Attached files
| file | filename |
|---|---|
| EX-32 - EXHIBIT 32 - Business Development Corp of America | bdca-3x31x18xexx32.htm |
| EX-31.2 - EXHIBIT 31.2 - Business Development Corp of America | bdca-3x31x18xexx312.htm |
| EX-31.1 - EXHIBIT 31.1 - Business Development Corp of America | bdca-3x31x18xexx311.htm |
| EX-10.3 - EXHIBIT 10.3 - Business Development Corp of America | bdca-3x31x18xexx103.htm |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 2018
OR
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission file number: 814-00821
BUSINESS DEVELOPMENT CORPORATION OF AMERICA
(Exact Name of Registrant as Specified in its Charter)
Maryland | 27-2614444 | |
(State or Other Jurisdiction of Incorporation or Organization) | (I.R.S. Employer Identification No.) | |
9 West 57th Street, 49th Floor, Suite 4920 New York, New York | 10019 | |
(Address of Principal Executive Office) | (Zip Code) | |
(212) 588-6770
(Registrant’s Telephone Number, Including Area Code)
Not applicable
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
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 o No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act. (check one):
Large accelerated filer o | Accelerated filer o | |
Non-accelerated filer x | Smaller reporting company o | |
Emerging growth company o | ||
(Do not check if a smaller reporting 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. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes o No x
The number of shares of the registrant's common stock, $0.001 par value, outstanding as of May 9, 2018 was 179,048,333.
BUSINESS DEVELOPMENT CORPORATION OF AMERICA
FORM 10-Q FOR THE THREE MONTHS ENDED MARCH 31, 2018
TABLE OF CONTENTS
Page | |
PART I - FINANCIAL INFORMATION | |
PART II - OTHER INFORMATION | |
PART I - FINANCIAL INFORMATION
Item 1. CONSOLIDATED FINANCIAL STATEMENTS
BUSINESS DEVELOPMENT CORPORATION OF AMERICA
CONSOLIDATED STATEMENTS OF ASSETS AND LIABILITIES
(dollars in thousands except share and per share data)
March 31, | December 31, | ||||||
2018 | 2017 | ||||||
ASSETS | (Unaudited) | ||||||
Investments, at fair value: | |||||||
Control Investments, at fair value (amortized cost of $356,539 and $374,888, respectively) | $ | 328,163 | $ | 350,279 | |||
Affiliate Investments, at fair value (amortized cost of $248,859 and $296,884, respectively) | 229,345 | 236,801 | |||||
Non-affiliate Investments, at fair value (amortized cost of $2,086,102 and $1,926,856, respectively) | 2,069,344 | 1,916,443 | |||||
Investments, at fair value (amortized cost of $2,691,500 and $2,598,628, respectively) | 2,626,852 | 2,503,523 | |||||
Cash and cash equivalents | 74,504 | 99,822 | |||||
Interest and dividends receivable | 21,398 | 21,542 | |||||
Receivable for unsettled trades | 4,130 | 21,409 | |||||
Prepaid expenses and other assets | 3,891 | 6,218 | |||||
Total assets | $ | 2,730,775 | $ | 2,652,514 | |||
LIABILITIES | |||||||
Debt (net of deferred financing costs of $10,130 and $10,926, respectively) | $ | 1,164,050 | $ | 1,030,223 | |||
Stockholder distributions payable | 9,843 | 9,923 | |||||
Management fees payable | 9,955 | 9,932 | |||||
Incentive fee on income payable | 4,611 | 4,558 | |||||
Accounts payable and accrued expenses | 12,828 | 11,137 | |||||
Payable for unsettled trades | 41,984 | 80,547 | |||||
Interest and debt fees payable | 11,980 | 11,611 | |||||
Payable for common stock repurchases | 386 | — | |||||
Directors' fees payable | 74 | 67 | |||||
Total liabilities | $ | 1,255,711 | $ | 1,157,998 | |||
Commitments and contingencies (Note 6) | |||||||
NET ASSETS | |||||||
Preferred stock, $.001 par value, 50,000,000 shares authorized, none issued and outstanding | $ | — | $ | — | |||
Common stock, $.001 par value, 450,000,000 shares authorized, 178,245,519 and 179,733,998 shares issued and outstanding, respectively | 178 | 180 | |||||
Additional paid in capital | 1,740,413 | 1,752,793 | |||||
Accumulated under distributed net investment income | 30,896 | 33,469 | |||||
Accumulated over distributed net realized gains | (231,757 | ) | (197,348 | ) | |||
Net unrealized depreciation, net of deferred taxes | (67,168 | ) | (97,399 | ) | |||
Total net assets attributable to Business Development Corporation of America | 1,472,562 | 1,491,695 | |||||
Net assets attributable to non-controlling interest | 2,502 | 2,821 | |||||
Total net assets | 1,475,064 | 1,494,516 | |||||
Total liabilities and net assets | $ | 2,730,775 | $ | 2,652,514 | |||
Net asset value per share attributable to Business Development Corporation of America | $ | 8.26 | $ | 8.30 | |||
The accompanying notes are an integral part of these consolidated financial statements.
1
BUSINESS DEVELOPMENT CORPORATION OF AMERICA
CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars in thousands except share and per share data)
(Unaudited)
For the Three Months Ended March 31, | ||||||||
2018 | 2017 | |||||||
Investment income: | ||||||||
From control investments | ||||||||
Interest income | $ | 5,809 | $ | 6,154 | ||||
Dividend income | 3,083 | 473 | ||||||
Total investment income from control investments | 8,892 | 6,627 | ||||||
From affiliate investments | ||||||||
Interest income | 5,219 | 6,309 | ||||||
Dividend income | 1,352 | 2,992 | ||||||
Fee and other income | 2 | — | ||||||
Total investment income from affiliate investments | 6,573 | 9,301 | ||||||
From non-affiliate investments | ||||||||
Interest income | 41,353 | 38,895 | ||||||
Dividend income | 113 | 380 | ||||||
Fee and other income | 1,445 | 1,399 | ||||||
Total investment income from non-affiliate investments | 42,911 | 40,674 | ||||||
Interest from cash and cash equivalents | 128 | 70 | ||||||
Total invesment income | 58,504 | 56,672 | ||||||
Operating expenses: | ||||||||
Management fees | 9,955 | 9,538 | ||||||
Incentive fee on income | 4,611 | 6,367 | ||||||
Interest and debt fees | 13,450 | 9,850 | ||||||
Professional fees | 1,132 | 1,480 | ||||||
Other general and administrative | 2,464 | 1,625 | ||||||
Administrative services | 199 | 203 | ||||||
Insurance | 1 | 6 | ||||||
Directors' fees | 273 | 195 | ||||||
Total expenses | 32,085 | 29,264 | ||||||
Income tax expense, including excise tax | 270 | 635 | ||||||
Net investment gain (loss) attributable to non-controlling interests | (5 | ) | 3 | |||||
Net investment income | 26,154 | 26,770 | ||||||
Realized and unrealized gain (loss): | ||||||||
Net realized gain (loss): | ||||||||
Control investments | 394 | — | ||||||
Affiliate investments | (41,028 | ) | 970 | |||||
Non-affiliate investments | 6,199 | (11,741 | ) | |||||
Net realized gain on foreign currency transactions | 26 | — | ||||||
Total net realized loss | (34,409 | ) | (10,771 | ) | ||||
Net change in unrealized appreciation (depreciation) on investments, net of deferred taxes | ||||||||
Control investments | (4,309 | ) | (5,950 | ) | ||||
Affiliate investments | 40,570 | 745 | ||||||
Non-affiliate investments | (6,345 | ) | 8,781 | |||||
The accompanying notes are an integral part of these consolidated financial statements.
2
BUSINESS DEVELOPMENT CORPORATION OF AMERICA
CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars in thousands except share and per share data)
(Unaudited)
For the Three Months Ended March 31, | ||||||||
2018 | 2017 | |||||||
Total net change in unrealized appreciation on investments, net of deferred taxes | 29,916 | 3,576 | ||||||
Net change in unrealized appreciation (depreciation) attributable to non-controlling interests | 315 | (208 | ) | |||||
Net realized and unrealized loss | (4,178 | ) | (7,403 | ) | ||||
Net increase in net assets resulting from operations | $ | 21,976 | $ | 19,367 | ||||
Per share information - basic and diluted | ||||||||
Net investment income | $ | 0.15 | $ | 0.15 | ||||
Net increase in net assets resulting from operations | $ | 0.12 | $ | 0.11 | ||||
Weighted average shares outstanding | 179,247,608 | 178,215,971 | ||||||
The accompanying notes are an integral part of these consolidated financial statements.
3
BUSINESS DEVELOPMENT CORPORATION OF AMERICA
CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS
(dollars in thousands except share and per share data)
(Unaudited)
For the Three Months Ended March 31, | |||||||
2018 | 2017 | ||||||
Operations: | |||||||
Net investment income | $ | 26,154 | $ | 26,770 | |||
Net realized loss from investments | (34,435 | ) | (10,771 | ) | |||
Net realized gain on foreign currency transactions | 26 | — | |||||
Net change in unrealized appreciation on investments, net of deferred taxes | 29,916 | 3,576 | |||||
Net change in unrealized appreciation (depreciation) attributable to non-controlling interests | 315 | (208 | ) | ||||
Net increase in net assets resulting from operations | 21,976 | 19,367 | |||||
Stockholder distributions: | |||||||
Distributions | (28,727 | ) | (38,176 | ) | |||
Net decrease in net assets from stockholder distributions | (28,727 | ) | (38,176 | ) | |||
Capital share transactions: | |||||||
Reinvestment of stockholder distributions | 10,167 | 14,898 | |||||
Repurchases of common stock | (22,549 | ) | (898 | ) | |||
Net (decrease) increase in net assets from capital share transactions | (12,382 | ) | 14,000 | ||||
Total decrease in net assets, before non-controlling interest | (19,133 | ) | (4,809 | ) | |||
(Decrease) increase in non-controlling interest | (319 | ) | 211 | ||||
Total decrease in net assets | (19,452 | ) | (4,598 | ) | |||
Net assets at beginning of period | 1,494,516 | 1,529,734 | |||||
Net assets at end of period | $ | 1,475,064 | $ | 1,525,136 | |||
Net asset value per common share attributable to Business Development Corporation of America | $ | 8.26 | $ | 8.52 | |||
Common shares outstanding at end of period | 178,245,519 | 178,750,498 | |||||
Accumulated under distributed net investment income | $ | 30,896 | $ | 37,538 | |||
Accumulated over distributed net realized gains | $ | (231,757 | ) | $ | (139,932 | ) | |
The accompanying notes are an integral part of these consolidated financial statements.
