common stock immediately prior to the date of repurchase. Shares will be purchased from stockholders participating in the program on a pro rata basis. Unless our board of directors determines otherwise, the number of shares to be repurchased during any calendar year will be limited to the proceeds received in association with the sale of shares of common stock under the distribution reinvestment plan. See Note 13 to our consolidated financial statements for more information.

The following table provides information concerning our repurchases of shares of our common stock during the three months ended September 30, 2017 pursuant to our share repurchase program:
Period
 
Total Number
of Shares Purchased
 
Average Price per Share
 
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
July 1, 2017 through September 30, 2017
 
871,710
 
$8.02
 
870,337
 
(1)

(1) A description of the maximum number of shares that may be purchased under our share repurchase program is included in the narrative preceding this table.


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Item 3. Defaults Upon Senior Securities.
None. 

Item 4. Mine Safety Disclosures.
Not Applicable.

Item 5. Other Information
None.

Item 6. Exhibits.

EXHIBIT INDEX
Number
 
Description
3.1
 
3.2
 
3.3
 
3.4
 
3.5
 
3.6
 
10.1
 
10.2
 
10.3
 
10.4
 
10.5
 
10.6
 
10.7
 
10.8
 
10.9
 
10.10
 
10.11
 
10.12
 
10.13
 
10.14
 
10.15
 
10.16
 
10.17
 
10.18
 

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10.19
 
10.20
 
10.21
 
10.22
 
10.23
 
11.1
 
31.1
 
31.2
 
32.1
 
 
 
 
____________________________
*
Filed herewith.





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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
Dated: November 6, 2017
Sierra Income Corporation
 
 
 
 
By
 
/s/ Seth Taube
 
 
 
Seth Taube
Chief Executive Officer
(Principal Executive Officer)
 
 
 
 
By
 
/s/ Christopher M. Mathieu
 
 
 
Christopher M. Mathieu
Chief Financial Officer
(Principal Accounting and Financial Officer)

 


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