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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
  
Form 10-Q
 
(Mark One)
 
 
 
ý
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 
For the Quarterly Period Ended December 31, 2017
or
 
 
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from          to
 
Commission file number: 1-35040
 
MEDLEY CAPITAL CORPORATION
 
(Exact Name of Registrant as Specified in its Charter)
 
Delaware
 
27-4576073
(State or Other Jurisdiction of
 
(I.R.S. Employer
Incorporation or Organization)
 
Identification No.)
 
 
 
280 Park Avenue, 6th Floor East, New York, NY 10017
 
10017
(Address of Principal Executive Offices)
 
(Zip Code)
 
(212) 759-0777
 
(Registrant’s Telephone Number, Including Area Code)
 _____________________________________________________________________________________________________
 
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No ¨
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ¨ No ¨
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the 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 ¨          Accelerated filer ý        Non-accelerated filer ¨ (Do not check if a smaller reporting company)      
Smaller reporting company ¨       Emerging growth company ¨
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Securities Exchange Act of 1934). Yes ¨ No ý
 
The Registrant had 54,474,211 shares of common stock, $0.001 par value, outstanding as of February 5, 2018.





MEDLEY CAPITAL CORPORATION

TABLE OF CONTENTS


Part I.
Financial Information
 
 
 
 
Item I.
Financial Statements
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 2.
 
 
 
Item 3.
 
 
 
Item 4.
 
 
 
Part II.
Other Information
 
 
 
 
Item 1.
 
 
 
Item 1A.
 
 
 
Item 2.
 
 
 
Item 3.
 
 
 
Item 4.
 
 
 
Item 5.
 
 
 
Item 6.
 
 
 
SIGNATURES
 





Medley Capital Corporation

Consolidated Statements of Assets and Liabilities

 
December 31, 2017
 
September 30, 2017
 
(unaudited)
 
 
ASSETS
 

 
 

Investments at fair value
 

 
 

Non-controlled/non-affiliated investments (amortized cost of $649,624,352 and $625,108,198, respectively)
$
565,541,395

 
$
575,495,698

Affiliated investments (amortized cost of $92,464,353 and $91,026,729, respectively)
95,792,257

 
90,071,365

Controlled investments (amortized cost of $210,068,394 and $197,918,352, respectively)
174,569,385

 
171,423,836

Total investments at fair value
835,903,037


836,990,899

Cash and cash equivalents
50,008,401

 
108,571,958

Interest receivable
9,474,622

 
9,371,048

Other assets
3,488,194

 
3,321,822

Fees receivable
754,578

 
765,756

Deferred offering costs
339,172

 
307,015

Receivable for dispositions and investments sold
55,969

 
231,895

Total assets
$
900,023,973


$
959,560,393

 
 
 
 
LIABILITIES
 

 
 

Revolving credit facility payable (net of debt issuance costs of $1,618,750 and $1,777,181, respectively)
$
45,381,250

 
$
66,222,819

Term loan payable (net of debt issuance costs of $952,656 and $1,045,895, respectively)
101,047,344

 
100,954,105

Notes payable (net of debt issuance costs of $3,871,214 and $4,122,533, respectively)
173,002,422

 
172,751,776

SBA debentures payable (net of debt issuance costs of $2,702,965 and $2,845,694, respectively)
147,297,035

 
147,154,306

Management and incentive fees payable (see Note 6)
4,067,841

 
4,312,004

Interest and fees payable
5,063,062

 
3,759,891

Accounts payable and accrued expenses
1,981,890

 
1,863,546

Administrator expenses payable (see Note 6)
867,331

 
859,794

Deferred tax liability
821,927

 
911,936

Due to affiliate
377,231

 
81,347

Deferred revenue
315,028

 
259,552

Offering costs payable
32,157

 

Total liabilities
$
480,254,518


$
499,131,076

 
 
 
 
Guarantees and Commitments (see Note 8)
 

 
 

 
 
 
 
NET ASSETS
 

 
 

Common stock, par value $0.001 per share, 100,000,000 common shares authorized, 54,474,211 and 54,474,211 common shares issued and outstanding, respectively
$
54,474

 
$
54,474

Capital in excess of par value
705,046,098

 
705,046,098

Accumulated undistributed net investment income
7,991,654

 
9,528,367

Accumulated net realized gain/(loss) from investments
(176,684,365
)
 
(176,662,889
)
Net unrealized appreciation/(depreciation) on investments, net of deferred taxes
(116,638,406
)
 
(77,536,733
)
Total net assets
419,769,455

 
460,429,317

Total liabilities and net assets
$
900,023,973


$
959,560,393

 
 
 
 
NET ASSET VALUE PER SHARE
$
7.71

 
$
8.45

 
See accompanying notes to consolidated financial statements.

F-1



Medley Capital Corporation
 
Consolidated Statements of Operations  

 
For the three months ended December 31
 
2017
 
2016
 
(unaudited)
 
(unaudited)
INVESTMENT INCOME:
 

 
 

Interest from investments
 

 
 

Non-controlled/non-affiliated investments:
 

 
 

Cash
$
13,090,352

 
$
18,520,378

Payment-in-kind
1,641,133

 
2,962,050

Affiliated investments:
 

 
 

Cash
577,309

 
166,750

Payment-in-kind
849,495

 

Controlled investments:
 

 
 

Cash
429,762

 
343,158

Payment-in-kind
718,518

 
1,971,560

Total interest income
17,306,569


23,963,896

Dividend income, net of provisional taxes ($0 and $0, respectively)
1,443,750

 
644,953

Interest from cash and cash equivalents
31,769

 
23,412

Fee income (see Note 9)
1,848,760

 
1,423,804

Total investment income
20,630,848


26,056,065

 
 
 
 
EXPENSES:
 

 
 

Base management fees (see Note 6)
4,067,841

 
4,514,615

Incentive fees (see Note 6)

 
895,675

Interest and financing expenses
6,759,199

 
7,773,971

Administrator expenses (see Note 6)
867,331

 
916,066

General and administrative
757,255

 
697,005

Professional Fees
585,667

 
651,111

Directors fees
147,180

 
169,784

Insurance
133,214

 
99,455

Expenses before management and incentive fee waivers
13,317,687


15,717,682

Management fee waiver (see Note 6)

 
(19,945
)
Incentive fee waiver (see Note 6)

 
(43,663
)
Total expenses net of management and incentive fee waivers
13,317,687


15,654,074

Net investment income before excise taxes
7,313,161

 
10,401,991

Excise tax expense
(134,000
)
 
(267,183
)
NET INVESTMENT INCOME
7,179,161

 
10,134,808

 
 
 
 
REALIZED AND UNREALIZED GAIN/(LOSS) ON INVESTMENTS:
 

 
 

Net realized gain/(loss) from investments
 
 
 
Non-controlled/non-affiliated investments
(21,476
)
 
(6,298,431
)
Affiliated investments

 

Controlled investments

 

Net realized gain/(loss) from investments
(21,476
)
 
(6,298,431
)
Net unrealized appreciation/(depreciation) on investments
 
 
 
Non-controlled/non-affiliated investments
(34,470,457
)
 
1,625,294

Affiliated investments
4,283,268

 

Controlled investments
(9,004,493
)
 
863,902

Net unrealized appreciation/(depreciation) on investments
(39,191,682
)
 
2,489,196

Change in provision for deferred taxes on unrealized (appreciation)/depreciation on investments
90,009

 

Net gain/(loss) on investments
(39,123,149
)
 
(3,809,235
)
NET INCREASE/(DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS
$
(31,943,988
)
 
$
6,325,573

 
 
 
 
WEIGHTED AVERAGE - BASIC AND DILUTED EARNINGS PER COMMON SHARE
$
(0.59
)
 
$
0.12

WEIGHTED AVERAGE - BASIC AND DILUTED NET INVESTMENT INCOME PER COMMON SHARE
$
0.13

 
$
0.19

WEIGHTED AVERAGE COMMON STOCK OUTSTANDING - BASIC AND DILUTED (SEE NOTE 11)
54,474,211

 
54,474,211

DIVIDENDS DECLARED PER COMMON SHARE
$
0.16

 
$
0.22

 
See accompanying notes to consolidated financial statements.
 

F-2



Medley Capital Corporation
 
Consolidated Statements of Changes in Net Assets
 
 
For the three months ended December 31
 
2017
 
2016
 
(unaudited)
 
(unaudited)
OPERATIONS:
 

 
 

Net investment income
$
7,179,161

 
$
10,134,808

Net realized gain/(loss) from investments
(21,476
)
 
(6,298,431
)
Net unrealized appreciation/(depreciation) on investments
(39,191,682
)
 
2,489,196

Change in provision for deferred taxes on unrealized (appreciation)/depreciation on investments
90,009

 

Net increase/(decrease) in net assets from operations
(31,943,988
)
 
6,325,573

SHAREHOLDER DISTRIBUTIONS:
 

 
 

Distributions from net investment income
(8,715,874
)
 
(11,984,328
)
Net decrease in net assets from shareholder distributions
(8,715,874
)
 
(11,984,328
)
Total increase/(decrease) in net assets
(40,659,862
)
 
(5,658,755
)
Net assets at beginning of period
460,429,317


516,919,142

Net assets at end of period including accumulated undistributed net investment income of $7,991,654 and $8,962,242, respectively
$
419,769,455

 
$
511,260,387

 
 
 
 
Net asset value per common share
$
7.71

 
$
9.39

Common shares outstanding at end of period
54,474,211

 
54,474,211

 
See accompanying notes to consolidated financial statements.
 



F-3



Medley Capital Corporation
 
Consolidated Statements of Cash Flows

 
For the three months ended December 31
 
2017
 
2016
 
(unaudited)
 
(unaudited)
Cash flows from operating activities
 

 
 

NET INCREASE/(DECREASE) IN NET ASSETS FROM OPERATIONS
$
(31,943,988
)
 
$
6,325,573

ADJUSTMENTS TO RECONCILE NET INCREASE/(DECREASE) IN NET ASSETS FROM OPERATIONS TO NET CASH PROVIDED/(USED) BY OPERATING ACTIVITIES:
 
 
 
Investment increases due to payment-in-kind interest
(3,136,782
)
 
(4,823,083
)
Net amortization of premium/(discount) on investments
(239,606
)
 
(350,100
)
Amortization of debt issuance costs
645,044

 
997,329

Net realized (gain)/loss from investments
21,476

 
6,298,431

Net deferred income taxes
(90,009
)
 

Net unrealized (appreciation)/depreciation on investments
39,191,682

 
(2,489,196
)
Proceeds from sale and settlements of investments
47,978,251

 
40,117,661

Purchases, originations and participations
(82,727,159
)
 
(42,182,104
)
(Increase)/decrease in operating assets:
 
 
 
Interest receivable
(103,574
)
 
(2,024,597
)
Other assets
(166,371
)
 
143,067

Fees receivable
11,178

 
764,524

Receivable for dispositions and investments sold
175,926

 
133,631

Increase/(decrease) in operating liabilities:
 
 
 
Management and incentive fees payable, net
(244,163
)
 
788,063

Interest and fees payable
1,303,171

 
2,317,959

Accounts payable and accrued expenses
118,344

 
(456,158
)
Administrator expenses payable
7,537

 
(74,170
)
Due to affiliate
295,884

 
114,038

Deferred revenue
55,476

 
(59,740
)
NET CASH PROVIDED/(USED) BY OPERATING ACTIVITIES
(28,847,683
)
 
5,541,128

 
 
 
 
Cash flows from financing activities
 

 
 

Borrowings on debt
9,000,000

 
18,379,732

Paydowns on debt
(30,000,000
)
 
(14,000,000
)
Debt issuance costs paid

 
(285,408
)
Payments of cash dividends
(8,715,874
)
 
(11,984,328
)
Offering costs paid

 
(1,381
)
NET CASH PROVIDED/(USED) BY FINANCING ACTIVITIES
(29,715,874
)
 
(7,891,385
)
 
 
 
 
NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS
(58,563,557
)
 
(2,350,257
)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD
108,571,958

 
104,485,263

CASH AND CASH EQUIVALENTS, END OF PERIOD
$
50,008,401

 
$
102,135,006

 
 
 
 
Supplemental Information:
 

 
 

Interest paid during the period
$
4,792,028

 
$
4,439,248

Supplemental non-cash information:
 
 
 
Payment-in-kind interest income
$
3,209,146

 
$
4,933,610

Net amortization of premium/(discount) on investments
$
239,606

 
$
350,100

Amortization of debt issuance costs
$
(645,044
)
 
$
(997,329
)
Non-cash purchase of investments
$

 
$
58,615,663

Non-cash sale of investments
$

 
$
58,615,663

 
See accompanying notes to consolidated financial statements.

F-4



Medley Capital Corporation
  
Consolidated Schedule of Investments
 
December 31, 2017
(unaudited)
Company(1)
 
Industry
 
Type of Investment(6)
 
Maturity
 
Par Amount(2)
 
Cost(3)
 
Fair Value
 
% of
Net Assets(4)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Non-Controlled/Non-Affiliated Investments:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
3SI Security Systems, Inc.
 
Services:  Business
 
Senior Secured First Lien Term Loan (LIBOR + 6.25% Cash, 1.00% LIBOR Floor)(14)
 
6/16/2023
 
17,456,250

 
17,456,250

 
17,608,119

 
4.2
%
 
 
 
 
 
 
 
 
17,456,250

 
17,456,250

 
17,608,119

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Accupac, Inc.(7)
 
Containers, Packaging & Glass
 
Senior Secured First Lien Term Loan (LIBOR + 4.50% Cash, 1.00% LIBOR Floor)(13)(18)
 
9/14/2023
 
9,862,951

 
9,862,951

 
9,862,951

 
2.3
%
 
 
 
 
 
 
 
 
9,862,951

 
9,862,951

 
9,862,951

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Advanced Diagnostic Holdings, LLC
 
Healthcare & Pharmaceuticals
 
Senior Secured First Lien Term Loan (LIBOR + 8.50% Cash, 0.875% LIBOR Floor)(14)
 
12/11/2020
 
14,582,109

 
14,582,109

 
14,582,109

 
3.5
%
 
 
 
 
 
 
 
 
14,582,109

 
14,582,109

 
14,582,109

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Alpine SG, LLC(7)
 
High Tech Industries
 
Senior Secured First Lien Term Loan (LIBOR + 6.50% Cash, 1.00% LIBOR Floor)(14)
 
11/16/2022
 
13,500,000

 
13,500,000

 
13,500,000

 
3.2
%
 
 
 
 
Senior Secured First Lien Delayed Draw Term Loan (LIBOR + 6.50% Cash, 1.00% LIBOR Floor)(14)(22)
 
11/16/2022
 
4,642,857

 
4,642,857

 
4,642,857

 
1.1
%
 
 
 
 
Revolving Credit Facility (LIBOR + 6.50% Cash, 1.00% LIBOR
Floor)(14)(17)
 
11/16/2022
 

 

 

 
0.0
%
 
 
 
 
 
 
 
 
18,142,857

 
18,142,857

 
18,142,857

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
American Dental Partners, Inc.
 
Healthcare & Pharmaceuticals
 
Senior Secured Second Lien Term Loan (LIBOR + 8.50% Cash, 1.00% LIBOR Floor)(14)
 
9/25/2023
 
6,500,000

 
6,500,000

 
6,578,000

 
1.6
%
 
 
 
 
 
 
 
 
6,500,000

 
6,500,000

 
6,578,000

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Autosplice, Inc.
 
High Tech Industries
 
Senior Secured First Lien Term Loan (LIBOR + 8.00% Cash, 1.00% LIBOR Floor)(14)
 
6/30/2019
 
14,169,522

 
14,169,522

 
14,277,210

 
3.4
%
 
 
 
 
 
 
 
 
14,169,522

 
14,169,522

 
14,277,210

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Barry's Bootcamp Holdings, LLC(7)
 
Services:  Consumer
 
Senior Secured First Lien Term Loan (LIBOR + 6.50% Cash, 1.00% LIBOR Floor)(14)
 
7/14/2022
 
7,628,570

 
7,628,570

 
7,628,570

 
1.8
%
 
 
 
 
Senior Secured First Lien Delayed Draw Term Loan (LIBOR + 6.50% Cash, 1.00% LIBOR Floor)(14)
 
7/14/2022
 

 

 

 
0.0
%
 
 
 
 
Revolving Credit Facility (LIBOR + 6.50% Cash, 1.00% LIBOR
Floor)(14)(17)
 
7/14/2022
 

 

 

 
0.0
%
 
 
 
 
 
 
 
 
7,628,570

 
7,628,570

 
7,628,570

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Be Green Packaging, LLC
 
Containers, Packaging & Glass
 
Equity - 417 Common Units
 
 
 

 
416,250

 

 
0.0
%
 
 
 
 
 
 
 
 

 
416,250

 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

F-5



Company(1)
 
Industry
 
Type of Investment(6)
 
Maturity
 
Par Amount(2)
 
Cost(3)
 
Fair Value
 
% of
Net Assets(4)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Black Angus Steakhouses, LLC(7)
 
Hotel, Gaming & Leisure
 
Senior Secured First Lien Term Loan (LIBOR + 9.00% Cash, 1.00% LIBOR Floor)(14)
 
4/24/2020
 
7,649,554

 
7,649,554

 
7,325,796

 
1.7
%
 
 
 
 
Senior Secured First Lien Delayed Draw Term Loan (LIBOR + 9.00% Cash, 1.00% LIBOR Floor)(14)
 
4/24/2020
 

 

 

 
0.0
%
 
 
 
 
Revolving Credit Facility (LIBOR + 9.00% Cash, 1.00% LIBOR
Floor)(14)(17)
 
4/24/2020
 
357,143

 
357,143

 
324,104

 
0.1
%
 
 
 
 
 
 
 
 
8,006,697

 
8,006,697

 
7,649,900

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Brook & Whittle Holdings Corp.(7)
 
Containers, Packaging & Glass
 
Senior Secured First Lien Term Loan (LIBOR + 6.25% Cash, 1.00% LIBOR Floor)(14)
 
10/17/2023
 
1,330,274

 
1,330,274

 
1,330,274

 
0.3
%
 
 
 
 
Senior Secured First Lien Delayed Draw Term Loan (LIBOR + 6.25% Cash, 1.00% LIBOR Floor)(14)(17)
 
10/17/2023
 

 

 

 
0.0
%
 
 
 
 
 
 
 
 
1,330,274

 
1,330,274

 
1,330,274

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Central States Dermatology Services, LLC(7)
 
Healthcare & Pharmaceuticals
 
Senior Secured First Lien Term Loan (LIBOR + 6.50% Cash, 1.00% LIBOR Floor)(14)
 
4/20/2022
 
1,084,519

 
1,084,519

 
1,084,519

 
0.2
%
 
 
 
 
Senior Secured First Lien Delayed Draw Term Loan (LIBOR + 6.50% Cash, 1.00% LIBOR Floor)(14)(18)
 
4/20/2022
 
209,355

 
209,355

 
209,355

 
0.0
%
 
 
 
 
 
 
 
 
1,293,874

 
1,293,874

 
1,293,874

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Comfort Holding, LLC
 
Consumer goods:  Durable
 
Senior Secured Second Lien Term Loan (LIBOR + 10.00% Cash, 1.00% LIBOR Floor)(13)
 
2/3/2025
 
1,000,000

 
962,572

 
844,600

 
0.2
%
 
 
 
 
 
 
 
 
1,000,000

 
962,572

 
844,600

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
CP OPCO, LLC
 
Services:  Consumer
 
Senior Secured First Lien Term Loan B (ABR + 5.50% PIK, 4.50% ABR Floor)(10)
 
4/1/2019
 
1,274,828

 
1,210,237

 
338,467

 
0.1
%
 
 
 
 
Senior Secured First Lien Term Loan C (ABR + 8.50% PIK, 4.50% ABR Floor)(10)
 
4/1/2019
 
9,380,638

 
4,060,507

 

 
0.0
%
 
 
 
 
Preferred Facility (ABR + 7.00% PIK, 4.50% ABR Floor)(10)
 
4/1/2019
 
5,883,641

 

 

 
0.0
%
 
 
 
 
Revolving Credit Facility (ABR + 3.50% Cash, 4.50% ABR Floor)
 
4/1/2019
 

 

 

 
0.0
%
 
 
 
 
Equity - 232 Common Units
 
 
 

 

 

 
0.0
%
 
 
 
 
 
 
 
 
16,539,107

 
5,270,744

 
338,467

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
CPI International, Inc.
 
Aerospace & Defense
 
Senior Secured Second Lien Term Loan (LIBOR + 7.25% Cash, 1.00% LIBOR Floor)(13)
 
7/26/2025
 
5,000,000

 
4,975,920

 
4,975,000

 
1.2
%
 
 
 
 
 
 
 
 
5,000,000

 
4,975,920

 
4,975,000

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Crow Precision Components, LLC
 
Aerospace & Defense
 
Senior Secured First Lien Term Loan (LIBOR + 8.50% Cash, 1.00% LIBOR Floor)(14)
 
9/30/2019
 
13,190,000

 
13,190,000

 
13,190,000

 
3.1
%
 
 
 
 
Equity - 350 Common Units
 
 
 

 
700,000

 
273,809

 
0.1
%
 
 
 
 
 
 
 
 
13,190,000

 
13,890,000

 
13,463,809

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
CT Technologies Intermediate Holdings, Inc.(12)
 
Healthcare & Pharmaceuticals
 
Senior Secured Second Lien Term Loan (LIBOR + 9.00% Cash, 1.00% LIBOR Floor)(13)
 
12/1/2022
 
7,500,000

 
7,500,000

 
7,540,500

 
1.8
%
 
 
 
 
 
 
 
 
7,500,000

 
7,500,000

 
7,540,500

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

F-6



Company(1)
 
Industry
 
Type of Investment(6)
 
Maturity
 
Par Amount(2)
 
Cost(3)
 
Fair Value
 
% of
Net Assets(4)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
DHISCO Electronic Distribution, Inc.
 
Hotel, Gaming & Leisure
 
Senior Secured First Lien Term Loan A (LIBOR + 8.50% PIK, 1.50% LIBOR Floor)(14)
 
11/10/2019
 
4,107,239

 
4,107,239

 
4,107,239

 
1.0
%
 
 
 
 
Senior Secured First Lien Term Loan B (LIBOR + 11.00% PIK, 1.50% LIBOR Floor)(10)(14)
 
11/10/2019
 
15,203,145

 
14,896,413

 
6,134,469

 
1.5
%
 
 
 
 
Senior Secured First Lien Term Loan C (LIBOR + 12.25% PIK, 1.50% LIBOR Floor)(10)(14)
 
11/10/2019
 
13,200,369

 
11,600,575

 

 
0.0
%
 
 
 
 
Senior Secured First Lien Term Loan D (LIBOR + 13.25% PIK, 1.50% LIBOR Floor)(10)(14)
 
11/10/2019
 
12,407,459

 
4,701,476

 

 
0.0
%
 
 
 
 
Equity - 1,230,769 Class A Units
 
 
 

 
1,230,769

 

 
0.0
%
 
 
 
 
 
 
 
 
44,918,212

 
36,536,472

 
10,241,708

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Dream Finders Homes, LLC
 
Construction & Building
 
Senior Secured First Lien Term Loan B (LIBOR + 14.50% Cash)(16)
 
10/1/2018
 
3,399,550

 
3,366,894

 
3,430,146

 
0.8
%
 
 
 
 
Preferred Equity (8.00% PIK)
 
 
 
3,644,300

 
3,644,300

 
3,644,300

 
0.9
%
 
 
 
 
 
 
 
 
7,043,850

 
7,011,194

 
7,074,446

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Dynamic Energy Services International LLC
 
Energy:  Oil & Gas
 
Senior Secured First Lien Term Loan (13.50% PIK + LIBOR)(16)
 
6/6/2018
 
18,829,092

 
18,829,092

 
16,027,324

 
3.8
%
 
 
 
 
 
 
 
 
18,829,092

 
18,829,092

 
16,027,324

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Engineered Machinery Holdings, Inc.(7)
 
Capital Equipment
 
Senior Secured Second Lien Term Loan (LIBOR + 7.25% Cash, 1.00% LIBOR Floor)(14)
 
7/18/2025
 
1,519,149

 
1,504,503

 
1,503,958

 
0.4
%
 
 
 
 
Senior Secured Second Lien Delayed Draw Term Loan (LIBOR + 7.25% Cash, 1.00% LIBOR Floor)(14)(19)
 
7/18/2025
 
151,915

 
150,405

 
150,106

 
0.0
%
 
 
 
 
 
 
 
 
1,671,064

 
1,654,908

 
1,654,064

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
FKI Security Group, LLC(12)
 
Capital Equipment
 
Senior Secured First Lien Term Loan (LIBOR + 8.50% Cash, 1.00% LIBOR Floor)(14)
 
3/30/2020
 
11,562,500

 
11,562,500

 
11,562,500

 
2.8
%
 
 
 
 
 
 
 
 
11,562,500

 
11,562,500

 
11,562,500

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Footprint Acquisition, LLC
 
Services:  Business
 
Senior Secured First Lien Term Loan (LIBOR + 8.00% Cash)(15)
 
2/27/2020
 
5,051,388

 
5,051,388

 
5,051,388

 
1.2
%
 
 
 
 
Preferred Equity (8.75% PIK)
 
 
 
6,259,256

 
6,259,256

 
5,546,952

 
1.3
%
 
 
 
 
Equity - 150 Common Units
 
 
 

 

 

 
0.0
%
 
 
 
 
 
 
 
 
11,310,644

 
11,310,644

 
10,598,340

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Freedom Powersports, LLC
 
Automotive
 
Senior Secured First Lien Term Loan (LIBOR + 10.00% Cash, 1.50% LIBOR Floor)(14)
 
9/26/2019
 
12,040,000

 
12,040,000

 
12,160,400

 
2.9
%
 
 
 
 
 
 
 
 
12,040,000

 
12,040,000

 
12,160,400

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Friedrich Holdings, Inc.
 
Construction & Building
 
Senior Secured First Lien Term Loan (LIBOR + 7.00% Cash, 1.00% LIBOR Floor)(13)
 
2/7/2023
 
10,000,000

 
10,000,000

 
10,143,000

 
2.4
%
 
 
 
 
 
 
 
 
10,000,000

 
10,000,000

 
10,143,000

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Global Accessories Group, LLC(12)
 
Consumer goods:  Non-durable
 
Equity - 3.8% Membership Interest
 
 
 

 
151,337

 
151,339

 
0.0
%
 
 
 
 
 
 
 
 

 
151,337

 
151,339

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Harrison Gypsum, LLC(12)
 
Construction & Building
 
Senior Secured First Lien Term Loan (LIBOR + 8.50% Cash, 1.00% PIK, 1.50% LIBOR Floor)(13)
 
12/21/2018
 
51,608,547

 
51,608,547

 
51,608,547

 
12.3
%
 
 
 
 
 
 
 
 
51,608,547

 
51,608,547

 
51,608,547

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Heligear Acquisition Co.(8)
 
Aerospace & Defense
 
Senior Secured First Lien Note (10.25% Cash)
 
10/15/2019
 
20,000,000

 
20,000,000

 
20,424,000

 
4.9
%
 
 
 
 
 
 
 
 
20,000,000

 
20,000,000

 
20,424,000

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

F-7



Company(1)
 
Industry
 
Type of Investment(6)
 
Maturity
 
Par Amount(2)
 
Cost(3)
 
Fair Value
 
% of
Net Assets(4)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Imagine! Print Solutions, LLC
 
Media: Advertising, Printing & Publishing
 
Senior Secured Second Lien Term Loan (LIBOR + 8.75% Cash, 1.00% LIBOR Floor)(14)
 
6/21/2023
 
3,000,000

 
2,957,827

 
2,955,000

 
0.7
%
 
 
 
 
 
 
 
 
3,000,000

 
2,957,827

 
2,955,000

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Impact Sales, LLC(7)
 
Services:  Business
 
Senior Secured First Lien Term Loan (LIBOR + 7.00% Cash, 1.00% LIBOR Floor)(14)
 
12/30/2021
 
2,598,750

 
2,598,750

 
2,542,877

 
0.6
%
 
 
 
 
Senior Secured First Lien Delayed Draw Term Loan (LIBOR + 7.00% Cash, 1.00% LIBOR Floor)(14)(18)
 
12/30/2021
 
119,410

 
119,410

 
100,617

 
0.0
%
 
 
 
 
 
 
 
 
2,718,160

 
2,718,160

 
2,643,494

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
InterFlex Acquisition Company, LLC
 
Containers, Packaging & Glass
 
Senior Secured First Lien Term Loan (LIBOR + 8.00% Cash, 1.00% LIBOR Floor)(13)
 
8/18/2022
 
14,625,000

 
14,625,000

 
14,625,000

 
3.5
%
 
 
 
 
 
 
 
 
14,625,000

 
14,625,000

 
14,625,000

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
JD Norman Industries, Inc.
 
Automotive
 
Senior Secured First Lien Term Loan (LIBOR + 12.25% Cash)(15)
 
3/6/2019
 
19,800,000

 
19,800,000

 
19,800,000

 
4.7
%
 
 
 
 
 
 
 
 
19,800,000

 
19,800,000

 
19,800,000

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
L & S Plumbing Partnership, Ltd.
 
Construction & Building
 
Senior Secured First Lien Term Loan (LIBOR + 8.50% Cash, 1.00% LIBOR Floor)(14)
 
2/15/2022
 
20,812,500

 
20,812,500

 
21,076,819

 
5.0
%
 
 
 
 
 
 
 
 
20,812,500

 
20,812,500

 
21,076,819

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Lighting Science Group Corporation
 
Containers, Packaging & Glass
 
Senior Secured Second Lien Term (LIBOR + 10.00% Cash, 2.00% PIK)(16)
 
2/19/2019
 
13,936,111

 
13,657,725

 
13,765,393

 
3.3
%
 
 
 
 
Warrants - 0.81% of Outstanding Equity(21)
 
2/19/2024
 

 
955,680

 

 
0.0
%
 
 
 
 
 
 
 
 
13,936,111

 
14,613,405

 
13,765,393

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Manna Pro Products, LLC(7)
 
Consumer goods:  Non-durable
 
Senior Secured First Lien Term Loan (LIBOR + 6.00% Cash, 1.00% LIBOR Floor)(14)
 
12/8/2023
 
8,000,000

 
8,000,000

 
8,000,000

 
1.9
%
 
 
 
 
Senior Secured First Lien Delayed Draw Term Loan (LIBOR + 6.00% Cash, 1.00% LIBOR Floor)(14)(18)
 
12/8/2023
 

 

 

 
0.0
%
 
 
 
 
 
 
 
 
8,000,000

 
8,000,000

 
8,000,000

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Merchant Cash and Capital, LLC
 
Banking, Finance, Insurance & Real Estate
 
Senior Secured First Lien Delayed Draw Term Loan (LIBOR + 13.00% Cash, 3.00% LIBOR Floor)(13)
 
5/31/2017
 
2,633,340

 
2,633,340

 
2,633,340

 
0.6
%
 
 
 
 
Senior Secured Second Lien Term Loan (17.00% PIK)(10)
 
5/4/2017
 
16,196,491

 
15,167,277

 
7,759,739

 
1.8
%
 
 
 
 
 
 
 
 
18,829,831

 
17,800,617

 
10,393,079

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Oxford Mining Company, LLC
 
Metals & Mining
 
Senior Secured First Lien Term Loan (LIBOR + 8.50% Cash, 3.00% PIK, 0.75% LIBOR Floor)(14)
 
12/31/2018
 
21,202,310

 
21,202,310

 
21,202,310

 
5.1
%
 
 
 
 
 
 
 
 
21,202,310

 
21,202,310

 
21,202,310

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Path Medical, LLC(7)
 
Healthcare & Pharmaceuticals
 
Senior Secured First Lien Term Loan (LIBOR + 9.50% Cash, 1.00% LIBOR Floor)(14)
 
10/11/2021
 
8,305,335

 
7,901,696

 
8,349,354

 
2.0
%
 
 
 
 
Senior Secured First Lien Term Loan A (LIBOR + 9.50% Cash, 1.00% LIBOR Floor)(14)
 
10/11/2021
 
2,808,500

 
2,808,500

 
2,861,148

 
0.7
%
 
 
 
 
Warrants - 1.56% of Outstanding Equity
 
1/9/2027
 

 
499,751

 
83,018

 
0.0
%
 
 
 
 
 
 
 
 
11,113,835

 
11,209,947

 
11,293,520

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

F-8



Company(1)
 
Industry
 
Type of Investment(6)
 
Maturity
 
Par Amount(2)
 
Cost(3)
 
Fair Value
 
% of
Net Assets(4)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
The Plastics Group, Inc.
 
Chemicals, Plastics & Rubber
 
Senior Secured First Lien Term Loan (11.00% Cash, 2.00% PIK)
 
2/28/2019
 
21,865,403

 
21,865,403

 
3,028,358

 
0.7
%
 
 
 
 
Senior Secured First Lien Term Loan 2 (11.00% Cash, 2.00% PIK)
 
2/28/2018
 
467,652

 
467,652

 
467,652

 
0.1
%
 
 
 
 
 
 
 
 
22,333,055

 
22,333,055

 
3,496,010

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Point.360
 
Services:  Business
 
Senior Secured First Lien Term Loan (LIBOR + 6.00% PIK)(10)(16)
 
7/8/2020
 
2,103,712

 
2,103,712

 
1,860,313

 
0.4
%
 
 
 
 
Equity - 479,283 Common Units(20)
 
 
 

 
129,406

 
33,550

 
0.0
%
 
 
 
 
Warrants - 2.8% of Outstanding Equity(21)
 
7/8/2020
 

 
52,757

 
21,103

 
0.0
%
 
 
 
 
 
 
 
 
2,103,712

 
2,285,875

 
1,914,966

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Prince Mineral Holding Corp.(8)
 
Wholesale
 
Senior Secured First Lien Note (11.50% Cash)(21)
 
12/15/2019
 
6,800,000

 
6,770,826

 
6,995,840

 
1.7
%
 
 
 
 
 
 
 
 
6,800,000

 
6,770,826

 
6,995,840

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Reddy Ice Corporation
 
Beverage & Food
 
Senior Secured Second Lien Term Loan (LIBOR + 9.50% Cash, 1.25% LIBOR Floor)(14)
 
11/1/2019
 
17,000,000

 
17,000,000

 
16,265,600

 
3.9
%
 
 
 
 
 
 
 
 
17,000,000

 
17,000,000

 
16,265,600

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
RESIC Enterprises, LLC
 
Beverage & Food
 
Senior Secured Second Lien Term Loan (LIBOR + 8.75% Cash, 1.00% LIBOR Floor)(14)
 
11/10/2025
 
10,000,000

 
10,000,000

 
10,000,000

 
2.4
%
 
 
 
 
 
 
 
 
10,000,000

 
10,000,000

 
10,000,000

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
RMS Holding Company, LLC(7)
 
Services:  Business
 
Senior Secured First Lien Term Loan (LIBOR + 6.00% Cash, 1.00% LIBOR Floor)(14)
 
11/16/2022
 
12,468,750

 
12,468,750

 
12,468,750

 
3.0
%
 
 
 
 
Revolving Credit Facility (LIBOR + 6.00% Cash, 1.00% LIBOR
Floor)(14)(17)
 
11/16/2022
 
1,073,204

 
1,073,204

 
1,073,204

 
0.3
%
 
 
 
 
 
 
 
 
13,541,954

 
13,541,954

 
13,541,954

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
SavATree, LLC(7)
 
Environmental Industries
 
Senior Secured First Lien Term Loan (LIBOR + 5.25% Cash, 1.00% LIBOR Floor)(14)(18)
 
6/2/2022
 
1,872,964

 
1,872,964

 
1,884,386

 
0.4
%
 
 
 
 
 
 
 
 
1,872,964

 
1,872,964

 
1,884,386

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Sendero Drilling Company, LLC
 
Energy:  Oil & Gas
 
Warrants - 5.52% of Outstanding Equity
 
3/18/2019
 

 
793,523

 
1,923,944

 
0.5
%
 
 
 
 
 
 
 
 

 
793,523

 
1,923,944

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Seotowncenter, Inc.(12)
 
Services:  Business
 
Senior Secured First Lien Term Loan (LIBOR + 9.00% Cash, 1.00% LIBOR Floor)(14)
 
9/11/2019
 
23,478,660

 
23,478,660

 
23,478,660

 
5.6
%
 
 
 
 
Equity - 3,249.697 Common Units
 
 
 

 
500,000

 
476,763

 
0.1
%
 
 
 
 
 
 
 
 
23,478,660

 
23,978,660

 
23,955,423

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
SFP Holding, Inc.(7)
 
Construction & Building
 
Senior Secured First Lien Term Loan (LIBOR + 6.25% Cash, 1.00% LIBOR Floor)(14)(17)
 
9/1/2022
 
6,222,222

 
6,222,222

 
6,222,222

 
1.5
%
 
 
 
 
Equity - 1.42% Company Interest
 
 
 

 
600,000

 
600,000

 
0.1
%
 
 
 
 
 
 
 
 
6,222,222

 
6,822,222

 
6,822,222

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Ship Supply Acquisition Corporation
 
Services:  Business
 
Senior Secured First Lien Term Loan (LIBOR + 8.00% Cash, 1.00% LIBOR Floor)(14)
 
7/31/2020
 
7,542,564

 
7,542,564

 
7,235,582

 
1.7
%
 
 
 
 
 
 
 
 
7,542,564

 
7,542,564

 
7,235,582

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
SMART Financial Operations, LLC(7)
 
Retail
 
Senior Secured First Lien Term Loan (LIBOR + 10.00% Cash, 1.00% LIBOR Floor)(14)
 
11/22/2021
 
2,775,000

 
2,775,000

 
2,848,500

 
0.7
%
 
 
 
 
Equity - 700,000 Class A Preferred Units
 
 
 

 
700,000

 
735,000

 
0.2
%
 
 
 
 
 
 
 
 
2,775,000

 
3,475,000

 
3,583,500

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

F-9



Company(1)
 
Industry
 
Type of Investment(6)
 
Maturity
 
Par Amount(2)
 
Cost(3)
 
Fair Value
 
% of
Net Assets(4)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
SRS Software, LLC
 
High Tech Industries
 
Senior Secured First Lien Term Loan (LIBOR + 7.00% Cash, 1.00% LIBOR Floor)(14)
 
2/17/2022
 
7,443,750

 
7,443,750

 
7,508,511

 
1.8
%
 
 
 
 
 
 
 
 
7,443,750

 
7,443,750

 
7,508,511

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Stancor, Inc.
 