4
BUSINESS DEVELOPMENT CORPORATION OF AMERICA
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
(Unaudited)
For the Three Months Ended March 31, | |||||||
2018 | 2017 | ||||||
Operating activities: | |||||||
Net increase in net assets resulting from operations | $ | 21,976 | $ | 19,367 | |||
Adjustments to reconcile net increase in net assets from operations to net cash used in operating activities: | |||||||
Payment-in-kind interest income | (1,410 | ) | (1,597 | ) | |||
Net accretion of discount on investments | (2,147 | ) | (2,163 | ) | |||
Amortization of deferred financing costs | 796 | 527 | |||||
Amortization of discount on unsecured notes | 119 | 78 | |||||
Sales and repayments of investments | 160,643 | 202,845 | |||||
Purchases of investments | (284,392 | ) | (171,177 | ) | |||
Net realized loss from investments | 34,435 | 10,771 | |||||
Net realized gain on foreign currency transactions | (26 | ) | — | ||||
Net unrealized appreciation on investments, gross of deferred taxes | (30,458 | ) | (3,821 | ) | |||
(Increase) decrease in operating assets: | |||||||
Interest and dividends receivable | 144 | 5,114 | |||||
Receivable for unsettled trades | 17,279 | (27,658 | ) | ||||
Prepaid expenses and other assets | 2,326 | (1,447 | ) | ||||
Increase (decrease) in operating liabilities: | |||||||
Management fees payable | 23 | (33 | ) | ||||
Incentive fee on income payable | 53 | 3,230 | |||||
Accounts payable and accrued expenses | 1,691 | 1,670 | |||||
Payable for unsettled trades | (38,563 | ) | (47,339 | ) | |||
Interest and debt fees payable | 369 | (1,234 | ) | ||||
Directors' fees payable | 7 | (42 | ) | ||||
Net cash used in operating activities | (117,135 | ) | (12,909 | ) | |||
Financing activities: | |||||||
Repurchases of common stock | (22,162 | ) | (57,647 | ) | |||
Proceeds from debt | 132,912 | 31,874 | |||||
Payments of financing costs | — | (4 | ) | ||||
Stockholder distributions | (18,640 | ) | (23,544 | ) | |||
(Decrease) increase in non-controlling interest | (319 | ) | 211 | ||||
Net cash provided by (used in) financing activities | 91,791 | (49,110 | ) | ||||
Net decrease in cash and cash equivalents | (25,344 | ) | (62,019 | ) | |||
Effect of foreign currency exchange rates | 26 | — | |||||
Cash and cash equivalents, beginning of period | 99,822 | 189,270 | |||||
Cash and cash equivalents, end of period | $ | 74,504 | $ | 127,251 | |||
The accompanying notes are an integral part of these consolidated financial statements.
5
BUSINESS DEVELOPMENT CORPORATION OF AMERICA
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
(Unaudited)
For the Three Months Ended March 31, | |||||||
2018 | 2017 | ||||||
Supplemental information: | |||||||
Interest paid during the period | $ | 12,133 | $ | 10,357 | |||
Taxes, including excise tax, paid during the period | $ | 16 | $ | 18 | |||
Distributions reinvested | $ | 10,167 | $ | 14,898 | |||
The accompanying notes are an integral part of these consolidated financial statements.
6
BUSINESS DEVELOPMENT CORPORATION OF AMERICA
CONSOLIDATED SCHEDULES OF INVESTMENTS
(dollars in thousands)
March 31, 2018 (Unaudited) | |||||||||||||||||||
Portfolio Company (q) | Industry | Investment Coupon Rate / Maturity (y) | Principal / Number of Shares | Amortized Cost | Fair Value | % of Net Assets (b) | |||||||||||||
Senior Secured First Lien Debt - 128.9% (b) | |||||||||||||||||||
Abaco Systems Holding Corp. (c) (i) | Business Services | L+6.00% (8.34%), 12/7/2021 | $ | 23,638 | $ | 23,284 | $ | 23,094 | 1.6 | % | |||||||||
ABC Financial Intermediate, LLC (j) | Media | L+4.25% (5.94%), 1/2/2025 | 7,739 | 7,702 | 7,797 | 0.5 | % | ||||||||||||
Ability Networks Inc. (j) | Health Care Providers & Services | L+3.75% (5.54%), 12/13/2024 | 13,573 | 13,508 | 13,573 | 0.9 | % | ||||||||||||
Adams Publishing Group, LLC (c) (i) | Media | L+7.00% (9.30%), 11/3/2020 | 15,357 | 15,235 | 15,357 | 1.0 | % | ||||||||||||
Adams Publishing Group, LLC (c) | Media | L+7.00% (9.30%), 11/3/2020 | 4,432 | 4,432 | 4,432 | 0.3 | % | ||||||||||||
Aleris International, Inc. (x) | Metals & Mining | 9.50%, 4/1/2021 | 2,882 | 3,035 | 2,999 | 0.2 | % | ||||||||||||
Alvogen Pharma US, Inc. (j) | Health Care | L+5.00% (6.88%), 4/2/2022 | 13,857 | 13,758 | 13,875 | 0.9 | % | ||||||||||||
AMI Entertainment Network, LLC (c) (f) (i) | Hotels, Restaurants & Leisure | L+6.00% (7.69%), 7/21/2022 | 14,539 | 14,289 | 14,285 | 1.0 | % | ||||||||||||
Amports, Inc. (c) (m) | Transportation Infrastructure | L+5.00% (6.88%), 5/19/2020 | 14,876 | 14,837 | 14,876 | 1.0 | % | ||||||||||||
Amteck, LLC (c) (i) | Commercial Services & Supplies | L+6.50% (8.81%), 7/2/2020 | 20,545 | 20,384 | 20,545 | 1.4 | % | ||||||||||||
Amteck, LLC (c) | Commercial Services & Supplies | L+6.50% (8.81%), 7/2/2020 | 5,000 | 5,000 | 5,000 | 0.3 | % | ||||||||||||
Answers Corporation (c) (p) | Technology | L+5.00% (6.88%), 4/15/2021 | 2,999 | 2,942 | 2,909 | 0.2 | % | ||||||||||||
AP Gaming I, LLC (i) (j) | Gaming/Lodging | L+4.25% (6.13%), 2/15/2024 | 33,507 | 33,443 | 33,884 | 2.3 | % | ||||||||||||
AP NMT Acquisition B.V. (m) | Media | L+5.75% (8.06%),8/13/2021 | 6,620 | 6,639 | 6,616 | 0.4 | % | ||||||||||||
APCO Holdings (c) (i) | Diversified Consumer Services | L+6.00% (7.88%), 1/29/2022 | 3,642 | 3,570 | 3,568 | 0.2 | % | ||||||||||||
Applied Merchant Systems West Coast, Inc. (c) (m) | Diversified Financial Services | L+11.50% (13.20%), 10/26/2020 | 18,597 | 18,401 | 17,295 | 1.2 | % | ||||||||||||
Applied Merchant Systems West Coast, Inc. (c) (m) | Diversified Financial Services | L+11.50% (13.20%), 10/26/2020 | 6,500 | 6,432 | 6,045 | 0.4 | % | ||||||||||||
AqGen Ascensus Inc. (c) (j) | Technology | L+3.50% (5.80%), 12/3/2022 | 19,588 | 19,588 | 19,588 | 1.3 | % | ||||||||||||
AqGen Ascensus Inc. (c) (f) | Technology | L+3.50% (5.80%), 12/3/2022 | 3,704 | 3,696 | 3,704 | 0.3 | % | ||||||||||||
Avatar Purchaser, Inc. (c) (m) | Business Services | L+7.50% (10.00%), 11/17/2025 | 11,716 | 11,381 | 11,530 | 0.8 | % | ||||||||||||
Avaya Holdings Corp. (j) | Communications Equipment | L+4.75% (6.54%), 12/15/2024 | 26,581 | 26,334 | 26,748 | 1.8 | % | ||||||||||||
BCP Raptor, LLC (j) | Energy Equipment & Services | L+4.25% (6.04%), 6/24/2024 | 19,935 | 19,757 | 20,035 | 1.4 | % | ||||||||||||
BCP Renaissance, LLC (j) | Energy Equipment & Services | L+4.00% (5.77%), 10/31/2024 | 8,472 | 8,432 | 8,507 | 0.6 | % | ||||||||||||
BDS Solutions Group, LLC (c) (i) (m) | Business Services | L+8.75% (11.06%), 6/1/2021 | 32,399 | 31,934 | 32,399 | 2.2 | % | ||||||||||||
BDS Solutions Group, LLC (c) | Business Services | L+8.75% (11.06%), 6/1/2021 | 2,831 | 2,789 | 2,831 | 0.2 | % | ||||||||||||
Beaver-Visitec International Holdings, Inc. (c) (j) | Health Care | L+5.00% (7.30%), 8/21/2023 | 6,563 | 6,563 | 6,562 | 0.4 | % | ||||||||||||
Black Mountain Sand, LLC (c) (f) | Energy Equipment & Services | L+9.00% (10.69%), 11/30/2021 | 13,050 | 12,871 | 12,869 | 0.9 | % | ||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
7
BUSINESS DEVELOPMENT CORPORATION OF AMERICA
CONSOLIDATED SCHEDULES OF INVESTMENTS
(dollars in thousands)
March 31, 2018 (Unaudited) | |||||||||||||||||||
Portfolio Company (q) | Industry | Investment Coupon Rate / Maturity (y) | Principal / Number of Shares | Amortized Cost | Fair Value | % of Net Assets (b) | |||||||||||||
Black Mountain Sand, LLC (c) | Energy Equipment & Services | L+9.00% (10.81%), 11/30/2021 | $ | 6,525 | $ | 6,428 | $ | 6,434 | 0.4 | % | |||||||||
Blount International, Inc. (j) | Commercial Services & Supplies | L+4.25% (5.92%), 4/12/2023 | 12,500 | 12,471 | 12,656 | 0.9 | % | ||||||||||||
California Resources Corp. (m) | Metals & Mining | L+4.75% (6.57%), 12/31/2022 | 12,259 | 12,023 | 12,424 | 0.8 | % | ||||||||||||
Capstone Nutrition (fka Integrity Nutraceuticals, Inc.) (c) (l) (o) (t) | Food Products | L+12.50% (13.88%), 9/25/2020 | 21,208 | 16,406 | 2,969 | 0.2 | % | ||||||||||||
Capstone Nutrition (fka Integrity Nutraceuticals, Inc.) (c) (l) (o) (t) | Food Products | L+12.50% (13.88%), 9/25/2020 | 49,012 | 33,647 | 6,862 | 0.5 | % | ||||||||||||
Capstone Nutrition (fka Integrity Nutraceuticals, Inc.) (c) (l) (o) (t) | Food Products | L+12.50% (13.88%) 4/28/2019 | 2,934 | 2,829 | 2,876 | 0.2 | % | ||||||||||||
Catapult Learning, LLC (c) (i) (m) | Diversified Consumer Services | L+6.50% (8.27%), 7/16/2020 | 26,776 | 26,530 | 25,571 | 1.7 | % | ||||||||||||
CCW, LLC (c) (f) (i) | Hotels, Restaurants & Leisure | L+7.00% (8.94%), 3/21/2021 | 27,750 | 27,466 | 27,750 | 1.9 | % | ||||||||||||
Central Security Group, Inc. (c) (i) (j) | Commercial Services & Supplies | L+5.63% (7.50%), 10/6/2021 | 25,228 | 24,954 | 25,102 | 1.7 | % | ||||||||||||
Chicken Soup for the Soul Publishing, LLC (c) | Media | L+6.25% (7.92%), 1/8/2019 | 27,386 | 27,333 | 24,236 | 1.6 | % | ||||||||||||
Chloe Ox Parent, LLC (j) | Health Care Providers & Services | L+5.00% (7.30%), 12/23/2024 | 10,768 | 10,664 | 10,876 | 0.7 | % | ||||||||||||
Clarion Events, Ltd (c) (j) | Business Services | L+5.00% (6.77%), 3/22/2025 | 5,817 | 5,701 | 5,701 | 0.4 | % | ||||||||||||
Clover Technologies Group, LLC (j) | Commercial Services & Supplies | L+4.50% (6.38%), 5/8/2020 | 13,512 | 13,465 | 10,488 | 0.7 | % | ||||||||||||
Community Care Health Network, LLC (c) (j) | Health Care | L+4.75% (6.74%), 2/16/2025 | 2,686 | 2,679 | 2,703 | 0.2 | % | ||||||||||||
CONSOL Energy Inc. (j) | Metals & Mining | L+6.00% (7.99%), 11/28/2022 | 3,232 | 3,171 | 3,311 | 0.2 | % | ||||||||||||
Contura Energy Inc. (j) | Energy Equipment & Services | L+5.00% (6.88%), 3/18/2024 | 7,472 | 7,408 | 7,449 | 0.5 | % | ||||||||||||
ConvergeOne Holdings Corp. (c) (j) | Technology | L+4.75% (6.63%), 6/20/2024 | 16,434 | 16,287 | 16,434 | 1.1 | % | ||||||||||||
Corfin Industries LLC (c) (f) | Industrials | L+6.50% (8.49%), 2/15/2024 | 8,615 | 8,446 | 8,443 | 0.6 | % | ||||||||||||
Corfin Industries LLC (c) (f) | Industrials | L+6.50% (8.49%), 2/15/2024 | 48 | 48 | 47 | 0.1 | % | ||||||||||||
Cvent, Inc. (j) | Internet Software & Services | L+3.75% (5.63%), 11/29/2024 | 16,436 | 16,337 | 16,518 | 1.1 | % | ||||||||||||
DigiCert, Inc (j) | Internet Software & Services | L+4.75% (6.52%), 10/31/2024 | 10,800 | 10,749 | 10,915 | 0.7 | % | ||||||||||||
Eagle Rx, LLC (c) (i) | Health Care Providers & Services | L+4.00% (5.91%) 8/15/2019 | 27,157 | 27,085 | 27,157 | 1.8 | % | ||||||||||||
Elo Touch Solutions, Inc (c) (j) | Technology | L+6.00% (8.00%), 10/31/2023 | 3,542 | 3,508 | 3,542 | 0.2 | % | ||||||||||||
ERG Holding Company (c) (i) (m) | Health Care Providers & Services | L+6.75% (9.07%), 4/4/2019 | 33,923 | 33,722 | 33,923 | 2.3 | % | ||||||||||||
ERG Holding Company (c) (f) | Health Care Providers & Services | L+6.75% (9.07%), 4/4/2019 | 188 | 188 | 188 | 0.1 | % | ||||||||||||
Everi Payments, Inc. (j) | Hotels, Restaurants & Leisure | L+3.50% (5.49%), 5/9/2024 | 10,628 | 10,613 | 10,694 | 0.7 | % | ||||||||||||
Excelitas Technologies Corp. (j) | Electronic Equipment, Instruments & Components | L+3.50% (5.16%), 12/2/2024 | 9,975 | 9,951 | 10,058 | 0.7 | % | ||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
8
BUSINESS DEVELOPMENT CORPORATION OF AMERICA
CONSOLIDATED SCHEDULES OF INVESTMENTS
(dollars in thousands)
March 31, 2018 (Unaudited) | |||||||||||||||||||
Portfolio Company (q) | Industry | Investment Coupon Rate / Maturity (y) | Principal / Number of Shares | Amortized Cost | Fair Value | % of Net Assets (b) | |||||||||||||
Frontier Communications (m) | Diversified Telecommunications Services | L+3.75% (5.63%), 6/15/2024 | $ | 5,541 | $ | 5,468 | $ | 5,461 | 0.4 | % | |||||||||
Genesys Telecommunications Laboratories, Inc. (j) | Diversified Telecommunication Services | L+3.50% (5.80%), 12/1/2023 | 24,689 | 24,387 | 24,828 | 1.7 | % | ||||||||||||
Greenwave Holdings, Inc. (c) (d) (l) | Internet Software & Services | 13.00%, 7/8/2019 | 10,278 | 10,245 | 9,765 | 0.7 | % | ||||||||||||
GTCR Valor Companies, Inc. (j) | Internet Software & Services | L+3.25% (5.13%), 6/16/2023 | 9,950 | 9,928 | 10,027 | 0.7 | % | ||||||||||||
HC Group Holdings III, Inc. (j) | Health Care | L+5.00% (6.88%), 4/7/2022 | 14,743 | 14,542 | 14,909 | 1.0 | % | ||||||||||||
Hexion Inc. (x) | Chemicals | 10.38%, 2/1/2022 | 920 | 920 | 890 | 0.1 | % | ||||||||||||
Hexion Inc. (x) | Chemicals | 6.63%, 4/15/2020 | 6,689 | 6,025 | 6,237 | 0.4 | % | ||||||||||||
ICR Operations, LLC (c) (i) | Business Services | L+5.50% (7.79%), 3/26/2025 | 13,670 | 13,397 | 13,397 | 0.9 | % | ||||||||||||
ICR Operations, LLC (c) (f) | Business Services | L+5.50% (7.79%),3/26/2024 | 165 | 162 | 162 | 0.1 | % | ||||||||||||
Ideal Tridon Holdings, Inc. (c) (m) | Commercial Services & Supplies | L+5.50% (8.07%), 7/31/2023 | 23,857 | 23,433 | 23,430 | 1.6 | % | ||||||||||||
Ideal Tridon Holdings, Inc. (c) (f) | Commercial Services & Supplies | L+5.50% (8.07%), 7/31/2022 | 546 | 513 | 537 | 0.1 | % | ||||||||||||
Indivior Finance S.A.R.L. (i) | Health Care | L+4.50% (6.42%), 12/18/2022 | 6,965 | 6,932 | 6,974 | 0.5 | % | ||||||||||||
InMotion Entertainment Group, LLC (c) (i) | Specialty Retail | L+7.25% (9.57%), 10/1/2021 | 13,153 | 13,112 | 13,153 | 0.9 | % | ||||||||||||
InMotion Entertainment Group, LLC (c) (f) (i) | Specialty Retail | L+7.75% (10.07%), 10/1/2021 | 322 | 322 | 322 | 0.1 | % | ||||||||||||
Intelsat S.A. (m) | Diversified Telecommunication Services | L+4.50% (6.46%), 1/2/2024 | 665 | 665 | 682 | 0.1 | % | ||||||||||||
Intelsat S.A. (m) | Diversified Telecommunication Services | L+4.50% (6.46%), 1/2/2024 | 2,211 | 2,211 | 2,236 | 0.2 | % | ||||||||||||
Internap Corporation (c) (j) (m) | Communications Equipment | L+5.75% (7.65%), 4/6/2022 | 20,158 | 20,040 | 20,220 | 1.4 | % | ||||||||||||
IPC Corp. (j) | Diversified Telecommunication Services | L+4.50% (6.27%), 8/6/2021 | 3,784 | 3,730 | 3,703 | 0.3 | % | ||||||||||||
Iridium Communications, Inc. (x) | Diversified Telecommunications Services | 10.25%, 4/15/2023 | 3,536 | 3,536 | 3,633 | 0.2 | % | ||||||||||||
Jackson Hewitt, Inc. (j) | Diversified Consumer Services | L+7.00% (8.77%), 7/30/2020 | 6,515 | 6,454 | 6,466 | 0.4 | % | ||||||||||||
K2 Pure Solutions NoCal, L.P. (c) (i) | Chemicals | L+6.00% (7.88%), 2/19/2021 | 6,500 | 6,450 | 6,500 | 0.4 | % | ||||||||||||
Kahala Ireland OpCo Designated Activity Company (a) (c) (l) (o) | Aerospace & Defense | L+8.00% (13.00%),12/23/2028 | 141,549 | 141,549 | 141,549 | 9.6 | % | ||||||||||||
Kissner Milling Co. Ltd. (x) | Chemicals | 8.38%, 12/1/2022 | 21,199 | 21,516 | 21,755 | 1.5 | % | ||||||||||||
Lakeland Tours, LLC (f) | Diversified Consumer Services | L+4.00% (6.12%), 12/15/2024 | 5,634 | 5,620 | 5,690 | 0.4 | % | ||||||||||||
LenderLive Services, LLC (c) | Business Services | L+12.00% (13.85%), 8/11/2020 | 10,000 | 9,881 | 10,000 | 0.7 | % | ||||||||||||
Lightsquared LP (l) | Diversified Telecommunications Services | L+8.75% (10.78%), 12/7/2020 | 11,606 | 10,932 | 10,155 | 0.7 | % | ||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
9
BUSINESS DEVELOPMENT CORPORATION OF AMERICA
CONSOLIDATED SCHEDULES OF INVESTMENTS
(dollars in thousands)
March 31, 2018 (Unaudited) | |||||||||||||||||||
Portfolio Company (q) | Industry | Investment Coupon Rate / Maturity (y) | Principal / Number of Shares | Amortized Cost | Fair Value | % of Net Assets (b) | |||||||||||||