Services:  Business
 
Senior Secured First Lien Term Loan (LIBOR + 8.00% Cash, 0.75% LIBOR Floor)(13)
 
8/19/2019
 
4,105,932

 
4,105,932

 
4,105,932

 
1.0
%
 
 
 
 
Equity - 263,814.43 Class A Units
 
 
 

 
263,814

 
211,052

 
0.1
%
 
 
 
 
 
 
 
 
4,105,932

 
4,369,746

 
4,316,984

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Starfish Holdco, LLC
 
High Tech Industries
 
Senior Secured Second Lien Term Loan (LIBOR + 9.00% Cash, 1.00% LIBOR Floor)(14)
 
8/18/2025
 
4,000,000

 
3,941,779

 
3,940,000

 
0.9
%
 
 
 
 
 
 
 
 
4,000,000

 
3,941,779

 
3,940,000

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Taylored Freight Services, LLC
 
Services:  Business
 
Senior Secured Second Lien Term Loan (LIBOR + 9.50% Cash, 2.00% PIK, 1.50% LIBOR Floor)(14)
 
11/1/2017
 
14,819,981

 
14,819,981

 
14,819,981

 
3.5
%
 
 
 
 
 
 
 
 
14,819,981

 
14,819,981

 
14,819,981

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Trans-Fast Remittance LLC(7)
 
Banking, Finance, Insurance & Real Estate
 
Senior Secured First Lien Term Loan (LIBOR + 8.00% Cash, 1.00% LIBOR Floor)(13)(17)
 
12/2/2021
 
3,567,857

 
3,567,857

 
3,660,357

 
0.9
%
 
 
 
 
Revolving Credit Facility (LIBOR + 8.00% Cash, 1.00% LIBOR Floor)(13)
 
12/2/2021
 
1,875,000

 
1,875,000

 
1,875,000

 
0.4
%
 
 
 
 
 
 
 
 
5,442,857

 
5,442,857

 
5,535,357

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Vail Holdco Corp
 
Chemicals, Plastics & Rubber
 
Equity - 9,750 Shares of Series A Preferred Stock (12.50% PIK)
 
 
 
9,750,000

 
9,324,213

 
9,323,925

 
2.2
%
 
 
 
 
Equity - 7,700 Shares of Junior Convertible Preferred Stock
 
 
 
7,700,000

 
7,700,000

 
7,700,000

 
1.8
%
 
 
 
 
Warrants - 5.52% of Outstanding Equity
 
 
 

 
425,787

 
425,763

 
0.1
%
 
 
 
 
 
 
 
 
17,450,000

 
17,450,000

 
17,449,688

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Velocity Pooling Vehicle, LLC
 
Automotive
 
Senior Secured First Lien Term Loan (12.00% Cash)
 
8/15/2018
 
813,301

 
813,301

 
813,301

 
0.2
%
 
 
 
 
Senior Secured First Lien Term Loan (LIBOR + 4.00% Cash, 1.00% LIBOR Floor)(9)(10)
 
5/14/2021
 
1,958,668

 
1,109,768

 
215,454

 
0.1
%
 
 
 
 
Senior Secured Second Lien Term Loan (LIBOR + 7.25% Cash, 1.00% LIBOR Floor)(9)(10)
 
5/13/2022
 
24,000,000

 
21,696,167

 
240,000

 
0.1
%
 
 
 
 
 
 
 
 
26,771,969

 
23,619,236

 
1,268,755

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Watermill-QMC Midco, Inc.
 
Automotive
 
Equity - 1.3% Partnership Interest(23)
 
 
 

 
518,283

 
672,213

 
0.2
%
 
 
 
 
 
 
 
 

 
518,283

 
672,213

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Wheels Up Partners LLC(12)
 
Aerospace & Defense
 
Senior Secured First Lien Delayed Draw (LIBOR + 8.55% Cash, 1.00% LIBOR Floor)(14)
 
10/15/2021
 
9,169,027

 
9,169,027

 
8,893,956

 
2.1
%
 
 
 
 
 
 
 
 
9,169,027

 
9,169,027

 
8,893,956

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Subtotal Non-Controlled/Non-Affiliated Investments
 
 
 
$
668,097,514

 
$
649,624,352

 
$
565,541,395

 
 

 
 
 
 
 
 
 
 
 
 
 
 
 

F-10



Company(1)
 
Industry
 
Type of Investment(6)
 
Maturity
 
Par Amount(2)
 
Cost(3)
 
Fair Value
 
% of
Net Assets(4)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Affiliated Investments:
 
 
 
 
 
 

 
 

 
 

 
 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
AAR Intermediate Holdings, LLC(7)
 
Energy:  Oil & Gas
 
Senior Secured First Lien Term Loan A (LIBOR + 5.00% Cash, 1.00% LIBOR Floor)(14)
 
9/30/2021
 
8,984,232

 
8,984,232

 
8,984,232

 
2.1
%
 
 
 
 
Senior Secured First Lien Term Loan B (LIBOR + 8.00% PIK, 1.00% LIBOR Floor)(14)
 
9/30/2021
 
20,225,610

 
17,330,588

 
20,225,610

 
4.8
%
 
 
 
 
Revolving Credit Facility (LIBOR + 5.00% Cash, 1.00% LIBOR
Floor)(14)(17)
 
9/30/2021
 
539,054

 
539,054

 
539,054

 
0.1
%
 
 
 
 
Equity - 21,562.16 Class A Units
 
 
 

 

 

 
0.0
%
 
 
 
 
 
 
 
 
29,748,896

 
26,853,874

 
29,748,896

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Access Media Holdings, LLC(7)
 
Media:  Broadcasting & Subscription
 
Senior Secured First Lien Term Loan (5.00% Cash, 5.00% PIK)
 
7/22/2020
 
8,446,384

 
8,446,384

 
8,446,384

 
2.0
%
 
 
 
 
Preferred Equity Series A
 
 
 
1,600,000

 
1,600,000

 

 
0.0
%
 
 
 
 
Preferred Equity Series AA
 
 
 
800,000

 
800,000

 

 
0.0
%
 
 
 
 
Preferred Equity Series AAA
 
 
 
532,800

 
532,800

 
148,800

 
0.0
%
 
 
 
 
Equity - 16 Common Units
 
 
 

 

 

 
0.0
%
 
 
 
 
 
 
 
 
11,379,184

 
11,379,184

 
8,595,184

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Brantley Transportation LLC(12)
 
Energy:  Oil & Gas
 
Senior Secured First Lien Term Loan (12.00% PIK)(10)
 
8/2/2017
 
11,703,521

 
9,000,000

 
7,956,054

 
1.9
%
 
 
 
 
Senior Secured First Lien Delayed Draw (LIBOR + 5.00% Cash, 1.00% LIBOR Floor)(13)
 
8/2/2017
 
668,105

 
668,105

 
668,105

 
0.2
%
 
 
 
 
Equity - 7.5 Common Units
 
 
 

 

 

 
0.0
%
 
 
 
 
 
 
 
 
12,371,626

 
9,668,105

 
8,624,159

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
JFL-NGS Partners, LLC
 
Construction & Building
 
Preferred Equity - A-2 Preferred (3.00% PIK)
 
 
 
30,552,190

 
30,552,190

 
30,552,190

 
7.3
%
 
 
 
 
Preferred Equity - A-1 Preferred (3.00% PIK)
 
 
 
3,953,700

 
3,953,700

 
3,953,700

 
0.9
%
 
 
 
 
Equity - 57,300 Class B Units
 
 
 

 
57,300

 
4,318,128

 
1.0
%
 
 
 
 
 
 
 
 
34,505,890

 
34,563,190

 
38,824,018

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
US Multifamily, LLC(11)
 
Banking, Finance, Insurance & Real Estate
 
Senior Secured First Lien Term Loan (10.00% Cash)
 
9/10/2019
 
6,670,000

 
6,670,000

 
6,670,000

 
1.6
%
 
 
 
 
Equity - 33,300 Preferred Units
 
 
 

 
3,330,000

 
3,330,000

 
0.8
%
 
 
 
 
 
 
 
 
6,670,000

 
10,000,000

 
10,000,000

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Subtotal Affiliated Investments
 
 
 
 
 
$
94,675,596

 
$
92,464,353

 
$
95,792,257

 
 

 
 
 
 
 
 
 
 
 
 
 
 
 
Controlled Investments:(5)
 
 
 
 
 
 

 
 

 
 

 
 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Capstone Nutrition(12)
 
Healthcare & Pharmaceuticals
 
Senior Secured First Lien Term Loan (LIBOR + 12.50% PIK, 1.00% LIBOR Floor)(10)(14)
 
9/25/2020
 
27,049,193

 
20,803,397

 
16,056,401

 
3.8
%
 
 
 
 
Senior Secured First Lien Delayed Draw (LIBOR + 12.50% PIK, 1.00% LIBOR Floor)(10)(14)
 
9/25/2020
 
11,704,163

 
9,153,997

 
6,947,591

 
1.7
%
 
 
 
 
Equity - 4,664.6 Class B Units and 9,424.4 Class C Units
 
 
 

 
12

 

 
0.0
%
 
 
 
 
Equity - 2,932.3 Common Units
 
 
 

 
400,003

 

 
0.0
%
 
 
 
 
 
 
 
 
38,753,356

 
30,357,409

 
23,003,992

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
MCC Senior Loan Strategy JV I LLC(11)
 
Multisector Holdings
 
Equity - 87.5% ownership of MCC Senior Loan Strategy JV I LLC
 
 
 

 
66,762,500

 
67,405,603

 
16.1
%
 
 
 
 
 
 
 
 

 
66,762,500

 
67,405,603

 
 
 
 
 
 
    
 
 
 
 
 
 
 
 
 
 

F-11



Company(1)
 
Industry
 
Type of Investment(6)
 
Maturity
 
Par Amount(2)
 
Cost(3)
 
Fair Value
 
% of
Net Assets(4)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
NVTN LLC
 
Hotel, Gaming & Leisure
 
Senior Secured First Lien Term Loan (LIBOR + 4.00% Cash, 1.00% LIBOR Floor)(13)
 
11/9/2020
 
3,505,990

 
3,505,990

 
3,505,990

 
0.8
%
 
 
 
 
Senior Secured First Lien Term Loan B (LIBOR + 9.25% PIK, 1.00% LIBOR Floor)(13)
 
11/9/2020
 
10,888,153

 
10,888,153

 
10,888,153

 
2.6
%
 
 
 
 
Senior Secured First Lien Term Loan C (LIBOR + 12.00% PIK, 1.00% LIBOR Floor)(13)
 
11/9/2020
 
6,738,610

 
6,738,610

 
6,738,610

 
1.6
%
 
 
 
 
Equity - 787.4 Class A Units
 
 
 

 
9,550,922

 
9,550,922

 
2.3
%
 
 
 
 
 
 
 
 
21,132,753

 
30,683,675

 
30,683,675

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
OmniVere, LLC
 
Services:  Business
 
Senior Secured First Lien Term Loan (LIBOR + 13.00% PIK)(10)(16)
 
5/5/2019
 
26,405,280

 
22,880,599

 
17,691,538

 
4.2
%
 
 
 
 
Senior Secured First Lien Term Loan (8.00% PIK)
 
5/5/2019
 
2,029,701

 
2,029,701

 
2,029,701

 
0.5
%
 
 
 
 
Unsecured Debt (8.00% PIK)(10)
 
7/24/2025
 
27,209,866

 
22,727,575

 

 
0.0
%
 
 
 
 
Equity - 5,055.56 Common Units
 
 
 

 
872,698

 

 
0.0
%
 
 
 
 
 
 
 
 
55,644,847

 
48,510,573

 
19,721,239

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
URT Acquisition Holdings Corporation
 
Services:  Business
 
Senior Secured Second Lien Term Loan (LIBOR + 8.00% Cash, 2.00% LIBOR Floor)(14)
 
5/2/2022
 
14,966,563

 
14,966,563

 
14,966,563

 
3.6
%
 
 
 
 
Preferred Equity (12.00% PIK)
 
 
 
5,850,795

 
5,850,795

 
5,850,795

 
1.4
%
 
 
 
 
Equity - 397,466 Common Units
 
 
 

 
12,936,879

 
12,937,518

 
3.1
%
 
 
 
 
 
 
 
 
20,817,358

 
33,754,237

 
33,754,876

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Subtotal Controlled Investments
 
 
 
 
 
$
136,348,314

 
$
210,068,394

 
$
174,569,385

 
 

 
 
 
 
 
 
 
 
 
 
 
 
 
Total Investments, December 31, 2017
 
 
 
 
 
$
899,121,424

 
$
952,157,099

 
$
835,903,037

 
199.1
%

(1)
All of our investments are domiciled in the United States. Certain investments also have international operations.
(2)
Par amount includes accumulated PIK interest and is net of repayments.
(3)
Gross unrealized appreciation, gross unrealized depreciation, and net unrealized depreciation for federal income tax purposes totaled $18,698,678, $126,023,083, and $107,324,405, respectively. The tax cost basis of investments is $943,227,442 as of December 31, 2017.
(4)
Percentage is based on net assets of $419,769,455 as of December 31, 2017.
(5)
Controlled Investments are defined by the Investment Company Act of 1940, as amended (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.
(6)
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 Note 4).
(7)
The investment has an unfunded commitment as of December 31, 2017 (see Note 8), and includes an analysis of the value of any unfunded commitments.
(8)
Securities are exempt from registration under Rule 144A of the Securities Act of 1933. These securities represent a fair value of $36,743,765 and 8.8% of net assets as of December 31, 2017, and are considered restricted securities.
(9)
The interest rate on these loans is subject to the greater of a London Interbank Offering Rate (''LIBOR'') floor, or 6 month LIBOR plus a base rate. The 6 month LIBOR as of December 31, 2017 was 1.84%.
(10)
The investment was on non-accrual status as of December 31, 2017.
(11)
The investment is not a qualifying asset as defined under Section 55(a) of 1940 Act, in a whole, or in part. As of December 31, 2017, 9.3% of the Company's portfolio investments were non-qualifying assets.
(12)
A portion of this investment was sold via a participation agreement. The amount stated is the portion retained by Medley Capital Corporation (see Note 3).
(13)
The interest rate on these loans is subject to the greater of a LIBOR floor, or 1 month LIBOR plus a base rate. The 1 month LIBOR as of December 31, 2017 was 1.57%.
(14)
The interest rate on these loans is subject to the greater of a LIBOR floor, or 3 month LIBOR plus a base rate. The 3 month LIBOR as of December 31, 2017 was 1.69%.
(15)
The interest rate on these loans is subject to 1 month LIBOR plus a base rate. The 1 month LIBOR as of December 31, 2017 was 1.57%.
(16)
The interest rate on these loans is subject to 3 month LIBOR plus a base rate. The 3 month LIBOR as of December 31, 2017 was 1.67%.
(17)
This investment earns 0.50% commitment fee on all unused commitment as of December 31, 2017.
(18)
This investment earns 1.00% commitment fee on all unused commitment as of December 31, 2017.
(19)
This investment earns 7.25% commitment fee on all unused commitment as of December 31, 2017.
(20)
This investment represents a Level 1 security in the ASC 820 table as of December 31, 2017 (see Note 4).
(21)
This investment represents a Level 2 security in the ASC 820 table as of December 31, 2017 (see Note 4).
(22)
This investment earns 0.25% commitment fee on all unused commitment as of December 31, 2017.
(23)
Represents 1.3% partnership interest in Watermill-QMC Partners, LP, and Watermill-EMI Partners, LP.

See accompanying notes to consolidated financial statements.

F-12



Medley Capital Corporation
  
Consolidated Schedule of Investments
 
September 30, 2017
Company(1)
 
Industry
 
Type of Investment(6)
 
Maturity
 
Par Amount(2)
 
Cost(3)
 
Fair Value
 
% of
Net Assets(4)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Non-Controlled/Non-Affiliated Investments:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
3SI Security Systems, Inc.
 
Services:  Business
 
Senior Secured First Lien Term Loan (LIBOR + 6.25% Cash, 1.00% LIBOR Floor)(14)
 
6/16/2023
 
17,500,000

 
17,500,000

 
17,500,000

 
3.8
%
 
 
 
 
 
 
 
 
17,500,000

 
17,500,000

 
17,500,000

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Accupac, Inc.(7)
 
Containers, Packaging & Glass
 
Senior Secured First Lien Term Loan (LIBOR + 4.50% Cash, 1.00% LIBOR Floor)(13)(18)
 
9/14/2023
 
9,887,670

 
9,887,670

 
9,887,670

 
2.2
%
 
 
 
 
 
 
 
 
9,887,670

 
9,887,670

 
9,887,670

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Advanced Diagnostic Holdings, LLC
 
Healthcare & Pharmaceuticals
 
Senior Secured First Lien Term Loan (LIBOR + 8.50% Cash, 1.00% LIBOR Floor)(14)
 
12/11/2020
 
14,776,537

 
14,776,537

 
14,776,537

 
3.2
%
 
 
 
 
 
 
 
 
14,776,537

 
14,776,537

 
14,776,537

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
American Dental Partners, Inc.
 
Healthcare & Pharmaceuticals
 
Senior Secured Second Lien Term Loan (LIBOR + 8.50% Cash, 1.00% LIBOR Floor)(14)
 
9/25/2023
 
6,500,000

 
6,500,000

 
6,578,000

 
1.4
%
 
 
 
 
 
 
 
 
6,500,000

 
6,500,000

 
6,578,000

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Autosplice, Inc.
 
High Tech Industries
 
Senior Secured First Lien Term Loan (LIBOR + 8.00% Cash, 1.00% LIBOR Floor)(14)
 
6/30/2019
 
14,262,133

 
14,262,133

 
14,342,001

 
3.1
%
 
 
 
 
 
 
 
 
14,262,133

 
14,262,133

 
14,342,001

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Avantor Performance Materials Holdings, LLC
 
Chemicals, Plastics & Rubber
 
Senior Secured Second Lien Term Loan (LIBOR + 8.25% Cash, 1.00% LIBOR Floor)(13)
 
3/10/2025
 
1,000,000

 
990,465

 
1,020,000

 
0.2
%
 
 
 
 
 
 
 
 
1,000,000

 
990,465

 
1,020,000

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Barry's Bootcamp Holdings, LLC(7)
 
Services:  Consumer
 
Senior Secured First Lien Term Loan (LIBOR + 6.50% Cash, 1.00% LIBOR Floor)(14)
 
7/14/2022
 
7,628,570

 
7,628,570

 
7,628,570

 
1.7
%
 
 
 
 
Senior Secured First Lien Delayed Draw Term Loan (LIBOR + 6.50% Cash, 1.00% LIBOR Floor)(14)
 
7/14/2022
 

 

 

 
0.0
%
 
 
 
 
Revolving Credit Facility (LIBOR + 6.50% Cash, 1.00% LIBOR
Floor)(14)(17)
 
7/14/2022
 

 

 

 
0.0
%
 
 
 
 
 
 
 
 
7,628,570

 
7,628,570

 
7,628,570

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Be Green Packaging, LLC
 
Containers, Packaging & Glass
 
Equity - 417 Common Units
 
 
 

 
416,250

 

 
0.0
%
 
 
 
 
 
 
 
 

 
416,250

 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Black Angus Steakhouses, LLC(7)
 
Hotel, Gaming & Leisure
 
Senior Secured First Lien Term Loan (LIBOR + 9.00% Cash, 1.00% LIBOR Floor)(14)
 
4/24/2020
 
7,700,893

 
7,700,893

 
7,375,190

 
1.6
%
 
 
 
 
Senior Secured First Lien Delayed Draw Term Loan (LIBOR + 9.00% Cash, 1.00% LIBOR Floor)(14)
 
4/24/2020
 

 

 

 
0.0
%
 
 
 
 
Revolving Credit Facility (LIBOR + 9.00% Cash, 1.00% LIBOR
Floor)(14)(17)
 
4/24/2020
 
376,360

 
376,360

 
343,324

 
0.1
%
 
 
 
 
 
 
 
 
8,077,253

 
8,077,253

 
7,718,514

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

F-13



Company(1)
 
Industry
 
Type of Investment(6)
 
Maturity
 
Par Amount(2)
 
Cost(3)
 
Fair Value
 
% of
Net Assets(4)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Central States Dermatology Services, LLC(7)
 
Healthcare & Pharmaceuticals
 
Senior Secured First Lien Term Loan (LIBOR + 6.50% Cash, 1.00% LIBOR Floor)(14)
 
4/20/2022
 
1,087,248

 
1,087,248

 
1,087,248

 
0.2
%
 
 
 
 
Senior Secured First Lien Delayed Draw Term Loan (LIBOR + 6.50% Cash, 1.00% LIBOR Floor)(14)(18)
 
4/20/2022
 
155,930

 
155,930

 
155,930

 
0.0
%
 
 
 
 
 
 
 
 
1,243,178

 
1,243,178

 
1,243,178

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Comfort Holding, LLC
 
Consumer goods:  Durable
 
Senior Secured Second Lien Term Loan (LIBOR + 10.00% Cash, 1.00% LIBOR Floor)(13)
 
2/3/2025
 
1,000,000

 
961,738

 
850,200

 
0.2
%
 
 
 
 
 
 
 
 
1,000,000

 
961,738

 
850,200

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
CP OPCO, LLC(7)
 
Services:  Consumer
 
Senior Secured First Lien Term Loan B (ABR + 5.50% PIK, 4.25% ABR Floor)(10)
 
3/31/2019
 
1,244,335

 
1,210,237

 
338,459

 
0.1
%
 
 
 
 
Senior Secured First Lien Term Loan C (ABR + 8.50% PIK, 4.25% ABR Floor)(10)
 
3/31/2019
 
9,088,659

 
4,060,507

 

 
0.0
%
 
 
 
 
Preferred Facility (ABR + 7.00% PIK, 3.75% ABR Floor)(10)
 
3/31/2019
 
5,297,476

 

 

 
0.0
%
 
 
 
 
Revolving Credit Facility (ABR + 3.50% Cash, 4.25% ABR Floor)
 
3/31/2019
 

 

 

 
0.0
%
 
 
 
 
Equity - 232 Common Units
 
 
 

 

 

 
0.0
%
 
 
 
 
 
 
 
 
15,630,470

 
5,270,744

 
338,459

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
CPI International, Inc.
 
Aerospace & Defense
 
Senior Secured Second Lien Term Loan (LIBOR + 7.25% Cash, 1.00% LIBOR Floor)(13)
 
7/26/2025
 
5,000,000

 
4,975,352

 
4,975,000

 
1.1
%
 
 
 
 
 
 
 
 
5,000,000

 
4,975,352

 
4,975,000

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Crow Precision Components, LLC
 
Aerospace & Defense
 
Senior Secured First Lien Term Loan (LIBOR + 8.50% Cash, 1.00% LIBOR Floor)(14)
 
9/30/2019
 
13,277,500

 
13,277,500

 
13,246,962

 
2.9
%
 
 
 
 
Equity - 350 Common Units
 
 
 

 
700,000

 
273,808

 
0.1
%
 
 
 
 
 
 
 
 
13,277,500

 
13,977,500

 
13,520,770

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
CT Technologies Intermediate Holdings, Inc.(12)
 
Healthcare & Pharmaceuticals
 
Senior Secured Second Lien Term Loan (LIBOR + 9.00% Cash, 1.00% LIBOR Floor)(13)
 
12/1/2022
 
7,500,000

 
7,500,000

 
7,500,000

 
1.6
%
 
 
 
 
 
 
 
 
7,500,000

 
7,500,000

 
7,500,000

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
DHISCO Electronic Distribution, Inc.
 
Hotel, Gaming & Leisure
 
Senior Secured First Lien Term Loan A (LIBOR + 8.50% PIK, 1.50% LIBOR Floor)(14)
 
11/10/2019
 
4,005,143

 
4,005,143

 
4,005,143

 
0.9
%
 
 
 
 
Senior Secured First Lien Term Loan B (LIBOR + 11.00% PIK, 1.50% LIBOR Floor)(14)
 
11/10/2019
 
14,732,716

 
14,732,716

 
14,732,716

 
3.2
%
 
 
 
 
Senior Secured First Lien Term Loan C (LIBOR + 12.25% PIK, 1.50% LIBOR Floor)(10)(14)
 
11/10/2019
 
12,751,998

 
11,600,575

 
6,375,999

 
1.4
%
 
 
 
 
Senior Secured First Lien Term Loan D (LIBOR + 13.25% PIK, 1.50% LIBOR Floor)(10)(14)
 
11/10/2019
 
11,956,119

 
4,701,476

 

 
0.0
%
 
 
 
 
Equity - 1,230,769 Class A Units
 
 
 

 
1,230,769

 

 
0.0
%
 
 
 
 
 
 
 
 
43,445,976

 
36,270,679

 
25,113,858

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Dream Finders Homes, LLC
 
Construction & Building
 
Senior Secured First Lien Term Loan B (LIBOR + 14.50% Cash)(16)
 
10/1/2018
 
3,460,972

 
3,417,279

 
3,495,581

 
0.8
%
 
 
 
 
Preferred Equity (8.00% PIK)
 
 
 
3,571,500

 
3,571,500

 
3,571,500

 
0.8
%
 
 
 
 
 
 
 
 
7,032,472

 
6,988,779

 
7,067,081

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Dynamic Energy Services International LLC
 
Energy:  Oil & Gas
 
Senior Secured First Lien Term Loan (13.50% PIK + LIBOR)(16)
 
6/6/2018
 
18,201,153

 
18,201,153

 
15,492,821

 
3.4
%
 
 
 
 
 
 
 
 
18,201,153

 
18,201,153

 
15,492,821

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

F-14



Company(1)
 
Industry
 
Type of Investment(6)
 
Maturity
 
Par Amount(2)
 
Cost(3)
 
Fair Value
 
% of
Net Assets(4)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Engineered Machinery Holdings, Inc.(7)
 
Capital Equipment
 
Senior Secured Second Lien Term Loan (LIBOR + 7.25% Cash, 1.00% LIBOR Floor)(14)
 
7/18/2025
 
1,519,149

 
1,504,143

 
1,503,957

 
0.3
%
 
 
 
 
Senior Secured Second Lien Delayed Draw Term Loan (LIBOR + 7.25% Cash, 1.00% LIBOR Floor)(14)(19)
 
7/18/2025
 
21,702

 
21,487

 
19,894

 
0.0
%
 
 
 
 
 
 
 
 
1,540,851

 
1,525,630

 
1,523,851

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
FKI Security Group, LLC(12)
 
Capital Equipment
 
Senior Secured First Lien Term Loan (LIBOR + 8.50% Cash, 1.00% LIBOR Floor)(14)
 
3/30/2020
 
11,656,250

 
11,656,250

 
11,656,250

 
2.5
%
 
 
 
 
 
 
 
 
11,656,250

 
11,656,250

 
11,656,250

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Footprint Acquisition, LLC
 
Services:  Business
 
Senior Secured First Lien Term Loan (LIBOR + 8.00% Cash)(15)
 
2/27/2020
 
5,117,626

 
5,117,626

 
5,117,626

 
1.1
%
 
 
 
 
Preferred Equity (8.75% PIK)
 
 
 
6,124,188

 
6,124,188

 
5,427,255

 
1.2
%
 
 
 
 
Equity - 150 Common Units
 
 
 

 

 

 
0.0
%
 
 
 
 
 
 
 
 
11,241,814

 
11,241,814

 
10,544,881

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Freedom Powersports, LLC
 
Automotive
 
Senior Secured First Lien Term Loan (LIBOR + 10.00% Cash, 1.50% LIBOR Floor)(14)
 
9/26/2019
 
12,410,000

 
12,410,000

 
12,517,967

 
2.7
%
 
 
 
 
 
 
 
 
12,410,000

 
12,410,000

 
12,517,967

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Friedrich Holdings, Inc.
 
Construction & Building
 
Senior Secured First Lien Term Loan (LIBOR + 7.00% Cash, 1.00% LIBOR Floor)(13)
 
2/7/2023
 
10,000,000

 
10,000,000

 
10,094,000

 
2.2
%
 
 
 
 
 
 
 
 
10,000,000

 
10,000,000

 
10,094,000

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Global Accessories Group, LLC(12)
 
Consumer goods:  Non-durable
 
Equity - 3.8% Membership Interest
 
 
 

 
151,337

 
151,339

 
0.0
%
 
 
 
 
 
 
 
 

 
151,337

 
151,339

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Harrison Gypsum, LLC(12)
 
Construction & Building
 
Senior Secured First Lien Term Loan (LIBOR + 8.50% Cash, 1.00% PIK, 1.50% LIBOR Floor)(13)
 
12/21/2018
 
52,137,471

 
52,137,471

 
50,667,194

 
11.0
%
 
 
 
 
 
 
 
 
52,137,471

 
52,137,471

 
50,667,194

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Heligear Acquisition Co.(8)
 
Aerospace & Defense
 
Senior Secured First Lien Note (10.25% Cash)
 
10/15/2019
 
20,000,000

 
20,000,000

 
20,478,000

 
4.4
%
 
 
 
 
 
 
 
 
20,000,000

 
20,000,000

 
20,478,000

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Imagine! Print Solutions LLC
 
Media: Advertising, Printing & Publishing
 
Senior Secured Second Lien Term Loan (LIBOR + 8.75% Cash, 1.00% LIBOR Floor)(14)
 
6/21/2023
 
3,000,000

 
2,956,403

 
2,955,000

 
0.6
%
 
 
 
 
 
 
 
 
3,000,000

 
2,956,403

 
2,955,000

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Impact Sales, LLC(7)
 
Services:  Business
 
Senior Secured First Lien Term Loan (LIBOR + 7.00% Cash, 1.00% LIBOR Floor)(14)
 
12/30/2021
 
2,605,312

 
2,605,312

 
2,621,986

 
0.6
%
 
 
 
 
Senior Secured First Lien Delayed Draw Term Loan (LIBOR + 7.00% Cash, 1.00% LIBOR Floor)(14)(18)
 
12/30/2021
 
119,711

 
119,711

 
125,307

 
0.0
%
 
 
 
 
 
 
 
 
2,725,023

 
2,725,023

 
2,747,293

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
InterFlex Acquisition Company, LLC
 
Containers, Packaging & Glass
 
Senior Secured First Lien Term Loan (LIBOR + 8.00% Cash, 1.00% LIBOR Floor)(13)
 
8/18/2022
 
14,812,500

 
14,812,500

 
14,812,500

 
3.2
%
 
 
 
 
 
 
 
 
14,812,500

 
14,812,500

 
14,812,500

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
JD Norman Industries, Inc.
 
Automotive
 
Senior Secured First Lien Term Loan (LIBOR + 12.25% Cash)(15)
 
3/6/2019
 
20,100,000

 
20,100,000

 
20,071,860

 
4.4
%
 
 
 
 
 
 
 
 
20,100,000

 
20,100,000

 
20,071,860

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

F-15



Company(1)
 
Industry
 
Type of Investment(6)
 
Maturity
 
Par Amount(2)
 
Cost(3)
 
Fair Value
 
% of
Net Assets(4)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
L & S Plumbing Partnership, Ltd.
 
Construction & Building
 
Senior Secured First Lien Term Loan (LIBOR + 8.50% Cash, 1.00% LIBOR Floor)(14)
 
2/15/2022
 
21,234,375

 
21,234,375

 
21,412,744

 
4.7
%
 
 
 
 
 
 
 
 
21,234,375

 
21,234,375

 
21,412,744

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Lighting Science Group Corporation
 
Containers, Packaging & Glass
 
Senior Secured Second Lien Term (LIBOR + 10.00% Cash, 2.00% PIK)(16)
 
2/19/2019
 
13,865,893

 
13,531,508

 
13,386,133

 
2.9
%
 
 
 
 
Warrants - 0.98% of Outstanding Equity(21)
 
2/19/2024
 

 
955,680

 

 
0.0
%
 
 
 
 
 
 
 
 
13,865,893

 
14,487,188

 
13,386,133

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Merchant Cash and Capital, LLC
 
Banking, Finance, Insurance & Real Estate
 
Senior Secured First Lien Delayed Draw Term Loan (LIBOR + 13.00% Cash, 3.00% LIBOR Floor)(13)
 
5/31/2017
 
4,915,635

 
4,915,635

 
4,915,635

 
1.1
%
 
 
 
 
Senior Secured Second Lien Term Loan (17.00% PIK)(10)
 
5/4/2017
 
15,519,966

 
15,167,277

 
7,759,983

 
1.7
%
 
 
 
 
 
 
 
 
20,435,601

 
20,082,912

 
12,675,618

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Nation Safe Drivers Holdings, Inc.
 