Lionbridge Technologies, Inc. (c) (i) | Business Services | L+5.50% (7.38%), 2/28/2024 | $ | 13,729 | $ | 13,671 | $ | 13,670 | 0.9 | % | |||||||||
Loparex International Holding B.V. (c) (j) | Industrials | L+4.25% (6.59%), 4/11/2025 | 2,003 | 1,993 | 1,993 | 0.1 | % | ||||||||||||
MCS Acquisition Corp. (c) (j) | Professional Services | L+4.75% (6.63%), 5/18/2024 | 14,261 | 14,206 | 14,261 | 1.0 | % | ||||||||||||
Medallion Midland Acquisition, L.P. (j) | Energy Equipment & Services | L+3.25% (5.13%), 11/13/2024 | 4,439 | 4,428 | 4,428 | 0.3 | % | ||||||||||||
Medical Depot Holdings, Inc. (c) (i) | Health Care | L+5.50% (7.80%), 1/3/2023 | 19,644 | 18,224 | 18,192 | 1.2 | % | ||||||||||||
Michael Baker International, LLC (c) (j) | Business Services | L+4.50% (6.34%), 11/21/2022 | 5,607 | 5,555 | 5,610 | 0.4 | % | ||||||||||||
Midwest Can Company, LLC (c) (f) (i) | Energy Equipment & Services | L+6.75% (8.63%), 1/26/2022 | 5,054 | 4,986 | 5,075 | 0.3 | % | ||||||||||||
MMM Holdings, LLC (c) (f) (i) | Health Care | L+6.25% (8.37%), 3/15/2023 | 20,578 | 20,170 | 20,166 | 1.4 | % | ||||||||||||
Monitronics International, Inc. (j) | Diversified Consumer Services | L+5.50% (7.80%), 9/30/2022 | 11,850 | 11,872 | 11,517 | 0.8 | % | ||||||||||||
Montreign Operating Company, LLC (c) (m) | Hotels, Restaurants & Leisure | L+8.25% (10.13%), 1/24/2023 | 27,161 | 26,753 | 26,951 | 1.8 | % | ||||||||||||
Mood Media Corporation (c) (m) | Business Services | L+7.25% (9.55%), 6/28/2022 | 13,806 | 13,549 | 13,520 | 0.9 | % | ||||||||||||
Motion Recruitment Partners, LLC (c) (f) (i) | Professional Services | L+6.00% (7.89%), 2/13/2020 | 17,069 | 16,917 | 17,069 | 1.2 | % | ||||||||||||
Murray Energy Holdings Co. (j) | Energy Equipment & Services | L+7.25% (9.55%), 4/16/2020 | 11,340 | 11,028 | 9,582 | 0.6 | % | ||||||||||||
National Technical Systems, Inc. (c) (i) | Professional Services | L+6.25% (7.91%), 6/12/2021 | 16,469 | 16,383 | 15,481 | 1.0 | % | ||||||||||||
Navitas Midstream Midland Basin, LLC (j) | Energy Equipment & Services | L+4.50% (6.40%), 12/13/2024 | 8,461 | 8,424 | 8,445 | 0.6 | % | ||||||||||||
New Star Metals, Inc. (c) (m) | Business Services | L+9.50% (11.80%), 12/22/2021 | 24,328 | 23,921 | 24,357 | 1.7 | % | ||||||||||||
NexSteppe Inc. (c) (l) (t) | Chemicals | 12.00%, 9/30/2018 | 1,835 | 1,750 | — | — | % | ||||||||||||
NexSteppe Inc. (c) (l) (t) | Chemicals | 12.00%, 9/30/2018 | 12,362 | 10,453 | — | — | % | ||||||||||||
Noosa Acquirer, Inc. (c) (i) (m) | Food Products | L+5.25% (7.14%), 11/21/2020 | 25,000 | 24,834 | 25,000 | 1.7 | % | ||||||||||||
NTM Acquisition Corp. (c) (i) | Media | L+6.25% (8.55%), 6/7/2022 | 18,434 | 18,256 | 18,341 | 1.2 | % | ||||||||||||
Office Depot, Inc. (j) | Specialty Retail | L+7.00% (8.71%), 11/8/2022 | 8,902 | 8,735 | 9,046 | 0.6 | % | ||||||||||||
Optiv, Inc. (j) | Business Services | L+3.25% (5.13%), 2/1/2024 | 4,443 | 4,227 | 4,282 | 0.3 | % | ||||||||||||
Orchid Underwriters Agency, LLC (c) (f) (i) | Insurance Broker | L+5.00% (7.30%), 3/17/2022 | 18,480 | 18,334 | 18,480 | 1.3 | % | ||||||||||||
ORG Chemical Holdings, LLC (c) (i) (w) | Chemicals | L+5.75% (8.05%), 6/30/2022 | 27,752 | 27,281 | 27,275 | 1.8 | % | ||||||||||||
ORG GC Holdings, LLC (c) (i) (w) | Business Services | L+6.00% (8.80%), 7/31/2022 | 25,485 | 25,154 | 25,024 | 1.7 | % | ||||||||||||
Peabody Energy Corp. (j) | Metals & Mining | L+3.50% (5.38%), 3/31/2022 | 2,608 | 2,602 | 2,611 | 0.2 | % | ||||||||||||
PeopLease Holdings, LLC (c) (i) | Commercial Services & Supplies | L+9.00% (11.31%), 2/26/2021 | 20,000 | 19,882 | 15,000 | 1.0 | % | ||||||||||||
PGX Holdings, Inc. (c) (j) | Transportation Infrastructure | L+5.25% (7.13%), 9/29/2020 | 12,456 | 12,413 | 12,083 | 0.8 | % | ||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
10
BUSINESS DEVELOPMENT CORPORATION OF AMERICA
CONSOLIDATED SCHEDULES OF INVESTMENTS
(dollars in thousands)
March 31, 2018 (Unaudited) | |||||||||||||||||||
Portfolio Company (q) | Industry | Investment Coupon Rate / Maturity (y) | Principal / Number of Shares | Amortized Cost | Fair Value | % of Net Assets (b) | |||||||||||||
Premier Dental Services, Inc. (i) (j) | Health Care | L+4.50% (6.38%), 6/30/2023 | $ | 32,935 | $ | 32,693 | $ | 33,182 | 2.2 | % | |||||||||
Premier Global Services, Inc. (j) | Diversified Telecommunication Services | L+6.50% (8.29%), 12/8/2021 | 9,229 | 8,985 | 9,187 | 0.6 | % | ||||||||||||
Pre-Paid Legal Services, Inc. (c) (j) | Diversified Consumer Services | L+5.25% (7.13%), 7/1/2019 | 11,010 | 11,023 | 11,010 | 0.7 | % | ||||||||||||
Pride Plating, Inc. (c) (i) | Aerospace & Defense | L+5.50%, (7.80%), 6/13/2019 | 8,259 | 8,238 | 8,176 | 0.6 | % | ||||||||||||
PSKW, LLC (c) (i) | Health Care Providers & Services | L+4.25% (6.55%), 11/25/2021 | 1,564 | 1,554 | 1,564 | 0.1 | % | ||||||||||||
PSKW, LLC (c) (m) | Health Care Providers & Services | L+8.26% (10.56%), 11/25/2021 | 17,750 | 17,533 | 17,750 | 1.2 | % | ||||||||||||
PSKW, LLC (c) (m) | Health Care Providers & Services | L+8.26% (10.56%), 11/25/2021 | 1,972 | 1,936 | 1,972 | 0.1 | % | ||||||||||||
PT Network, LLC (c) (i) | Health Care | L+5.50% (7.21%), 11/30/2021 | 16,892 | 16,768 | 16,630 | 1.1 | % | ||||||||||||
PT Network, LLC (c) (f) | Health Care | L+4.50% (9.25%), 11/30/2021 | 658 | 658 | 648 | 0.1 | % | ||||||||||||
Pure Barre, LLC (c) (i) (m) | Hotels, Restaurants & Leisure | L+7.00% (8.88%), 6/11/2020 | 25,623 | 25,426 | 25,239 | 1.7 | % | ||||||||||||
Pure Barre, LLC (c) | Hotels, Restaurants & Leisure | L+7.00% (8.88%), 6/11/2020 | 500 | 500 | 493 | 0.1 | % | ||||||||||||
Quorum Health Corporation (j) | Health Care | L+6.75% (8.63%),4/29/2022 | 4,308 | 4,399 | 4,394 | 0.3 | % | ||||||||||||
Resco Products, Inc. (c) (i) | Metals & Mining | L+6.25% (7.90%), 3/7/2020 | 10,000 | 10,000 | 9,750 | 0.7 | % | ||||||||||||
Sage Automotive Holdings, Inc. (c) (j) | Auto Components | L+5.00% (6.88%), 11/8/2022 | 18,414 | 18,282 | 18,414 | 1.2 | % | ||||||||||||
SHO Holding II Corporation (c) (j) | Specialty Retail | L+5.00% (6.79%), 10/27/2022 | 9,745 | 9,680 | 8,771 | 0.6 | % | ||||||||||||
Skillsoft Corp. (j) (m) | Technology | L+4.75% (6.63%), 4/28/2021 | 17,134 | 16,409 | 16,515 | 1.1 | % | ||||||||||||
Squan Holding Corp. (c) | Diversified Telecommunication Services | L+6.00% (8.31%), 10/10/2019 | 16,878 | 14,824 | 13,502 | 0.9 | % | ||||||||||||
SSH Group Holdings, Inc. (c) (i) | Diversified Consumer Services | L+5.00% (7.45%), 10/2/2024 | 6,073 | 6,016 | 6,061 | 0.4 | % | ||||||||||||
Steel City Media (c) | Media | L+4.75% (8.25%),3/29/2020 | 37,956 | 37,956 | 37,576 | 2.5 | % | ||||||||||||
Stepstone Group LP (c) (i) | Financial Services | L+4.00% (5.90%), 3/27/2025 | 2,932 | 2,917 | 2,917 | 0.2 | % | ||||||||||||
Subsea Global Solutions, LLC (c) (f) (i) | Business Services | L+7.00% (9.30%), 3/29/2023 | 8,475 | 8,306 | 8,306 | 0.6 | % | ||||||||||||
SunGard Availability Services Capital, Inc. (j) | IT Services | L+10.00% (11.88%), 10/1/2022 | 3,430 | 3,421 | 3,374 | 0.2 | % | ||||||||||||
Tax Defense Network, LLC (c) (l) (t) | Diversified Consumer Services | L+13.00% (15.31%), 8/28/2019 | 30,602 | 26,532 | 7,713 | 0.5 | % | ||||||||||||
Thoughtworks, Inc. (c) (j) | Business Services | L+4.50% (6.38%), 10/12/2024 | 4,420 | 4,410 | 4,420 | 0.3 | % | ||||||||||||
Tillamook Country Smoker, LLC (c) (i) | Food Products | L+5.75% (7.64%), 5/19/2022 | 10,244 | 10,117 | 10,116 | 0.7 | % | ||||||||||||
Tillamook Country Smoker, LLC (c) (f) | Food Products | L+5.75% (7.49%), 5/19/2022 | 809 | 809 | 799 | 0.1 | % | ||||||||||||
Traverse Midstream Partners, LLC (j) | Energy Equipment & Services | L+4.00% (5.85%), 9/27/2024 | 6,352 | 6,322 | 6,384 | 0.4 | % | ||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
11
BUSINESS DEVELOPMENT CORPORATION OF AMERICA
CONSOLIDATED SCHEDULES OF INVESTMENTS
(dollars in thousands)
March 31, 2018 (Unaudited) | |||||||||||||||||||
Portfolio Company (q) | Industry | Investment Coupon Rate / Maturity (y) | Principal / Number of Shares | Amortized Cost | Fair Value | % of Net Assets (b) | |||||||||||||
Trilogy International Partners, LLC (x) | Diversified Telecommunication Services | 8.88%, 5/1/2022 | $ | 14,875 | $ | 14,813 | $ | 15,247 | 1.0 | % | |||||||||
Trojan Battery Company, LLC (j) | Auto Components | L+4.75% (6.69%), 6/12/2021 | 10,451 | 10,402 | 10,451 | 0.7 | % | ||||||||||||
Turning Tech LLC (c) (i) | Software | L+9.75% (12.06%), 6/30/2020 | 20,669 | 20,509 | 18,602 | 1.3 | % | ||||||||||||
Twenty Eighty, Inc. (c) (f) (l) (p) | Media | 8.00%, 3/31/2020 | 6,357 | 4,748 | 6,229 | 0.4 | % | ||||||||||||
Twenty Eighty, Inc. (c) (f) (l) (p) | Media | L+8.00% (10.30%), 3/31/2020 | 2,887 | 2,448 | 2,887 | 0.2 | % | ||||||||||||
Twenty Eighty, Inc. (c) (f) (l) (p) | Media | 9.00%, 3/31/2020 | 5,880 | 4,424 | 5,762 | 0.4 | % | ||||||||||||
United Central Industrial Supply Company, LLC (c) (i) (j) | Commercial Services & Supplies | L+7.25% (9.13%), 10/9/2018 | 8,481 | 8,467 | 8,072 | 0.5 | % | ||||||||||||
USF S&H Holdco, LLC (c) (f) (i) | Hotels, Restaurants & Leisure | L+5.75% (7.93%), 3/19/2024 | 24,245 | 23,883 | 23,881 | 1.6 | % | ||||||||||||
US Salt, LLC (c) (i) (m) | Food Products | L+4.75% (6.63%), 12/1/2023 | 5,189 | 5,139 | 5,135 | 0.3 | % | ||||||||||||
US Salt, LLC (c) (f) | Food Products | L+4.75% (6.63%), 12/1/2023 | 1,254 | 1,254 | 1,241 | 0.1 | % | ||||||||||||
VCVH Holding Corp. (c) (i) (j) | Health Care | L+5.00% (7.31%), 6/1/2023 | 26,034 | 25,901 | 26,224 | 1.8 | % | ||||||||||||
Veritas US Inc. (j) | Technology | L+4.50% (6.80%), 1/27/2023 | 14,981 | 15,020 | 14,911 | 1.0 | % | ||||||||||||
Veritas US Inc. (x) | Technology | 10.50%, 2/1/2024 | 15,393 | 15,199 | 14,396 | 1.2 | % | ||||||||||||
VetCor Professional Practices LLC (c) (f) (i) | Diversified Consumer Services | L+6.25% (8.56%), 4/20/2021 | 17,987 | 17,908 | 17,808 | 1.0 | % | ||||||||||||
Von Drehle Corporation (c) (i) (m) | Life Sciences Tools & Services | L+7.50% (9.19%), 3/6/2023 | 26,045 | 25,679 | 25,751 | 1.7 | % | ||||||||||||
Xplornet Communications, Inc. (a) (j) | Diversified Telecommunication Services | L+4.00% (6.30%), 9/9/2021 | 13,094 | 13,023 | 13,119 | 0.9 | % | ||||||||||||
Sub Total Senior Secured First Lien Debt | $ | 1,982,847 | $ | 1,900,969 | 128.9 | % | |||||||||||||
Senior Secured Second Lien Debt - 16.1% (b) | |||||||||||||||||||
Anchor Glass Container Corporation (c) (m) | Containers & Packaging | L+7.75% (9.49%), 12/7/2024 | $ | 20,000 | $ | 19,833 | $ | 19,194 | 1.3 | % | |||||||||
Answers Corporation (c) (p) | Technology | L+7.90% (9.00%), 9/15/2021 | 4,663 | 4,116 | 4,360 | 0.3 | % | ||||||||||||
Astro AB Merger Sub, Inc. (m) | Diversified Financial Services | L+7.50% (9.27%), 4/30/2023 | 7,758 | 7,758 | 7,855 | 0.5 | % | ||||||||||||
Boston Market Corporation (c) (m) | Hotels, Restaurants & Leisure | L+8.25% (10.24%), 12/16/2018 | 24,039 | 23,984 | 21,154 | 1.4 | % | ||||||||||||
BrandMuscle Holdings Inc. (c) (m) | Internet Software & Services | L+8.50% (10.19%), 6/1/2022 | 24,500 | 24,185 | 24,500 | 1.7 | % | ||||||||||||
Carlisle FoodService Products, Incorporated (c) | Food Products | L+7.75% (9.65%), 3/20/2026 | 10,719 | 10,506 | 10,505 | 0.7 | % | ||||||||||||
CDS U.S. Intermediate Holdings, Inc. (m) | Hotels, Restaurants & Leisure | L+8.25% (10.55%), 7/8/2023 | 7,927 | 7,814 | 7,828 | 0.5 | % | ||||||||||||
CIG Financial, LLC (a) (c) (m) | Consumer Finance | 10.50%, 6/30/2019 | 9,000 | 8,978 | 8,370 | 0.6 | % | ||||||||||||
CIG Financial, LLC (a) (c) (f) | Consumer Finance | 10.50%, 6/30/2019 | 1,000 | 1,000 | 930 | 0.1 | % | ||||||||||||
CP VI Bella Blocker Topco, LLC (m) | Health Care | L+6.75% (8.63%), 12/28/2025 | 2,009 | 1,999 | 2,001 | 0.1 | % | ||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
12
BUSINESS DEVELOPMENT CORPORATION OF AMERICA
CONSOLIDATED SCHEDULES OF INVESTMENTS
(dollars in thousands)
March 31, 2018 (Unaudited) | |||||||||||||||||||
Portfolio Company (q) | Industry | Investment Coupon Rate / Maturity (y) | Principal / Number of Shares | Amortized Cost | Fair Value | % of Net Assets (b) | |||||||||||||
CREDITCORP (x) | Consumer Finance | 12.00%, 7/15/2018 | $ | 13,250 | $ | 13,243 | $ | 12,356 | 0.8 | % | |||||||||
Epic Health Services, Inc. (m) | Health Care Providers & Services | L+8.00% (9.88%), 3/17/2025 | 15,000 | 14,803 | 14,875 | 1.0 | % | ||||||||||||
Genex Holdings, Inc. | Health Care | L+7.00% (9.05%), 3/6/2026 | 2,305 | 2,282 | 2,309 | 0.2 | % | ||||||||||||
Hertz Corp. (x) | Automobiles | 7.63%, 6/1/2022 | 14,194 | 14,194 | 14,394 | 1.0 | % | ||||||||||||
PetVet Care Centers, LLC (c) (m) | Business Services | L+2.75% (4.65%), 2/13/2026 | 3,539 | 3,521 | 3,522 | 0.2 | % | ||||||||||||
PI US Holdco III Limited (c) (m) | Consumer Finance | L+7.25% (9.11%), 12/20/2025 | 6,696 | 6,630 | 6,685 | 0.5 | % | ||||||||||||
Recess Holdings, Inc. (c) (m) | Hotels, Restaurants & Leisure | L+7.75% (10.20%), 9/29/2025 | 13,008 | 12,823 | 12,813 | 0.9 | % | ||||||||||||
Rx30 HoldCo, Inc. (c) (m) | Health Care Technology | L+9.00% (11.33%), 6/15/2022 | 11,500 | 11,361 | 11,500 | 0.8 | % | ||||||||||||
Rx30 HoldCo, Inc. (c) (m) | Health Care Technology | L+9.00% (11.33%), 6/15/2022 | 1,229 | 1,206 | 1,229 | 0.1 | % | ||||||||||||
TierPoint, LLC (c) (m) | Technology | L+3.75% (5.63%), 5/5/2025 | 5,334 | 5,287 | 5,281 | 0.4 | % | ||||||||||||
Safe Fleet Holdings LLC (c) (m) | Industrials | L+6.75% (8.53%),2/1/2026 | 3,143 | 3,127 | 3,127 | 0.2 | % | ||||||||||||
U.S. Auto (c) (m) | Diversified Consumer Services | L+10.50% (12.39%), 6/8/2020 | 30,000 | 29,769 | 29,850 | 2.0 | % | ||||||||||||
US Salt, LLC (c) (m) | Food Products | L+8.75% (10.41%), 12/1/2024 | 12,872 | 12,688 | 12,686 | 0.8 | % | ||||||||||||
Sub Total Senior Secured Second Lien Debt | $ | 241,107 | $ | 237,324 | 16.1 | % | |||||||||||||
Subordinated Debt - 8.8% (b) | |||||||||||||||||||
Ardent Legacy Acquisitions, Inc. | Health Care | L+8.50% (10.16%), 3/1/2023 | $ | 21,222 | $ | 20,904 | $ | 21,302 | 1.5 | % | |||||||||
BMC Software Finance, Inc. (x) | Software | 8.13%, 7/15/2021 | 19,461 | 19,451 | 19,385 | 1.3 | % | ||||||||||||
Frontier Communications (x) | Diversified Telecommunication Services | 8.13%, 10/1/2018 | 5,500 | 5,494 | 5,565 | 0.4 | % | ||||||||||||
Frontier Communications (x) | Diversified Telecommunication Services | 8.50%, 4/15/2020 | 10,000 | 9,226 | 10,150 | 0.7 | % | ||||||||||||
Gold, Inc. (c) (m) | Textiles, Apparel & Luxury Goods | 10.00%, 6/30/2019 | 3,742 | 3,700 | 3,443 | 0.2 | % | ||||||||||||
Park Ave RE Holdings, LLC (c) (d) (l) (o) | Real Estate Management & Development | L+8.00%, (13.00%), 12/31/2021 | 37,192 | 37,192 | 37,192 | 2.5 | % | ||||||||||||
Steel City Media (c) (l) (t) | Media | 16.00%, 3/29/2020 | 24,717 | 24,536 | 21,010 | 1.4 | % | ||||||||||||
Xplornet Communications, Inc. (a) (l) (x) | Diversified Telecommunication Services | 9.63%, 6/1/2022 | 10,534 | 10,534 | 11,061 | 0.8 | % | ||||||||||||
Sub Total Subordinated Debt | $ | 131,037 | $ | 129,108 | 8.8 | % | |||||||||||||
Collateralized Securities - 10.9% (b) | |||||||||||||||||||
Collateralized Securities - Debt Investment | |||||||||||||||||||
NewStar Exeter Fund CLO - Debt (a) (c) (p) | Diversified Investment Vehicles | 9.86%, 1/19/2027 | $ | 10,728 | $ | 9,302 | $ | 8,445 | 0.6 | % | |||||||||
The accompanying notes are an integral part of these consolidated financial statements.