Banking, Finance, Insurance & Real Estate
 
Senior Secured Second Lien Term Loan (LIBOR + 8.00% Cash, 2.00% LIBOR Floor)(14)
 
9/29/2020
 
35,278,846

 
35,278,846

 
35,278,846

 
7.7
%
 
 
 
 
 
 
 
 
35,278,846

 
35,278,846

 
35,278,846

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Oxford Mining Company, LLC
 
Metals & Mining
 
Senior Secured First Lien Term Loan (LIBOR + 8.50% Cash, 3.00% PIK, 0.75% LIBOR Floor)(14)
 
12/31/2018
 
21,127,331

 
21,127,331

 
21,127,331

 
4.6
%
 
 
 
 
 
 
 
 
21,127,331

 
21,127,331

 
21,127,331

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
The Plastics Group, Inc.
 
Chemicals, Plastics & Rubber
 
Senior Secured First Lien Term Loan (11.00% Cash, 2.00% PIK)
 
2/28/2019
 
21,755,233

 
21,755,233

 
18,992,318

 
4.1
%
 
 
 
 
 
 
 
 
21,755,233

 
21,755,233

 
18,992,318

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Path Medical, LLC
 
Healthcare & Pharmaceuticals
 
Senior Secured First Lien Term Loan (LIBOR + 9.50% Cash, 1.00% LIBOR Floor)(14)
 
10/11/2021
 
8,459,113

 
8,034,525

 
8,503,947

 
1.8
%
 
 
 
 
Senior Secured First Lien Term Loan A (LIBOR + 9.50% Cash, 1.00% LIBOR Floor)(14)
 
10/11/2021
 
2,808,500

 
2,808,500

 
2,823,385

 
0.6
%
 
 
 
 
Warrants - 1.56% of Outstanding Equity
 
1/9/2027
 

 
499,751

 
83,018

 
0.0
%
 
 
 
 
 
 
 
 
11,267,613

 
11,342,776

 
11,410,350

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Point.360
 
Services:  Business
 
Senior Secured First Lien Term Loan (LIBOR + 6.00% PIK)(16)
 
7/8/2020
 
2,085,870

 
2,085,870

 
1,844,534

 
0.4
%
 
 
 
 
Equity - 479,283 Common Units(20)
 
 
 

 
129,406

 
38,343

 
0.0
%
 
 
 
 
Warrants - 2.8% of Outstanding Equity(21)
 
7/8/2020
 

 
52,757

 
21,103

 
0.0
%
 
 
 
 
 
 
 
 
2,085,870

 
2,268,033

 
1,903,980

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Prince Mineral Holding Corp.(8)
 
Wholesale
 
Senior Secured First Lien Note (11.50% Cash)(21)
 
12/15/2019
 
6,800,000

 
6,767,560

 
7,066,560

 
1.5
%
 
 
 
 
 
 
 
 
6,800,000

 
6,767,560

 
7,066,560

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Reddy Ice Corporation
 
Beverage & Food
 
Senior Secured Second Lien Term Loan (LIBOR + 9.50% Cash, 1.25% LIBOR Floor)(14)
 
11/1/2019
 
17,000,000

 
17,000,000

 
16,117,700

 
3.5
%
 
 
 
 
 
 
 
 
17,000,000

 
17,000,000

 
16,117,700

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
SavATree, LLC(7)
 
Environmental Industries
 
Senior Secured First Lien Term Loan (LIBOR + 5.25% Cash, 1.00% LIBOR Floor)(14)(18)
 
6/2/2022
 
1,330,000

 
1,330,000

 
1,330,000

 
0.3
%
 
 
 
 
 
 
 
 
1,330,000

 
1,330,000

 
1,330,000

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

F-16



Company(1)
 
Industry
 
Type of Investment(6)
 
Maturity
 
Par Amount(2)
 
Cost(3)
 
Fair Value
 
% of
Net Assets(4)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Sendero Drilling Company, LLC
 
Energy:  Oil & Gas
 
Warrants - 5.52% of Outstanding Equity
 
3/18/2019
 

 
793,523

 
2,188,676

 
0.5
%
 
 
 
 
 
 
 
 

 
793,523

 
2,188,676

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Seotowncenter, Inc.(12)
 
Services:  Business
 
Senior Secured First Lien Term Loan (LIBOR + 9.00% Cash, 1.00% LIBOR Floor)(14)
 
9/11/2019
 
23,697,976

 
23,697,976

 
23,697,976

 
5.1
%
 
 
 
 
Equity - 3,249.697 Common Units
 
 
 

 
500,000

 
419,731

 
0.1
%
 
 
 
 
 
 
 
 
23,697,976

 
24,197,976

 
24,117,707

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
SFP Holding, Inc.(7)
 
Construction & Building
 
Senior Secured First Lien Term Loan (LIBOR + 6.25% Cash, 1.00% LIBOR Floor)(14)(17)
 
9/1/2022
 
6,222,222

 
6,222,222

 
6,222,222

 
1.4
%
 
 
 
 
Equity - 1.42% Company Interest
 
 
 

 
600,000

 
600,000

 
0.1
%
 
 
 
 
 
 
 
 
6,222,222

 
6,822,222

 
6,822,222

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Ship Supply Acquisition Corporation
 
Services:  Business
 
Senior Secured First Lien Term Loan (LIBOR + 8.00% Cash, 1.00% LIBOR Floor)(14)
 
7/31/2020
 
7,648,798

 
7,648,798

 
7,337,492

 
1.6
%
 
 
 
 
 
 
 
 
7,648,798

 
7,648,798

 
7,337,492

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
SMART Financial Operations, LLC(7)
 
Retail
 
Senior Secured First Lien Term Loan (LIBOR + 10.00% Cash, 1.00% LIBOR Floor)(14)
 
11/22/2021
 
2,775,000

 
2,775,000

 
2,848,500

 
0.6
%
 
 
 
 
Equity - 700,000 Class A Preferred Units
 
 
 

 
700,000

 
735,000

 
0.2
%
 
 
 
 
 
 
 
 
2,775,000

 
3,475,000

 
3,583,500

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
SRS Software, LLC
 
High Tech Industries
 
Senior Secured First Lien Term Loan (LIBOR + 7.00% Cash, 1.00% LIBOR Floor)(14)
 
2/17/2022
 
7,462,500

 
7,462,500

 
7,527,424

 
1.6
%
 
 
 
 
 
 
 
 
7,462,500

 
7,462,500

 
7,527,424

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Stancor, Inc.
 
Services:  Business
 
Senior Secured First Lien Term Loan (LIBOR + 8.50% Cash, 0.75% LIBOR Floor)(13)
 
8/19/2019
 
4,346,364

 
4,346,364

 
4,346,364

 
0.9
%
 
 
 
 
Equity - 263,814.43 Class A Units
 
 
 

 
263,814

 
205,775

 
0.0
%
 
 
 
 
 
 
 
 
4,346,364

 
4,610,178

 
4,552,139

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Starfish Holdco, LLC
 
High Tech Industries
 
Senior Secured Second Lien Term Loan (LIBOR + 9.00% Cash, 1.00% LIBOR Floor)(14)
 
8/18/2025
 
4,000,000

 
3,940,532

 
3,940,000

 
0.9
%
 
 
 
 
 
 
 
 
4,000,000

 
3,940,532

 
3,940,000

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Taylored Freight Services, LLC
 
Services:  Business
 
Senior Secured Second Lien Term Loan (LIBOR + 9.50% Cash, 2.00% PIK, 1.50% LIBOR Floor)(14)
 
11/1/2017
 
14,895,052

 
14,895,052

 
14,895,052

 
3.2
%
 
 
 
 
 
 
 
 
14,895,052

 
14,895,052

 
14,895,052

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Trans-Fast Remittance LLC(7)
 
Banking, Finance, Insurance & Real Estate
 
Senior Secured First Lien Term Loan (LIBOR + 8.00% Cash, 1.00% LIBOR Floor)(13)(17)
 
12/2/2021
 
3,567,857

 
3,567,857

 
3,661,282

 
0.8
%
 
 
 
 
Revolving Credit Facility (LIBOR + 8.00% Cash, 1.00% LIBOR Floor)(13)
 
12/2/2021
 
1,875,000

 
1,875,000

 
1,875,000

 
0.4
%
 
 
 
 
 
 
 
 
5,442,857

 
5,442,857

 
5,536,282

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Velocity Pooling Vehicle, LLC
 
Automotive
 
Senior Secured First Lien Term Loan (LIBOR + 4.00% Cash, 1.00% LIBOR Floor)(9)
 
5/14/2021
 
1,958,668

 
1,109,768

 
1,091,958

 
0.2
%
 
 
 
 
Senior Secured Second Lien Term Loan (LIBOR + 7.25% Cash, 1.00% LIBOR Floor)(9)
 
5/13/2022
 
24,000,000

 
21,696,167

 
4,080,000

 
0.9
%
 
 
 
 
 
 
 
 
25,958,668

 
22,805,935

 
5,171,958

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

F-17



Company(1)
 
Industry
 
Type of Investment(6)
 
Maturity
 
Par Amount(2)
 
Cost(3)
 
Fair Value
 
% of
Net Assets(4)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Watermill-QMC Midco, Inc.
 
Automotive
 
Equity - Partnership Interest(23)
 
 
 

 
518,283

 
672,213

 
0.1
%
 
 
 
 
 
 
 
 

 
518,283

 
672,213

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Wheels Up Partners LLC(12)
 
Aerospace & Defense
 
Senior Secured First Lien Delayed Draw (LIBOR + 8.55% Cash, 1.00% LIBOR Floor)(14)
 
10/15/2021
 
14,676,659

 
14,676,659

 
14,676,659

 
3.2
%
 
 
 
 
 
 
 
 
14,676,659

 
14,676,659

 
14,676,659

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Subtotal Non-Controlled/Non-Affiliated Investments
 
 
 
$
640,893,679

 
$
625,108,198

 
$
575,495,698

 
 

 
 
 
 
 
 
 
 
 
 
 
 
 
Affiliated Investments:
 
 
 
 
 
 

 
 

 
 

 
 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
AAR Intermediate Holdings, LLC(7)
 
Energy:  Oil & Gas
 
Senior Secured First Lien Term Loan A (LIBOR + 5.00% Cash, 1.00% LIBOR Floor)(14)
 
9/30/2021
 
8,984,232

 
8,984,232

 
8,984,232

 
2.0
%
 
 
 
 
Senior Secured First Lien Term Loan B (LIBOR + 8.00% PIK, 1.00% LIBOR Floor)(14)
 
9/30/2021
 
19,746,290

 
16,707,477

 
19,746,290

 
4.3
%
 
 
 
 
Revolving Credit Facility (LIBOR + 5.00% Cash, 1.00% LIBOR
Floor)(14)(17)
 
9/30/2021
 

 

 

 
0.0
%
 
 
 
 
Equity - 21,562.16 Class A Units
 
 
 

 

 

 
0.0
%
 
 
 
 
 
 
 
 
28,730,522

 
25,691,709

 
28,730,522

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Access Media Holdings, LLC(7)
 
Media:  Broadcasting & Subscription
 
Senior Secured First Lien Term Loan (5.00% Cash, 5.00% PIK)
 
7/22/2020
 
8,340,525

 
8,340,525

 
8,340,525

 
1.8
%
 
 
 
 
Preferred Equity Series A
 
 
 
1,600,000

 
1,600,000

 

 
0.0
%
 
 
 
 
Preferred Equity Series AA
 
 
 
800,000

 
800,000

 

 
0.0
%
 
 
 
 
Preferred Equity Series AAA
 
 
 
363,200

 
363,200

 
43,200

 
0.0
%
 
 
 
 
Equity - 16 Common Units
 
 
 

 

 

 
0.0
%
 
 
 
 
 
 
 
 
11,103,725

 
11,103,725

 
8,383,725

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Brantley Transportation LLC(7)(12)
 
Energy:  Oil & Gas
 
Senior Secured First Lien Term Loan (12.00% PIK)(10)
 
8/2/2017
 
11,355,575

 
9,000,000

 
7,719,520

 
1.7
%
 
 
 
 
Senior Secured First Lien Delayed Draw (LIBOR + 5.00% Cash, 1.00% LIBOR Floor)(13)
 
8/2/2017
 
668,105

 
668,105

 
668,105

 
0.1
%
 
 
 
 
Equity - 7.5 Common Units
 
 
 

 

 

 
0.0
%
 
 
 
 
 
 
 
 
12,023,680

 
9,668,105

 
8,387,625

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
JFL-NGS Partners, LLC
 
Construction & Building
 
Preferred Equity - A-2 Preferred (3.00% PIK)
 
 
 
30,552,190

 
30,552,190

 
30,552,190

 
6.6
%
 
 
 
 
Preferred Equity - A-1 Preferred (3.00% PIK)
 
 
 
3,953,700

 
3,953,700

 
3,953,700

 
0.9
%
 
 
 
 
Equity - 57,300 Class B Units
 
 
 

 
57,300

 
63,603

 
0.0
%
 
 
 
 
 
 
 
 
34,505,890

 
34,563,190

 
34,569,493

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
US Multifamily, LLC(11)
 
Banking, Finance, Insurance & Real Estate
 
Senior Secured First Lien Term Loan (10.00% Cash)
 
9/10/2019
 
6,670,000

 
6,670,000

 
6,670,000

 
1.5
%
 
 
 
 
Equity - 33,300 Preferred Units
 
 
 

 
3,330,000

 
3,330,000

 
0.7
%
 
 
 
 
 
 
 
 
6,670,000

 
10,000,000

 
10,000,000

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Subtotal Affiliated Investments
 
 
 
 
 
$
93,033,817

 
$
91,026,729

 
$
90,071,365

 
 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

F-18



Company(1)
 
Industry
 
Type of Investment(6)
 
Maturity
 
Par Amount(2)
 
Cost(3)
 
Fair Value
 
% of
Net Assets(4)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Controlled Investments:(5)
 
 
 
 
 
 

 
 

 
 

 
 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Capstone Nutrition(12)
 
Healthcare & Pharmaceuticals
 
Senior Secured First Lien Term Loan (LIBOR + 12.50% PIK, 1.00% LIBOR Floor)(10)(14)
 
9/25/2020
 
26,124,967

 
20,803,397

 
18,002,715

 
3.9
%
 
 
 
 
Senior Secured First Lien Delayed Draw (LIBOR + 12.50% PIK, 1.00% LIBOR Floor)(10)(14)
 
9/25/2020
 
11,304,251

 
9,153,997

 
7,789,760

 
1.7
%
 
 
 
 
Equity - 4,664.6 Class B Units and 9,424.4 Class C Units
 
 
 

 
12

 

 
0.0
%
 
 
 
 
Equity - 2,932.3 Common Units
 
 
 

 
400,003

 

 
0.0
%
 
 
 
 
 
 
 
 
37,429,218

 
30,357,409

 
25,792,475

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
MCC Senior Loan Strategy JV I LLC(11)
 
Multisector Holdings
 
Equity - 87.5% ownership of MCC Senior Loan Strategy JV I LLC
 
 
 

 
56,087,500

 
56,137,946

 
12.2
%
 
 
 
 
 
 
 
 

 
56,087,500

 
56,137,946

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
NVTN LLC(7)(22)
 
Hotel, Gaming & Leisure
 
Senior Secured First Lien Term Loan (LIBOR + 4.00% Cash, 1.00% LIBOR Floor)(13)
 
11/9/2020
 
3,505,990

 
3,505,990

 
3,505,990

 
0.8
%
 
 
 
 
Senior Secured First Lien Term Loan B (LIBOR + 9.25% PIK, 1.00% LIBOR Floor)(13)
 
11/9/2020
 
10,604,502

 
10,604,502

 
10,604,502

 
2.3
%
 
 
 
 
Senior Secured First Lien Term Loan C (LIBOR + 12.00% PIK, 1.00% LIBOR Floor)(13)
 
11/9/2020
 
6,518,046

 
6,518,046

 
6,518,046

 
1.4
%
 
 
 
 
Equity - 787.4 Class A Units
 
 
 

 
9,550,922

 
9,550,922

 
2.1
%
 
 
 
 
 
 
 
 
20,628,538

 
30,179,460

 
30,179,460

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
OmniVere, LLC
 
Services:  Business
 
Senior Secured First Lien Term Loan (LIBOR + 13.00% PIK)(10)(16)
 
5/5/2019
 
25,470,636

 
22,880,599

 
24,500,205

 
5.3
%
 
 
 
 
Senior Secured First Lien Term Loan (8.00% PIK)
 
5/5/2019
 
1,409,669

 
1,409,669

 
1,409,669

 
0.3
%
 
 
 
 
Unsecured Debt (8.00% PIK)(10)
 
7/24/2025
 
26,666,961

 
22,727,575

 

 
0.0
%
 
 
 
 
Equity - 5,055.56 Common Units
 
 
 

 
872,698

 

 
0.0
%
 
 
 
 
 
 
 
 
53,547,266

 
47,890,541

 
25,909,874

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
URT Acquisition Holdings Corporation
 
Services:  Business
 
Senior Secured Second Lien Term Loan (LIBOR + 8.00% Cash, 2.00% LIBOR Floor)(14)
 
5/2/2022
 
14,966,563

 
14,966,563

 
14,966,563

 
3.3
%
 
 
 
 
Preferred Equity (12.00% PIK)
 
 
 
5,500,000

 
5,500,000

 
5,500,000

 
1.2
%
 
 
 
 
Equity - 397,466 Common Units
 
 
 

 
12,936,879

 
12,937,518

 
2.8
%
 
 
 
 
 
 
 
 
20,466,563

 
33,403,442

 
33,404,081

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Subtotal Controlled Investments
 
 
 
 
 
$
132,071,585

 
$
197,918,352

 
$
171,423,836

 
 

 
 
 
 
 
 
 
 
 
 
 
 
 
Total Investments, September 30, 2017
 
 
 
 
 
$
865,999,081

 
$
914,053,279

 
$
836,990,899

 
181.8
%

(1)
All of our investments are domiciled in the United States. Certain investments also have international operations.
(2)
Par amount includes accumulated PIK interest and is net of repayments.
(3)
Gross unrealized appreciation, gross unrealized depreciation, and net unrealized depreciation for federal income tax purposes totaled $15,157,028, $82,394,835, and $67,237,807, respectively. The tax cost basis of investments is $903,754,350 as of September 30, 2017.
(4)
Percentage is based on net assets of $460,429,317 as of September 30, 2017.
(5)
Controlled 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.
(6)
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 Note 4).
(7)
The investment has an unfunded commitment as of September 30, 2017 (see Note 8), and includes an analysis of the value of any unfunded commitments.
(8)
Securities are exempt from registration under Rule 144A of the Securities Act of 1933. These securities represent a fair value of $27,544,560 and 5.9% of net assets as of September 30, 2017, and are considered restricted securities.
(9)
The interest rate on these loans is subject to the greater of a LIBOR floor, or 6 month LIBOR plus a base rate. The 6 month LIBOR as of September 30, 2017 was 1.50%.
(10)
The investment was on non-accrual status as of September 30, 2017.

F-19



(11)
The investment is not a qualifying asset as defined under Section 55(a) of 1940 Act, in a whole, or in part. As of September 30, 2017, 7.9% of the Company's portfolio investments were non-qualifying assets.
(12)
A portion of this investment was sold via a participation agreement. The amount stated is the portion retained by Medley Capital Corporation (see Note 3).
(13)
The interest rate on these loans is subject to the greater of a LIBOR floor, or 1 month LIBOR plus a base rate. The 1 month LIBOR as of September 30, 2017 was 1.24%.
(14)
The interest rate on these loans is subject to the greater of a LIBOR floor, or 3 month LIBOR plus a base rate. The 3 month LIBOR as of September 30, 2017 was 1.33%.
(15)
The interest rate on these loans is subject to 1 month LIBOR plus a base rate. The 1 month LIBOR as of September 30, 2017 was 1.24%.
(16)
The interest rate on these loans is subject to 3 month LIBOR plus a base rate. The 3 month LIBOR as of September 30, 2017 was 1.33%.
(17)
This investment earns 0.50% commitment fee on all unused commitment as of September 30, 2017.
(18)
This investment earns 1.00% commitment fee on all unused commitment as of September 30, 2017.
(19)
This investment earns 7.25% commitment fee on all unused commitment as of September 30, 2017.
(20)
This investment represents a Level 1 security in the ASC 820 table as of September 30, 2017 (see Note 4).
(21)
This investment represents a Level 2 security in the ASC 820 table as of September 30, 2017 (see Note 4).
(22)
Investment changed its name from DLR Restaurants LLC during fiscal year 2017.
(23)
Represents 1.3% partnership interest in Watermill-QMC Partners, LP, and Watermill-EMI Partners, LP.

See accompanying notes to consolidated financial statements.

F-20



MEDLEY CAPITAL CORPORATION

Notes to Consolidated Financial Statements
December 31, 2017
(unaudited)
 
Note 1. Organization

Medley Capital Corporation (the “Company,” “we” and “us”) is a non-diversified closed end management investment company incorporated in Delaware that has elected to be regulated as a business development company (“BDC”) under the Investment Company Act of 1940, as amended (the “1940 Act”). We completed our initial public offering (“IPO”) and commenced operations on January 20, 2011. The Company has elected and qualified 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”). We are externally managed and advised by MCC Advisors LLC (“MCC Advisors”), a registered investment adviser under the Investment Advisers Act of 1940, as amended (the “Advisers Act”), pursuant to an investment management agreement. MCC 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. We use the term “Medley” to refer collectively to the activities and operations of Medley Capital LLC, Medley LLC, Medley Management Inc., Medley Group LLC, MCC Advisors, associated investment funds and their respective affiliates.
 
Medley Capital BDC LLC (the “LLC”), a Delaware limited liability company, was formed on April 23, 2010. On January 18, 2011, the LLC, in accordance with Delaware law, converted into Medley Capital Corporation, a Delaware corporation, and on January 20, 2011, the Company filed an election to be regulated as a BDC under the 1940 Act.
 
On January 20, 2011, the Company consummated its IPO, sold 11,111,112 shares of common stock at $12.00 per share and commenced its operations and investment activities. On February 24, 2011, an additional 450,000 shares of common stock were issued at a price of $12.00 per share pursuant to the partial exercise of the underwriters’ option to purchase additional shares. Net of underwriting fees and offering costs, the Company received total cash proceeds of approximately $129.6 million.
 
On January 20, 2011, the Company’s shares began trading on the New York Stock Exchange (“NYSE”) under the symbol “MCC”.
 
Prior to the consummation of our IPO, Medley Opportunity Fund LP (“MOF LP”), a Delaware limited partnership, and Medley Opportunity Fund, Ltd. (“MOF LTD”), a Cayman Islands exempted limited liability company, which are managed by an affiliate of MCC Advisors, transferred all of their respective interests in six loan participations in secured loans to middle market companies with a combined fair value, plus payment-in-kind interest and accrued interest thereon, of approximately $84.95 million (the “Loan Assets”) to MOF I BDC LLC (“MOF I BDC”), a Delaware limited liability company, in exchange for membership interests in MOF I BDC. As a result, MOF LTD owned approximately 90% of the outstanding MOF I BDC membership interests and MOF LP owned approximately 10% of the outstanding MOF I BDC membership interests.
 
On January 18, 2011, each of MOF LTD and MOF LP contributed their respective MOF I BDC membership interests to the LLC in exchange for LLC membership interests. As a result, MOF I BDC became a wholly-owned subsidiary of the LLC. As a result of the LLC’s conversion noted above, MOF LTD and MOF LP’s LLC membership interests were exchanged for 5,759,356 shares of the Company’s common stock at $14.75 per share. On February 23, 2012, MOF LTD and MOF LP collectively sold 4,406,301 shares of common stock in an underwritten public offering. See Note 7 for further information.
  
On March 26, 2013, our wholly-owned subsidiary, Medley SBIC LP (“SBIC LP”), a Delaware limited partnership which we own directly and through our wholly-owned subsidiary, Medley SBIC GP LLC, received a license from the Small Business Administration (“SBA”) to operate as a Small Business Investment Company (“SBIC”) under Section 301(c) of the Small Business Investment Company Act of 1958, as amended.
 
The Company has formed and expects to continue to form certain taxable subsidiaries (the “Taxable Subsidiaries”), which are taxed as corporations for federal income tax purposes. These Taxable Subsidiaries allow us to hold equity securities of portfolio companies organized as pass-through entities while continuing to satisfy the requirements of a RIC under the Code.
 
The Company’s investment objective is to generate current income and capital appreciation by lending to privately-held middle market companies, primarily through directly originated transactions, to help these companies fund acquisitions, growth or refinancing. The portfolio generally consists of senior secured first lien term loans and senior secured second lien term loans. In some of our investments, we will receive warrants or other equity participation features which we believe will have the potential to increase the total investment returns. 

Note 2. Significant Accounting Policies
 
Basis of Presentation
 
The Company follows the accounting and reporting guidance in the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification 946 (“ASC 946”). The accompanying unaudited 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 consolidated accounts of the Company and its wholly-owned subsidiary SBIC LP and its wholly-owned Taxable Subsidiaries. All references made to the “Company,” “we,” and “us” herein include Medley Capital Corporation and its consolidated subsidiaries, except as stated otherwise. Additionally, the accompanying unaudited 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 of the Securities Act of 1933. In the opinion of management, the unaudited consolidated financial statements reflect all adjustments and reclassifications, which are of a normal recurring nature, that are necessary for the fair presentation of financial results as of and 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 fiscal year ended September 30, 2017. The current period's

F-21



results of operations will not necessarily be indicative of results that ultimately may be achieved for the full year ending September 30, 2018. All intercompany balances and transactions have been eliminated. 

Cash and Cash Equivalents
 
The Company considers cash equivalents to be highly liquid investments with original maturities of three months or less. Cash and cash equivalents include deposits in a money market account. The Company deposits its cash in financial institutions and, at times, such balances may be in excess of the Federal Deposit Insurance Corporation insurance limits.
 
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 consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. 
 
Deferred Offering Costs
 
Deferred offering costs consist of fees and expenses incurred in connection with the public offering and sale of the Company’s common stock, including legal, accounting, printing fees and other related expenses, as well as costs incurred in connection with the filing of a shelf registration statement. These amounts are capitalized when incurred and recognized as a reduction of offering proceeds when the offering becomes effective or expensed upon expiration of the registration statement.
 
Debt Issuance Costs
 
Debt issuance costs, incurred in connection with our credit facilities, unsecured notes and SBA Debentures (see Note 5) are deferred and amortized over the life of the respective facility or instrument.
 
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 material 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. Dividend income, which represents dividends from equity investments and distributions from Taxable Subsidiaries, is recorded on the ex-dividend date and when the distribution is received, respectively.
 
The Company holds debt investments in its portfolio 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 the 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 months ended December 31, 2017 and 2016, the Company earned approximately $3.2 million and $4.9 million in PIK interest, respectively.

Origination/closing, amendment and transaction break-up fees associated with investments in portfolio companies are recognized as income when we become entitled to such fees. Prepayment penalties received by the Company for debt instruments paid back to the Company prior to the maturity date are recorded as income upon repayment of debt. Administrative agent fees received by the Company are capitalized as deferred revenue and recorded as fee income when the services are rendered. Fee income for the three months ended December 31, 2017 and 2016 was approximately $1.8 million and $1.4 million, respectively (see Note 9).

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. There were no realized gains or losses related to non-cash restructuring transactions for the three months ended December 31, 2017. During the three months ended December 31, 2016, $6.4 million of our realized losses were 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 investments. The Company reports changes in fair value of investments as a component of the net unrealized appreciation/(depreciation) on investments in the Consolidated Statements of Operations.
 
Management reviews all loans that become 90 days or more past due on principal or 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. Interest receivable is analyzed regularly and may be reserved against when deemed uncollectible. 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 we may make exceptions to this general rule if the loan has sufficient collateral value and is in the process of collection. At December 31, 2017, certain investments in eight portfolio companies held by the Company were on non-accrual status with a combined fair value of approximately $65.2 million, or 7.8% of the fair value of our portfolio. At September 30, 2017, certain investments in six portfolio companies held by the Company were on non-accrual status with a combined fair value of approximately $72.5 million, or 8.7% of the fair value of our portfolio.
 

F-22



Investment Classification
 
The Company classifies its investments in accordance with the requirements of the 1940 Act. Under the 1940 Act, we would be deemed to “control” a portfolio company if we owned 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. We refer to such investments in portfolio companies that we “control” as “Control Investments.” Under the 1940 Act, we would be deemed to be an “Affiliated Person” of a portfolio company if we own between 5% and 25% of the portfolio company’s outstanding voting securities or we are under common control with such portfolio company. We refer 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. We weight the use of third-party broker quotations, 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 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 funds 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 fund, which is net of management and incentive fees or allocations charged by the investment fund and is in accordance with the “practical expedient”, as defined by FASB Accounting Standards Update (“ASU”) 2009-12,  Investments in Certain Entities that Calculate Net Asset Value per Share. NAVs received by, or on behalf of, management of each investment fund are based on the fair value of the investment funds’ underlying investments in accordance with policies established by management of each investment fund, as described in each of their financial statements and offering memorandum.

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 (that is, similar) 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. The Company uses a market yield analysis under the Income Approach or an enterprise model of valuation under the Market Approach, or a combination thereof. 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, 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 and information that the Company utilizes when applying the Market Approach for performing investments include, 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.

F-23




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

discounting the forecasted cash flows of the portfolio company or securities (Discounted Cash Flow (“DCF”) Approach); and

Black-Scholes model or simulation models or a combination thereof (Income Approach - Option Model) with respect to the valuation of warrants.

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 (Market Approach - Expected Recovery Analysis or Estimated Liquidation Proceeds).

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 internally valued by the valuation professionals;

preliminary valuation conclusions are then documented and discussed with senior management; and

an independent valuation firm engaged by our board of directors reviews approximately one third of these preliminary valuations each quarter on a rotating quarterly basis on non-fiscal year-end quarters, such that each of these investments will be valued by independent valuation firms 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 our investments are subject to the following valuation process:

the audit committee of our board of directors reviews the preliminary valuations of the investment professionals, 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 MCC Advisors, the respective independent valuation firms and the audit committee.

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 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 our financial instruments, including cash and cash equivalents, accounts payable and accrued expenses, approximate fair value due to their short-term nature. The carrying amounts and fair values of our long-term obligations are discussed in Note 5.
 
Recent Accounting Pronouncements
 
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606), which provides that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for such goods or services. To achieve this core principle, an entity should apply the following steps: (1) identify the contracts with a customer, (2) identify the performance obligations in the contracts, (3) determine the transaction prices, (4) allocate the transaction prices to the performance obligations in the contracts, and (5) recognize revenue when, or as, the entity satisfies a performance obligation. The guidance also requires advanced disclosures regarding the nature, amount, timing and uncertainty of revenue and cash flows arising from an entity's contracts with customers. 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 October 1, 2018, with early application permitted to the effective date of October 1, 2017. The Company is evaluating the effect that ASU 2014-09 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 fiscal year 2019. 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.
 
Federal Income Taxes
 
The Company has elected to be treated as a RIC under Subchapter M of the Code and operates 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 investment company taxable income (“ICTI”) including PIK, as defined by the Code, and net tax exempt interest income (which is the excess of our 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

F-24



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 is 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 that the Company determines that its estimated current year annual taxable income will be in excess of estimated current year dividend distributions for excise tax purposes, the Company accrues excise tax, if any, on estimated excess taxable income as taxable income is earned. For the calendar year ended December 31, 2017, the Company did not distribute at least 98% of its ordinary income and 98.2% of its capital gains. Accordingly, with respect to the calendar year ended December 31, 2017, an excise tax expense of $0.1 million was recorded.

The Company’s 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 December 31, 2017 and September 30, 2017, the Company recorded a deferred tax liability of $0.8 million and $0.9 million, respectively, on the Consolidated Statements of Assets and Liabilities. The change in provision for deferred taxes is included as a component of net gain/(loss) on investments in the Consolidated Statements of Operations. For the three months ended December 31, 2017, the change in provision for deferred taxes on the unrealized depreciation on investments was $0.1 million. For the three months ended December 31, 2016, there was no change in provision for deferred taxes on the unrealized (appreciation)/depreciation on investments.

On December 22, 2017, the United States enacted tax reform legislation through the Tax Cuts and Jobs Act, which significantly changes the existing U.S. tax laws, including a reduction in the corporate tax rate from 35% to 21% , a move from a worldwide tax system to a territorial system, as well as other changes. The Company’s Taxable Subsidiaries provisional tax will be based on the new lower blended federal corporate tax rate of 24.25% for the fiscal year ended September 30, 2018.  The Taxable Subsidiaries current interpretation of the Tax Act may change, possibly materially, as we complete our analysis and receive additional clarification and implementation guidance.

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 1) PIK interest income and 2) interest 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.

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” of being sustained by the applicable tax authority. Tax positions deemed to meet a “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 material uncertain income tax positions at December 31, 2017. Although we file federal and state tax returns, our major tax jurisdiction is federal. The Company’s federal and state tax returns for the prior three fiscal years remain open, subject to examination by the Internal Revenue Service.
 
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 financial statements. See Note 3 for further information.
 
Company Investment Risk, Concentration of Credit Risk, and Liquidity Risk
 
MCC Advisors has broad discretion in making investments for the Company. Investments will 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 fluctuate.

The value of the Company’s investments in loans 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 our borrowers, and those for which market yields are observable increase materially. MCC Advisors may attempt to minimize this risk by maintaining low loan-to-liquidation values with each loan and the collateral underlying the loan.
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. 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. 



F-25



Note 3. Investments
 
The composition of our investments as of December 31, 2017 as a percentage of our total portfolio, at amortized cost and fair value were as follows (dollars in thousands):
 
Amortized Cost
 
Percentage
 
Fair Value
 
Percentage
Senior Secured First Lien Term Loans
$
594,793

 
62.5
%
 
$
532,308

 
63.7
%
Senior Secured Second Lien Term Loans
135,801

 
14.3

 
106,304

 
12.7

Senior Secured First Lien Notes
26,771

 
2.8

 
27,420

 
3.3

Unsecured Debt
22,728

 
2.4

 

 

MCC Senior Loan Strategy JV I LLC
66,762

 
7.0

 
67,406

 
8.0

Equity/Warrants
105,302

 
11.0

 
102,465

 
12.3

Total
$
952,157

 
100.0
%
 
$
835,903

 
100.0
%

The composition of our investments as of September 30, 2017 as a percentage of our total portfolio, at amortized cost and fair value were as follows (dollars in thousands):
 
Amortized Cost
 
Percentage
 
Fair Value
 
Percentage
Senior Secured First Lien Term Loans
$
559,461

 
61.2
%
 
$
537,163

 
64.2
%
Senior Secured Second Lien Term Loans
161,885

 
17.7

 
135,826

 
16.2

Senior Secured First Lien Notes
26,768

 
2.9

 
27,545

 
3.3

Unsecured Debt
22,728

 
2.5

 

 

MCC Senior Loan Strategy JV I LLC
56,087

 
6.1

 
56,138

 
6.7

Equity/Warrants
87,124

 
9.6

 
80,319

 
9.6

Total
$
914,053

 
100.0
%
 
$
836,991

 
100.0
%
 
In connection with certain of the Company’s investments, the Company receives warrants which are obtained for the objective of increasing the total investment returns and are not held for hedging purposes. At December 31, 2017 and September 30, 2017, the total fair value of warrants was $2.5 million and $2.3 million, respectively, and were included in investments at fair value on the Consolidated Statements of Assets and Liabilities. The Company acquired one warrant position during each of the three months ended December 31, 2017 and 2016.

Total unrealized depreciation related to warrants for the three months ended December 31, 2017 and 2016 was $0.3 million and $0.2 million, respectively, and was recorded on the Consolidated Statements of Operations as net unrealized appreciation/(depreciation) on investments. The warrants are received in connection with individual investments and are not subject to master netting arrangements.