13
BUSINESS DEVELOPMENT CORPORATION OF AMERICA
CONSOLIDATED SCHEDULES OF INVESTMENTS
(dollars in thousands)
March 31, 2018 (Unaudited) | |||||||||||||||||||
Portfolio Company (q) | Industry | Investment Coupon Rate / Maturity (y) | Principal / Number of Shares | Amortized Cost | Fair Value | % of Net Assets (b) | |||||||||||||
WhiteHorse VIII, Ltd. CLO - Debt (a) (c) (p) (v) | Diversified Investment Vehicles | 6.32%, 5/1/2026 | $ | 8,000 | $ | 7,639 | $ | 7,626 | 0.5 | % | |||||||||
Collateralized Securities - Equity Investment (n) | |||||||||||||||||||
B&M CLO 2014-1, LTD. Subordinated Notes (a) (c) (p) (v) | Diversified Investment Vehicles | 6.03%, 4/16/2026 | $ | 40,250 | $ | 12,936 | $ | 12,320 | 0.8 | % | |||||||||
CVP Cascade CLO, LTD. Subordinated Notes (a) (c) (p) (v) | Diversified Investment Vehicles | 12.18%, 1/16/2026 | 31,000 | 1,784 | 2,423 | 0.2 | % | ||||||||||||
Figueroa CLO 2014-1, LTD. Subordinated Notes (a) (c) (p) (v) | Diversified Investment Vehicles | 2.79%, 1/15/2027 | 35,057 | 12,079 | 12,198 | 0.8 | % | ||||||||||||
MidOcean Credit CLO II, LLC Income Notes (a) (c) (p) (v) | Diversified Investment Vehicles | 11.24%, 1/29/2030 | 37,600 | 20,876 | 21,820 | 1.5 | % | ||||||||||||
MidOcean Credit CLO III, LLC Subordinated Notes (a) (c) (p) (v) | Diversified Investment Vehicles | 2.27%, 7/21/2026 | 40,250 | 16,326 | 16,839 | 1.1 | % | ||||||||||||
MidOcean Credit CLO IV, LLC Income Notes (a) (c) (p) (v) | Diversified Investment Vehicles | 8.92%, 4/15/2027 | 21,500 | 13,066 | 13,090 | 0.9 | % | ||||||||||||
NewStar Arlington Senior Loan Program LLC Subordinated Notes (a) (c) (p) (v) | Diversified Investment Vehicles | 23.70%, 4/25/2031 | 31,603 | 21,380 | 25,436 | 1.7 | % | ||||||||||||
NewStar Exeter Fund CLO - Equity (a) (c) (p) (v) | Diversified Investment Vehicles | 1.07%, 1/19/2027 | 31,575 | 11,621 | 11,071 | 0.7 | % | ||||||||||||
OFSI Fund VI, Ltd. Subordinated Notes (a) (c) (p) (v) | Diversified Investment Vehicles | 5.19%, 3/20/2025 | 38,000 | 12,229 | 9,770 | 0.7 | % | ||||||||||||
Related Fee Agreements (a) (c) (s) | Diversified Investment Vehicles | 13,841 | 5,908 | 3,499 | 0.2 | % | |||||||||||||
Silver Spring CLO, Ltd. Subordinated Notes (a) (c) (p) (v) | Diversified Investment Vehicles | 3.91%, 10/16/2026 | 31,500 | 8,570 | 8,502 | 0.6 | % | ||||||||||||
WhiteHorse VIII, Ltd. CLO Subordinated Notes (a) (c) (p) (v) | Diversified Investment Vehicles | 5.61%, 5/1/2026 | 36,000 | 11,558 | 8,895 | 0.6 | % | ||||||||||||
Sub Total Collateralized Securities | $ | 165,274 | $ | 161,934 | 10.9 | % | |||||||||||||
Equity/Other - 13.4% (b) | |||||||||||||||||||
Answers Corporation - Common Equity (c) (e) (p) | Technology | 909 | $ | 11,361 | $ | 10,965 | 0.7 | % | |||||||||||
Avaya Holdings Corp. (e) (x) | Communications Equipment | 611 | 5,309 | 7,489 | 0.5 | % | |||||||||||||
California Resources Development JV, LLC - Preferred Equity (c) (o) (u) | Metals & Mining | 9.00% | 26,717,000 | 24,049 | 24,952 | 1.7 | % | ||||||||||||
Capstone Nutrition - Common Stock (fka Integrity Nutraceuticals, Inc.) (c) (e) (o) | Food Products | 6,023 | 1,630 | — | — | % | |||||||||||||
Capstone Nutrition - Common Stock (fka Integrity Nutraceuticals, Inc.) (c) (e) (o) (u) | Food Products | 24,656 | — | — | — | % | |||||||||||||
Danish CRJ LTD. - Common Equity (a) (c) (e) (p) (r) | Aerospace & Defense | 10,000 | 1 | 460 | — | % | |||||||||||||
Evolution Research Group - Preferred Equity (c) (e) | Health Care Providers & Services | 8.00% | 500,000 | 500 | 909 | 0.1 | % | ||||||||||||
Greenwave Holdings, Inc. - Series C Preferred Stock Warrant (c) (e) | Internet Software & Services | Expire 8/16/2025 | 172,414 | — | — | — | % | ||||||||||||
Kahala Ireland OpCo Designated Activity Company - Common Equity (a) (c) (e) (h) (o) | Aerospace & Defense | 137 | — | 8,849 | 0.6 | % | |||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
14
BUSINESS DEVELOPMENT CORPORATION OF AMERICA
CONSOLIDATED SCHEDULES OF INVESTMENTS
(dollars in thousands)
March 31, 2018 (Unaudited) | |||||||||||||||||||
Portfolio Company (q) | Industry | Investment Coupon Rate / Maturity (y) | Principal / Number of Shares | Amortized Cost | Fair Value | % of Net Assets (b) | |||||||||||||
Kahala Ireland OpCo Designated Activity Company - Profit Participating Note (a) (c) (e) (h) (o) | Aerospace & Defense | 3,250,000 | 2,851 | 3,250 | 0.2 | % | |||||||||||||
Kahala US OpCo LLC - Class A Preferred Units (c) (e) (k) (o) | Aerospace & Defense | 13.00% | 4,413,472 | $ | 10 | $ | — | — | % | ||||||||||
Mood Media Corporation - Warrants (c) (e) | Business Services | 121,021 | 27 | 48 | — | % | |||||||||||||
New Star Metals Inc. - Warrants (c) (e) | Business Services | Expire 12/22/2036 | 100,216 | 151 | 279 | — | % | ||||||||||||
NexSteppe Inc. - Series C Preferred Stock Warrant (c) (e) | Chemicals | 237,240 | 737 | — | — | % | |||||||||||||
NMFC Senior Loan Program I, LLC (a) (o) | Diversified Investment Vehicles | 50,000 | 50,000 | 51,126 | 3.5 | % | |||||||||||||
Orchid Underwriters Agency, LLC - Preferred Shares (c) (e) (u) | Insurance Broker | 5,000 | 113 | 773 | 0.1 | % | |||||||||||||
Orchid Underwriters Agency, LLC - Common Shares (c) (e) (u) | Insurance Broker | 5,000 | — | 76 | — | % | |||||||||||||
Park Ave RE Holdings, LLC - Common Shares (c) (e) (o) (w) | Real Estate Management & Development | 1,000 | 102 | 14,297 | 1.0 | % | |||||||||||||
Park Ave RE Holdings, LLC - Preferred Shares (c) (e) (o) (w) | Real Estate Management & Development | 8.00% | 47,290 | 23,645 | 23,645 | 1.6 | % | ||||||||||||
PennantPark Credit Opportunities Fund II, LP (a) (f) (g) (p) | Diversified Investment Vehicles | $ | 9,952 | 9,952 | 10,167 | 0.7 | % | ||||||||||||
South Grand MM CLO I, LLC (a) (f) (o) | Diversified Investment Vehicles | $ | 9,724 | 9,689 | 10,596 | 0.7 | % | ||||||||||||
Squan Holding Corp. - Class A Common Stock (c) (e) (p) | Diversified Telecommunication Services | 180,835 | — | — | — | % | |||||||||||||
Squan Holding Corp. - Series A Preferred Stock (c) (e) (p) | Diversified Telecommunication Services | 8,962 | — | 47 | — | % | |||||||||||||
Tax Defense Network, LLC - Common Equity (c) (e) | Diversified Consumer Services | 106,346 | 425 | — | — | % | |||||||||||||
Tennenbaum Waterman Fund, L.P. (a) | Diversified Investment Vehicles | $ | 10,000 | 10,000 | 10,430 | 0.7 | % | ||||||||||||
TCG BDC, Inc. - Common Stock (fka Carlyle GMS Finance, Inc.) (a) (x) | Diversified Investment Vehicles | 404,899 | 5,841 | 5,293 | 0.4 | % | |||||||||||||
The SAVO Group, Ltd. - Warrants (c) (e) | IT Services | Expire 3/29/2023 | 138,000 | — | — | — | % | ||||||||||||
THL Credit Greenway Fund II LLC (a) (p) | Diversified Investment Vehicles | $ | 12,141 | 10,526 | 9,396 | 0.6 | % | ||||||||||||
Twentyeighty, Inc. - Class A Common Equity (c) (e) | Media | 54,586 | — | — | — | % | |||||||||||||
TZ Holdings, Inc. - Warrants (fka Zimbra, Inc.) (c) (e) | Software | 136,000 | — | — | — | % | |||||||||||||
TZ Holdings, Inc. - Preferred Shares (fka Zimbra, Inc.) (c) (e) | Software | Expire 10/25/2023 | 1,000,000 | 10 | 179 | — | % | ||||||||||||
U.S. Auto - Series A Common Units (c) (e) (u) | Diversified Consumer Services | 10,000 | 10 | — | — | % | |||||||||||||
U.S. Auto - Series A Preferred Units (c) (e) (u) | Diversified Consumer Services | 490 | 490 | 532 | — | % | |||||||||||||
U.S Auto - Series C Preferred Equity Units (c) (e) (u) | Diversified Consumer Services | 56 | 56 | — | — | % | |||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
15
BUSINESS DEVELOPMENT CORPORATION OF AMERICA
CONSOLIDATED SCHEDULES OF INVESTMENTS
(dollars in thousands)
March 31, 2018 (Unaudited) | |||||||||||||||||||
Portfolio Company (q) | Industry | Investment Coupon Rate / Maturity (y) | Principal / Number of Shares | Amortized Cost | Fair Value | % of Net Assets (b) | |||||||||||||
World Business Lenders, LLC - Preferred Stock (c) (e) | Consumer Finance | 922,669 | 3,750 | 3,759 | 0.3 | % | |||||||||||||
Sub Total Equity/Other | $ | 171,235 | $ | 197,517 | 13.4 | % | |||||||||||||
TOTAL INVESTMENTS - 178.1% (b) | $ | 2,691,500 | $ | 2,626,852 | 178.1 | % | |||||||||||||
_____________
(a) | All of the Company's investments, except the investments noted by this footnote, are qualifying assets under Section 55(a) of the Investment Company Act of 1940, as amended (the "1940 Act"). Under the 1940 Act, we may not acquire any non-qualifying asset unless, at the time the acquisition is made, qualifying assets represent at least 70% of our total assets. Qualifying assets represent 74.5% of the Company's total assets. The significant majority of all investments held are deemed to be illiquid. |
(b) | Percentages are based on net assets of $1,475,064 as of March 31, 2018. |
(c) | The fair value of investments with respect to securities for which market quotations are not readily available is determined in good faith by the Company's board of directors as required by the 1940 Act. Such investments are valued using significant unobservable inputs (See Note 3 to the consolidated financial statements). |
(d) | As of the date of election, the portfolio company elected to pay cash interest, noting the company has the option to elect a portion of the interest to be payment-in-kind (“PIK”). |
(e) | Non-income producing at March 31, 2018. |
(f) | The Company has various unfunded commitments to portfolio companies. The remaining amount of these unfunded commitments as of March 31, 2018 are comprised of the following: |
The accompanying notes are an integral part of these consolidated financial statements.
16
BUSINESS DEVELOPMENT CORPORATION OF AMERICA
CONSOLIDATED SCHEDULES OF INVESTMENTS
(dollars in thousands)
March 31, 2018 (Unaudited) | ||||||||||||
Portfolio Company Name | Investment Type | Commitment Type | Original Commitment | Remaining Commitment | ||||||||
AMI Entertainment Network, LLC | Senior Secured First Lien Debt | Revolver term loan | $ | 1,234 | $ | 1,234 | ||||||
AqGen Ascensus Inc. | Senior Secured First Lien Debt | Delayed draw term loan | 5,000 | 1,283 | ||||||||
Black Mountain Sand, LLC | Senior Secured First Lien Debt | Delayed draw term loan | 13,050 | 6,525 | ||||||||
CCW, LLC | Senior Secured First Lien Debt | Revolver term loan | 3,000 | 3,000 | ||||||||
CIG Financial, LLC | Senior Secured Second Lien Debt | Delayed draw term loan | 5,000 | 4,000 | ||||||||
Corfin Industries LLC | Senior Secured First Lien Debt | Revolver term loan | 956 | 908 | ||||||||
ERG Holding Company | Senior Secured First Lien Debt | Delayed draw term loan | 263 | 75 | ||||||||
ERG Holding Company | Senior Secured First Lien Debt | Revolver term loan | 87 | 87 | ||||||||
ICR Operations, LLC | Senior Secured First Lien Debt | Revolver term loan | 2,753 | 2,588 | ||||||||
Ideal Tridon Holdings, Inc. | Senior Secured First Lien Debt | Revolver term loan | 2,731 | 2,185 | ||||||||
InMotion Entertainment Group, LLC | Senior Secured First Lien Debt | Delayed draw term loan | 2,200 | 1,843 | ||||||||
Lakeland Tours, LLC | Senior Secured First Lien Debt | Delayed draw term loan | 464 | 464 | ||||||||
Midwest Can Company, LLC | Senior Secured First Lien Debt | Delayed draw term loan | 828 | 828 | ||||||||
MMM Holdings, LLC | Senior Secured First Lien Debt | Delayed draw term loan | 3,522 | 3,522 | ||||||||
MMM Holdings, LLC | Senior Secured First Lien Debt | Revolver term loan | 1,761 | 1,761 | ||||||||
Motion Recruitment Partners, LLC | Senior Secured First Lien Debt | Revolver term loan | 2,000 | 2,000 | ||||||||
Orchid Underwriters Agency, LLC | Senior Secured First Lien Debt | Revolver term loan | 2,200 | 2,200 | ||||||||
PennantPark Credit Opportunities Fund II, LP | Equity capital commitment | Equity capital commitment | 10,763 | 538 | ||||||||
PT Network, LLC | Senior Secured First Lien Debt | Delayed draw term loan | 6,579 | 6,579 | ||||||||
PT Network, LLC | Senior Secured First Lien Debt | Revolver term loan | 1,316 | 658 | ||||||||
South Grand MM CLO I, LLC | Equity capital commitment | Equity capital commitment | 35,000 | 5,476 | ||||||||
Subsea Global Solutions, LLC | Senior Secured First Lien Debt | Revolver term loan | 963 | 963 | ||||||||
Tillamook Country Smoker, LLC | Senior Secured First Lien Debt | Revolver term loan | 2,696 | 1,887 | ||||||||
Twenty Eighty, Inc. | Senior Secured First Lien Debt | Revolver term loan | 443 | 443 | ||||||||
US Salt, LLC | Senior Secured First Lien Debt | Delayed draw term loan | 1,297 | 43 | ||||||||
USF S&H Holdco, LLC | Senior Secured First Lien Debt | Revolver term loan | 1,616 | 1,616 | ||||||||
Vetcor Professional Practices LLC | Senior Secured First Lien Debt | Delayed draw term loan | 3,656 | 2,852 | ||||||||
Total | $ | 111,378 | $ | 55,558 | ||||||||
(g) | The investment is subject to a three year lock-up restriction on withdrawals. The lock-up expires on March 31, 2019. |
(h) | The Company's investment is held through the consolidated subsidiaries, Kahala Aviation Holdings, LLC and Kahala LuxCo, which own 100% of the equity of the operating company, Kahala Ireland OpCo Designated Activity Company. |
(i) | The Company's investment or a portion thereof is pledged as collateral under the Wells Fargo Credit Facility. Individual investments can be divided into parts which are pledged to separate credit facilities. |
(j) | The Company's investment or a portion thereof is pledged as collateral under the Citi Credit Facility. Individual investments can be divided into parts which are pledged to separate credit facilities. |
(k) | The Company's investment is held through the consolidated subsidiaries, Kahala Aviation Holdings, LLC and Kahala Aviation US, Inc. which own 100% of the equity of the operating company, Kahala US OpCo LLC. |
(l)For the three months ended March 31, 2018, the following investments paid or have the option to pay all or a portion of interest and dividends via payment-in-kind (“PIK”):
The accompanying notes are an integral part of these consolidated financial statements.
17
BUSINESS DEVELOPMENT CORPORATION OF AMERICA
CONSOLIDATED SCHEDULES OF INVESTMENTS
(dollars in thousands)
March 31, 2018 (Unaudited) | |||||||||||||||
Portfolio Company | Investment Type | Cash | PIK | All-in Rate | PIK Earned for the three months ended March 31, 2018 | ||||||||||
Capstone Nutrition (fka Integrity Nutraceuticals, Inc.) | Senior Secured First Lien Debt | — | % | 14.27 | % | 14.27 | % | $ | — | ||||||
Greenwave Holdings, Inc. | Senior Secured First Lien Debt | 10.00 | % | 3.00 | % | 13.00 | % | 87 | |||||||
Kahala Ireland OpCo Designated Activity Company | Senior Secured First Lien Debt | — | % | 13.00 | % | 13.00 | % | — | |||||||
Lightsquared LP | Senior Secured First Lien Debt | 10.78 | % | — | % | 10.78 | % | 290 | |||||||
MMM Holdings, Inc. | Senior Secured First Lien Debt | 8.37 | % | — | % | 8.37 | % | — | |||||||
New Star Metals, Inc. | Senior Secured First Lien Debt | 11.80 | % | — | % | 11.80 | % | — | |||||||
NextSteppe Inc. | Senior Secured First Lien Debt | — | % | 12.00 | % | 12.00 | % | — | |||||||
Park Ave RE Holdings, LLC | Subordinated Debt | 13.00 | % | — | % | 13.00 | % | — | |||||||
Steel City Media | Subordinated Debt | — | % | 16.00 | % | 16.00 | % | 829 | |||||||
Tax Defense Network, LLC | Senior Secured First Lien Debt | 10.81 | % | 4.50 | % | 15.31 | % | 12 | |||||||
Twenty Eighty, Inc. | Senior Secured First Lien Debt | 4.00 | % | 4.00 | % | 8.00 | % | 65 | |||||||
Twenty Eighty, Inc. | Senior Secured First Lien Debt | 8.00 | % | — | % | 8.00 | % | 127 | |||||||
Twenty Eighty, Inc. | Senior Secured First Lien Debt | 0.25 | % | 8.75 | % | 9.00 | % | — | |||||||
Xplornet Communications, Inc. | Senior Secured First Lien Debt | 6.30 | % | — | % | 6.30 | % | — | |||||||
Xplornet Communications, Inc. | Subordinated Debt | — | % | 9.63 | % | 9.63 | % | — | |||||||
Total | $ | 1,410 | |||||||||||||
(m) | The Company's investment or a portion thereof is pledged as collateral under the UBS Credit Facility. Individual investments can be divided into parts which are pledged to separate credit facilities. |
(n) | For equity investments in Collateralized Securities, the effective yield is presented in place of the investment coupon rate for each investment. Refer to footnote (v) for a further description of an equity investment in a Collateralized Security. |
(o) | The provisions of the 1940 Act classify investments based on the level of control that we maintain in a particular portfolio company. As defined in the 1940 Act, a company is generally presumed to be "non-controlled" when we own 25% or less of the portfolio company's voting securities and "controlled" when we own more than 25% of the portfolio company's voting securities. The Company classifies this investment as "controlled". |
(p) | The provisions of the 1940 Act classify investments further based on the level of ownership that we maintain in a particular portfolio company. As defined in the 1940 Act, a company is generally deemed as "non-affiliated" when we own less than 5% of a portfolio company's voting securities and "affiliated" when we own 5% or more of a portfolio company's voting securities. The Company classifies this investment as "affiliated". |
(q) | Unless otherwise indicated, all investments in the schedule of investments are non-affiliated, non-controlled investments. |
(r) | The Company's investment is held through the Consolidated Holding Company, Kahala Aviation Holdings, LLC, which owns 49% of the operating company, Danish CRJ LTD. |
(s) | Related Fee Agreements consist of five investments with a total fair value of $3.5 million that are classified as Affiliated Investments. |
(t) | The investment is on non-accrual status as of March 31, 2018. |
(u) | Investments are held in the taxable wholly-owned, consolidated subsidiary, 54th Street Equity Holdings, Inc. |
(v) | The Collateralized Securities - subordinated notes are treated as equity investments and are entitled to recurring distributions which are generally equal to the remaining cash flow of the payments made by the underlying fund’s securities less contractual payments to debt holders and fund expenses. The estimated yield indicated is based upon a current projection of the amount and timing of these recurring distributions and the estimated amount of repayment of principal upon termination. Such projections are periodically reviewed and adjusted, and the estimated yield may not ultimately be realized. |
(w) | The Company's investment is held through the consolidated subsidiary, Park Ave RE, Inc., which owns 100% of the equity of the operating company, Park Ave RE Holdings, LLC. |
(x) | The Company's investment or a portion thereof is pledged as collateral under the JPMC PB Account. Individual investments can be divided into parts which are pledged to separate credit facilities. |
(y) | The majority of the investments bear interest at a rate that may be determined by reference to London Interbank Offered Rate ("LIBOR" or "L") or Prime ("P") and which reset daily, monthly, quarterly or semiannually. For each, the Company has provided the spread over LIBOR or Prime and the current interest rate in effect at March 31, 2018. Certain investments are subject to a LIBOR or Prime interest rate floor. For fixed rate loans, a spread above a reference rate is not applicable. |
The accompanying notes are an integral part of these consolidated financial statements.