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The following table shows the portfolio composition by industry grouping at fair value at December 31, 2017 (dollars in thousands):
 
Fair Value
 
Percentage
Services:  Business
$
150,111

 
18.0
%
Construction & Building
135,549

 
16.2

Multisector Holdings
67,405

 
8.1

Healthcare & Pharmaceuticals
64,292

 
7.7

Energy:  Oil & Gas
56,324

 
6.7

Hotel, Gaming & Leisure
48,575

 
5.8

Aerospace & Defense
47,757

 
5.7

High Tech Industries
43,869

 
5.3

Containers, Packaging & Glass
39,584

 
4.7

Automotive
33,901

 
4.1

Beverage & Food
26,266

 
3.1

Banking, Finance, Insurance & Real Estate
25,928

 
3.1

Metals & Mining
21,202

 
2.5

Chemicals, Plastics & Rubber
20,946

 
2.5

Capital Equipment
13,217

 
1.6

Media:  Broadcasting & Subscription
8,595

 
1.0

Consumer goods:  Non-durable
8,151

 
1.0

Services:  Consumer
7,967

 
1.0

Wholesale
6,996

 
0.8

Retail
3,584

 
0.4

Media: Advertising, Printing & Publishing
2,955

 
0.4

Environmental Industries
1,884

 
0.2

Consumer goods:  Durable
845

 
0.1

Total
$
835,903

 
100.0
%
  
The following table shows the portfolio composition by industry grouping at fair value at September 30, 2017 (dollars in thousands): 
 
Fair Value
 
Percentage
Services:  Business
$
142,912

 
17.1
%
Construction & Building
130,633

 
15.6

Healthcare & Pharmaceuticals
67,301

 
8.0

Banking, Finance, Insurance & Real Estate
63,491

 
7.6

Hotel, Gaming & Leisure
63,012

 
7.5

Multisector Holdings
56,138

 
6.7

Energy:  Oil & Gas
54,800

 
6.5

Aerospace & Defense
53,650

 
6.4

Automotive
38,434

 
4.6

Containers, Packaging & Glass
38,086

 
4.6

High Tech Industries
25,809

 
3.1

Metals & Mining
21,127

 
2.5

Chemicals, Plastics & Rubber
20,012

 
2.4

Beverage & Food
16,118

 
1.9

Capital Equipment
13,180

 
1.6

Media:  Broadcasting & Subscription
8,384

 
1.0

Services:  Consumer
7,967

 
1.0

Wholesale
7,067

 
0.8

Retail
3,584

 
0.4

Media: Advertising, Printing & Publishing
2,955

 
0.4

Environmental Industries
1,330

 
0.2

Consumer goods:  Durable
850

 
0.1

Consumer goods:  Non-durable
151

 
0.0

Total
$
836,991

 
100.0
%
 
The Company invests in portfolio companies principally located in North America. The geographic composition is determined by the location of the corporate headquarters of the portfolio company, which may not be indicative of the primary source of the portfolio company’s business.
 

F-27



The following table shows the portfolio composition by geographic location at fair value at December 31, 2017 (dollars in thousands): 
 
Fair Value
 
Percentage
West
$
172,641

 
20.7
%
Midwest
171,821

 
20.5

Northeast
160,601

 
19.2

Southwest
145,508

 
17.4

Southeast
110,384

 
13.2

Mid-Atlantic
74,948

 
9.0

Total
$
835,903

 
100.0
%
  
The following table shows the portfolio composition by geographic location at fair value at September 30, 2017 (dollars in thousands): 
 
Fair Value
 
Percentage
Midwest
$
188,957

 
22.6
%
Southwest
152,883

 
18.3

Northeast
152,662

 
18.2

Southeast
152,469

 
18.2

West
133,190

 
15.9

Mid-Atlantic
56,830

 
6.8

Total
$
836,991

 
100.0
%
 
Transactions With Affiliated/Controlled Companies
 
During the three months ended December 31, 2017 and 2016, the Company had investments in portfolio companies designated as Affiliated Investments and Controlled Investments under the 1940 Act. Transactions with Affiliated Investments and Controlled Investments were as follows (prior period table modified to conform to the current period presentation): 
Name of Investment(3)
 
Type of Investment
 
Fair Value at September 30, 2017
 
Purchases/(Sales) of or Advances/(Distributions)
 
Transfers In/(Out) of Affiliates
 
Unrealized Gain/(Loss)
 
Realized Gain/(Loss)
 
Fair Value at December 31, 2017
 
Income Earned
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Affiliated Investments
 
 
 
 

 
 

 
 

 
 

 
 

 
 

 
 

AAR Intermediate Holdings, LLC
 
Senior Secured First Lien Term Loan A
 
$
8,984,232

 
$

 
$

 
$

 
$

 
$
8,984,232

 
$
145,390

 
 
Senior Secured First Lien Term Loan B
 
19,746,290

 
623,111

 

 
(143,791
)
 

 
20,225,610

 
626,037

 
 
Revolving Credit Facility
 

 
539,054

 

 

 

 
539,054

 
4,333

 
 
Equity
 

 

 

 

 

 

 

Access Media Holdings, LLC
 
Senior Secured First Lien Term Loan
 
8,340,525

 
105,859

 

 

 

 
8,446,384

 
212,657

 
 
Preferred Equity Series A
 

 

 

 

 

 

 

 
 
Preferred Equity Series AA
 

 

 

 

 

 

 

 
 
Preferred Equity Series AAA
 
43,200

 
169,600

 

 
(64,000
)
 

 
148,800

 

 
 
Equity
 

 

 

 

 

 

 

Brantley Transportation LLC
 
Senior Secured First Lien Term Loan
 
7,719,520

 

 

 
236,534

 

 
7,956,054

 

 
 
Senior Secured First Lien Delayed Draw Term Loan
 
668,105

 

 

 

 

 
668,105

 
10,716

 
 
Equity
 

 

 

 

 

 

 


F-28



Name of Investment(3)
 
Type of Investment
 
Fair Value at September 30, 2017
 
Purchases/(Sales) of or Advances/(Distributions)
 
Transfers In/(Out) of Affiliates
 
Unrealized Gain/(Loss)
 
Realized Gain/(Loss)
 
Fair Value at December 31, 2017
 
Income Earned
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
JFL-NGS Partners, LLC
 
Preferred Equity A-2
 
30,552,190

 

 

 

 

 
30,552,190

 
231,025

 
 
Preferred Equity A-1
 
3,953,700

 

 

 

 

 
3,953,700

 
29,896

 
 
Equity
 
63,603

 

 

 
4,254,525

 

 
4,318,128

 

US Multifamily, LLC
 
Senior Secured First Lien Term Loan
 
6,670,000

 

 

 

 

 
6,670,000

 
166,750

 
 
Equity
 
3,330,000

 

 

 

 

 
3,330,000

 

Total Affiliated Investments
 
 
 
$
90,071,365


$
1,437,624


$


$
4,283,268


$


$
95,792,257


$
1,426,804

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Controlled Investments
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Capstone Nutrition
 
Senior Secured First Lien Term Loan
 
18,002,715

 

 

 
(1,946,314
)
 

 
16,056,401

 

 
 
Senior Secured First Lien Delayed Draw Term Loan
 
7,789,760

 

 

 
(842,169
)
 

 
6,947,591

 

 
 
Equity - Class B and C Units
 

 

 

 

 

 

 

 
 
Equity - Common Units
 

 

 

 

 

 

 

MCC Senior Loan Strategy JV I LLC(1)(2)
 
Equity
 
56,137,946

 
10,675,000

 

 
592,657

 

 
67,405,603

 
1,443,750

NVTN LLC
 
Senior Secured First Lien Term Loan
 
3,505,990

 

 

 

 

 
3,505,990

 
47,284

 
 
Senior Secured First Lien Term Loan B
 
10,604,502

 
283,651

 

 

 

 
10,888,153

 
290,458

 
 
Senior Secured First Lien Term Loan C
 
6,518,046

 
220,564

 

 

 

 
6,738,610

 
226,221

 
 
Equity
 
9,550,922

 

 

 

 

 
9,550,922

 

OmniVere LLC
 
Senior Secured First Lien Term Loan
 
24,500,205

 

 

 
(6,808,667
)
 

 
17,691,538

 

 
 
Senior Secured First Lien Term Loan
 
1,409,669

 
620,032

 

 

 

 
2,029,701

 
35,366

 
 
Unsecured Debt
 

 

 

 

 

 

 

 
 
Equity
 

 

 

 

 

 

 

URT Acquisition Holdings Corporation
 
Senior Secured Second Lien Term Loan
 
14,966,563

 

 

 

 

 
14,966,563

 
382,479

 
 
Preferred Equity
 
5,500,000

 
350,795

 

 

 

 
5,850,795

 
166,472

 
 
Equity
 
12,937,518

 

 

 

 

 
12,937,518

 

Total Controlled Investments
 
$
171,423,836


$
12,150,042


$


$
(9,004,493
)

$


$
174,569,385


$
2,592,030


Name of Investment(3)
 
Type of Investment
 
Fair Value at September 30, 2016
 
Purchases/(Sales) of or Advances/(Distributions)
 
Transfers In/(Out) of Affiliates
 
Unrealized Gain/(Loss)
 
Realized Gain/(Loss)
 
Fair Value at December 31, 2016
 
Income Earned
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Affiliated Investments
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
US Multifamily, LLC
 
Senior Secured First Lien Term Loan
 
6,670,000

 

 

 

 

 
6,670,000

 
166,750

 
 
Equity
 
3,330,000

 

 

 

 

 
3,330,000

 

Total Affiliated Investments
 
$
10,000,000

 
$

 
$

 
$

 
$

 
$
10,000,000

 
$
166,750

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

F-29



Name of Investment(3)
 
Type of Investment
 
Fair Value at September 30, 2016
 
Purchases/(Sales) of or Advances/(Distributions)
 
Transfers In/(Out) of Affiliates
 
Unrealized Gain/(Loss)
 
Realized Gain/(Loss)
 
Fair Value at December 31, 2016
 
Income Earned
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Controlled Investments
 
 
 
 

 
 

 
 

 
 

 
 

 
 

 
 

AAR Intermediate Holdings, LLC
 
Senior Secured First Lien Term Loan A
 
$
8,984,232

 
$

 
$

 
$

 
$

 
$
8,984,232

 
$
137,758

 
 
Senior Secured First Lien Term Loan B
 
14,889,405

 

 

 

 

 
14,889,405

 
548,806

 
 
Revolving Credit Facility
 

 
431,243

 

 

 

 
431,243

 
8,292

 
 
Equity
 

 

 

 
 
 

 

 

Capstone Nutrition
 
Senior Secured First Lien Term Loan
 
14,615,564

 

 

 
504,446

 

 
15,120,010

 

 
 
Senior Secured First Lien Delayed Draw Term Loan
 
6,324,142

 

 

 
218,274

 

 
6,542,416

 

 
 
Equity - Class B and C Units
 

 

 

 

 

 

 

 
 
Equity - Common Units
 

 

 

 

 

 

 

Lydell Jewelry Design Studio, LLC
 
Senior Secured First Lien Term Loan
 
5,707,522

 

 

 
108,890

 

 
5,816,412

 

 
 
Senior Secured First Lien Delayed Draw Term Loan
 
1,500,000

 
650,000

 

 

 

 
2,150,000

 
29,611

 
 
Equity
 

 

 

 

 

 

 
 
 
 
Equity
 

 

 

 

 

 

 
 
NVTN LLC
 
Senior Secured First Lien Term Loan
 

 

 
1,525,201

 

 

 
1,525,201

 
17,837

 
 
Senior Secured First Lien Term Loan B
 

 

 
10,604,502

 

 

 
10,604,502

 
149,647

 
 
Senior Secured First Lien Term Loan C
 

 

 
6,518,046

 

 

 
6,518,046

 
113,530

 
 
Equity
 

 

 
9,550,922

 

 

 
9,550,922

 

MCC Senior Loan Strategy JV I LLC(1)(2)
 
Equity
 
31,252,416

 
7,262,500

 

 
903,299

 

 
39,418,215

 
568,750

OmniVere LLC
 
Senior Secured First Lien Term Loan
 
22,360,258

 
553,494

 

 
(25,227
)
 

 
22,888,525

 
828,405

 
 
Unsecured Debt
 
11,336,861

 
1,972,687

 

 
(833,855
)
 

 
12,475,693

 

 
 
Equity
 

 

 

 

 

 

 

United Road Towing, Inc
 
Senior Secured Second Lien Term Loan
 
18,725,607

 
470,367

 

 

 

 
19,195,974

 
480,832

 
 
Preferred Equity Class C
 
1,186,268

 
9,554

 

 
(9,554
)
 

 
1,186,268

 

 
 
Preferred Equity Class C-1
 

 

 

 

 

 

 

 
 
Preferred Equity Class A-2
 

 
2,371

 

 
(2,371
)
 

 

 

 
 
Equity
 

 

 

 

 

 

 

Total Controlled Investments
 
$
136,882,275

 
$
11,352,216

 
$
28,198,671

 
$
863,902

 
$

 
$
177,297,064

 
$
2,883,468


(1)
The Company and Great American Life Insurance Company (“GALIC”) are the members of MCC Senior Loan Strategy JV I LLC (“MCC 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 MCC JV make capital contributions as investments by MCC JV are completed, and all portfolio and other material decisions regarding MCC JV must be submitted to MCC JV’s board of managers, which is comprised of an equal number of members appointed by each of the Company and GALIC. Approval of MCC 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 MCC JV is shared equally between the Company and GALIC, the Company does not have operational control over the MCC JV for purposes of the 1940 Act or otherwise.

F-30




(2)
Amount represents distributions from MCC JV to the Company and is a component of dividend income, net of provisional taxes in the Consolidated Statements of Operations.

(3)
The par amount and additional detail are shown in the consolidated schedule of investments.

Purchases/(sales) of or advances to/(distributions) from Affiliated Investments and Controlled Investments represent the proceeds from sales and settlements of investments, purchases, originations and participations, investment increases due to PIK interest as well as net amortization of premium/(discount) on investments and are included in the purchases and sales presented on the Consolidated Statements of Cash Flows for the three months ended December 31, 2017 and 2016. Transfers in/(out) of Affiliated Investments and Controlled Investments represent the fair value for the month an investment became or was removed as an Affiliated Investment or a Controlled Investment. Income received from Affiliated Investments and Controlled Investments is included in total investment income on the Consolidated Statements of Operations for the three months ended December 31, 2017 and 2016.
 
Loan Participation Sales
 
The Company may sell portions of its investments via participation agreements to a managed account, managed by an affiliate and non-affiliate of the Company. At December 31, 2017 there were eight participation agreements outstanding with an aggregate fair value of $118.8 million. At September 30, 2017, there were eight participation agreements outstanding with an aggregate fair value of $124.5 million. The transfer of the participated portion of the investments met the criteria set forth in ASC 860, Transfers and Servicing for treatment as a sale. In each case, the Company’s loan participation agreements satisfy the following conditions:

transferred investments have been isolated from the Company - put presumptively beyond the reach of the Company and its creditors, even in bankruptcy or other receivership,

each participant has the right to pledge or exchange the transferred investments it received, and no condition both constrains the participant from taking advantage of its right to pledge or exchange and provides more than a trivial benefit to the Company; and

the Company, its consolidated affiliates or its agents do not maintain effective control over the transferred investments through either: (i) an agreement that entitles and/or obligates the Company to repurchase or redeem the assets before maturity, or (ii) the ability to unilaterally cause the holder to return specific assets, other than through a cleanup call.

Such investments where the Company has retained proportionate interests are included in the consolidated schedule of investments. All of these investments are classified within Level 3 of the fair value hierarchy, as defined in Note 4.

During the three months ended December 31, 2017 and 2016, the Company collected interest and principal payments on behalf of the participant in aggregate amounts of $2.0 million and $6.0 million, respectively. Under the terms of the participation agreements, the Company will collect and remit periodic payments to the participant equal to the participant's proportionate share of any principal and interest payments received by the Company from the underlying investee companies.
 
MCC 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 MCC JV. All portfolio and other material decisions regarding MCC JV must be submitted to MCC JV’s board of managers, which is comprised of four members, two of whom are selected by the Company and the other two of whom are selected by GALIC. The Company has concluded that it does not operationally control MCC JV. As the Company does not operationally control MCC JV, it does not consolidate the operations of MCC JV within the consolidated financial statements. As a practical expedient, the Company uses NAV to determine the value of its investment in MCC JV; therefore, this investment has been presented as a reconciling item within the fair value hierarchy (see Note 4). Investments held by MCC JV are measured at fair value using the same valuation methodologies as described in Note 2.

As of December 31, 2017, MCC JV had total capital commitments of $100.0 million, with the Company providing $87.5 million and GALIC providing $12.5 million. Approximately $76.3 million was funded as of December 31, 2017 relating to these commitments, of which $66.8 million was from the Company. As of December 31, 2017, MCC JV’s board of managers had approved advances of capital of up to $6.7 million of the remaining capital commitments, of which $5.9 million is from the Company.

On August 4, 2015, MCC 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 leverage and borrowing base restrictions. 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 $200 million. The JV Facility bears interest at a rate of LIBOR (with no minimum) + 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 December 31, 2017 and September 30, 2017, there was approximately $153.4 million and $130.5 million outstanding under the JV Facility, respectively.

At December 31, 2017 and September 30, 2017, MCC JV had total investments at fair value of $210.4 million and $184.2 million, respectively. As of December 31, 2017 and September 30, 2017, MCC JV’s portfolio was comprised of senior secured first lien term loans to 50 and 46 borrowers, respectively. As of December 31, 2017 and September 30, 2017, certain investments in one portfolio company held by MCC JV were on non-accrual status.


F-31



Below is a summary of MCC JV’s portfolio, excluding equity investments, followed by a listing of the individual investments in MCC JV’s portfolio as of December 31, 2017 and September 30, 2017:
 
December 31, 2017
 
September 30, 2017
Senior secured loans(1)
$
213,650,199

 
$
187,473,188

Weighted average current interest rate on senior secured loans(2)
6.90
%
 
6.69
%
Number of borrowers in MCC JV
50

 
46

Largest loan to a single borrower(1)
$
11,289,143

 
$
11,346,929

Total of five largest loans to borrowers(1)
$
44,597,092

 
$
44,015,117

 
(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 par.


F-32



MCC JV Loan Portfolio as of December 31, 2017
(unaudited)
Company
 
Industry
 
Type of Investment
 
Maturity
 
Par
Amount
 
Cost
 
Fair
Value(2)
 
% of
Net Assets(4)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
4 Over International, LLC
 
Media: Advertising, Printing & Publishing
 
Senior Secured First Lien Term Loan (LIBOR + 6.00%, 1.00% LIBOR Floor)(1)
 
6/7/2022
 
11,289,143

 
11,289,143

 
11,289,143

 
14.7
%
 
 
 
 
 
 
 
 
11,289,143

 
11,289,143

 
11,289,143

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
AccentCare, Inc.
 
Healthcare & Pharmaceuticals
 
Senior Secured First Lien Term Loan (LIBOR + 5.25%, 1.00% LIBOR Floor)(1)
 
3/3/2022
 
5,761,669

 
5,735,654

 
5,761,669

 
7.5
%
 
 
 
 
 
 
 
 
5,761,669

 
5,735,654

 
5,761,669

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Acrisure, LLC
 
Banking, Finance, Insurance & Real Estate
 
Senior Secured First Lien Term Loan (LIBOR + 4.25%, 1.00% LIBOR Floor)(1)
 
11/22/2023
 
2,965,069

 
2,957,868

 
2,957,656

 
3.8
%
 
 
 
 
 
 
 
 
2,965,069

 
2,957,868

 
2,957,656

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Amplify Snack Brands, Inc.
 
Beverage & Food
 
Senior Secured First Lien Term Loan (LIBOR + 5.50%, 1.00% LIBOR Floor)(1)
 
9/4/2023
 
1,807,004

 
1,792,346

 
1,797,247

 
2.3
%
 
 
 
 
 
 
 
 
1,807,004

 
1,792,346

 
1,797,247

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Apco Holdings, Inc.
 
Automotive
 
Senior Secured First Lien Term Loan (LIBOR + 6.00%, 1.00% LIBOR Floor)(1)
 
1/31/2022
 
3,437,331

 
3,367,013

 
3,437,331

 
4.5
%
 
 
 
 
 
 
 
 
3,437,331

 
3,367,013

 
3,437,331

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
API Technologies Corp.
 
Aerospace and Defense
 
Senior Secured First Lien Term Loan (LIBOR + 6.50%, 1.00% LIBOR Floor)(1)
 
4/22/2022
 
2,932,500

 
2,890,142

 
2,932,500

 
3.8
%
 
 
 
 
 
 
 
 
2,932,500

 
2,890,142

 
2,932,500

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Associated Asphalt Partners, LLC
 
Construction & Building
 
Senior Secured First Lien Term Loan (LIBOR + 5.25%, 1.00% LIBOR Floor)(1)
 
4/5/2024
 
991,786

 
987,339

 
991,786

 
1.3
%
 
 
 
 
 
 
 
 
991,786

 
987,339

 
991,786

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Avantor, Inc.
 
Chemicals, Plastics and Rubber
 
Senior Secured First Lien Term Loan (LIBOR + 4.00%, 1.00% LIBOR Floor)(1)
 
11/21/2024
 
7,250,000

 
7,143,270

 
7,280,450

 
9.5
%
 
 
 
 
 
 
 
 
7,250,000

 
7,143,270

 
7,280,450

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Blount International, Inc.
 
Capital Equipment
 
Senior Secured First Lien Term Loan (LIBOR + 4.25%, 1.00% LIBOR Floor)(1)
 
4/12/2023
 
2,375,000

 
2,369,269

 
2,398,750

 
3.1
%
 
 
 
 
 
 
 
 
2,375,000

 
2,369,269

 
2,398,750

 
 
 
 
 
 
 
 
 
 


 


 


 
 
Canyon Valor Companies, Inc.
 
Media: Diversified & Production
 
Senior Secured First Lien Term Loan (LIBOR + 4.25%, 1.00% LIBOR Floor)(1)
 
6/16/2023
 
997,500

 
995,170

 
1,007,475

 
1.3
%
 
 
 
 
 
 
 
 
997,500

 
995,170

 
1,007,475

 
 
 
 
 
 
 
 
 
 


 


 


 
 
Cardenas Markets LLC
 
Retail
 
Senior Secured First Lien Term Loan (LIBOR + 5.75%, 1.00% LIBOR Floor)(1)
 
11/29/2023
 
5,445,000

 
5,399,007

 
5,445,000

 
7.1
%
 
 
 
 
 
 
 
 
5,445,000

 
5,399,007

 
5,445,000

 
 
 
 
 
 
 
 
 
 


 


 


 
 
CD&R TZ Purchaser, Inc
 
Services: Consumer
 
Senior Secured First Lien Term Loan (LIBOR + 6.00%, 1.00% LIBOR Floor)(1)
 
7/21/2023
 
3,456,250

 
3,414,831

 
3,456,250

 
4.5
%
 
 
 
 
 
 
 
 
3,456,250

 
3,414,831

 
3,456,250

 
 
 
 
 
 
 
 
 
 


 


 


 
 

F-33



Company
 
Industry
 
Type of Investment
 
Maturity
 
Par
Amount
 
Cost
 
Fair
Value(2)
 
% of
Net Assets(4)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Covenant Surgical Partners, Inc.
 
Healthcare & Pharmaceuticals
 
Senior Secured First Lien Term Loan (LIBOR + 4.75%, 1.00% LIBOR Floor)(1)
 
10/4/2024
 
8,117,949

 
8,093,997

 
8,117,949

 
10.6
%
 
 
 
 
 
 
 
 
8,117,949

 
8,093,997

 
8,117,949

 
 
 
 
 
 
 
 
 
 


 


 


 
 
CP OPCO, LLC
 
Services: Consumer
 
Senior Secured First Lien Term Loan B (ABR + 5.50% PIK, 4.50% ABR Floor)(1)(3)
 
4/1/2019
 
224,970

 
213,451

 
59,729

 
0.1
%
 
 
 
 
Senior Secured First Lien Term Loan C (ABR + 8.50% PIK, 4.50% ABR Floor)(1)(3)
 
4/1/2019
 
1,655,407

 
717,016

 

 
0.0
%
 
 
 
 
Senior Secured First Lien Term Loan D (ABR + 7.00% PIK, 4.50% ABR Floor)(1)(3)
 
4/1/2019
 
1,038,290

 

 

 
0.0
%
 
 
 
 
Revolving Credit Facility (ABR + 3.50% Cash, 4.25% ABR Floor)(1)
 
4/1/2019
 

 

 

 
0.0
%
 
 
 
 
Common Stock (41 Units)
 
4/1/2019
 

 

 

 
0.0
%
 
 
 
 
 
 
 
 
2,918,667

 
930,467

 
59,729

 
 
 
 
 
 
 
 
 
 


 


 


 
 
CSP Technologies North America, LLC
 
Containers, Packaging and Glass
 
Senior Secured First Lien Term Loan (LIBOR + 5.25%, 1.00% LIBOR Floor)(1)
 
1/31/2022
 
2,474,374

 
2,474,374

 
2,474,374

 
3.2
%
 
 
 
 
 
 
 
 
2,474,374

 
2,474,374

 
2,474,374

 
 
 
 
 
 
 
 
 
 


 


 


 
 
CT Technologies Intermediate Holdings, Inc.
 
Healthcare & Pharmaceuticals
 
Senior Secured First Lien Term Loan (LIBOR + 4.25%, 1.00% LIBOR Floor)(1)
 
12/1/2021
 
4,207,418

 
4,089,965

 
4,207,418

 
5.5
%
 
 
 
 
 
 
 
 
4,207,418

 
4,089,965

 
4,207,418

 
 
 
 
 
 
 
 
 
 


 


 


 
 
DigiCert, Inc.
 
High Tech Industries
 
Senior Secured First Lien Term Loan (LIBOR + 4.75%, 1.00% LIBOR Floor)(1)
 
10/31/2024
 
4,500,000

 
4,478,083

 
4,545,000

 
5.9
%
 
 
 
 
 
 
 
 
4,500,000

 
4,478,083

 
4,545,000

 
 
 
 
 
 
 
 
 
 


 


 


 
 
Elite Comfort Solutions, Inc.
 
Chemicals, Plastics and Rubber
 
Senior Secured First Lien Term Loan (LIBOR + 6.50%, 1.00% LIBOR Floor)(1)
 
1/15/2021
 
5,734,863

 
5,734,863

 
5,734,863

 
7.5
%
 
 
 
 
 
 
 
 
5,734,863

 
5,734,863

 
5,734,863

 
 
 
 
 
 
 
 
 
 


 


 


 
 
Evo Payments International, LLC
 
Banking, Finance, Insurance & Real Estate
 
Senior Secured First Lien Term Loan (LIBOR + 4.00%, 1.00% LIBOR Floor)(1)
 
12/22/2023
 
3,473,750

 
3,443,885

 
3,496,677

 
4.5
%
 
 
 
 
 
 
 
 
3,473,750

 
3,443,885

 
3,496,677

 
 
 
 
 
 
 
 
 
 


 


 


 
 
GK Holdings, Inc.
 
Services: Business
 
Senior Secured First Lien Term Loan (LIBOR + 6.00%, 1.00% LIBOR Floor)(1)
 
1/20/2021
 
2,961,832

 
2,950,966

 
2,901,114

 
3.8
%
 
 
 
 
 
 
 
 
2,961,832

 
2,950,966

 
2,901,114

 
 
 
 
 
 
 
 
 
 


 


 


 
 
Global Eagle Entertainment Inc.
 
Telecommunications
 
Senior Secured First Lien Term Loan (LIBOR + 7.50%, 1.00% LIBOR Floor)(1)
 
1/6/2023
 
4,147,500

 
4,082,934

 
4,147,500

 
5.4
%
 
 
 
 
 
 
 
 
4,147,500

 
4,082,934

 
4,147,500

 
 
 
 
 
 
 
 
 
 


 


 


 
 
Golden West Packaging Group LLC
 
Forest Products & Paper
 
Senior Secured First Lien Term Loan (LIBOR + 5.25%, 1.00% LIBOR Floor)(1)
 
6/20/2023
 
6,691,375

 
6,691,375

 
6,691,375

 
8.7
%
 
 
 
 
 
 
 
 
6,691,375

 
6,691,375

 
6,691,375

 
 
 
 
 
 
 
 
 
 


 


 


 
 
High Ridge Brands Co.
 
Consumer Goods: Non-Durable
 
Senior Secured First Lien Term Loan (LIBOR + 5.00%, 1.00% LIBOR Floor)(1)
 
6/30/2022
 
1,846,875

 
1,825,286

 
1,846,875

 
2.4
%
 
 
 
 
 
 
 
 
1,846,875

 
1,825,286

 
1,846,875

 
 
 
 
 
 
 
 
 
 


 


 


 
 

F-34



Company
 
Industry
 
Type of Investment
 
Maturity
 
Par
Amount
 
Cost
 
Fair
Value(2)
 
% of
Net Assets(4)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Highline Aftermarket Acquisitions, LLC
 
Automotive
 
Senior Secured First Lien Term Loan (LIBOR + 4.25%, 1.00% LIBOR Floor)(1)
 
3/18/2024
 
3,102,770

 
3,088,949

 
3,102,770

 
4.0
%
 
 
 
 
 
 
 
 
3,102,770

 
3,088,949

 
3,102,770

 
 
 
 
 
 
 
 
 
 


 


 


 
 
Imagine! Print Solutions, LLC
 
Media: Advertising, Printing & Publishing
 
Senior Secured First Lien Term Loan (LIBOR + 4.75%, 1.00% LIBOR Floor)(1)
 
6/21/2022
 
7,940,000

 
7,868,404

 
7,860,600

 
10.2
%
 
 
 
 
 
 
 
 
7,940,000

 
7,868,404

 
7,860,600

 
 
 
 
 
 
 
 
 
 


 


 


 
 
Infogroup, Inc.
 
Services: Business
 
Senior Secured First Lien Term Loan (LIBOR + 5.00%, 1.00% LIBOR Floor)(1)
 
4/3/2023
 
4,962,500

 
4,918,712

 
4,941,161

 
6.4
%
 
 
 
 
 
 
 
 
4,962,500

 
4,918,712

 
4,941,161

 
 
 
 
 
 
 
 
 
 


 


 


 
 
Keystone Acquisition Corp.
 
Healthcare & Pharmaceuticals
 
Senior Secured First Lien Term Loan (LIBOR + 5.25%, 1.00% LIBOR Floor)(1)
 
5/1/2024
 
6,272,748

 
6,165,433

 
6,304,111

 
8.2
%
 
 
 
 
 
 
 
 
6,272,748

 
6,165,433

 
6,304,111

 
 
 
 
 
 
 
 
 
 


 


 


 
 
KNB Holdings Corporation
 
Consumer Goods: Durable
 
Senior Secured First Lien Term Loan (LIBOR + 5.50%, 1.00% LIBOR Floor)(1)
 
4/26/2024
 
6,459,375

 
6,342,525

 
6,475,523

 
8.4
%
 
 
 
 
 
 
 
 
6,459,375

 
6,342,525

 
6,475,523

 
 
 
 
 
 
 
 
 
 


 


 


 
 
LegalZoom.com, Inc.
 
Services: Business
 
Senior Secured First Lien Term Loan (LIBOR + 4.50%, 1.00% LIBOR Floor)(1)
 
11/21/2024
 
2,000,000

 
1,980,371

 
1,980,000

 
2.6
%
 
 
 
 
 
 
 
 
2,000,000

 
1,980,371

 
1,980,000

 
 
 
 
 
 
 
 
 
 


 


 


 
 
LifeMiles Ltd.
 
Services: Consumer
 
Senior Secured First Lien Term Loan (LIBOR + 5.50%, 1.00% LIBOR Floor)(1)
 
8/18/2022
 
4,875,000

 
4,829,405

 
4,826,250

 
6.3
%
 
 
 
 
 
 
 
 
4,875,000

 
4,829,405

 
4,826,250

 
 
 
 
 
 
 
 
 
 


 


 


 
 
Lighthouse Network, LLC
 
Banking, Finance, Insurance & Real Estate
 
Senior Secured First Lien Term Loan (LIBOR + 4.50%, 1.00% LIBOR Floor)(1)
 
11/29/2024
 
10,000,000

 
9,950,757

 
9,950,000

 
12.9
%
 
 
 
 
 
 
 
 
10,000,000

 
9,950,757

 
9,950,000

 
 
 
 
 
 
 
 
 
 


 


 


 
 
Manna Pro Products, LLC
 
Consumer Goods: Non-Durable
 
Senior Secured First Lien Term Loan (LIBOR + 6.00%, 1.00% LIBOR Floor)(1)
 
12/8/2023
 
3,083,333

 
3,083,333

 
3,083,333

 
4.1
%
 
 
 
 
 
 
 
 
3,083,333

 
3,083,333

 
3,083,333

 
 
 
 
 
 
 
 
 
 


 


 


 
 
MB Aerospace ACP Holdings II Corp.
 
Aerospace and Defense
 
Senior Secured First Lien Term Loan (LIBOR + 5.50%, 1.00% LIBOR Floor)(1)
 
12/15/2022
 
5,150,539

 
5,116,917

 
5,150,539

 
6.7
%
 
 
 
 
 
 
 
 
5,150,539

 
5,116,917

 
5,150,539

 
 
 
 
 
 
 
 
 
 


 


 


 
 
New Media Holdings II LLC
 
Media: Advertising, Printing & Publishing
 
Senior Secured First Lien Term Loan (LIBOR + 6.25%, 1.00% LIBOR Floor)(1)
 
7/14/2022
 
2,924,991

 
2,924,991

 
2,924,991

 
3.8
%
 
 
 
 
 
 
 
 
2,924,991

 
2,924,991

 
2,924,991

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Peraton Corp.
 
Aerospace and Defense
 
Senior Secured First Lien Term Loan (LIBOR + 5.25%, 1.00% LIBOR Floor)(1)
 
4/29/2024
 
4,975,000

 
4,952,439

 
4,950,125

 
6.4
%
 
 
 
 
 
 
 
 
4,975,000

 
4,952,439

 
4,950,125

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
PetroChoice Holdings, Inc.
 
Chemicals, Plastics and Rubber
 
Senior Secured First Lien Term Loan (LIBOR + 5.00%, 1.00% LIBOR Floor)(1)
 
8/19/2022
 
4,949,367

 
4,949,367

 
4,949,367

 
6.4
%
 
 
 
 
 
 
 
 
4,949,367

 
4,949,367

 
4,949,367

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

F-35



Company
 
Industry
 
Type of Investment
 
Maturity
 
Par
Amount
 
Cost
 
Fair
Value(2)
 
% of
Net Assets(4)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
PT Network, LLC
 
Healthcare & Pharmaceuticals
 
Senior Secured First Lien Term Loan (LIBOR + 5.50%, 1.00% LIBOR Floor)(1)
 
11/30/2021
 
4,950,094

 
4,950,191

 
4,950,094

 
6.4
%
 
 
 
 
 
 
 
 
4,950,094

 
4,950,191

 
4,950,094

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Quorum Health Corporation
 
Healthcare & Pharmaceuticals
 
Senior Secured First Lien Term Loan (LIBOR + 6.75%, 1.00% LIBOR Floor)(1)
 
4/29/2022
 
1,133,768

 
1,117,333

 
1,140,911

 
1.5
%
 
 
 
 
 
 
 
 
1,133,768

 
1,117,333

 
1,140,911

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
RESIC Enterprises, LLC
 
Beverage & Food
 
Senior Secured First Lien Term Loan (LIBOR + 4.25%, 1.00% LIBOR Floor)(1)
 
11/11/2024
 
3,750,000

 
3,731,694

 
3,731,250

 
4.9
%
 
 
 
 
 
 
 
 
3,750,000

 
3,731,694

 
3,731,250

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Rough Country, LLC
 
Automotive
 
Senior Secured First Lien Term Loan (LIBOR + 4.50%, 1.00% LIBOR Floor)(1)
 
5/25/2023
 
4,731,098

 
4,688,066

 
4,711,227

 
6.1
%
 
 
 
 
 
 
 
 
4,731,098

 
4,688,066

 
4,711,227

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Salient CRGT Inc.
 
High Tech Industries
 
Senior Secured First Lien Term Loan (LIBOR + 5.75%, 1.00% LIBOR Floor)(1)
 
2/28/2022
 
2,886,607

 
2,838,152

 
2,889,494

 
3.8
%
 
 
 
 
 
 
 
 
2,886,607

 
2,838,152

 
2,889,494

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
SCS Holdings I Inc. (Sirius Computer Solutions, Inc.)
 
Wholesale
 
Senior Secured First Lien Term Loan (LIBOR + 4.25%, 1.00% LIBOR Floor)(1)
 
10/31/2022
 
4,431,163

 
4,389,341

 
4,420,085

 
5.7
%
 
 
 
 
 
 
 
 
4,431,163

 
4,389,341

 
4,420,085

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Starfish Holdco, LLC
 
High Tech Industries
 
Senior Secured First Lien Term Loan (LIBOR + 5.00%, 1.00% LIBOR Floor)(1)
 
8/16/2024
 
4,987,500

 
4,939,831

 
4,937,625

 
6.4
%
 
 
 
 
 
 
 
 
4,987,500

 
4,939,831

 
4,937,625

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
The Octave Music Group, Inc.
 
Media: Diversified & Production
 
Senior Secured First Lien Term Loan (LIBOR + 4.75%, 1.00% LIBOR Floor)(1)
 
5/28/2021
 
4,961,832

 
4,961,832

 
4,961,832

 
6.4
%
 
 
 
 
 
 
 
 
4,961,832

 
4,961,832

 
4,961,832

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
ThoughtWorks, Inc.
 
High Tech Industries
 
Senior Secured First Lien Term Loan (LIBOR + 4.50%, 1.00% LIBOR Floor)(1)
 
10/11/2024
 
4,000,000

 
3,990,419

 
3,990,000

 
5.2
%
 
 
 
 
 
 
 
 
4,000,000

 
3,990,419

 
3,990,000

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
United Road Services, Inc
 
Transportation: Cargo
 
Senior Secured First Lien Term Loan (LIBOR + 5.25%, 1.00% LIBOR Floor)(1)
 
9/1/2024
 
3,970,000

 
3,950,852

 
3,950,150

 
5.1
%
 
 
 
 
 
 
 
 
3,970,000

 
3,950,852

 
3,950,150

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
VCVH Holding Corp.
 
Healthcare & Pharmaceuticals
 
Senior Secured First Lien Term Loan (LIBOR + 5.00%, 1.00% LIBOR Floor)(1)
 
6/1/2023
 
2,955,000

 
2,931,741

 
2,967,411

 
3.9
%
 
 
 
 
 
 
 
 
2,955,000

 
2,931,741

 
2,967,411

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
VIP Cinema Holdings, Inc.
 
Consumer Goods: Durable
 
Senior Secured First Lien Term Loan (LIBOR + 6.00%, 1.00% LIBOR Floor)(1)
 
3/1/2023
 
472,034

 
469,991

 
476,377

 
0.6
%
 
 
 
 
 
 
 
 
472,034

 
469,991

 
476,377

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Wheels Up Partners LLC
 
Aerospace and Defense
 
Senior Secured First Lien Term Loan (LIBOR + 8.55%, 1.00% LIBOR Floor)(1)
 
10/15/2020
 
5,000,000

 
4,852,786

 
4,850,000

 
6.3
%
 
 
 
 
 
 
 
 
5,000,000

 
4,852,786

 
4,850,000

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

F-36



Company
 
Industry
 
Type of Investment
 
Maturity
 
Par
Amount
 
Cost
 
Fair
Value(2)
 
% of
Net Assets(4)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Z-Medica, LLC
 
Healthcare & Pharmaceuticals
 
Senior Secured First Lien Term Loan (LIBOR + 5.50%, 1.00% LIBOR Floor)(1)
 
9/29/2022
 
2,942,625

 
2,942,625

 
2,942,625

 
3.8
%
 
 
 
 
 
 
 
 
2,942,625

 
2,942,625

 
2,942,625

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total Investments, December 31, 2017
 
 
 
 
 
$
213,650,199

 
$
210,063,704

 
$
210,395,982

 
273.5
%

(1)
Represents the weighted average annual current interest rate as of December 31, 2017. All interest rates are payable in cash, unless otherwise noted.
(2)
Represents the fair value in accordance with ASC 820 as reported by MCC JV. The determination of such fair value is not included in the Company’s board of directors’ valuation process described elsewhere herein.
(3)
This investment was on non-accrual status as of December 31, 2017.
(4)
Percentage is based on MCC JV's net assets of $76,932,383 as of December 31, 2017.


F-37



MCC JV Loan Portfolio as of September 30, 2017
Company
 
Industry
 
Type of Investment
 
Maturity
 
Par
Amount
 
Cost
 
Fair
Value(2)
 
% of
Net Assets(4)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
4Over International, LLC
 
Media: Advertising, Printing & Publishing
 
Senior Secured First Lien Term Loan (LIBOR + 6.00%, 1.00% LIBOR Floor)(1)
 
6/7/2022
 
11,346,929

 
11,346,929

 
11,346,929

 
17.7
%
 
 
 
 
 
 
 
 
11,346,929

 
11,346,929

 
11,346,929

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
AccentCare, Inc.
 
Healthcare & Pharmaceuticals
 
Senior Secured First Lien Term Loan (LIBOR + 5.75%, 1.00% LIBOR Floor)(1)
 
10/1/2021
 
5,006,781

 
4,978,815

 
4,981,747

 
7.8
%
 
 
 
 
 
 
 
 
5,006,781

 
4,978,815

 
4,981,747

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Acrisure, LLC
 
Banking, Finance, Insurance & Real Estate
 
Senior Secured First Lien Term Loan (LIBOR + 5.00%, 1.00% LIBOR Floor)(1)
 
11/22/2023
 
497,500

 
496,327

 
502,475

 
0.8
%
 
 
 
 
 
 
 
 
497,500

 
496,327

 
502,475

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Amplify Snack Brands, Inc.
 
Beverage & Food
 
Senior Secured First Lien Term Loan (LIBOR + 5.50%, 1.00% LIBOR Floor)(1)
 
9/4/2023
 
1,811,579

 
1,796,231

 
1,781,688

 
2.8
%
 
 
 
 
 
 
 
 
1,811,579

 
1,796,231

 
1,781,688

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Apco Holdings, Inc.
 
Automotive
 
Senior Secured First Lien Term Loan (LIBOR + 6.00%, 1.00% LIBOR Floor)(1)
 
1/31/2022
 
3,508,277

 
3,432,083

 
3,508,277

 
5.5
%
 
 
 
 
 
 
 
 
3,508,277

 
3,432,083

 
3,508,277

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
API Technologies Corp.
 
Aerospace and Defense
 
Senior Secured First Lien Term Loan (LIBOR + 6.50%, 1.00% LIBOR Floor)(1)
 
4/22/2022
 
2,951,250

 
2,906,128

 
2,951,250

 
4.6
%
 
 
 
 
 
 
 
 
2,951,250

 
2,906,128

 
2,951,250

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Associated Asphalt Partners, LLC
 
Construction & Building
 
Senior Secured First Lien Term Loan (LIBOR + 5.25%, 1.00% LIBOR Floor)(1)
 
4/5/2024
 
997,500

 
992,848

 
992,513

 
1.5
%
 
 
 
 
 
 
 
 
997,500

 
992,848

 
992,513

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Avantor Performance Materials Holdings, Inc.
 
Chemicals, Plastics and Rubber
 
Senior Secured First Lien Term Loan (LIBOR + 4.00%, 1.00% LIBOR Floor)(1)
 
3/11/2024
 
2,985,000

 
2,978,117

 
2,985,000

 
4.7
%
 
 
 
 
 
 
 
 
2,985,000

 
2,978,117

 
2,985,000

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Blount International, Inc.
 
Capital Equipment
 
Senior Secured First Lien Term Loan (LIBOR + 5.00%, 1.00% LIBOR Floor)(1)
 
4/12/2023
 
2,962,500

 
2,918,684

 
2,962,500

 
4.6
%
 
 
 
 
Senior Secured First Lien Term Loan (ABR + 4.00%, 4.25% ABR Floor)(1)
 
4/12/2023
 
7,500

 
7,389

 
7,500

 
0.0
%
 
 
 
 
 
 
 
 
2,970,000

 
2,926,073

 
2,970,000

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Canyon Valor Companies, Inc. (fka GTCR Valor Companies, Inc.)
 
Media: Diversified & Production
 
Senior Secured First Lien Term Loan (LIBOR + 4.25%, 1.00% LIBOR Floor)(1)
 
6/16/2023
 
2,475,000

 
2,468,952

 
2,499,750

 
3.9
%
 
 
 
 
 
 
 
 
2,475,000

 
2,468,952

 
2,499,750

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cardenas Markets LLC
 
Retail
 
Senior Secured First Lien Term Loan (LIBOR + 5.75%, 1.00% LIBOR Floor)(1)
 
11/29/2023
 
5,458,750

 
5,410,676

 
5,450,016

 
8.5
%
 
 
 
 
 
 
 
 
5,458,750

 
5,410,676

 
5,450,016

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
CD&R TZ Purchaser, Inc
 
Services: Consumer
 
Senior Secured First Lien Term Loan (LIBOR + 6.00%, 1.00% LIBOR Floor)(1)
 
7/21/2023
 
3,465,000

 
3,421,596

 
3,456,338

 
5.4
%
 
 
 
 
 
 
 
 
3,465,000

 
3,421,596

 
3,456,338

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

F-38



Company
 
Industry
 
Type of Investment
 
Maturity
 
Par
Amount
 
Cost
 
Fair
Value(2)
 
% of
Net Assets(4)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
CP OPCO, LLC
 
Services: Consumer
 
Senior Secured First Lien Term Loan B (ABR + 5.50% PIK, 4.25% ABR Floor)(1)(3)
 
4/1/2019
 
219,589

 
213,451

 
59,728

 
0.1
%
 
 
 
 
Senior Secured First Lien Term Loan C (ABR + 8.50% PIK, 4.25% ABR Floor)(1)(3)
 
4/1/2019
 
1,603,881

 
717,016

 

 
0.0
%
 
 
 
 
Preferred Facility (ABR + 7.00% PIK, 3.75% ABR
Floor)(1)(3)
 
4/1/2019
 
934,849

 

 

 
0.0
%
 
 
 
 
Revolving Credit Facility (ABR + 3.50% Cash, 4.25% ABR Floor)(1)
 
4/1/2019
 

 

 

 
0.0
%
 
 
 
 
Common Stock
 
 
 
41

 

 

 
0.0
%
 
 
 
 
 
 
 
 
2,758,360

 
930,467

 
59,728

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
CSP Technologies North America, LLC
 
Containers, Packaging and Glass
 
Senior Secured First Lien Term Loan (LIBOR + 5.25%, 1.00% LIBOR Floor)(1)
 
1/31/2022
 
2,480,781

 
2,480,781

 
2,480,781

 
3.9
%
 
 
 
 
 
 
 
 
2,480,781

 
2,480,781

 
2,480,781

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
CT Technologies Intermediate Holdings, Inc.
 
Healthcare & Pharmaceuticals
 
Senior Secured First Lien Term Loan (LIBOR + 4.25%, 1.00% LIBOR Floor)(1)
 
12/1/2021
 
5,218,206

 
5,063,171

 
5,218,206

 
8.1
%
 
 
 
 
 
 
 
 
5,218,206

 
5,063,171

 
5,218,206

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Elite Comfort Solutions, Inc.
 
Chemicals, Plastics and Rubber
 
Senior Secured First Lien Term Loan (LIBOR + 6.50%, 1.00% LIBOR Floor)(1)
 
1/15/2021
 
5,810,616

 
5,810,616

 
5,810,616

 
9.1
%
 
 
 
 
 
 
 
 
5,810,616

 
5,810,616

 
5,810,616

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Evo Payments International, LLC
 
Banking, Finance, Insurance & Real Estate
 
Senior Secured First Lien Term Loan (LIBOR + 5.00%, 1.00% LIBOR Floor)(1)
 
12/22/2023
 
3,482,500

 
3,451,297

 
3,517,325

 
5.5
%
 
 
 
 
 
 
 
 
3,482,500

 
3,451,297

 
3,517,325

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Explorer Holdings, Inc.
 
Healthcare & Pharmaceuticals
 
Senior Secured First Lien Term Loan (LIBOR + 3.75%, 1.00% LIBOR Floor)(1)
 
5/2/2023
 
979,038

 
976,115

 
982,758

 
1.5
%
 
 
 
 
 
 
 
 
979,038

 
976,115

 
982,758

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
GK Holdings, Inc.
 
Services: Business
 
Senior Secured First Lien Term Loan (LIBOR + 6.00%, 1.00% LIBOR Floor)(1)
 
1/20/2021
 
2,969,466

 
2,957,674

 
2,908,592

 
4.5
%
 
 
 
 
 
 
 
 
2,969,466

 
2,957,674

 
2,908,592

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Global Eagle Entertainment Inc.
 
Telecommunications
 
Senior Secured First Lien Term Loan (LIBOR + 7.00%, 1.00% LIBOR Floor)(1)
 
1/6/2023
 
4,147,500

 
4,079,692

 
4,116,394

 
6.4
%
 
 
 
 
 
 
 
 
4,147,500

 
4,079,692

 
4,116,394

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Golden West Packaging Group LLC
 
Forest Products & Paper
 
Senior Secured First Lien Term Loan (LIBOR + 5.25%, 1.00% LIBOR Floor)(1)
 
6/20/2023
 
6,708,188

 
6,708,188

 
6,708,188

 
10.5
%
 
 
 
 
 
 
 
 
6,708,188

 
6,708,188

 
6,708,188

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
High Ridge Brands Co.
 
Consumer Goods: Non-Durable
 
Senior Secured First Lien Term Loan (LIBOR + 5.00%, 1.00% LIBOR Floor)(1)
 
6/30/2022
 
1,851,563

 
1,828,706

 
1,773,982

 
2.8
%
 
 
 
 
 
 
 
 
1,851,563

 
1,828,706

 
1,773,982

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Highline Aftermarket Acquisitions, LLC
 
Automotive
 
Senior Secured First Lien Term Loan (LIBOR + 4.25%, 1.00% LIBOR Floor)(1)
 
3/18/2024
 
3,110,895

 
3,096,476

 
3,110,895

 
4.8
%
 
 
 
 
 
 
 
 
3,110,895

 
3,096,476

 
3,110,895

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

F-39



Company
 
Industry
 
Type of Investment
 
Maturity
 
Par
Amount
 
Cost
 
Fair
Value(2)
 
% of
Net Assets(4)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Imagine! Print Solutions, LLC
 
Media: Advertising, Printing & Publishing
 
Senior Secured First Lien Term Loan (LIBOR + 4.75%, 1.00% LIBOR Floor)(1)
 
6/21/2022
 
7,960,000

 
7,884,180

 
7,880,400

 
12.3
%
 
 
 
 
 
 
 
 
7,960,000

 
7,884,180

 
7,880,400

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Infogroup, Inc.
 
Services: Business
 
Senior Secured First Lien Term Loan (LIBOR + 5.00%, 1.00% LIBOR Floor)(1)
 
4/3/2023
 
4,975,000

 
4,928,990

 
4,925,250

 
7.7
%
 
 
 
 
 
 
 
 
4,975,000

 
4,928,990

 
4,925,250

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Keystone Acquisition Corp.
 
Healthcare & Pharmaceuticals
 
Senior Secured First Lien Term Loan (LIBOR + 5.25%, 1.00% LIBOR Floor)(1)
 
5/1/2024
 
8,000,000

 
7,857,692

 
8,000,000

 
12.5
%
 
 
 
 
 
 
 
 
8,000,000

 
7,857,692

 
8,000,000

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
KNB Holdings Corporation
 
Consumer Goods: Durable
 
Senior Secured First Lien Term Loan (LIBOR + 5.50%, 1.00% LIBOR Floor)(1)
 
4/26/2024
 
6,500,000

 
6,377,734

 
6,516,250

 
10.3
%
 
 
 
 
 
 
 
 
6,500,000

 
6,377,734

 
6,516,250

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
LifeMiles Ltd.
 
Services: Consumer
 
Senior Secured First Lien Term Loan (LIBOR + 5.50%, 1.00% LIBOR Floor)(1)
 
8/18/2022
 
5,000,000

 
4,950,691

 
4,950,000

 
7.7
%
 
 
 
 
 
 
 
 
5,000,000

 
4,950,691

 
4,950,000

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Lighthouse Network, LLC
 
Banking, Finance, Insurance & Real Estate
 
Senior Secured First Lien Term Loan (LIBOR + 4.75%, 1.00% LIBOR Floor)(1)
 
10/13/2023
 
4,466,250

 
4,427,648

 
4,466,250

 
7.1
%
 
 
 
 
 
 
 
 
4,466,250

 
4,427,648

 
4,466,250

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
MB Aerospace ACP Holdings II Corp.
 
Aerospace and Defense
 
Senior Secured First Lien Term Loan (LIBOR + 5.50%, 1.00% LIBOR Floor)(1)
 
12/15/2022
 
5,163,678

 
5,128,257

 
5,163,678

 
8.0
%
 
 
 
 
 
 
 
 
5,163,678

 
5,128,257

 
5,163,678

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
New Media Holdings II LLC
 
Media: Advertising, Printing & Publishing
 
Senior Secured First Lien Term Loan (LIBOR + 6.25%, 1.00% LIBOR Floor)(1)
 
7/14/2022
 
2,932,340

 
2,932,340

 
2,932,340

 
4.6
%
 
 
 
 
 
 
 
 
2,932,340

 
2,932,340

 
2,932,340

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Peraton Corp.
 
Aerospace and Defense
 
Senior Secured First Lien Term Loan (LIBOR + 5.25%, 1.00% LIBOR Floor)(1)
 
4/29/2024
 
4,987,500

 
4,963,982

 
4,962,563

 
7.7
%
 
 
 
 
 
 
 
 
4,987,500

 
4,963,982

 
4,962,563

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
PetroChoice Holdings, Inc.
 
Chemicals, Plastics and Rubber
 
Senior Secured First Lien Term Loan (LIBOR + 5.00%, 1.00% LIBOR Floor)(1)
 
8/22/2022
 
4,962,025

 
4,962,025

 
4,962,025

 
7.7
%
 
 
 
 
 
 
 
 
4,962,025

 
4,962,025

 
4,962,025

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Pomeroy Group LLC
 
Services: Business
 
Senior Secured First Lien Term Loan (LIBOR + 6.00%, 1.00% LIBOR Floor)(1)
 
11/30/2021
 
2,343,582

 
2,288,650

 
2,329,989

 
3.6
%
 
 
 
 
Senior Secured First Lien Term Loan (LIBOR + 6.00%, 1.00% LIBOR Floor)(1)
 
11/30/2021
 
419,501

 
409,668

 
417,068

 
0.7
%
 
 
 
 
 
 
 
 
2,763,083

 
2,698,318

 
2,747,057

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
PT Network, LLC
 
Healthcare & Pharmaceuticals
 
Senior Secured First Lien Term Loan (LIBOR + 6.50%, 1.00% LIBOR Floor)(1)
 
11/30/2021
 
4,962,500

 
4,921,159

 
4,996,741

 
7.8
%
 
 
 
 
 
 
 
 
4,962,500

 
4,921,159

 
4,996,741

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

F-40



Company
 
Industry
 
Type of Investment
 
Maturity
 
Par
Amount
 
Cost
 
Fair
Value(2)
 
% of
Net Assets(4)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Quorum Health Corporation
 
Healthcare & Pharmaceuticals
 
Senior Secured First Lien Term Loan (LIBOR + 6.75%, 1.00% LIBOR Floor)(1)
 
4/29/2022
 
1,176,137

 
1,158,096

 
1,191,191

 
1.9
%
 
 
 
 
 
 
 
 
1,176,137

 
1,158,096

 
1,191,191

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Rough Country, LLC
 
Automotive
 
Senior Secured First Lien Term Loan (LIBOR + 4.50%, 1.00% LIBOR Floor)(1)
 
5/25/2023
 
4,987,500

 
4,940,019

 
4,937,625

 
7.7
%
 
 
 
 
 
 
 
 
4,987,500

 
4,940,019

 
4,937,625

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Salient CRGT Inc.
 
High Tech Industries
 
Senior Secured First Lien Term Loan (LIBOR + 5.75%, 1.00% LIBOR Floor)(1)
 
2/28/2022
 
2,948,214

 
2,895,729

 
2,935,832

 
4.6
%
 
 
 
 
 
 
 
 
2,948,214

 
2,895,729

 
2,935,832

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
SCS Holdings I Inc.
 
Wholesale
 
Senior Secured First Lien Term Loan (LIBOR + 4.25%, 1.00% LIBOR Floor)(1)
 
10/31/2022
 
2,778,498

 
2,737,893

 
2,806,283

 
4.4
%
 
 
 
 
 
 
 
 
2,778,498

 
2,737,893

 
2,806,283

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Starfish Holdco, LLC
 
High Tech Industries
 
Senior Secured First Lien Term Loan (LIBOR + 5.00%, 1.00% LIBOR Floor)(1)
 
8/16/2024
 
5,000,000

 
4,950,395

 
4,950,000

 
7.7
%
 
 
 
 
 
 
 
 
5,000,000

 
4,950,395

 
4,950,000

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Sundial Group Holdings LLC
 
Consumer Goods: Non-Durable
 
Senior Secured First Lien Term Loan (LIBOR + 4.75%, 1.00% LIBOR Floor)(1)
 
8/15/2024
 
10,000,000

 
9,852,004

 
9,850,000

 
15.4
%
 
 
 
 
 
 
 
 
10,000,000

 
9,852,004

 
9,850,000

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Survey Sampling International, LLC
 
Services: Business
 
Senior Secured First Lien Term Loan (LIBOR + 5.00%, 1.00% LIBOR Floor)(1)
 
12/16/2020
 
2,954,530

 
2,934,263

 
2,954,530

 
4.6
%
 
 
 
 
 
 
 
 
2,954,530

 
2,934,263

 
2,954,530

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
TouchTunes Interactive Networks, Inc.
 
Media: Diversified & Production
 
Senior Secured First Lien Term Loan (LIBOR + 4.75%, 1.00% LIBOR Floor)(1)
 
5/28/2021
 
4,974,555

 
4,974,555

 
5,005,894

 
7.8
%
 
 
 
 
 
 
 
 
4,974,555

 
4,974,555

 
5,005,894

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
TrialCard Incorporated
 
Services: Consumer
 
Senior Secured First Lien Term Loan (LIBOR + 5.00%, 1.00% LIBOR Floor)(1)
 
10/26/2021
 
3,300,075

 
3,273,215

 
3,300,075

 
5.1
%
 
 
 
 
 
 
 
 
3,300,075

 
3,273,215

 
3,300,075

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
VCVH Holding Corp.
 
Healthcare & Pharmaceuticals
 
Senior Secured First Lien Term Loan (LIBOR + 5.00%, 1.00% LIBOR Floor)(1)
 
6/1/2023
 
2,962,500

 
2,938,097

 
2,958,353

 
4.6
%
 
 
 
 
 
 
 
 
2,962,500

 
2,938,097

 
2,958,353

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
VIP Cinema Holdings, Inc.
 
Consumer Goods: Durable
 
Senior Secured First Lien Term Loan (LIBOR + 6.00%, 1.00% LIBOR Floor)(1)
 
3/1/2023
 
728,165

 
724,860

 
735,446

 
1.1
%
 
 
 
 
 
 
 
 
728,165

 
724,860

 
735,446

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total Investments, September 30, 2017
 
 
 
 
 
$
187,473,229

 
$
183,950,100

 
$
184,241,231

 
287.6
%

(1)
Represents the weighted average annual current interest rate as of September 30, 2017. All interest rates are payable in cash, unless otherwise noted.
(2)
Represents the fair value in accordance with ASC 820 as reported by MCC JV. The determination of such fair value is not included in the Company’s board of directors’ valuation process described elsewhere herein.
(3)
This investment was on non-accrual status as of September 30, 2017.
(4)
Percentage is based on MCC JV's net assets of $64,157,655 as of September 30, 2017.


F-41



Below is certain summarized financial Information for MCC JV as of December 31, 2017 and September 30, 2017, and for the three months ended December 31, 2017 and 2016:
 
December 31, 2017
 
September 30, 2017
 
(unaudited)
 
 
Selected Consolidated Statement of Assets and Liabilities Information:
 

 
 

Investments in loans at fair value (cost: of $210,063,704 and $183,950,100, respectively)
$
210,395,982

 
$
184,241,231

Cash
18,449,700

 
8,908,117

Other assets
686,391

 
597,831

Total assets
$
229,532,073


$
193,747,179

 
 
 
 
Line of credit (net of debt issuance costs of $1,689,663 and $1,789,953, respectively)
$
151,690,337

 
$
128,690,047

Other liabilities
354,436

 
440,959

Interest payable
554,917

 
458,518

Total liabilities
152,599,690


129,589,524

Members' capital
76,932,383

 
64,157,655

Total liabilities and members' capital
$
229,532,073


$
193,747,179


 
For the three months ended December 31
 
2017
 
2016
 
(unaudited)
 
(unaudited)
Selected Consolidated Statement of Operations Information:
 
 
 
Total revenues
$
3,862,003

 
$
2,002,357

Total expenses
(1,931,382
)
 
(975,360
)
Net unrealized appreciation/(depreciation)
(53,471
)
 
549,454

Net realized gain/(loss)
432,965

 
105,892

Net income/(loss)
$
2,310,115

 
$
1,682,343


Unconsolidated Significant Subsidiaries

In accordance with Rules 3-09 and 4-08(g) of Regulation S-X, the Company must determine which of its unconsolidated Control Investments, if any, are considered “significant subsidiaries.” In evaluating these investments, there are three tests utilized to determine if any Controlled Investments are considered significant subsidiaries: the investment test, the asset test and the income test. Rule 3-09 of Regulation S-X requires the Company to include separate audited financial statements of any unconsolidated majority-owned subsidiary (Control Investments in which the Company owns greater than 50% of the voting securities) in an annual report if any of the three tests exceed 20%. Rule 4-08(g) of Regulation S-X requires summarized financial information of Control Investments in an annual report if any of the three tests exceeds 10%, and summarized financial information in a quarterly report if any of the three tests exceeds 20% pursuant to Rule 10-01(b)(1) of Regulation S-X.

As of December 31, 2017, the Company had no single Control Investment that represented greater than 20% of its total Investment Portfolio at fair value and no single investment whose total assets represented greater than 20% of its total assets. After performing the income test for the three months ended December 31, 2017, the Company determined that its income from one of its Control Investments individually generated more than 20% of its total income, primarily due to the unrealized depreciation that was recognized on the investment during the three months ended December 31, 2017. As such, OmniVere, LLC was considered a significant subsidiary at the 20% level as of December 31, 2017.

The following tables show summarized unaudited financial information for OmniVere, LLC, which met the 20% income test for the three months ended December 31, 2017:
 
December 31, 2017
 
September 30, 2017
Balance Sheet Data(1)
 
 
 

Current assets
$
8,457,083

 
$
10,632,181

Non-current assets
46,969,847

 
48,750,429

Current liabilities
7,952,292

 
8,500,394

Non-current liabilities
102,639,377

 
99,927,509



F-42



 
For the three months ended
 
December 31, 2017
 
December 31, 2016
Summary of Operations(1)
 
 
 
Total revenues
$
5,007,107

 
$
8,558,339

Cost of sales
3,789,896

 
5,948,374

Operating expenses
4,321,778

 
2,131,400

Other expenses
3,014,879

 
4,583,165

Net loss
$
(6,119,446
)
 
$
(4,104,600
)

(1)
All amounts are unaudited.

The Company also determined that the assets of MCC JV represented greater than 20% of its total assets and also generated more than 20% of the Company’s total income primarily due to dividend income. Accordingly, the related summary financial information is presented in the “MCC Senior Loan Strategy JV I LLC” heading above.

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 below. 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 are 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 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 continues to employ the valuation policy approved by the board of directors that is consistent with ASC 820 (see Note 2). Consistent with our valuation policy, we evaluate the source of inputs, including any markets in which our investments are trading, in determining fair value.

F-43



The following table presents the fair value measurements of our investments, by major class according to the fair value hierarchy, as of December 31, 2017 (dollars in thousands):
 
Level 1
 
Level 2
 
Level 3
 
Total
Senior Secured First Lien Term Loans
$

 
$

 
$
532,308

 
$
532,308

Senior Secured Second Lien Term Loans

 

 
106,304

 
106,304

Senior Secured First Lien Notes

 

 
27,420

 
27,420

Unsecured Debt

 

 

 

Equity/Warrants
34

 
21

 
102,410

 
102,465

Total
$
34

 
$
21

 
$
768,442

 
$
768,497

MCC Senior Loan Strategy JV I LLC(1)
 

 
 

 
 

 
$
67,406

Total Investments, at fair value
 

 
 

 
 

 
$
835,903

  
The following table presents the fair value measurements of our investments, by major class according to the fair value hierarchy, as of September 30, 2017 (dollars in thousands):
 
Level 1
 
Level 2
 
Level 3
 
Total
Senior Secured First Lien Term Loans
$

 
$

 
$
537,163

 
$
537,163

Senior Secured Second Lien Term Loans

 

 
135,826

 
135,826

Senior Secured First Lien Notes

 
7,067

 
20,478

 
27,545

Unsecured Debt

 

 

 

Equity/Warrants
38

 
21

 
80,260

 
80,319

Total
$
38


$
7,088


$
773,727


$
780,853

MCC Senior Loan Strategy JV I LLC(1)
 

 
 

 
 

 
$
56,138

Total Investments, at fair value
 

 
 

 
 

 
$
836,991

 
(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.
 
The following table provides a reconciliation of the beginning and ending balances for investments that use Level 3 inputs for the three months ended December 31, 2017 (dollars in thousands): 
 
Senior
Secured
First Lien
Term
Loans
 
Senior
Secured
Second
Lien Term
Loans
 
Senior
Secured
First Lien
Notes
 
Unsecured
Debt
 
Equities/Warrants
 
Total
Balance as of September 30, 2017
$
537,163

 
$
135,826

 
$
20,478

 
$

 
$
80,260

 
$
773,727

Purchases and other adjustments to cost
2,641

 
10,335

 
3

 

 
728

 
13,707

Originations
44,271

 

 

 

 
17,450

 
61,721

Sales
(4,850
)
 

 

 

 

 
(4,850
)
Settlements
(6,580
)
 
(36,429
)
 

 

 

 
(43,009
)
Net realized gains/(losses) from investments
(150
)
 
9

 

 

 

 
(141
)
Net transfers in and/or out of Level 3

 

 
7,067

 

 

 
7,067

Net unrealized gains/(losses)
(40,187
)
 
(3,437
)
 
(128
)
 

 
3,972

 
(39,780
)
Balance as of December 31, 2017
$
532,308


$
106,304


$
27,420


$


$
102,410


$
768,442

  

F-44



The following table provides a reconciliation of the beginning and ending balances for investments that use Level 3 inputs for the three months ended December 31, 2016 (dollars in thousands):
 
Senior
Secured
First Lien
Term
Loans
 
Senior
Secured
Second
Lien Term
Loans
 
Senior
Secured
First Lien
Notes
 
Unsecured
Debt
 
Equities/Warrants
 
Total
Balance as of September 30, 2016
$
565,329

 
$
213,537

 
$
21,048

 
$
52,809

 
$
23,112

 
$
875,835

Purchases and other adjustments to cost
4,119

 
768

 

 
1,058

 
12

 
5,957

Originations
75,349

 

 

 
1,973

 
10,875

 
88,197

Sales

 

 

 

 

 

Settlements
(79,227
)
 

 

 
(15,000
)
 

 
(94,227
)
Net realized gains/(losses) from investments
(6,089
)
 

 

 
(289
)
 

 
(6,378
)
Net transfers in and/or out of Level 3

 

 

 

 

 

Net unrealized gains/(losses)
3,009

 
566

 
(1
)
 
(906
)
 
(955
)
 
1,713

Balance as of December 31, 2016
$
562,490


$
214,871


$
21,047


$
39,645


$
33,044


$
871,097

 
Net change in unrealized loss included in earnings related to investments still held as of December 31, 2017 and 2016, was approximately $39.2 million and $23.0 million, respectively.
 
Purchases and other adjustments to cost include purchases of new investments at cost, effects of refinancing/restructuring, accretion/amortization of income from discount/premium on debt securities, and PIK.
 
Sales represent net proceeds received from investments sold.
 
Settlements represent principal paydowns received.
 
A review of the fair value hierarchy classifications is conducted on a quarterly basis. Changes in the observability of valuation inputs may result in a reclassification for certain financial assets or liabilities. Reclassifications impacting Level 3 of the fair value hierarchy are reported as transfers in/out of the Level 3 category as of the beginning of the quarter in which the reclassifications occur. During the three months ended December 31, 2017, one of our senior secured first lien notes with a fair value of $7.0 million transferred from Level 2 to Level 3 because of the decrease in availability of the transaction data or the inputs to the valuation. During the three months ended December 31, 2016, none of our investments transferred in or out of Level 3.

The following table presents the quantitative information about Level 3 fair value measurements of our investments, as of December 31, 2017 (dollars in thousands):
 
Fair Value
 
Valuation Technique
 
Unobservable Input
 
Range (Weighted Average)
 
 
 
 
 
 
 
 
Senior Secured First Lien Term Loans
$
300,547

 
Income Approach (DCF)
 
Market yield
 
7.26% - 15.40% (10.89%)
Senior Secured First Lien Term Loans
2,972

 
Enterprise Value Analysis
 
Expected Proceeds
 
$0.0M - $2.6M ($2.3M)
Senior Secured First Lien Term Loans
148,141

 
Market Approach (Guideline Comparable)/Market Approach (Comparable Transactions)/Income Approach (DCF)/ Enterprise Value Analysis
 
Revenue Multiple(1), EBITDA Multiple(1), Discount rate, Expected Proceeds
 
0.63x - 2.00x (1.13x) / 5.50x - 10.00x (7.51x) / 10.00% - 22.00% (17.67%) / $4.0M - $18.3M ($9.6M)
Senior Secured First Lien Term Loans
80,648

 
Recent Arms-Length Transaction
 
Recent Arms Length Transaction
 
N/A
Senior Secured First Lien Notes
27,420

 
Income Approach (DCF)
 
Market yield
 
8.96% - 11.50% (9.61%)
Senior Secured Second Lien Term Loan
62,769

 
Income Approach (DCF)
 
Market yield
 
10.30% - 16.28% (13.45%)
Senior Secured Second Lien Term Loans
7,760

 
Enterprise Value Analysis
 
Expected Proceeds
 
$0.0M-$7.8M ($7.8M)
Senior Secured Second Lien Term Loan
15,207

 
Market Approach (Guideline Comparable)/Income Approach (DCF)
 
Revenue Multiple(1), EBITDA Multiple(1), Discount Rate
 
0.70x - 0.70x (0.70x) / 7.25x - 10.00x (7.29x) / 17.50% - 17.50% (17.50%)
Senior Secured Second Lien Term Loan
20,568

 
Recent Arms-Length Transaction
 
Recent Arms Length Transaction
 
N/A

F-45



 
Fair Value
 
Valuation Technique
 
Unobservable Input
 
Range (Weighted Average)
 
 
 
 
 
 
 
 
Unsecured Debt

 
Market Approach (Guideline Comparable)/Market Approach (Comparable Transactions)/Income Approach (DCF)/Enterprise Value Analysis
 
Revenue Multiple(1), Discount Rate, Expected Proceeds
 
1.00x-1.40x (1.20x) / 17.50%-23.50% (20.50%) / $3.0M - $5.0M ($4.0M)
Equity
21,845

 
Recent Arms-Length Transaction
 
Recent Arms Length Transaction
 
N/A
Equity
80,565

 
Market Approach (Guideline Comparable)/Market Approach (Comparable Transactions)/Income Approach (DCF)/Enterprise Value Analysis
 
Revenue Multiple(1), EBITDA Multiple(1), Discount rate, Expected Proceeds
 
0.70x - 2.00x (0.74x) / 5.00x - 9.63x (8.45x) / 10.00%-20.50% (15.96%) / $4.0M - $18.3M ($5.0M)
Equity

 
Enterprise Value Analysis
 
Expected Proceeds
 
$0.0M
Total
$
768,442

 
 
 
 
 
 

The following table has been modified to conform to the current period presentation, and presents the quantitative information about Level 3 fair value measurements of our investments, as of September 30, 2017 (dollars in thousands):
 
Fair Value
 
Valuation Technique
 
Unobservable Input
 
Range (Weighted Average)
 
 
 
 
 
 
 
 
Senior Secured First Lien Term Loans
$
288,134

 
Income Approach (DCF)
 
Market yield
 
8.63% - 14.74% (11.15%)
Senior Secured First Lien Term Loans
5,254

 
Enterprise Value Analysis
 
Expected Proceeds
 
$0.0M - $4.9M ($4.6M)
Senior Secured First Lien Term Loans
184,059

 
Market Approach (Guideline Comparable)/Market Approach (Comparable Transactions)/Income Approach (DCF)
 
Revenue Multiple(1), EBITDA Multiple(1), Discount rate
 
0.60x - 3.00x (1.42x) / 5.50x - 8.00x (6.77x) / 10.00% - 22.00% (17.79%)
Senior Secured First Lien Term Loans
59,716

 
Recent Arms-Length Transaction
 
Recent Arms Length Transaction
 
N/A
Senior Secured First Lien Notes
20,478

 
Income Approach (DCF)
 
Market yield
 
8.85% - 8.85% (8.85%)
Senior Secured Second Lien Term Loan
88,126

 
Income Approach (DCF)
 
Market yield
 
9.92% - 16.16% (12.22%)
Senior Secured Second Lien Term Loans
7,760

 
Enterprise Value Analysis
 
Expected Proceeds
 
$0.0M - $15.5M ($7.8M)
Senior Secured Second Lien Term Loan
20,894

 
Recent Arms-Length Transaction
 
Recent Arms-Length Transaction
 
N/A
Senior Secured Second Lien Term Loan
19,046

 
Market Approach (Guideline Comparable)/Income Approach (DCF)
 
Revenue Multiple(1), EBITDA Multiple(1), Discount Rate
 
0.55x - 0.70x (0.67x) / 7.00x - 9.13x (8.06x) / 17.50% - 18.00% (17.61%)

Unsecured Debt

 
Market Approach (Guideline Comparable)/Market Approach (Comparable Transactions)/Income Approach (DCF)
 
Revenue Multiple(1), Discount rate
 
1.00x-1.40x (1.20x) / 17.50%-23.50% (20.50%)
Equity
38,893

 
Recent Arms-Length Transaction
 
Recent Arms Length Transaction
 
N/A
Equity
41,367

 
Market Approach (Guideline Comparable)/Market Approach (Comparable Transactions)/Income Approach (DCF)
 
Revenue Multiple(1), EBITDA Multiple(1), Discount rate, Expected Proceeds
 
0.70x - 3.00x (0.74x) / 5.00x - 8.63x (7.10x) / 10.00%-20.50% (16.42%) / $1.9M - $8.0M ($5.0M)
Equity

 
Enterprise Value Analysis
 
Expected Proceeds
 
$0.0M
Total
$
773,727

 
 
 
 
 
 

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

The significant unobservable inputs used in the fair value measurement of the Company’s debt investments are market yields. Increases in market yields would result in lower fair value measurements holding all other variables constant.


F-46



The significant unobservable inputs used in the fair value measurement of the Company’s equity/warrants investments are comparable company multiples of Revenue or EBITDA (earnings before interest, taxes, depreciation and amortization) for the last 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 measurements.

In September 2017, the Company entered into an agreement with Global Accessories Group, LLC (“Global Accessories”), in which it exchanged its full position in Lydell Jewelry Design Studio, LLC for a 3.8% membership interest in Global Accessories, which is included in the Consolidated Schedule of Investments. As part of the agreement, the Company is entitled to a contingent consideration in the form of cash payments (“Earnout”), as well as up to an additional 5% membership interest (“AMI”), provided Global Accessories achieves certain financial benchmarks over specified time frames. The Earnout and AMI were initially recorded an aggregate fair value of $2.4 million on the transaction date using the Income Approach and were included on the Consolidated Statements of Assets and Liabilities in other assets. The contingent consideration will be remeasured to fair value at each reporting date until the contingency is resolved. Any changes in fair value will be recognized in earnings. As of December 31, 2017, there was no change in fair value of the contingent consideration.

Note 5. Borrowings 
 
As a BDC, we are only allowed to employ leverage to the extent that our asset coverage, as defined in the 1940 Act, equals at least 200% after giving effect to such leverage. The amount of leverage that we employ at any time depends on our assessment of the market and other factors at the time of any proposed borrowing.

On November 16, 2012, we obtained an exemptive order from the SEC to permit us to exclude the debt of the SBIC LP guaranteed by the SBA from our 200% asset coverage test under the 1940 Act. The exemptive order provides us with increased flexibility under the 200% asset coverage test by permitting SBIC LP to borrow up to $150 million more than it would otherwise be able to absent the receipt of this exemptive order.

The Company’s outstanding debt excluding debt issuance costs as of December 31, 2017 and September 30, 2017 was as follows (dollars in thousands):
 
December 31, 2017
 
September 30, 2017
 
Aggregate
Principal
Amount
Available
 
Principal
Amount
Outstanding
 
Carrying
Value
 
Fair
Value
 
Aggregate
Principal
Amount
Available
 
Principal
Amount
Outstanding
 
Carrying
Value
 
Fair
Value
Revolving Credit Facility
$
200,000

 
$
47,000

 
$
47,000

 
$
47,000

 
$
200,000

 
$
68,000

 
$
68,000

 
$
68,000

Term Loan Facility
102,000

 
102,000

 
102,000

 
102,000

 
102,000

 
102,000

 
102,000

 
102,000

2019 Notes

 

 

 

 

 

 

 

2021 Notes
74,013

 
74,013

 
74,013

 
76,381

 
74,013

 
74,013

 
74,013

 
77,121

2023 Notes
102,847

 
102,847

 
102,847

 
103,834

 
102,847

 
102,847

 
102,847

 
103,464

SBA Debentures
150,000

 
150,000

 
150,000

 
150,000

 
150,000

 
150,000

 
150,000

 
150,000

Total
$
628,860


$
475,860


$
475,860


$
479,215


$
628,860


$
496,860


$
496,860


$
500,585

  
Credit Facility
 
The Company has a Senior Secured Term Loan Credit Agreement, as amended (the ‘‘Term Loan Facility’’) and a Senior Secured Revolving Credit Agreement, as amended (the ‘‘Revolving Credit Facility’’ and collectively with the Term Loan Facility, the ‘‘Facilities’’) with ING Capital LLC, as Administrative Agent, in order to borrow funds to make additional investments.

The pricing in the case of the Term Loan Facility for LIBOR loans is LIBOR (with no minimum) plus 3.00%. The pricing on the Revolving Credit Facility, is LIBOR (with no minimum) plus 2.75%. The pricing on both the Term Loan Facility and Revolving Credit Facility will decrease by an additional 25 basis points upon receiving an investment grade rating from Standard & Poor’s.

The Term Loan Facility’s bullet maturity is July 28, 2020 and the Revolving Credit Facility’s revolving period ends July 28, 2019, followed by a one-year amortization period and a final maturity on July 28, 2020.

On February 14, 2017, the Company elected to reduce the total commitment of the Revolving Credit Facility to $200.0 million from $343.5 million. The reduction was accounted for as a debt modification to a line-of credit or revolving-debt arrangement in accordance with ASC 470-50, Modifications and Extinguishments, which attributed to an acceleration of debt issuance costs in the amount of $1.3 million and recorded on the Consolidated Statements of Operations as a component of interest and financing expenses.

On September 1, 2017, the Company reduced the Term Loan Facility commitment to $102.0 million from $174.0 million. The reduction was accounted for as a debt extinguishment in accordance with ASC 470-50, Modifications and Extinguishments, which attributed to a realized loss of $0.6 million and recorded on the Consolidated Statements of Operations as a loss on extinguishment of debt.

Borrowings under the Facilities are subject to, among other things, a minimum borrowing/collateral base, and substantially all of the Company’s assets are pledged as collateral under the Facilities. In addition, the Facilities require 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 documentation for each of the Facilities also includes default provisions such as the failure to make timely payments under the Facilities, the occurrence of a change in control and the failure by the Company to materially perform under the operative agreements governing the Facilities, which, if not complied with, could accelerate repayment under the Facilities, thereby materially and adversely affecting the Company’s liquidity, financial condition and results of operations.


F-47



At December 31, 2017, the carrying amount of our borrowings under the Facilities approximated their fair value. The fair values of our debt obligations are 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 our borrowings under the Facilities are estimated based upon market interest rates for our own borrowings or entities with similar credit risk, adjusted for nonperformance risk, if any. As of December 31, 2017 and September 30, 2017, the valuation of the Facilities would be deemed to be Level 3 in the fair value hierarchy, as defined in Note 4.

In accordance with ASU 2015-03, the debt issuance costs related to the Facilities are reported on the Consolidated Statements of Assets and Liabilities as a direct deduction from the face amount of the Facilities. As of December 31, 2017 and September 30, 2017, debt issuance costs related to the Facilities were as follows (dollars in thousands):
 
December 31, 2017
 
September 30, 2017
 
Revolving
Facility
 
Term
Facility
 
Revolving
Facility
 
Term
Facility
Total Debt Issuance Costs
$
8,546

 
$
4,490

 
$
8,546

 
$
4,490

Amortized Debt Issuance Costs
6,927

 
3,537

 
6,769

 
3,444

Unamortized Debt Issuance Costs
$
1,619


$
953


$
1,777


$
1,046

 
The following table shows the components of interest expense, commitment fees related to the Facilities, amortized debt issuance costs, weighted average stated interest rate and weighted average outstanding debt balance for the Facilities for the three months ended December 31, 2017 and 2016 (dollars in thousands):
 
For the three months ended December 31
 
2017
 
2016
Revolving Facility interest
$
410

 
$
21

Revolving Facility commitment fee
410

 
872

Term Facility interest
1,122

 
1,600

Amortization of debt issuance costs
252

 
559

Agency and other fees
18

 
19

Total
$
2,212


$
3,071

Weighted average stated interest rate
4.3
%
 
3.7
%
Weighted average outstanding balance
$
141,402

 
$
176,087

 
Unsecured Notes

2019 Notes

On March 21, 2012, the Company issued $40.0 million in aggregate principal amount of 7.125% unsecured notes which were scheduled to mature on March 30, 2019 (the "2019 Notes"). The 2019 Notes bore interest at a rate of 7.125% per year, and were payable quarterly on March 30, June 30, September 30 and December 30 of each year, beginning June 30, 2012. The 2019 Notes were listed on the NYSE and traded thereon under the trading symbol “MCQ”. On February 22, 2017, the 2019 Notes were redeemed at par plus accrued and unpaid interest. The redemption was accounted for as a debt extinguishment in accordance with ASC 470-50, Modifications and Extinguishments, which attributed to a realized loss of $0.5 million.

2021 Notes

On December 17, 2015, the Company issued $70.8 million in aggregate principal amount of 6.50% unsecured notes that mature on January 30, 2021 (the “2021 Notes”). On January 14, 2016, the Company closed an additional $3.25 million in aggregate principal amount of the 2021 Notes, pursuant to the partial exercise of the underwriters’ option to purchase additional notes. The 2021 Notes may be redeemed in whole or in part at any time or from time to time at the Company’s option on or after January 30, 2019. The 2021 Notes bear interest at a rate of 6.50% per year, payable quarterly on January 30, April 30, July 30 and October 30 of each year, beginning January 30, 2016. The 2021 Notes are listed on the NYSE and trade thereon under the trading symbol “MCX”.

2023 Notes

On March 18, 2013, the Company issued $60.0 million in aggregate principal amount of 6.125% unsecured notes that mature on March 30, 2023 (the "2023 Notes," and together with the 2019 Notes and 2021 Notes, the “Unsecured Notes”). On March 26, 2013, the Company closed an additional $3.5 million in aggregate principal amount of the 2023 Notes, pursuant to the partial exercise of the underwriters’ option to purchase additional notes. As of March 30, 2016, the 2023 Notes may be redeemed in whole or in part at any time or from time to time at the Company's option. The 2023 Notes bear interest at a rate of 6.125% per year, payable quarterly on March 30, June 30, September 30 and December 30 of each year, beginning June 30, 2013. The 2023 Notes are listed on the NYSE and trade thereon under the trading symbol “MCV”.

On December 12, 2016, the Company entered into an “At-The-Market” (“ATM”) debt distribution agreement with FBR Capital Markets & Co., through which the Company could offer for sale, from time to time, up to $40.0 million in aggregate principal amount of the 2023 Notes. The Company has sold 1,573,872 of the 2023 Notes at an average price of $25.03 per note, and has raised $38.6 million in net proceeds, since inception of the ATM debt distribution agreement.


F-48



The fair values of our debt obligations are 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 Unsecured Notes, which are publicly traded, is based upon closing market quotes as of the measurement date. As of December 31, 2017 and September 30, 2017, the Unsecured Notes would be deemed to be Level 1 in the fair value hierarchy, as defined in Note 4. 

In accordance with ASU 2015-03, the debt issuance costs related to the Unsecured Notes are reported on the Consolidated Statements of Assets and Liabilities as a direct deduction from the face amount of the Unsecured Notes. As of December 31, 2017 and September 30, 2017, debt issuance costs related to the Unsecured Notes were as follows (dollars in thousands): 
 
December 31, 2017
 
September 30, 2017
 
2019
Notes
 
2021
Notes
 
2023
Notes
 
Total
 
2019
Notes
 
2021
Notes
 
2023
Notes
 
Total
Total Debt Issuance Costs
$
1,475

 
$
3,226

 
$
3,102

 
$
7,803

 
$
1,475

 
3226

 
$
3,102

 
$
7,803

Amortized Debt Issuance Costs
1,475

 
1,286

 
1,171

 
3,932

 
1,475

 
1127

 
1,078

 
3,680

Unamortized Debt Issuance Costs
$


$
1,940


$
1,931


$
3,871


$


$
2,099


$
2,024


$
4,123

   
For the three months ended December 31, 2017 and 2016, the components of interest expense, amortized debt issuance costs, weighted average stated interest rate and weighted average outstanding debt balance for the Unsecured Notes were as follows (dollars in thousands):
 
For the three months ended December 31
 
2017
 
2016
2019 Unsecured Notes interest
$

 
$
713

2021 Unsecured Notes interest
1,203

 
1,203

2023 Unsecured Notes interest
1,575

 
973

2023 Unsecured Notes premium
(1
)
 
N/A

Amortization of debt issuance costs
251

 
267

Total
$
3,028


$
3,156

Weighted average stated interest rate
6.2
%
 
6.5
%
Weighted average outstanding balance
$
176,860

 
$
177,534


SBA Debentures

On March 26, 2013, SBIC LP received an SBIC license from the SBA.

The SBIC license allows SBIC LP to obtain leverage by issuing SBA-guaranteed debentures, subject to the issuance of a capital commitment by the SBA and other customary procedures. SBA-guaranteed debentures are non-recourse, interest only debentures with interest payable semi-annually and have a ten year maturity. The principal amount of SBA-guaranteed debentures is not required to be paid prior to maturity but may be prepaid at any time without penalty. The interest rate of SBA-guaranteed debentures is fixed on a semi-annual basis at a market-driven spread over U.S. Treasury Notes with 10-year maturities. The SBA, as a creditor, will have a superior claim to the SBIC LP’s assets over our stockholders in the event we liquidate the SBIC LP or the SBA exercises its remedies under the SBA-guaranteed debentures issued by the SBIC LP upon an event of default.

SBA regulations currently limit the amount that the SBIC LP may borrow to a maximum of $150 million when it has at least $75 million in regulatory capital, receives a capital commitment from the SBA and has been through an examination by the SBA subsequent to licensing.

As of December 31, 2017 and September 30, 2017, SBIC LP had $75.0 million in regulatory capital and had $150.0 million SBA Debentures outstanding that mature between September 2023 and September 2025.
 
Our fixed-rate SBA Debentures as of December 31, 2017 and September 30, 2017 were as follows (dollars in thousands):
 
December 31, 2017
 
September 30, 2017
Rate Fix Date
Debenture
Amount
 
Fixed All-in
Interest Rate
 
Debenture
Amount
 
Fixed All-in
 Interest Rate
September 2013
$
5,000

 
4.404
%
 
$
5,000

 
4.404
%
March 2014
39,000

 
3.951

 
39,000

 
3.951

September 2014
50,000

 
3.370

 
50,000

 
3.370

September 2014
6,000

 
3.775

 
6,000

 
3.775

September 2015
50,000

 
3.571

 
50,000

 
3.571

Weighted Average Rate/Total
$
150,000

 
3.639
%
 
$
150,000

 
3.639
%
 
As of December 31, 2017, the carrying amount of the SBA Debentures approximated their fair value. The fair values of the SBA Debentures are 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 SBA Debentures are estimated based upon market interest rates for our own borrowings or entities with similar credit risk, adjusted for nonperformance risk, if any. As of December 31, 2017 and September 30, 2017, the SBA Debentures would be deemed to be Level 3 in the fair value hierarchy, as defined in Note 4.


F-49



In accordance with ASU 2015-03, the debt issuance costs related to the SBA Debentures are reported on the Consolidated Statements of Assets and Liabilities as a direct deduction from the face amount of the SBA Debentures. As of December 31, 2017 and September 30, 2017, debt issuance costs related to the SBA Debentures were as follows (dollars in thousands):  
 
December 31, 2017
 
September 30, 2017
Total Debt Issuance Costs
$
5,138

 
$
5,138

Amortized Debt Issuance Costs
2,435

 
2,292

Unamortized Debt Issuance Costs
$
2,703


$
2,846

 
For the three months ended December 31, 2017 and 2016, the components of interest, amortized debt issuance costs, weighted average stated interest rate and weighted average outstanding debt balance for the SBA Debentures were as follows (dollars in thousands): 
 
For the three months ended December 31
 
2017
 
2016
SBA Debentures interest
$
1,376

 
$
1,376

Amortization of debt issuance costs
143

 
171

Total
$
1,519


$
1,547

Weighted average stated interest rate
3.6
%
 
3.6
%
Weighted average outstanding balance
$
150,000

 
$
150,000

 
Note 6. Agreements
 
Investment Management Agreement

We entered into an investment management agreement with MCC Advisors. Mr. Brook Taube, our Chairman and Chief Executive Officer, is a managing partner and senior portfolio manager of MCC Advisors, and Mr. Seth Taube, one of our directors, is a managing partner of MCC Advisors.

Under the terms of our investment management agreement, MCC Advisors:

determines the composition of our portfolio, the nature and timing of the changes to our portfolio and the manner of implementing such changes;

identifies, evaluates and negotiates the structure of the investments we make (including performing due diligence on our prospective portfolio companies); and

executes, closes, monitors and administers the investments we make, including the exercise of any voting or consent rights.

MCC Advisors’ services under the investment management agreement are not exclusive, and it is free to furnish similar services to other entities so long as its services to us are not impaired.

Pursuant to our investment management agreement, we pay MCC Advisors a fee for investment advisory and management services consisting of a base management fee and a two-part incentive fee.

On December 3, 2015, MCC Advisors recommended and, in consultation with the Board, agreed to reduce fees under the investment management agreement. Beginning January 1, 2016, the base management fee was reduced to 1.50% on gross assets above $1 billion. In addition, MCC Advisors reduced its incentive fee from 20% on pre-incentive fee net investment income over an 8% hurdle, to 17.5% on pre-incentive fee net investment income over a 6% hurdle. Moreover, the revised incentive fee includes a netting mechanism and is subject to a rolling three-year look back from January 1, 2016 forward. Under no circumstances will the new fee structure result in higher fees to MCC Advisors than fees under the prior investment management agreement.

The following discussion of our base management fee and two-part incentive fee reflect the terms of the fee waiver agreement executed by MCC Advisors on February 8, 2016 (the “Fee Waiver Agreement”). The terms of the Fee Waiver Agreement are effective as of January 1, 2016, and are a permanent reduction in the base management fee and incentive fee on net investment income payable to MCC Advisors for the investment advisory and management services it provides under the investment management agreement. The Fee Waiver Agreement does not change the second component of the incentive fee, which is the incentive fee on capital gains.

Base Management Fee

For providing investment advisory and management services to us, MCC Advisors receives a base management fee. The base management fee is calculated at an annual rate of 1.75% (0.4375% per quarter) of up to $1.0 billion of the Company’s gross assets and 1.50% (0.375% per quarter) of any amounts over $1.0 billion of the Company’s gross assets, and is payable quarterly in arrears. The base management fee will be calculated based on the average value of the Company’s gross assets at the end of the two most recently completed calendar quarters and will be appropriately pro-rated for any partial quarter.


F-50



Incentive Fee

The incentive fee has two components, as follows:

Incentive Fee Based on Income

The first component of the incentive fee is payable quarterly in arrears and is based on our pre-incentive fee net investment income earned during the calendar quarter for which the incentive fee is being calculated. MCC Advisors is entitled to receive the incentive fee on net investment income from us if our Ordinary Income (as defined below) exceeds a quarterly “hurdle rate” of 1.5%. The hurdle amount is calculated after making appropriate adjustments to the Company’s net assets, as determined as of the beginning of each applicable calendar quarter, in order to account for any capital raising or other capital actions as a result of any issuances by the Company of its common stock (including issuances pursuant to our dividend reinvestment plan), any repurchase by the Company of its own common stock, and any dividends paid by the Company, each as may have occurred during the relevant quarter.

Beginning with the calendar quarter that commenced on January 1, 2016, the incentive fee on net investment income is determined and paid quarterly in arrears at the end of each calendar quarter by reference to our aggregate net investment income, as adjusted as described below, from the calendar quarter then ending and the eleven preceding calendar quarters (or if shorter, the number of quarters that have occurred since January 1, 2016). We refer to such period as the “Trailing Twelve Quarters.”

The hurdle amount for the incentive fee on net investment income is determined on a quarterly basis, and is equal to 1.5% multiplied by the Company’s net asset value at the beginning of each applicable calendar quarter comprising the relevant Trailing Twelve Quarters. The hurdle amount is calculated after making appropriate adjustments to the Company’s net assets, as determined as of the beginning of each applicable calendar quarter, in order to account for any capital raising or other capital actions as a result of any issuances by the Company of its common stock (including issuances pursuant to our dividend reinvestment plan), any repurchase by the Company of its own common stock, and any dividends paid by the Company, each as may have occurred during the relevant quarter. The incentive fee for any partial period will be appropriately prorated. Any incentive fee on net investment income will be paid to MCC Advisors on a quarterly basis, and will be based on the amount by which (A) aggregate net investment income (“Ordinary Income”) in respect of the relevant Trailing Twelve Quarters exceeds (B) the hurdle amount for such Trailing Twelve Quarters. The amount of the excess of (A) over (B) described in this paragraph for such Trailing Twelve Quarters is referred to as the “Excess Income Amount.” For the avoidance of doubt, Ordinary Income is net of all fees and expenses, including the reduced base management fee but excluding any incentive fee on Pre-Incentive Fee net investment income or on the Company’s capital gains.

Determination of Quarterly Incentive Fee Based on Income

The incentive fee on net investment income for each quarter is determined as follows:

No incentive fee on net investment income is payable to MCC Advisors for any calendar quarter for which there is no Excess Income Amount;

100% of the Ordinary Income, if any, that exceeds the hurdle amount, but is less than or equal to an amount, which we refer to as the “Catch-up Amount,” determined as the sum of 1.8182% multiplied by the Company’s net assets at the beginning of each applicable calendar quarter, as adjusted as noted above, comprising the relevant Trailing Twelve Quarters is included in the calculation of the incentive fee on net investment income; and

17.5% of the Ordinary Income that exceeds the Catch-up Amount is included in the calculation of the incentive fee on net investment income.

The amount of the incentive fee on net investment income that will be paid to MCC Advisors for a particular quarter will equal the excess of the incentive fee so calculated minus the aggregate incentive fees on net investment income that were paid in respect of the first eleven calendar quarters (or the portion thereof) included in the relevant Trailing Twelve Quarters but not in excess of the Incentive Fee Cap (as described below).

The incentive fee on net investment income that is paid to MCC Advisors for a particular quarter is subject to a cap (the “Incentive Fee Cap”). The Incentive Fee Cap for any quarter is an amount equal to (a) 17.5% of the Cumulative Net Return (as defined below) during the relevant Trailing Twelve Quarters minus (b) the aggregate incentive fees on net investment income that were paid in respect of the first eleven calendar quarters (or the portion thereof) included in the relevant Trailing Twelve Quarters.

“Cumulative Net Return” means (x) the Ordinary Income in respect of the relevant Trailing Twelve Quarters minus (y) any Net Capital Loss (as described below), if any, in respect of the relevant Trailing Twelve Quarters. If, in any quarter, the Incentive Fee Cap is zero or a negative value, the Company will pay no incentive fee on net investment income to MCC Advisors for such quarter. If, in any quarter, the Incentive Fee Cap for such quarter is a positive value but is less than the incentive fee on net investment income that is payable to MCC Advisors for such quarter (before giving effect to the Incentive Fee Cap) calculated as described above, the Company will pay an incentive fee on net investment income to MCC Advisors equal to the Incentive Fee Cap for such quarter. If, in any quarter, the Incentive Fee Cap for such quarter is equal to or greater than the incentive fee on net investment income that is payable to MCC Advisors for such quarter (before giving effect to the Incentive Fee Cap) calculated as described above, the Company will pay an incentive fee on net investment income to MCC Advisors, calculated as described above, for such quarter without regard to the Incentive Fee Cap.

“Net Capital Loss” in respect of a particular period means the difference, if positive, between (i) aggregate capital losses, whether realized or unrealized, and dilution to the Company’s net assets due to capital raising or capital actions, in such period and (ii) aggregate capital gains, whether realized or unrealized and accretion to the Company’s net assets due to capital raising or capital action, in such period.

Dilution to the Company’s net assets due to capital raising is calculated, in the case of issuances of common stock, as the amount by which the net asset value per share was adjusted over the transaction price per share, multiplied by the number of shares issued. Accretion to the Company’s net assets due to capital raising is calculated, in the case of issuances of common stock (including issuances pursuant to our dividend reinvestment plan), as the excess of the transaction price per share over the amount by which the net asset value per share was adjusted, multiplied by the number of shares issued. Accretion

F-51



to the Company’s net assets due to other capital action is calculated, in the case of repurchases by the Company of its own common stock, as the excess of the amount by which the net asset value per share was adjusted over the transaction price per share multiplied by the number of shares repurchased by the Company.

Incentive Fee Based on Capital Gains

The second component of the incentive fee is determined and payable in arrears as of the end of each calendar year (or upon termination of the investment management agreement as of the termination date) and equals 20.0% of our cumulative aggregate realized capital gains less cumulative realized capital losses, unrealized capital depreciation (unrealized depreciation on a gross investment-by-investment basis at the end of each calendar year) and all capital gains upon which prior performance-based capital gains incentive fee payments were previously made to the investment adviser.

Under GAAP, the Company calculates the second component of the incentive fee as if the Company had realized all assets at their fair values as of the reporting date. Accordingly, the Company accrues a provisional capital gains incentive fee taking into account any unrealized gains or losses. As the provisional capital gains incentive fee is subject to the performance of investments until there is a realization event, the amount of the provisional capital gains incentive fee accrued at a reporting date may vary from the capital gains incentive that is ultimately realized and the differences could be material.

Base Management Fee - Prior to Fee Waiver Agreement

The base management fee was calculated at an annual rate of 1.75% of our gross assets (which is defined as all the assets of Medley Capital, including those acquired using borrowings for investment purposes), and was payable quarterly in arrears. The base management fee was based on the average value of our gross assets at the end of the two most recently completed calendar quarters.

Incentive Fee - Prior to Fee Waiver Agreement

The incentive fee based on net investment income was calculated as 20.0% of the amount, if any, by which our pre-incentive fee net investment income, expressed as a rate of return on the value of our net assets calculated as of the end of the calendar quarter immediately preceding the calendar quarter for which the incentive fee is being calculated, exceeds a 2.0% (which is 8.0% annualized) hurdle rate but also includes a “‘catch-up’ provision. Under this provision, in any calendar quarter, our investment adviser receives no incentive fee until our net investment income equals the hurdle rate of 2.0%, but then receives, as a “catch-up”, 100% of our pre-incentive fee net investment income with respect to that portion of such pre-incentive fee net investment income, if any, that exceeds the hurdle rate but is less than 2.5%. The effect of this provision is that, if pre-incentive fee net investment income exceeds 2.5% in any calendar quarter, our investment adviser will receive 20% of our pre-incentive fee net investment income as if the hurdle rate did not apply. For this purpose, pre-incentive fee net investment income means interest income, dividend income and any other income including any other fees (other than fees for providing managerial assistance), such as commitment, origination, structuring, diligence and consulting fees or other fees that we receive from portfolio companies accrued during the calendar quarter, minus our operating expenses for the quarter including the base management fee, expenses payable under the administration agreement, and any interest expense and any dividends paid on any issued and outstanding preferred stock, but excluding the incentive fee. Pre-incentive fee net investment income includes, in the case of investments with a deferred interest feature (such as original issue discount, debt instruments with PIK interest and zero coupon securities), accrued income that we have not yet received in cash.

For the avoidance of doubt, the purpose of the new incentive fee calculation under the Fee Waiver Agreement is to permanently reduce aggregate fees payable to MCC Advisors by the Company, effective as of January 1, 2016. In order to ensure that the Company will pay MCC Advisors lesser aggregate fees on a cumulative basis, as calculated beginning January 1, 2016, we will, at the end of each quarter, also calculate the base management fee and incentive fee on net investment income owed by the Company to MCC Advisors based on the formula in place prior to January 1, 2016. If, at any time beginning January 1, 2016, the aggregate fees on a cumulative basis, as calculated based on the formula in place after January 1, 2016, would be greater than the aggregate fees on a cumulative basis, as calculated based on the formula in place prior to January 1, 2016, MCC Advisors shall only be entitled to the lesser of those two amounts.

For the three months ended December 31, 2017 and 2016, the Company incurred base management fees to MCC Advisors of $4.1 million and $4.5 million, respectively.

For the three months ended December 31, 2017 and 2016, base management fees, net of $0 and $19,945 waived under the Fee Waiver Agreement were $4.1 million and $4.5 million, respectively.

The incentive fees shown in the Consolidated Statements of Operations are calculated using the fee structure set forth in investment management agreement, and then adjusted to reflect the terms of the Fee Waiver Agreement. Pursuant to the investment management agreement, pre -incentive fee net investment income is compared to a hurdle rate of 2.0% of the net asset value at the beginning of the period and is calculated as follows:

1)
No incentive fee is recorded during the quarter in which our pre-incentive fee net investment income does not exceed the hurdle rate;

2)
100% of pre-incentive fee net investment income that exceeds the hurdle rate but is less than 2.5% in the quarter; and

3)
20.0% of the amount of pre-incentive fee net investment income, if any, that exceeds 2.5% of the hurdle rate.

For purposes of implementing the fee waiver under the Fee Waiver Agreement, we calculate the incentive fee based upon the formula that exists under the investment management agreement, and then apply the terms of wavier set forth in the Fee Waiver Agreement, if applicable.

For the three months ended December 31, 2017, the Company did not incur any incentive fees on net investment income because pre-incentive fee net investment income did not exceed the hurdle amount under the formula that exists under the investment management agreement. For the three months ended December 31, 2016, we incurred $0.9 million of incentive fees related to pre-incentive fee net investment income.


F-52



For the three months ended December 31, 2017 and 2016, incentive fees, net of $0 and $43,663 waived under the Fee Waiver Agreement were $0 and $0.9 million.

As of December 31, 2017 and September 30, 2017, $4.1 million and $4.3 million, respectively, were included in “management and incentive fees payable” in the accompanying Consolidated Statements of Assets and Liabilities.
 
Administration Agreement
 
On January 19, 2011, the Company entered into an administration agreement with MCC Advisors. Pursuant to this agreement, MCC Advisors furnishes us with office facilities and equipment, clerical, bookkeeping, recordkeeping and other administrative services related to the operations of the Company. We reimburse MCC Advisors for our allocable portion of overhead and other expenses incurred by it performing its obligations under the administration agreement, including rent and our allocable portion of the cost of certain of our officers and their respective staff. From time to time, our administrator may pay amounts owed by us to third-party service providers and we will subsequently reimburse our administrator for such amounts paid on our behalf. For the three months ended December 31, 2017 and 2016, we incurred $0.9 million and $0.9 million in administrator expenses, respectively.

Note 7. Related Party Transactions

Due to Affiliate

Due to affiliate consists of certain general and administrative expenses paid by an affiliate on behalf of the Company.

Other Related Party Transactions

Certain affiliates of MCC Advisors, Medley Capital LLC, their respective affiliates and some of their employees purchased in the IPO an aggregate of 833,333 shares of common stock at the IPO price per share of $12.00. The Company received the full proceeds from the sale of these shares, and no underwriting discounts or commissions were paid in respect of these shares.

Opportunities for co-investments may arise when MCC Advisors or an affiliated investment 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, MCC 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) of the 1940 Act and Rule 17d-1 thereunder. On October 4, 2017, the Company, MCC 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 otherwise substantially similar to the 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.  

Note 8. Commitments
 
Guarantees

The Company has a guarantee to issue up to $7.0 million in standby letters of credit through a financial intermediary on behalf of a certain portfolio company. Under this arrangement, if the standby letters of credit were to be issued, the Company would be required to make payments to third parties if the portfolio company was to default on its related payment obligations. As of December 31, 2017, the Company had not issued any standby letters of credit under the commitment on behalf of the portfolio company. The guarantee will renew annually until cancellation.

Unfunded commitments

As of December 31, 2017 and September 30, 2017, we had commitments under loan and financing agreements to fund up to $34.0 million to 17 portfolio companies and $23.7 million to 15 portfolio companies, respectively. These commitments are primarily composed of senior secured term loans and revolvers, and an analysis of their fair value is included in the Consolidated Schedule of Investments. The commitments are generally subject to the borrowers meeting certain criteria such as compliance with covenants and certain operational metrics. The terms of the borrowings and financings subject to commitment are comparable to the terms of other loan and equity securities in our portfolio. A summary of the composition of the unfunded commitments as of December 31, 2017 and September 30, 2017 is shown in the table below (dollars in thousands):

F-53



 
December 31, 2017
 
September 30, 2017
Path Medical, LLC - Delayed Draw Term Loan B
$
7,125

 
$

SMART Financial Operations, LLC - Delayed Draw Term Loan
4,725

 
4,725

Barry's Bootcamp Holdings, LLC - Revolver
4,400

 
4,400

Accupac, Inc. - Delayed Draw Term Loan
2,612

 
2,612

RMS Holding Company, LLC - Revolver
2,327

 

Alpine SG, LLC - Delayed Draw Term Loan
1,857

 

SFP Holding, Inc. - Delayed Draw Term Loan
1,778

 
1,778

Manna Pro Products, LLC - Delayed Draw Term Loan
1,600

 

Barry's Bootcamp Holdings, LLC - Delayed Draw Term Loan
1,271

 
1,271

AAR Intermediate Holdings, LLC - Revolver
1,258

 
1,797

Trans-Fast Remittance LLC - Delayed Draw Term Loan
1,057

 
1,057

Alpine SG, LLC - Revolver
1,000

 

Black Angus Steakhouses, LLC - Delayed Draw Term Loan
893

 
893

Impact Sales, LLC - Delayed Draw Term Loan
755

 
755

Black Angus Steakhouses, LLC - Revolver
535

 
516

Brook & Whittle Holdings Corp. - Delayed Draw Term Loan
310

 

Central States Dermatology Services, LLC - Delayed Draw Term Loan
200

 
254

SavATree, LLC - Delayed Draw Term Loan
167

 
167

Access Media Holdings, LLC - Series AAA Preferred Equity
107

 
277

Engineered Machinery Holdings, Inc. - Delayed Draw Term Loan
29

 
159

CP OPCO, LLC - Revolver

 
1,973

Brantley Transportation LLC - Delayed Draw Term Loan

 
788

NVTN LLC - Delayed Draw Term Loan

 
250

Total
$
34,006


$
23,672

 
Legal Proceedings
 
We are a party to certain legal proceedings incidental to the normal course of our business, including where third parties may try to seek to impose liability on us in connection with the activities of our portfolio companies. While the outcome of these legal proceedings cannot at this time be predicted with certainty, we do not expect that these proceedings will have a material effect on our financial condition or results of operations.

Note 9. Fee Income
 
Fee income consists of origination/closing fee, amendment fee, prepayment penalty, administrative agent fee, and other miscellaneous fees. The following tables summarize the Company’s fee income for the three months ended December 31, 2017 and 2016 (dollars in thousands): 
 
For the three months ended December 31
 
2017
 
2016
Origination fee
$
1,456

 
$
727

Amendment fee
179

 
105

Administrative agent fee
162

 
205

Other fees
32

 
218

Prepayment fee
20

 
169

Fee income
$
1,849


$
1,424

 
Note 10. Directors Fees
 
On December 7, 2016, the board of directors approved an amendment to the compensation model pursuant to which the independent directors earn fees for their service on the board of directors. Prior to the amendment, as compensation for serving on our board of directors, each independent director received an annual fee of $55,000. Independent directors also received $7,500 ($1,500 for telephonic attendance) plus reimbursement of reasonable out-of-pocket expenses incurred in connection with attending each board meeting and received $2,500 ($1,500 for telephonic attendance) plus reimbursement of reasonable out-of-pocket expenses incurred in connection with attending each committee meeting. In addition, the Chairman of the Audit Committee received an annual fee of $25,000 and each chairperson of any other committee received an annual fee of $10,000, and other members of the Audit Committee and any other standing committees received an annual fee of $12,500 and $6,000, respectively, for their additional services in these capacities.

The compensation model approved by the board of directors on December 7, 2016, which was retroactively effective as of October 1, 2016, amended the prior model by increasing the annual fee received by each independent director from $55,000 to $90,000, but decreasing the per board meeting fee from $7,500 to $3,000. In addition, there will no longer be a different fee for participating in board and/or committee meetings telephonically.

No compensation is paid to directors who are ‘‘interested persons’’ of the Company (as such term is defined in the 1940 Act). For the three months ended December 31, 2017 and 2016, we accrued $0.1 million and $0.2 million for directors’ fees expense, respectively.


F-54



Note 11. 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 shareholders by the weighted average number of shares outstanding during the period. Other potentially dilutive common shares, and the related impact to earnings, are considered when calculating earnings per share on a diluted basis. The Company does not have any potentially dilutive common shares as of December 31, 2017.
 
The following information sets forth the computation of the weighted average basic and diluted net increase/(decrease) in net assets per share from operations for the three months ended December 31, 2017 and 2016 (dollars in thousands, except share and per share amounts):
 
For the three months ended December 31
 
2017
 
2016
Basic and diluted:
 

 
 

Net increase/(decrease) in net assets from operations
$
(31,944
)
 
$
6,326

Weighted average common shares outstanding
54,474,211

 
54,474,211

Earnings per common share-basic and diluted
$
(0.59
)
 
$
0.12


Note 12. Financial Highlights
 
The following is a schedule of financial highlights for the three months ended December 31, 2017 and 2016:
 
For the three months ended December 31
 
2017
 
2016
Per share data:(1)
 
 
 
Net asset value per share at beginning of period
$
8.45

 
$
9.49

 
 
 
 
Net investment income(2)
0.13

 
0.19

Net realized gains/(losses) on investments

 
(0.12
)
Net unrealized appreciation/(depreciation) on investments
(0.72
)
 
0.05

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

 

Net increase/(decrease) in net assets
(0.59
)
 
0.12

 
 
 
 
Distributions from net investment income
(0.16
)
 
(0.22
)
Distributions from net realized gains

 

Distributions from tax return of capital

 

 
 
 
 
Net asset value at end of period
$
7.71

 
$
9.39

Net assets at end of period
$
419,769,455

 
$
511,260,387

Shares outstanding at end of period
54,474,211

 
54,474,211

 
 
 
 
Per share market value at end of period
$
5.22

 
$
7.51

Total return based on market value(3)
(9.97
)%
 
1.28
%
Total return based on net asset value(4)
(6.05
)%
 
1.81
%
Portfolio turnover rate(5)
22.70
 %
 
17.94
%
  


F-55



The following is a schedule of ratios and supplemental data for the three months ended December 31, 2017 and 2016:
 
For the three months ended December 31
 
2017
 
2016
Ratios:
 

 
 

Ratio of net investment income to average net assets after waivers(5)(6)
6.25
%
 
8.29
%
Ratio of total expenses to average net assets after waivers(5)(6)
11.46
%
 
11.40
%
Ratio of incentive fees to average net assets after waivers(6)
%
 
0.16
%
 
 
 
 
Supplemental Data:
 

 
 

Ratio of net operating expenses and credit facility related expenses to average net assets(5)(6)
11.46
%
 
11.24
%
Percentage of non-recurring fee income(7)
8.18
%
 
4.68
%
Average debt outstanding(8)
$
468,261,799

 
$
503,620,657

Average debt outstanding per common share
$
8.60

 
$
9.25

Asset coverage ratio per unit(9)
2,288

 
2,382

 
 
 
 
Average market value per unit:
 

 
 

Facilities(10)
N/A

 
N/A

SBA debentures(10)
N/A

 
N/A

Notes due 2019
N/A

 
$
25.40

Notes due 2021
$
25.83

 
$
25.53

Notes due 2023
$
25.21

 
$
24.86


(1)
Table may not foot due to rounding.
(2)
Net investment income excluding management and incentive fee waivers based on total weighted average common stock outstanding equals $0.13 and $0.18 per share for the three months ended December 31, 2017 and 2016, respectively.
(3)
Total return is historical and assumes changes in share price, reinvestments of all dividends and distributions at prices obtained under the Company’s dividend reinvestment plan, and no sales charge for the period.
(4)
Total return is historical and assumes changes in NAV, reinvestments of all dividends and distributions at prices obtained under the Company’s dividend reinvestment plan, and no sales charge for the period.
(5)
Ratios are annualized during interim periods.
(6)
For the three months ended December 31, 2017, excluding management and incentive fee waivers, the ratios of net investment income, total expenses, incentive fees, and operating expenses and credit facility related expenses to average net assets were 6.25%, 11.46%, 0.00%, and 11.46%, respectively. For the three months ended December 31, 2016, excluding management and incentive fee waivers, the ratios of net investment income, total expenses, incentive fees, and operating expenses and credit facility related expenses to average net assets were 8.27%, 11.43%, 0.17%, and 11.26%, respectively.
(7)
Represents the impact of the non-recurring fees over total investment income.
(8)
Based on daily weighted average carrying value of debt outstanding during the period.
(9)
Asset coverage per unit is the ratio of the carrying value of our total consolidated assets, less all liabilities and indebtedness not represented by senior securities, to the aggregate amount of senior securities representing indebtedness. Asset coverage per unit is expressed in terms of dollar amounts per $1,000 of indebtedness. Asset coverage ratio per unit does not include unfunded commitments. The inclusion of unfunded commitments in the calculation of the asset coverage ratio per unit would not cause us to be below the required amount of regulatory coverage.
(10)
The Facilities and SBA Debentures are not registered for public trading.

Note 13. Dividends
 
Dividends and distributions to common stockholders are recorded on the ex-dividend date. The amount to be paid out as a dividend is determined by our board of directors.
 
We have adopted an “opt out” dividend reinvestment plan for our common stockholders. As a result, if we declare a cash dividend or other distribution, each stockholder that has not “opted out” of our dividend reinvestment plan will have its dividends 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.
 
The following table summarizes the Company’s dividend distributions during the three months ended December 31, 2017 and 2016
Date Declared
 
Record Date
 
Payment Date
 
Amount Per Share
During the three months ended December 31, 2017
 
 
 
 
 
 

10/31/2017
 
11/22/2017
 
12/22/2017
 
$
0.16

 
 
 
 
 
 
$
0.16



F-56



Date Declared
 
Record Date
 
Payment Date
 
Amount Per Share
During the three months ended December 31, 2016
 
 
 
 
 
 

11/3/2016
 
11/23/2016
 
12/23/2016
 
$
0.22

 
 
 
 
 
 
$
0.22

 
Note 14. Stock Repurchase Program
 
On February 5, 2015, our board of directors approved a share repurchase program pursuant to which we could purchase up to an aggregate amount of $30.0 million of our common stock between the period of the approval date and February 5, 2016. On December 4, 2015, the board of directors extended the duration of the share repurchase program through December 31, 2016, and increased the aggregate amount to $50.0 million. On December 7, 2016, the board of directors extended the duration of the share repurchase program through December 31, 2017. Any stock repurchases will be made through the open market at times, and in such amounts, as management deems appropriate. As of December 31, 2017, the Company has repurchased an aggregate of 4,259,073 shares of common stock at an average price of $8.00 per share with a total cost of approximately $34.1 million. Since the inception of the program, the Company's net asset value per share was increased by approximately $0.23 as a result of the share repurchases.

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 three months ended December 31, 2017, except as disclosed below.
 
On January 30, 2018, the Company’s Board of Directors declared a quarterly dividend of $0.16 per share, payable on March 23, 2018 to stockholders of record at the close of business on February 21, 2018.

On January 26, 2018, the Company priced a debt offering in Israel of $121.1 million of its 5.05% Series A Notes (the “2024 Notes”). The 2024 Notes were issued pursuant to a deed of trust between the Company and Mishmeret Trust Company, Ltd. as trustee. The 2024 Notes are general, unsecured obligations and rank equal in right of payment with all of the Company’s existing and future unsecured indebtedness. The 2024 Notes will mature on February 27, 2024 and the principal will be payable in four annual installments, of which 25% will be payable on each February 27, 2021-2024.  The 2024 Notes are rated ilA+ by S&P Global Ratings Maalot Ltd. and will be listed on the Tel Aviv Stock Exchange (“TASE”). The 2024 Notes have not been and will not be registered under the Securities Act of 1933, and may not be offered or sold in the United States absent registration under the Securities Act or in transactions exempt from, or not subject to, such registration requirements. In connection with this offering, we have dual listed our common stock on TASE. On January 31, 2018, the Company used a majority of the net proceeds from this offering to repay outstanding indebtedness under the Term Loan Facility, effectively terminating the Term Loan Facility.


F-57



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 on Form 10-Q.

Except as otherwise specified, references to “we,” “us,” “our,” or the “Company,” refer to Medley Capital Corporation.

Forward-Looking Statements

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

the introduction, withdrawal, success and timing of business initiatives and strategies;

changes in political, economic or industry conditions, the interest rate environment or conditions affecting the financial and capital markets, which could result in changes in the value of our assets;

the relative and absolute investment performance and operations of MCC Advisors;

the impact of increased competition;

the impact of future acquisitions and divestitures;

our business prospects and the prospects of our portfolio companies;

the impact of legislative and regulatory actions and reforms and regulatory, supervisory or enforcement actions of government agencies relating to us or MCC Advisors;

our contractual arrangements and relationships with third parties;

any future financings by us;

the ability of MCC Advisors to attract and retain highly talented professionals;

fluctuations in foreign currency exchange rates;

the impact of changes to tax legislation and, generally, our tax position; and

the unfavorable resolution of legal proceedings.

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 the factors set forth as “Risk Factors” in our
annual report on Form 10-K filed with the SEC on December 7, 2017, and elsewhere in this quarterly report on Form 10-Q.

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 Securities and Exchange Commission (“SEC”), including annual reports on Form 10-K, registration statements on Form N-2, quarterly reports on Form 10-Q and current reports on Form 8-K.

Overview

We are an externally-managed, non-diversified closed-end management investment company that filed an election to be regulated as a BDC under the 1940 Act. In addition, we have elected and qualified to be treated for U.S. federal income tax purposes as a RIC under Subchapter M of the Code.

We commenced operations and completed our initial public offering on January 20, 2011. Our investment activities are managed by MCC Advisors and supervised by our board of directors, of which a majority of the members are independent of us.

Our investment objective is to generate current income and capital appreciation by lending to privately-held middle market companies, primarily through directly originated transactions, to help these companies fund acquisitions, growth or refinancing. Our portfolio generally consists of senior secured first lien term loans and senior secured second lien term loans. In some of our investments, we receive warrants or other equity participation features, which we believe will increase the total investment returns.
 

1



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 maintain our RIC status, we must meet specified source-of-income and asset diversification requirements. To maintain our RIC tax treatment under Subchapter M for U.S. federal income tax purposes, we must timely 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 income on the debt that we hold and capital gains, if any, on warrants or other equity interests that we may acquire in portfolio companies. We invest our assets primarily in privately held companies with enterprise or asset values between $25 million and $250 million and focus on investment sizes of $10 million to $50 million. We believe that pursuing opportunities of this size offers several benefits including reduced competition, a larger investment opportunity set and the ability to minimize the impact of financial intermediaries. We expect our debt investments to bear interest at either a fixed or floating rate. Interest on debt will be payable generally either monthly or quarterly. In some cases our debt investments may provide for a portion of the interest to be PIK. To the extent interest is PIK, it will be payable through the increase of the principal amount of the obligation by the amount of interest due on the then-outstanding aggregate principal amount of such obligation. The principal amount of the debt and any accrued but unpaid interest will generally become due at the maturity date. In addition, we may generate revenue in the form of commitment, origination, structuring or diligence fees, fees for providing managerial assistance or investment management services and possibly consulting fees. Any such fees will be generated in connection with our investments and recognized as earned.

Expenses

Our primary operating expenses include the payment of management and incentive fees pursuant to the investment management agreement we have with MCC Advisors and overhead expenses, including our allocable portion of our administrator’s overhead under the administration agreement. Our management and incentive fees compensate MCC Advisors for its work in identifying, evaluating, negotiating, closing and monitoring our investments. We bear all other costs and expenses of our operations and transactions, including those relating to:

our organization and continued corporate existence;

calculating our NAV (including the cost and expenses of any independent valuation firms);

expenses incurred by MCC Advisors payable to third parties, including agents, consultants or other advisers, in monitoring our financial and legal affairs and in monitoring our investments and performing due diligence on our prospective portfolio companies;

interest payable on debt, if any, incurred to finance our investments;

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

the base management fee and any incentive fee;

distributions on our shares;

administration fees payable under our administration agreement;

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

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

transfer agent and custodial fees;

registration fees and listing fees;

U.S. federal, state and local taxes;

independent director fees and expenses;

costs of preparing and filing reports or other documents with the SEC or other regulators;

the costs of any reports, proxy statements or other notices to our stockholders, including printing costs;

our fidelity bond;

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

indemnification payments;

direct costs and expenses of administration, including audit and legal costs; and


2



all other expenses reasonably incurred by us or MCC Advisors in connection with administering our business, such as the allocable portion of overhead under our administration agreement, including rent and other allocable portions of the cost of certain of our officers and their respective staffs (including travel expenses).

Portfolio and Investment Activity

As of December 31, 2017 and September 30, 2017, our portfolio had a fair market value of approximately $835.9 million and $837.0 million, respectively. The following table summarizes our portfolio and investment activity three months ended December 31, 2017 and 2016 (dollars in thousands):
 
For the three months ended December 31
 
2017
 
2016
Investments made in new portfolio companies
$
68,496

 
$
26,476

Investments made in existing portfolio companies
14,199

 
14,874

Aggregate amount in exits and repayments
(47,859
)
 
(40,118
)
Net investment activity
$
34,836

 
$
1,232

 
 
 
 
Portfolio Companies, at beginning of period
64

 
58

Number of new portfolio companies
6

 
4

Number of exited portfolio companies
(2
)
 
(2
)
Portfolio companies, at end of period
68

 
60

 
 
 
 
Number of investments in existing portfolio companies
10

 
10


The following table summarizes the amortized cost and the fair value of our average portfolio company investment, including MCC Senior Loan Strategy JV I LLC (“MCC JV”), and largest portfolio company investment, excluding MCC JV, as of December 31, 2017 and September 30, 2017 (dollars in thousands):
 
December 31, 2017
 
September 30, 2017
 
Amortized Cost
 
Fair Value
 
Amortized Cost
 
Fair Value
Average portfolio company investment
$
14,002

 
$
12,293

 
$
14,282

 
$
13,078

Largest portfolio company investment
51,609

 
51,609

 
52,137

 
50,667


The following table summarizes the amortized cost and the fair value of investments as of December 31, 2017 (dollars in thousands):
 
Amortized Cost
 
Percentage
 
Fair Value
 
Percentage
Senior Secured First Lien Term Loans
$
594,793

 
62.5
%
 
$
532,308

 
63.7
%
Senior Secured Second Lien Term Loans
135,801

 
14.3

 
106,304

 
12.7

Senior Secured First Lien Notes
26,771

 
2.8

 
27,420

 
3.3

Unsecured Debt
22,728

 
2.4

 

 

MCC Senior Loan Strategy JV I LLC
66,762

 
7.0

 
67,406

 
8.0

Equity/Warrants
105,302

 
11.0

 
102,465

 
12.3

Total
$
952,157

 
100.0
%
 
$
835,903

 
100.0
%

The following table summarizes the amortized cost and the fair value of investments as of September 30, 2017 (dollars in thousands):
 
Amortized Cost
 
Percentage
 
Fair Value
 
Percentage
Senior Secured First Lien Term Loans
$
559,461

 
61.2
%
 
$
537,163

 
64.2
%
Senior Secured Second Lien Term Loans
161,885

 
17.7

 
135,826

 
16.2

Senior Secured First Lien Notes
26,768

 
2.9

 
27,545

 
3.3

Unsecured Debt
22,728

 
2.5

 

 

MCC Senior Loan Strategy JV I LLC
56,087

 
6.1

 
56,138

 
6.7

Equity/Warrants
87,124

 
9.6

 
80,319

 
9.6

Total
$
914,053

 
100.0
%
 
$
836,991

 
100.0
%

As of December 31, 2017, our income-bearing investment portfolio, which represented 78.9% of our total portfolio, had a weighted average yield based upon cost of our portfolio investments of approximately 10.6%, and 83.7% of our income-bearing investment portfolio bore interest based on floating rates, such as LIBOR, and 16.3% bore interest at fixed rates. As of December 31, 2017, the weighted average yield based upon cost of our total portfolio was approximately 7.6%.


3



MCC Advisors regularly assesses the risk profile of each of our investments and rates each of them based on the following categories, which we refer to as MCC Advisors’ investment credit rating:

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.
 

 
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.
4

 
Investments that are performing below expectations and for which risk has increased materially since origination.
 

 
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.
 
 
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 investments on the 1 to 5 investment performance rating scale at fair value as of December 31, 2017 and September 30, 2017 (dollars in thousands): 
 
 
December 31, 2017
 
September 30, 2017
Investment Performance Rating
 
Fair Value
 
Percentage
 
Fair Value
 
Percentage
1
 
$
7,074

 
0.9
%
 
$
42,346

 
5.1
%
2
 
641,423

 
76.7

 
527,410

 
63.0

3
 
103,723

 
12.4

 
139,481

 
16.7

4
 
25,068

 
3.0

 
69,864

 
8.3

5
 
58,615

 
7.0

 
57,890

 
6.9

Total
 
$
835,903

 
100.0
%
 
$
836,991

 
100.0
%

Results of Operations
 
Operating results for the three months ended December 31, 2017 and 2016 are as follows (dollars in thousands):
 
For the three months ended December 31
 
2017
 
2016
Total investment income
$
20,631

 
$
26,056

Total expenses, net
13,318

 
15,654

Net investment income before excise taxes
7,313

 
10,402

Excise tax expense
(134
)
 
(267
)
Net investment income
7,179

 
10,135

Net realized gains/(losses) from investments
(21
)
 
(6,298
)
Net unrealized appreciation/(depreciation) on investments
(39,192
)
 
2,489

Change in provision for deferred taxes on unrealized (appreciation)/depreciation on investments
90

 

Net increase in net assets resulting from operations
$
(31,944
)
 
$
6,326

 
Investment Income
 
For the three months ended December 31, 2017, investment income totaled $20.6 million, of which $18.8 million was attributable to portfolio interest and dividend income, and $1.8 million to fee income. For the three months ended December 31, 2016, investment income totaled $26.1 million, of which $24.7 million was attributable to portfolio interest and dividend income, and $1.4 million to fee income.


4



Operating Expenses
 
Operating expenses for the three months ended December 31, 2017 and 2016 are as follows (dollars in thousands):
 
For the three months ended December 31
 
2017
 
2016
Base management fees
$
4,068

 
$
4,515

Incentive fees

 
896

Interest and financing expenses
6,759

 
7,774

Administrator expenses
868

 
916

General and administrative
757

 
697

Professional fees
586

 
651

Directors fees
147

 
170

Insurance
133

 
99

Expenses before management and incentive fee waivers
13,318

 
15,718

Management fee waiver

 
(20
)
Incentive fee waiver

 
(44
)
Expenses, net of management and incentive fee waivers
$
13,318

 
$
15,654

 
For the three months ended December 31, 2017, total operating expenses before management and incentive fee waivers decreased by $2.4 million, or 15.3%, compared to the three months ended December 31, 2016.
 
Interest and Financing Expenses

Interest and financing expenses for the three months ended December 31, 2017 decreased by $1.0 million, or 13.1%, compared to the three months ended December 31, 2016. The decrease in interest and financing expenses was primarily due to the repayment of the 7.125% unsecured notes (the “2019 Notes”) in February 2017, the reduction of the Senior Secured Revolving Credit Facility (the “Revolving Credit Facility”) commitment to $200.0 million from $343.5 million, and the reduction of the Senior Secured Term Loan Credit Facility (the "Term Loan Facility" and, collectively with the Revolving Credit Facility, the "Facilities") commitment to $102.0 million from $174.0 million, partially offset by an increase in LIBOR rates and the issuance of an additional $39.4 million of 6.125% unsecured notes that mature on March 30, 2023 (the “2023 Notes,”).

Base Management Fees and Incentive Fees

Base management fees for the three months ended December 31, 2017 decreased by $0.4 million, or 9.9%, compared to the three months ended December 31, 2016 due to the decline in the portfolio during the period. Incentives fees for the three months ended December 31, 2017 decreased by $0.9 million, or 100.0%, compared to the three months ended December 31, 2016 due to the decrease in pre-incentive fee net investment income.

Professional Fees and Other General and Administrative Expenses

Professional fees and general and administrative expenses for the three months ended December 31, 2017 decreased by $42,773, or 1.7%, compared to the three months ended December 31, 2016 primarily due to an decrease in directors expenses, audit expenses, administrator expenses, and valuation expenses, offset by an increase in legal expenses, insurance expenses, and general and administrative expenses.

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.

During the three months ended December 31, 2017, we recognized $21,476 of realized loss on our portfolio investments. The realized loss was primarily due to the partial sale of one of our investments, offset by a realized gain from liquidation proceeds received on a realized investment.

During the three months ended December 31, 2016, we recognized $6.3 million of realized loss on our portfolio investments. The realized loss was primarily due to the non-cash restructuring transactions of two investments.

Net Unrealized Appreciation/Depreciation on Investments

Net change in unrealized appreciation or depreciation on investments reflects the net change in the fair value of our investment portfolio. For the three months ended December 31, 2017, we had $39.2 million of net unrealized depreciation on investments. For the three months ended December 31, 2016, we had $2.5 million of net unrealized appreciation on investments.


5



Provision for Deferred Taxes on Unrealized Appreciation on Investments

Certain consolidated subsidiaries of ours are subject to U.S. federal and state income taxes. These taxable subsidiaries are not consolidated with the Company for income tax purposes, but are consolidated for GAAP purposes, and may generate income tax liabilities or assets from temporary differences in the recognition of items for financial reporting and income tax purposes at the subsidiaries. For the three months ended December 31, 2017, the change in provision for deferred taxes on the unrealized depreciation on investments was $0.1 million. For the three months ended December 31, 2016, there was no change in provision for deferred taxes on the unrealized (appreciation)/depreciation on investments.
 
Changes in Net Assets from Operations

For the three months ended December 31, 2017, we recorded a net decrease in net assets resulting from operations of $31.9 million compared to a net increase in net assets resulting from operations of $6.3 million for the three months ended December 31, 2016 as a result of the factors discussed above. Based on 54,474,211 weighted average common shares outstanding for three months ended December 31, 2017 and 2016, our per share net decrease in net assets resulting from operations was $0.59 for the three months ended December 31, 2017 compared to a per share net increase in net assets resulting from operations of $0.12 for the three months ended December 31, 2016.
 
Financial Condition, Liquidity and Capital Resources

As a RIC, 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 public offerings of common stock, advances from the Facilities and net proceeds from the issuance of notes as well as cash flows from operations.

As of December 31, 2017, we had $50.0 million 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 continue to qualify as a RIC under the Code, we intend to distribute to our stockholders substantially all of our taxable income, but we may also elect to periodically spill over certain excess undistributed taxable income from one tax year into the next tax year. In addition, as a BDC, for each taxable year 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.

Credit Facility

The Company has a Term Loan Facility with ING Capital LLC, as administrative agent, in order to borrow funds to make additional investments.

The pricing in the case of the Term Loan Facility for LIBOR loans is LIBOR (with no minimum) plus 3.00%. The pricing on the Revolving Credit Facility, is LIBOR (with no minimum) plus 2.75%. The pricing on the Facilities will decrease by an additional 25 basis points upon receiving an investment grade rating from Standard & Poor’s.

The Term Loan Facility’s bullet maturity is July 28, 2020 and the Revolving Credit Facility’s revolving period ends July 28, 2019, followed by a one-year amortization period and a final maturity on July 28, 2020.

On February 14, 2017, the Company elected to reduce the total commitment of the Revolving Credit Facility to $200.0 million from $343.5 million. The reduction was accounted for as a debt modification to a line-of-credit or revolving-debt arrangement in accordance with ASC 470-50, Modifications and Extinguishments, which attributed to an acceleration of debt issuance costs in the amount of $1.3 million and was recorded on the Consolidated Statements of Operations as a component of interest and financing expenses.

On September 1, 2017, the Company reduced the Term Loan Facility commitment to $102.0 million from $174.0 million. The reduction was accounted for as a debt extinguishment in accordance with ASC 470-50, Modifications and Extinguishments, which attributed to a realized loss of $0.6 million and recorded on the Consolidated Statements of Operations as a loss on extinguishment of debt.

Borrowings under the Facilities are subject to, among other things, a minimum borrowing/collateral base, and substantially all of the Company’s assets are pledged as collateral under the Facilities. In addition, the Facilities require 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 documentation for each of the Facilities also includes default provisions such as the failure to make timely payments under the Facilities, the occurrence of a change in control and the failure by the Company to materially perform under the operative agreements governing the Facilities, which, if not complied with, could accelerate repayment under the Facilities, thereby materially and adversely affecting the Company’s liquidity, financial condition and results of operations.

As of December 31, 2017, total commitments under the Facilities are $302.0 million, comprised of $200.0 million committed to the Revolving Credit Facility and $102.0 million funded under the Term Loan Facility.


6



Unsecured Notes

2019 Notes

On March 21, 2012, the Company issued $40.0 million in aggregate principal amount of the 2019 Notes. The 2019 Notes bore interest at a rate of 7.125% per year, and were payable quarterly on March 30, June 30, September 30 and December 30 of each year, beginning June 30, 2012. The 2019 Notes were listed on the NYSE and traded thereon under the trading symbol “MCQ”. On February 22, 2017, the 2019 Notes were redeemed at par plus accrued and unpaid interest. The redemption was accounted for as a debt extinguishment in accordance with ASC 470-50, Modifications and Extinguishments, which attributed to a realized loss of $0.5 million.

2021 Notes

On December 17, 2015, the Company issued $70.8 million in aggregate principal amount of 6.50% unsecured notes that mature on January 30, 2021 (the “2021 Notes”). On January 14, 2016, the Company closed an additional $3.25 million in aggregate principal amount of the 2021 Notes, pursuant to the partial exercise of the underwriters’ option to purchase additional notes. The 2021 Notes may be redeemed in whole or in part at any time or from time to time at the Company’s option on or after January 30, 2019. The 2021 Notes bear interest at a rate of 6.50% per year, payable quarterly on January 30, April 30, July 30 and October 30 of each year, beginning January 30, 2016. The 2021 Notes are listed on the NYSE and trade thereon under the trading symbol ‘‘MCX’’.

2023 Notes

On March 18, 2013, the Company issued $60.0 million in aggregate principal amount of 2023 Notes. As of March 30, 2016, the 2023 Notes may be redeemed in whole or in part at any time or from time to time at the Company's option. On March 26, 2013, the Company closed an additional $3.5 million in aggregate principal amount of 2023 Notes, pursuant to the partial exercise of the underwriters’ option to purchase additional notes. The 2023 Notes bear interest at a rate of 6.125% per year, payable quarterly on March 30, June 30, September 30 and December 30 of each year, beginning June 30, 2013. The 2023 Notes are listed on the NYSE and trade thereon under the trading symbol “MCV”.

On December 12, 2016, the Company entered into an ATM debt distribution agreement with FBR Capital Markets & Co., through which the Company could offer for sale, from time to time, up to $40.0 million in aggregate principal amount of the 2023 Notes. The Company sold 1,573,872 of the 2023 Notes at an average price of $25.03 per note, and raised $38.6 million in net proceeds, since inception of the ATM debt distribution agreement.

SBA Debentures

On March 26, 2013, our wholly-owned subsidiary, Medley SBIC LP (“SBIC LP”) received a Small Business Investment Company (“SBIC”) license from the Small Business Administration (“SBA”) under Section 301(c) of the Small Business Investment Company Act of 1958, as amended.

The SBIC license allows the SBIC LP to obtain leverage by issuing SBA-guaranteed debentures ("SBA Debentures"), subject to the issuance of a capital commitment by the SBA and other customary procedures. SBA Debentures are non-recourse, interest only debentures with interest payable semi-annually and have a ten year maturity. The principal amount of SBA Debentures is not required to be paid prior to maturity but may be prepaid at any time without penalty. The interest rate of SBA Debentures is fixed on a semi-annual basis at a market-driven spread over U.S. Treasury Notes with 10-year maturities. The SBA, as a creditor, will have a superior claim to the SBIC LP’s assets over our stockholders in the event we liquidate the SBIC LP or the SBA exercises its remedies under the SBA Debentures issued by the SBIC LP upon an event of default.

SBA regulations currently limit the amount that the SBIC LP may borrow to a maximum of $150.0 million when it has at least $75.0 million in regulatory capital, receives a capital commitment from the SBA and has been through an examination by the SBA subsequent to licensing.

On November 16, 2012, we obtained an exemptive order from the SEC to permit us to exclude the debt of the SBIC LP guaranteed by the SBA from our 200% asset coverage test under the 1940 Act. The exemptive order provides us with increased flexibility under the 200% asset coverage test by permitting SBIC LP to borrow up to $150.0 million more than it would otherwise be able to absent the receipt of this exemptive order.

As of December 31, 2017, SBIC LP had $75.0 million in regulatory capital and had $150.0 million SBA Debentures outstanding.

Contractual Obligations and Off-Balance Sheet Arrangements
 
The Company has a guarantee to issue up to $7.0 million in standby letters of credit through a financial intermediary on behalf of a certain portfolio company. Under this arrangement, if the standby letters of credit were to be issued, the Company would be required to make payments to third parties if the portfolio company was to default on its related payment obligations. As of December 31, 2017, the Company had not issued any standby letters of credit under the commitment on behalf of the portfolio company. The guarantee will renew annually until cancellation.

As of December 31, 2017 and September 30, 2017, we had commitments under loan and financing agreements to fund up to $34.0 million to 17 portfolio companies and $23.7 million to 15 portfolio companies, respectively. These commitments are primarily composed of senior secured term loans and revolvers, and an analysis of their fair value is included in the Consolidated Schedule of Investments. The commitments are generally subject to the borrowers meeting certain criteria such as compliance with covenants and certain operational metrics. The terms of the borrowings and financings subject to commitment are comparable to the terms of other loan and equity securities in our portfolio. A summary of the composition of the unfunded commitments as of December 31, 2017 and September 30, 2017 is shown in the table below (dollars in thousands): 

7



 
December 31, 2017
 
September 30, 2017
Path Medical, LLC - Delayed Draw Term Loan B
$
7,125

 
$

SMART Financial Operations, LLC - Delayed Draw Term Loan
4,725

 
4,725

Barry's Bootcamp Holdings, LLC - Revolver
4,400

 
4,400

Accupac, Inc. - Delayed Draw Term Loan
2,612

 
2,612

RMS Holding Company, LLC - Revolver
2,327

 

Alpine SG, LLC - Delayed Draw Term Loan
1,857

 

SFP Holding, Inc. - Delayed Draw Term Loan
1,778

 
1,778

Manna Pro Products, LLC - Delayed Draw Term Loan
1,600

 

Barry's Bootcamp Holdings, LLC - Delayed Draw Term Loan
1,271

 
1,271

AAR Intermediate Holdings, LLC - Revolver
1,258

 
1,797

Trans-Fast Remittance LLC - Delayed Draw Term Loan
1,057

 
1,057

Alpine SG, LLC - Revolver
1,000

 

Black Angus Steakhouses, LLC - Delayed Draw Term Loan
893

 
893

Impact Sales, LLC - Delayed Draw Term Loan
755

 
755

Black Angus Steakhouses, LLC - Revolver
535

 
516

Brook & Whittle Holdings Corp. - Delayed Draw Term Loan
310

 

Central States Dermatology Services, LLC - Delayed Draw Term Loan
200

 
254

SavATree, LLC - Delayed Draw Term Loan
167

 
167

Access Media Holdings, LLC - Series AAA Preferred Equity
107

 
277

Engineered Machinery Holdings, Inc. - Delayed Draw Term Loan
29

 
159

CP OPCO, LLC - Revolver

 
1,973

Brantley Transportation LLC - Delayed Draw Term Loan

 
788

NVTN LLC - Delayed Draw Term Loan

 
250

Total
$
34,006

 
$
23,672


We have certain contracts under which we have material future commitments. We have entered into an investment management agreement with MCC Advisors in accordance with the 1940 Act. The investment management agreement became effective upon the pricing of our initial public offering. Under the investment management agreement, MCC Advisors has agreed to provide us with investment advisory and management services. For these services, we have agreed to pay a base management fee equal to a percentage of our gross assets and an incentive fee based on our performance.
 
We have also entered into an administration agreement with MCC Advisors as our administrator. The administration agreement became effective upon the pricing of our initial public offering. Under the administration agreement, MCC Advisors has agreed to furnish us with office facilities and equipment, provide us clerical, bookkeeping and record keeping services at such facilities and provide us with other administrative services necessary to conduct our day-to-day operations. MCC Advisors will also provide on our behalf significant managerial assistance to those portfolio companies to which we are required to provide such assistance. 

The following table shows our payment obligations for repayment of debt and other contractual obligations at December 31, 2017 (dollars in thousands):
 
Payment Due by Period
 
Total
 
Less than 1 year
 
1 - 3 years
 
3 - 5 years
 
More than 5
years
Revolving Facility
$
47,000

 
$

 
$
47,000

 
$

 
$

Term Loan Facility
102,000

 

 
102,000

 

 

2021 Notes
74,013

 

 

 
74,013

 

2023 Notes
102,847

 

 

 

 
102,847

SBA Debenture
150,000

 

 

 

 
150,000

Total contractual obligations
$
475,860

 
$

 
$
149,000

 
$
74,013

 
$
252,847

 
If any of the contractual obligations discussed above are terminated, our costs under any new agreements that we enter into may increase. In addition, we would likely incur significant time and expense in locating alternative parties to provide the services we expect to receive under our investment management agreement and our administration agreement. Any new investment management agreement would also be subject to approval by our stockholders.
 
On March 27, 2015, the Company and Great American Life Insurance Company (“GALIC”) entered into a limited liability company operating agreement to co-manage MCC Senior Loan Strategy JV I LLC (“MCC JV”). The Company and GALIC have committed to provide $100 million of equity to MCC JV, with the Company providing $87.5 million and GALIC providing $12.5 million. MCC JV commenced operations on July 15, 2015. On August 4, 2015, MCC JV entered into a senior secured revolving credit facility (the “JV Facility”) led by Credit Suisse, AG with commitments of $100 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 $200 million. As of December 31, 2017, MCC JV has drawn approximately $153.4 million on the JV Facility. As of December 31, 2017, MCC JV had total investments at fair value of $210.4 million. As of December 31, 2017, MCC JV’s portfolio was comprised of senior secured first lien term loans to 50 different borrowers. As of December 31, 2017, certain investments in one portfolio company were on non-accrual status.

8




The Company has determined that MCC JV is an investment company under ASC 946, however in accordance with such guidance, the Company 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 the Company. Accordingly, the Company does not consolidate its interest in MCC JV.
 
Distributions
 
We have elected and qualified to be treated for U.S. federal income tax purposes as a RIC under Subchapter M of the Code. As a RIC, in any taxable year with respect to which we timely distribute at least 90 percent of the sum of our (i) investment company taxable income (which is generally our net ordinary income plus the excess of realized net short-term capital gains over realized net long-term capital losses) determined without regard to the deduction for dividends paid and (ii) net tax exempt interest income (which is the excess of our gross tax exempt interest income over certain disallowed deductions), we (but not our stockholders) generally will not be subject to U.S. federal income tax on investment company taxable income and net capital gains that we distribute to our stockholders. We intend to distribute annually all or substantially all of such income, but we may also elect to periodically spill over certain excess undistributed taxable income from one tax year to the next tax year. To the extent that we retain our net capital gains or any investment company taxable income, we will be subject to U.S. federal income tax. We may choose to retain our net capital gains or any investment company taxable income, and pay the associated federal corporate income tax, including the federal excise tax described below.
 
Amounts not distributed on a timely basis in accordance with a calendar year distribution requirement are subject to a nondeductible 4% U.S. federal excise tax payable by us. To avoid this tax, we must distribute (or be deemed to have distributed) during each calendar year an amount equal to the sum of:

1)
at least 98.0 percent of our ordinary income (not taking into account any capital gains or losses) for the calendar year;

2)
at least 98.2 percent of the amount by which our capital gains exceed our capital losses (adjusted for certain ordinary losses) for a one-year period ending  on October 31st of the calendar year; and

3)
income realized, but not distributed, in preceding years and on which we did not pay 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 intend to pay quarterly dividends to our stockholders out of assets legally available for distribution. We cannot assure you that we will achieve investment results that will allow us to pay a specified level of dividends or year-to-year increases in dividends. In addition, the inability to satisfy the asset coverage test applicable to us as a BDC could limit our ability to pay dividends. All dividends will be paid at the discretion of our board of directors and will depend on our earnings, our financial condition, maintenance of our RIC status, compliance with applicable BDC regulations and such other factors as our board of directors may deem relevant from time to time. We cannot assure you that we will pay dividends to our stockholders in the future.
 
To the extent our taxable earnings fall below the total amount of our distributions for a taxable year, a portion of those distributions may be deemed a return of capital to our stockholders for U.S. federal income tax purposes. Stockholders should read any written disclosure accompanying a distribution carefully and should not assume that the source of any distribution is our ordinary income or gains.
 
We have adopted an “opt out” dividend reinvestment plan for our common stockholders. As a result, if we declare a cash dividend or other distribution, each stockholder that has not “opted out” of our dividend reinvestment plan will have their dividends 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.
 
The following table summarizes the dividend distributions during the three months ended December 31, 2017
Date Declared
 
Record Date
 
Payment Date
 
Amount Per Share
10/31/2017
 
11/22/2017
 
12/22/2017
 
$
0.16

 
 
 
 
 
 
$
0.16


Stock Repurchase Program
 
On February 5, 2015, our board of directors approved a share repurchase program pursuant to which we could purchase up to an aggregate amount of $30.0 million of our common stock between the period of the approval date and February 5, 2016. On December 4, 2015, the board of directors extended the duration of the share repurchase program through December 31, 2016, and increased the aggregate amount to $50.0 million. On December 7, 2016, the board of directors extended the duration of the share repurchase program through December 31, 2017. Any stock repurchases will be made through the open market at times, and in such amounts, as management deems appropriate. As of December 31, 2017, the Company has repurchased an aggregate of 4,259,073 shares of common stock at an average price of $8.00 per share with a total cost of approximately $34.1 million. Since the inception of the program, the Company's net asset value per share was increased by approximately $0.23 as a result of the share repurchases.


9



Related Party Transactions

Concurrent with the pricing of our IPO, we entered into a number of business relationships with affiliated or related parties, including the following:

We entered into an investment management agreement with MCC Advisors. Mr. Brook Taube, our Chairman and Chief Executive Officer, is a managing partner and senior portfolio manager of MCC Advisors, and Mr. Seth Taube, one of our directors, is a managing partner of MCC Advisors.

MCC Advisors provides us with the office facilities and administrative services necessary to conduct day-to-day operations pursuant to our administration agreement. We reimburse MCC Advisors for the allocable portion (subject to the review and approval of our board of directors) of overhead and other expenses incurred by it in performing its obligations under the administration agreement, including rent, the fees and expenses associated with performing compliance functions, and our allocable portion of the cost of our Chief Financial Officer and Chief Compliance Officer and their respective staffs.

We have entered into a license agreement with Medley Capital LLC, pursuant to which Medley Capital LLC has granted us a non-exclusive, royalty-free license to use the name “Medley.”

Certain affiliates of MCC Advisors, Medley Capital LLC, their respective affiliates and some of their employees purchased in the IPO an aggregate of 833,333 shares of common stock at the IPO price per share of $12.00. We received the full proceeds from the sale of these shares, and no underwriting discounts or commissions were paid in respect of these shares.

MCC Advisors and its affiliates may in the future manage other accounts that have investment mandates that are similar, in whole and in part, with ours. MCC Advisors and its affiliates may determine that an investment is appropriate for us and for one or more of those other accounts. In such event, depending on the availability of such investment and other appropriate factors, and pursuant to MCC Advisors’ allocation policy, MCC Advisors or its affiliates may determine that we should invest side-by-side with one or more other accounts. We will not make any investments if they are not permitted by applicable law and interpretive positions of the SEC and its staff, the exemptive order granted by the SEC, or if they are inconsistent with MCC Advisors’ allocation procedures. Further, any investments made by related parties will be made in accordance with MCC Advisors’ related party transaction procedures.

The Company obtained an exemptive order from the SEC on November 25, 2013 (the “Prior Exemptive Order”). On March 29, 2017, the Company, MCC 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) of the 1940 Act and Rule 17d-1 thereunder. On October 4, 2017, the Company, MCC 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 otherwise substantially similar to the 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.  

In addition, we have adopted a formal code of ethics that governs the conduct of our and MCC Advisors’ officers, directors and employees. Our officers and directors also remain subject to the duties imposed by both the 1940 Act and the Delaware General Corporation Law.

Investment Management Agreement

Under the terms of our investment management agreement, MCC Advisors:

determines the composition of our portfolio, the nature and timing of the changes to our portfolio and the manner of implementing such changes;

identifies, evaluates and negotiates the structure of the investments we make (including performing due diligence on our prospective portfolio companies); and

executes, closes, monitors and administers the investments we make, including the exercise of any voting or consent rights.

MCC Advisors’ services under the investment management agreement are not exclusive, and it is free to furnish similar services to other entities so long as its services to us are not impaired.

Pursuant to our investment management agreement, we pay MCC Advisors a fee for investment advisory and management services consisting of a base management fee and a two-part incentive fee.

On December 3, 2015, MCC Advisors recommended and, in consultation with the Board, agreed to reduce fees under the investment management agreement. Beginning January 1, 2016, the base management fee was reduced to 1.50% on gross assets above $1 billion. In addition, MCC Advisors reduced its incentive fee from 20% on pre-incentive fee net investment income over an 8% hurdle, to 17.5% on pre-incentive fee net investment income over a 6% hurdle. Moreover, the revised incentive fee includes a netting mechanism and is subject to a rolling three-year look back from January 1, 2016 forward. Under no circumstances will the new fee structure result in higher fees to MCC Advisors than fees under the prior investment management agreement.

10



The following discussion of our base management fee and two-part incentive fee reflects the terms of the fee waiver agreement executed by MCC Advisors on February 8, 2016 (the “Fee Waiver Agreement”). The terms of the Fee Waiver Agreement are effective as of January 1, 2016, and are a permanent reduction in the base management fee and incentive fee on net investment income payable to MCC Advisors for the investment advisory and management services it provides under the investment management agreement. The Fee Waiver Agreement does not change the second component of the incentive fee, which is the incentive fee on capital gains.

Base Management Fee

For providing investment advisory and management services to us, MCC Advisors receives a base management fee. The base management fee is calculated at an annual rate of 1.75% (0.4375% per quarter) of up to $1.0 billion of the Company’s gross assets and 1.50% (0.375% per quarter) of any amounts over $1.0 billion of the Company’s gross assets, and is payable quarterly in arrears. The base management fee will be calculated based on the average value of the Company’s gross assets at the end of the two most recently completed calendar quarters and will be appropriately pro-rated for any partial quarter.

Incentive Fee

The incentive fee has two components, as follows:

Incentive Fee Based on Income

The first component of the incentive fee is payable quarterly in arrears and is based on our pre-incentive fee net investment income earned during the calendar quarter for which the incentive fee is being calculated. MCC Advisors is entitled to receive the incentive fee on net investment income from us if our Ordinary Income (as defined below) exceeds a quarterly “hurdle rate” of 1.5%. The hurdle amount is calculated after making appropriate adjustments to the Company’s net assets, as determined as of the beginning of each applicable calendar quarter, in order to account for any capital raising or other capital actions as a result of any issuances by the Company of its common stock (including issuances pursuant to our dividend reinvestment plan), any repurchase by the Company of its own common stock, and any dividends paid by the Company, each as may have occurred during the relevant quarter.

Beginning with the calendar quarter that commenced on January 1, 2016, the incentive fee on net investment income is determined and paid quarterly in arrears at the end of each calendar quarter by reference to our aggregate net investment income, as adjusted as described below, from the calendar quarter then ending and the eleven preceding calendar quarters (or if shorter, the number of quarters that have occurred since January 1, 2016). We refer to such period as the “Trailing Twelve Quarters.”

The hurdle amount for the incentive fee on net investment income is determined on a quarterly basis, and is equal to 1.5% multiplied by the Company’s net asset value at the beginning of each applicable calendar quarter comprising the relevant Trailing Twelve Quarters. The hurdle amount is calculated after making appropriate adjustments to the Company’s net assets, as determined as of the beginning of each applicable calendar quarter, in order to account for any capital raising or other capital actions as a result of any issuances by the Company of its common stock (including issuances pursuant to our dividend reinvestment plan), any repurchase by the Company of its own common stock, and any dividends paid by the Company, each as may have occurred during the relevant quarter. The incentive fee for any partial period will be appropriately prorated. Any incentive fee on net investment income will be paid to MCC Advisors on a quarterly basis, and will be based on the amount by which (A) aggregate net investment income (“Ordinary Income”) in respect of the relevant Trailing Twelve Quarters exceeds (B) the hurdle amount for such Trailing Twelve Quarters. The amount of the excess of (A) over (B) described in this paragraph for such Trailing Twelve Quarters is referred to as the “Excess Income Amount.” For the avoidance of doubt, Ordinary Income is net of all fees and expenses, including the reduced base management fee but excluding any incentive fee on Pre-Incentive Fee net investment income or on the Company’s capital gains.

Quarterly Incentive Fee Based on Income

The incentive fee on net investment income for each quarter is determined as follows:

No incentive fee on net investment income is payable to MCC Advisors for any calendar quarter for which there is no Excess Income Amount;

100% of the Ordinary Income, if any, that exceeds the hurdle amount, but is less than or equal to an amount, which we refer to as the “Catch-up Amount,” determined as the sum of 1.8182% multiplied by the Company’s net assets at the beginning of each applicable calendar quarter, as adjusted as noted above, comprising the relevant Trailing Twelve Quarters is included in the calculation of the incentive fee on net investment income; and

17.5% of the Ordinary Income that exceeds the Catch-up Amount is included in the calculation of the incentive fee on net investment income.

The amount of the incentive fee on net investment income that will be paid to MCC Advisors for a particular quarter will equal the excess of the incentive fee so calculated minus the aggregate incentive fees on net investment income that were paid in respect of the first eleven calendar quarters (or the portion thereof) included in the relevant Trailing Twelve Quarters but not in excess of the Incentive Fee Cap (as described below).

The incentive fee on net investment income that is paid to MCC Advisors for a particular quarter is subject to a cap (the “Incentive Fee Cap”). The Incentive Fee Cap for any quarter is an amount equal to (a) 17.5% of the Cumulative Net Return (as defined below) during the relevant Trailing Twelve Quarters minus (b) the aggregate incentive fees on net investment income that were paid in respect of the first eleven calendar quarters (or the portion thereof) included in the relevant Trailing Twelve Quarters.

“Cumulative Net Return” means (x) the Ordinary Income in respect of the relevant Trailing Twelve Quarters minus (y) any Net Capital Loss (as described below), if any, in respect of the relevant Trailing Twelve Quarters. If, in any quarter, the Incentive Fee Cap is zero or a negative value, the Company will pay no incentive fee on net investment income to MCC Advisors for such quarter. If, in any quarter, the Incentive Fee Cap for such quarter is a positive

11



value but is less than the incentive fee on net investment income that is payable to MCC Advisors for such quarter (before giving effect to the Incentive Fee Cap) calculated as described above, the Company will pay an incentive fee on net investment income to MCC Advisors equal to the Incentive Fee Cap for such quarter. If, in any quarter, the Incentive Fee Cap for such quarter is equal to or greater than the incentive fee on net investment income that is payable to MCC Advisors for such quarter (before giving effect to the Incentive Fee Cap) calculated as described above, the Company will pay an incentive fee on net investment income to MCC Advisors, calculated as described above, for such quarter without regard to the Incentive Fee Cap.

“Net Capital Loss” in respect of a particular period means the difference, if positive, between (i) aggregate capital losses, whether realized or unrealized, and dilution to the Company’s net assets due to capital raising or capital actions, in such period and (ii) aggregate capital gains, whether realized or unrealized and accretion to the Company’s net assets due to capital raising or capital action, in such period.

Dilution to the Company’s net assets due to capital raising is calculated, in the case of issuances of common stock, as the amount by which the net asset value per share was adjusted over the transaction price per share, multiplied by the number of shares issued. Accretion to the Company’s net assets due to capital raising is calculated, in the case of issuances of common stock (including issuances pursuant to our dividend reinvestment plan), as the excess of the transaction price per share over the amount by which the net asset value per share was adjusted, multiplied by the number of shares issued. Accretion to the Company’s net assets due to other capital action is calculated, in the case of repurchases by the Company of its own common stock, as the excess of the amount by which the net asset value per share was adjusted over the transaction price per share multiplied by the number of shares repurchased by the Company.

For the avoidance of doubt, the purpose of the new incentive fee calculation under the Fee Waiver Agreement is to permanently reduce aggregate fees payable to MCC Advisors by the Company, effective as of January 1, 2016. In order to ensure that the Company will pay MCC Advisors lesser aggregate fees on a cumulative basis, as calculated beginning January 1, 2016, we will, at the end of each quarter, also calculate the base management fee and incentive fee on net investment income owed by the Company to MCC Advisors based on the formula in place prior to January 1, 2016. If, at any time beginning January 1, 2016, the aggregate fees on a cumulative basis, as calculated based on the formula in place after January 1, 2016, would be greater than the aggregate fees on a cumulative basis, as calculated based on the formula in place prior to January 1, 2016, MCC Advisors shall only be entitled to the lesser of those two amounts.

The second component of the incentive fee is determined and payable in arrears as of the end of each calendar year (or upon termination of the investment management agreement as of the termination date) and equals 20.0% of our cumulative aggregate realized capital gains less cumulative realized capital losses, unrealized capital depreciation (unrealized depreciation on a gross investment-by-investment basis at the end of each calendar year) and all capital gains upon which prior performance-based capital gains incentive fee payments were previously made to the investment adviser.

Under GAAP, the Company calculates the second component of the incentive fee as if the Company had realized all assets at their fair values as of the reporting date. Accordingly, the Company accrues a provisional capital gains incentive fee taking into account any unrealized gains or losses. As the provisional capital gains incentive fee is subject to the performance of investments until there is a realization event, the amount of the provisional capital gains incentive fee accrued at a reporting date may vary from the capital gains incentive that is ultimately realized and the differences could be material.
 
Critical Accounting Policies
 
The preparation of financial statements and related disclosures in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and revenues and expenses during the periods reported. Actual results could materially differ from those estimates. We have identified the following items as critical accounting policies.
 
Valuation of Portfolio Investments
 
We value investments for which market quotations are readily available at their 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, a readily available market value is not expected to exist for many of the investments in our portfolio, and we value these portfolio investments at fair value as determined in good faith by our board of directors under our valuation policy and process. We may seek pricing information with respect to certain of our investments from pricing services or brokers or dealers in order to value such investments.
 
Valuation methods may include comparisons of financial ratios of the portfolio companies that issued such private equity securities to peer companies that are public, the nature and realizable value of any collateral, the portfolio company’s ability to make payments and its earnings and discounted cash flows, the markets in which the portfolio company does business, and other relevant factors. When an external event such as a purchase transaction, public offering or subsequent equity sale occurs, we will consider the pricing indicated by the external event to corroborate the private equity valuation. 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 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.
 
Our board of directors is ultimately and solely responsible for determining the fair value of the investments in our portfolio that are not publicly traded, whose market prices are not readily available on a quarterly basis or any other situation where portfolio investments require a fair value determination.
 
With respect to investments for which market quotations are not readily available, our board of directors will undertake a multi-step valuation process each quarter, as described below:

Our quarterly valuation process begins with each investment being initially valued by the investment professionals responsible for monitoring the portfolio investment.


12



Preliminary valuation conclusions are then documented and discussed with senior management.

Independent third-party valuation firms are also employed for all of our investments for which there is not a readily available market value. At least twice annually, including at year end, the valuation for each portfolio investment is reviewed by an independent valuation firm.

The audit committee of our board of directors reviews the preliminary valuations of the investment professionals, senior management and independent valuation firms.

Our audit committee reviews and the board of directors approves the valuations and determines the fair value of each investment in our portfolio in good faith based on the input of MCC Advisors, the respective independent valuation firms and the audit committee.

In following these approaches, the types of factors that are taken into account in fair value pricing investments include available current market data, including relevant and applicable market trading and transaction comparables; applicable market yields and multiples; security covenants; call protection provisions; information rights; the nature and realizable value of any collateral; the portfolio company’s ability to make payments; the portfolio company’s earnings and discounted cash flows; the markets in which the portfolio company does business; comparisons of financial ratios of peer companies that are public; comparable merger and acquisition transactions; and the principal market and enterprise values.

Determination of fair values involves subjective judgments and estimates made by management. The notes to our financial statements refer to the uncertainty with respect to the possible effect of such valuations, and any change in such valuations, on our consolidated financial statements.
 
Revenue Recognition
 
Our revenue recognition policies are as follows:
 
Investments and Related Investment Income We account for investment transactions on a trade-date basis and interest income, adjusted for amortization of premiums and accretion of discounts, is recorded on an accrual basis. For investments with contractual PIK interest, which represents contractual interest accrued and added to the principal balance that generally becomes due at maturity, we will not accrue PIK interest if the portfolio company valuation indicates that the PIK interest is not collectible. Origination, closing and/or commitment fees associated with investments in portfolio companies are recognized as income when the investment transaction closes. Other fees 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. 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. We report changes in the fair value of investments that are measured at fair value as a component of the net change in unrealized appreciation/(depreciation) on investments in our Consolidated Statements of Operations.
 
Non-accrual We place loans on non-accrual status when principal and interest payments are past due by 90 days or more, or when there is reasonable doubt that we will collect principal or interest. Accrued interest is generally reversed when a loan is placed on non-accrual. Interest payments received on non-accrual loans may be recognized as income or applied to principal depending upon management’s judgment. Non-accrual loans are restored to accrual status when past due principal and interest is paid and, in our management’s judgment, are likely to remain current. At December 31, 2017, certain investments in eight portfolio companies held by the Company were on non-accrual status with a combined fair value of approximately $65.2 million, or 7.8% of the fair value of our portfolio. At September 30, 2017, certain investments in six portfolio companies held by the Company were on non-accrual status with a combined fair value of approximately $72.5 million, or 8.7% of the fair value of our portfolio.
 
Federal Income Taxes
 
The Company has elected and qualified to be treated for U.S. federal income tax purposes as a RIC under Subchapter M of the Code, commencing with its first taxable year as a corporation, and it intends to operate in a manner so as to maintain its RIC tax treatment. As a RIC, among other things, the Company is required to meet certain source of income and asset diversification requirements. Once qualified as a RIC, the Company must timely distribute to its stockholders at least 90% of the sum of investment company taxable income (“ICTI”) including PIK, as defined by the Code, and net tax exempt interest income (which is the excess of our 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. 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 net ordinary income for 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 and any income realized, but not distributed, in preceding years and on which we did not pay federal income tax. 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 and pay a 4% excise tax on such income, as required. To the extent that the Company determines that its estimated current year annual taxable income will be in excess of estimated current year dividend distributions for excise tax purposes, the Company accrues excise tax, if any, on estimated excess taxable income as taxable income is earned. 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.
 
Because federal income tax regulations differ from GAAP, distributions in accordance with tax regulations may differ from net investment income and realized gains recognized for financial reporting purposes. Differences may be permanent or temporary. Permanent differences are reclassified among capital accounts in the consolidated financial statements to reflect their tax character. Temporary differences arise when certain items of income, expense, gain or loss are recognized at some time in the future. Differences in classification may also result from the treatment of short-term gains as ordinary income for tax purposes.
 
Recent Developments
 
On January 30, 2018, the Company’s Board of Directors declared a quarterly dividend of $0.16 per share, payable on March 23, 2018 to stockholders of record at the close of business on February 21, 2018.

13




On January 26, 2018, the Company priced a debt offering in Israel of $121.1 million of its 5.05% Series A Notes (the “2024 Notes”). The 2024 Notes were issued pursuant to a deed of trust between the Company and Mishmeret Trust Company, Ltd. as trustee. The 2024 Notes are general, unsecured obligations and rank equal in right of payment with all of the Company’s existing and future unsecured indebtedness. The 2024 Notes will mature on February 27, 2024 and the principal will be payable in four annual installments, of which 25% will be payable on each February 27, 2021-2024.  The 2024 Notes are rated ilA+ by S&P Global Ratings Maalot Ltd. and will be listed on the Tel Aviv Stock Exchange (“TASE”). The 2024 Notes have not been and will not be registered under the Securities Act of 1933, and may not be offered or sold in the United States absent registration under the Securities Act or in transactions exempt from, or not subject to, such registration requirements. In connection with this offering, we have dual listed our common stock on TASE. On January 31, 2018, the Company used a majority of the net proceeds from this offering to repay outstanding indebtedness under the Term Loan Facility, effectively terminating the Term Loan Facility.

14



Item 3. Quantitative and Qualitative Disclosures About Market Risk

We are subject to financial market risks, including changes in interest rates. Changes in interest rates may affect both our cost of funding and our interest income from portfolio investments and cash and cash equivalents. Our investment income will be affected by changes in various interest rates, including LIBOR, to the extent our debt investments include floating interest rates. In the future, we expect other loans in our portfolio will have floating rates. We may hedge against interest rate fluctuations by using standard hedging instruments such as futures, options and forward contracts subject to the requirements of the 1940 Act. For the three months ended December 31, 2017, we did not engage in hedging activities.

As of December 31, 2017, 83.7% of our income-bearing investment portfolio bore interest based on floating rates. The composition of our floating rate debt investments by cash interest rate LIBOR floor as of December 31, 2017 was as follows (dollars in thousands):
 
 
December 31, 2017
LIBOR Floor
 
Fair Value
 
% of Floating
Rate Portfolio
Under 1%
 
$
81,937

 
14.8
%
1% to under 2%
 
452,368

 
82.0

2% to under 3%
 
14,967

 
2.7

3%
 
2,633

 
0.5

Total
 
$
551,905

 
100.0
%

Based on our Consolidated Statements of Assets and Liabilities as of December 31, 2017, the following table (dollars in thousands) shows the approximate increase/(decrease) in components of net assets resulting from operations of hypothetical LIBOR base rate changes in interest rates, assuming no changes in our investment and capital structure. 
Basis point increase
 
Interest Income(1)
 
Interest Expense
 
Net Increase/
(Decrease)
100
 
$
5,200

 
$
1,500

 
$
3,700

200
 
10,500

 
3,000

 
7,500

300
 
15,900

 
4,500

 
11,400

400
 
21,300

 
6,000

 
15,300

500
 
26,700

 
7,500

 
19,200


As of September 30, 2017, 83.5% of our income-bearing investment portfolio bore interest based on floating rates. The composition of our floating rate debt investments by cash LIBOR interest rate floor as of September 30, 2017 was as follows (dollars in thousands): 
 
 
September 30, 2017
LIBOR Floor
 
Fair Value
 
% of Floating
Rate Portfolio
Under 1%
 
$
84,166

 
14.9
%
1% to under 2%
 
425,749

 
75.3

2% to under 3%
 
50,245

 
8.9

3%
 
4,916

 
0.9

Total
 
$
565,076

 
100.0
%

Based on our Consolidated Statements of Assets and Liabilities as of September 30, 2017, the following table (dollars in thousands) shows the approximate increase/(decrease) in components of net assets resulting from operations of hypothetical LIBOR base rate changes in interest rates, assuming no changes in our investment and capital structure.
Basis point increase
 
Interest Income(1)
 
Interest Expense
 
Net Increase/
(Decrease)
100
 
$
5,300

 
$
1,700

 
$
3,600

200
 
11,200

 
3,400

 
7,800

300
 
17,100

 
5,100

 
12,000

400
 
23,000

 
6,800

 
16,200

500
 
28,900

 
8,500

 
20,400


(1)
Assumes no defaults or prepayments by portfolio companies over the next twelve months.


15



Item 4. Controls and Procedures
 
Evaluation of Disclosure Controls and Procedures

Our management, under the supervision of our Chief Executive Officer and our Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of December 31, 2017. The term “disclosure controls and procedures” is defined under Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Based on the evaluation of our disclosure controls and procedures as of December 31, 2017, our Chief Executive Officer and Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures were effective. It should be noted that any system of controls, however well designed and operated, can provide only reasonable, and not absolute, assurance that the objectives of the system are met. In addition, the design of any control system is based in part upon certain assumptions about the likelihood of future events. Because of these and other inherent limitations of control systems, there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how remote.

Changes in Internal Control Over Financial Reporting

There has not been any change in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that occurred during the period covered by this report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.


16



PART II
 
Item 1. Legal Proceedings
 
From time to time, we are involved in various legal proceedings, lawsuits and claims incidental to the conduct of our business. Our businesses are also subject to extensive regulation, which may result in regulatory proceedings against us. Except as described below, we are not currently party to any material legal proceedings.

MCC Advisors LLC was named as a defendant in a lawsuit on May 29, 2015, by Moshe Barkat and Modern VideoFilm Holdings, LLC (“MVF Holdings”) against MCC, MOF II, MCC Advisors LLC, Deloitte Transactions and Business Analytics LLP A/K/A Deloitte ERG (“Deloitte”), Scott Avila (“Avila”), Charles Sweet, and Modern VideoFilm, Inc. (“MVF”). The lawsuit is pending in the California Superior Court, Los Angeles County, Central District, as Case No. BC 583437. The lawsuit was filed after MCC, as agent for the lender group, exercised remedies following a series of defaults by MVF and MVF Holdings on a secured loan with an outstanding balance at the time in excess of $65 million. The lawsuit sought damages in excess of $100 million. Deloitte and Avila have settled the claims against them in exchange for payment of $1.5 million. Following a separate lawsuit by Mr. Barkat against MVF's D&O insurance carrier, the carrier, Charles Sweet and MVF have settled the claims against them. On June 6, 2016, the court granted the defendants' demurrers on several counts and dismissed Mr. Barkat's claims except with respect to his claim for intentional interference with contract. MCC and the other defendants continue to dispute the remaining allegations and are vigorously defending the lawsuit while pursuing affirmative counterclaims against Mr. Barkat and MVF Holdings. On August 29, 2016, MVF Holdings filed another lawsuit in the California Superior Court, Los Angeles County, Central District, as Case No. BC 631888 (the “Derivative Action”), naming Medley as a defendant, among others. In the Derivative Action, MVF Holdings reasserts substantially the same claims that were previously asserted in each of their three prior complaints. MVF Holdings claims for breach of fiduciary duty and related causes of action have already been dismissed by the California Superior Court on several occasions, most recently, on June 6, 2016, when the Court dismissed those claims with prejudice. Medley and the other defendants believe the outstanding claims for alleged interference with Mr. Barkat's employment contract, and the other causes of action asserted in the Derivative Action are without merit and all defendants intend to continue to assert a vigorous defense.

Medley LLC, the Company, and Medley Opportunity Fund II LP were served on January 2, 2018 with a complaint naming them as defendants, along with other various parties, in a putative class action lawsuit. The case is captioned as Solomon v. American Web Loan, et al. Royce Solomon, Jodi Belleci, Michael Littlejohn, and Giulianna Lomaglio v. American Web Loan, Inc., AWL, Inc., Mark Curry, MacFarlane Group, Inc., The MacFarlane Group, LLC, Sol Partners, Medley Opportunity Fund, II, LP, Medley LLC, Medley Capital Corp., Oakmont Funding, Inc., Dinero Investments, Inc., Chieftain Funding, Inc., Dant Holdings, Inc., DHI Computing Service, Inc., Smith Haynes & Watson, LLC, Middlemarch Partners, and John Does 1-100, and was filed on December 15, 2017, in the United States District Court for the Eastern District of Virginia, Newport News Division, as Case No. 4:17cv145. The plaintiffs filed this putative class action alleging claims under the Racketeer Influenced and Corrupt Organizations Act and the Truth in Lending Act, and various other claims arising out of the alleged payday lending activities of American Web Loan. The claims against Medley Opportunity Fund II LP, Medley LLC, and the Company allege that the Medley defendants exercised control over American Web Loan’s payday lending activities as a result of a $22.9 million loan to American Web Loan. The loan was made by Medley Opportunity Fund II LP in 2011. American Web Loan repaid the loan from Medley Opportunity Fund II LP in full in February of 2015, more than ten months prior to any of the loans allegedly made by American Web Loan to the alleged class plaintiff representatives. The Company and Medley LLC never made any loans or provided financing to, or had any other relationship with, American Web Loan. The Medley defendants are seeking indemnification from American Web Loan, various affiliates and other parties with respect to these claims. The Medley defendants believe the alleged claims are without merit and they intend to defend this lawsuit vigorously.

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 September 30, 2017, filed with the SEC on December 7, 2017, which could materially affect our business, financial condition and/or operating results. Other than the item disclosed below, there have been no material changes during the three months ended December 31, 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.

We cannot predict how tax reform legislation will affect us, our investments, or our stockholders, and any such legislation could adversely affect our business. 

Legislative or other actions relating to taxes could have a negative effect on us. The rules dealing with U.S. federal income taxation are constantly under review by persons involved in the legislative process and by the IRS and the U.S. Treasury Department. The U.S. House of Representatives and U.S. Senate recently passed tax reform legislation, which the President recently signed into law. Such legislation has made many changes to the Code, including significant changes to the taxation of business entities, the deductibility of interest expense, and the tax treatment of capital investment. We cannot predict with certainty how any changes in the tax laws might affect us, our stockholders, or our portfolio investments. New legislation and any U.S. Treasury regulations, administrative interpretations or court decisions interpreting such legislation could significantly and negatively affect our ability to qualify for tax treatment as a RIC or the U.S. federal income tax consequences to us and our stockholders of such qualification, or could have other adverse consequences. Stockholders are urged to consult with their tax advisors regarding tax legislative, regulatory, or administrative developments and proposals and their potential effect on an investment in our securities.

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

On February 5, 2015, our board of directors approved a share repurchase program pursuant to which we could purchase up to an aggregate amount of $30.0 million of our common stock between the period of the approval date and February 5, 2016. On December 4, 2015, the board of directors extended the duration of the share repurchase program through December 31, 2016, and increased the aggregate amount to $50.0 million. On December 7, 2016, the board of directors extended the duration of the share repurchase program through December 31, 2017. Any stock repurchases will be made through the open market at times, and in such amounts, as management deems appropriate. The Company did not repurchase any shares for the three months ended December 31, 2017.

17




Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures
 
Not applicable.

Item 5. Other Information
 
None.

Item 6. Exhibits
3.1

 
 
3.2

 
 
4.1

 
 
4.2

 
 
4.3

 
 
4.4

 
 
4.5


 
 
4.6

 
 
10.1

 
 
10.2

 
 
10.3

 
 
10.4

 
 
10.5

 
 
10.6

 
 
10.7

 
 
10.8


18



 
 
10.9

 
 
10.10

 
 
10.11

 
 
10.12

 
 
10.13

 
 
10.14

 
 
10.15

 
 
10.16

 
 
10.17

 
 
10.18

 
 
10.19

 
 
10.20

 
 
10.21

 
 
10.22

 
 
10.23


19



 
 
10.24

 
 
10.25

 
 
10.26

 
 
10.27

 
 
10.28

 
 
10.29

 
 
10.30

 
 
10.31

 
 
10.32

 
 
10.33

 
 
10.34

 
 
10.35

 
 
14.1

 
 
14.2

 
 

20




21



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:
Medley Capital Corporation
February 6, 2018
 
 
 
 
By
/s/ Brook Taube
 
 
Brook Taube
 
 
Chief Executive Officer
 
 
(Principal Executive Officer)
 
 
 
 
By
/s/ Richard T. Allorto, Jr.
 
 
Richard T. Allorto, Jr.
 
 
Chief Financial Officer
 
 
(Principal Accounting and Financial Officer)


22