18
BUSINESS DEVELOPMENT CORPORATION OF AMERICA
CONSOLIDATED SCHEDULES OF INVESTMENTS
(dollars in thousands)
March 31, 2018
(Unaudited)
The following table shows the portfolio composition by industry grouping based on fair value at March 31, 2018:
At March 31, 2018 | ||||||
Investments at Fair Value | Percentage of Total Portfolio | |||||
Diversified Investment Vehicles | $ | 258,942 | 9.9 | % | ||
Business Services | 202,152 | 7.7 | ||||
Health Care | 190,071 | 7.2 | ||||
Hotels, Restaurants & Leisure | 171,088 | 6.5 | ||||
Aerospace & Defense | 162,284 | 6.2 | ||||
Media | 150,243 | 5.7 | ||||
Diversified Telecommunication Services | 128,576 | 4.9 | ||||
Diversified Consumer Services | 125,786 | 4.8 | ||||
Health Care Providers & Services | 122,787 | 4.7 | ||||
Commercial Services & Supplies | 120,830 | 4.6 | ||||
Technology | 112,605 | 4.3 | ||||
Energy Equipment & Services | 89,208 | 3.4 | ||||
Food Products | 78,189 | 3.0 | ||||
Real Estate Management & Development | 75,134 | 2.9 | ||||
Internet Software & Services | 71,725 | 2.7 | ||||
Chemicals | 62,657 | 2.4 | ||||
Metals & Mining | 56,047 | 2.1 | ||||
Communications Equipment | 54,457 | 2.1 | ||||
Professional Services | 46,811 | 1.8 | ||||
Software | 38,166 | 1.5 | ||||
Gaming/Lodging | 33,884 | 1.3 | ||||
Consumer Finance | 32,100 | 1.2 | ||||
Specialty Retail | 31,292 | 1.2 | ||||
Diversified Financial Services | 31,195 | 1.2 | ||||
Auto Components | 28,865 | 1.1 | ||||
Transportation Infrastructure | 26,959 | 1.0 | ||||
Life Sciences Tools & Services | 25,751 | 1.0 | ||||
Containers & Packaging | 19,194 | 0.7 | ||||
Insurance Broker | 18,480 | 0.7 | ||||
Automobiles | 14,394 | 0.5 | ||||
Industrials | 13,610 | 0.5 | ||||
Health Care Technology | 12,729 | 0.5 | ||||
Electronic Equipment, Instruments & Components | 10,058 | 0.4 | ||||
Textiles, Apparel & Luxury Goods | 3,443 | 0.1 | ||||
IT Services | 3,374 | 0.1 | ||||
Financial Services | 2,917 | 0.1 | ||||
Insurance | 849 | — | ||||
Total | $ | 2,626,852 | 100.0 | % | ||
The accompanying notes are an integral part of these consolidated financial statements.
19
BUSINESS DEVELOPMENT CORPORATION OF AMERICA
CONSOLIDATED SCHEDULES OF INVESTMENTS
(dollars in thousands)
December 31, 2017 | |||||||||||||||||||
Portfolio Company (q) | Industry | Investment Coupon Rate / Maturity (y) | Principal / Number of Shares | Amortized Cost | Fair Value | % of Net Assets (b) | |||||||||||||
Senior Secured First Lien Debt - 118.8% (b) | |||||||||||||||||||
Abaco Systems Holding Corp. (c) (i) | Business Services | L+6.00% (7.35%), 12/7/2021 | $ | 23,698 | $ | 23,320 | $ | 23,129 | 1.6 | % | |||||||||
ABC Financial Intermediate, LLC (c) (j) | Media | L+4.25% (5.94%), 1/2/2025 | 7,739 | 7,700 | 7,700 | 0.5 | % | ||||||||||||
Ability Networks Inc. (c) (j) | Health Care Providers & Services | L+5.00% (6.35%), 12/13/2024 | 13,607 | 13,539 | 13,607 | 0.9 | % | ||||||||||||
Adams Publishing Group, LLC (c) (i) | Media | L+7.00% (8.69%), 11/3/2020 | 16,250 | 16,109 | 16,250 | 1.1 | % | ||||||||||||
Adams Publishing Group, LLC (c) | Media | L+7.00% (8.69%), 11/3/2020 | 4,432 | 4,432 | 4,432 | 0.3 | % | ||||||||||||
Aleris International, Inc. (x) | Metals & Mining | 9.50%, 4/1/2021 | 2,882 | 3,046 | 3,044 | 0.2 | % | ||||||||||||
Alvogen Pharma US, Inc. (j) | Health Care | L+5.00% (6.57%), 4/2/2022 | 14,061 | 13,955 | 13,932 | 0.9 | % | ||||||||||||
AMI Entertainment Network, LLC (c) (f) (i) | Hotels, Restaurants & Leisure | L+6.00% (7.69%), 7/21/2022 | 14,632 | 14,365 | 14,368 | 1.0 | % | ||||||||||||
Amports, Inc. (c) (m) | Transportation Infrastructure | L+5.00% (6.69%), 5/19/2020 | 14,876 | 14,832 | 14,876 | 1.0 | % | ||||||||||||
Amteck, LLC (c) (f) (i) | Commercial Services & Supplies | L+7.50% (9.20%), 7/2/2020 | 21,688 | 21,499 | 21,579 | 1.4 | % | ||||||||||||
Answers Corporation (c) (p) | Technology | L+5.00% (6.57%), 4/15/2021 | 3,007 | 2,945 | 2,916 | 0.2 | % | ||||||||||||
AP Gaming I, LLC (i) (j) | Gaming/Lodging | L+5.50% (7.07%), 2/15/2024 | 33,592 | 33,524 | 33,823 | 2.3 | % | ||||||||||||
APCO Holdings (c) (i) | Diversified Consumer Services | L+6.00% (7.57%), 1/29/2022 | 3,666 | 3,590 | 3,593 | 0.2 | % | ||||||||||||
Applied Merchant Systems West Coast, Inc. (c) (m) | Diversified Financial Services | L+11.50% (12.84%), 10/26/2020 | 18,853 | 18,635 | 17,816 | 1.2 | % | ||||||||||||
Applied Merchant Systems West Coast, Inc. (c) (m) | Diversified Financial Services | L+11.50% (12.84%), 10/26/2020 | 6,500 | 6,425 | 6,143 | 0.4 | % | ||||||||||||
AqGen Ascensus Inc. (j) | Technology | L+3.50% (5.06%), 12/3/2022 | 19,637 | 19,637 | 19,694 | 1.3 | % | ||||||||||||
AqGen Ascensus Inc. (f) | Technology | L+3.50% (5.06%), 12/3/2022 | 3,333 | 3,325 | 3,348 | 0.2 | % | ||||||||||||
Avatar Purchaser, Inc. (c) (m) | Business Services | L+7.50% (8.99%), 11/17/2025 | 11,716 | 11,370 | 11,520 | 0.8 | % | ||||||||||||
Avaya Holdings Corp. (j) | Communications Equipment | L+4.75% (6.23%), 12/15/2024 | 26,108 | 25,848 | 25,662 | 1.7 | % | ||||||||||||
Basho Technologies, Inc. (c) (d) (l) (t) | Software | 17.00%, 5/31/2018 | 6,645 | 6,485 | — | — | % | ||||||||||||
Basho Technologies, Inc. (c) (d) (l) (t) | Software | 17.00%, 5/31/2018 | 2,550 | 2,550 | — | — | % | ||||||||||||
BCP Raptor, LLC (j) | Energy Equipment & Services | L+4.25% (5.73%), 6/24/2024 | 19,986 | 19,800 | 20,048 | 1.3 | % | ||||||||||||
BCP Renaissance, LLC (j) | Energy Equipment & Services | L+4.00% (5.38%), 10/31/2024 | 8,472 | 8,431 | 8,569 | 0.6 | % | ||||||||||||
BDS Solutions Group, LLC (c) (i) (m) | Business Services | L+8.75% (10.45%), 6/1/2021 | 33,042 | 32,531 | 33,042 | 2.2 | % | ||||||||||||
BDS Solutions Group, LLC (c) | Business Services | L+8.75% (10.45%), 6/1/2021 | 2,888 | 2,841 | 2,888 | 0.2 | % | ||||||||||||
Beaver-Visitec International Holdings, Inc. (c) (j) | Health Care | L+5.00% (6.69%), 8/21/2023 | 6,580 | 6,580 | 6,580 | 0.4 | % | ||||||||||||
Berner Food & Beverage LLC (c) (f) (i) | Food Products | L+7.00% (8.69%), 3/16/2022 | 18,853 | 18,536 | 18,476 | 1.2 | % | ||||||||||||
Black Mountain Sand, LLC (c) (f) | Energy Equipment & Services | L+9.00% (10.50%), 11/30/2021 | 13,050 | 12,859 | 12,854 | 0.9 | % | ||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
20
BUSINESS DEVELOPMENT CORPORATION OF AMERICA
CONSOLIDATED SCHEDULES OF INVESTMENTS
(dollars in thousands)
December 31, 2017 | |||||||||||||||||||
Portfolio Company (q) | Industry | Investment Coupon Rate / Maturity (y) | Principal / Number of Shares | Amortized Cost | Fair Value | % of Net Assets (b) | |||||||||||||
Blount International, Inc. (j) | Commercial Services & Supplies | L+4.25% (5.61%), 4/12/2023 | $ | 12,500 | $ | 12,470 | $ | 12,637 | 0.9 | % | |||||||||
California Resources, Corp. (m) | Metals & Mining | L+10.38% (11.88%), 12/31/2022 | 12,259 | 12,014 | 12,198 | 0.8 | % | ||||||||||||
Capstone Nutrition (fka Integrity Nutraceuticals, Inc.) (c) (l) (o) (t) | Food Products | L+12.50% (13.88%), 4/28/2019 | 20,482 | 16,406 | 4,096 | 0.3 | % | ||||||||||||
Capstone Nutrition (fka Integrity Nutraceuticals, Inc.) (c) (l) (o) (t) | Food Products | L+12.50% (13.88%), 4/28/2019 | 47,336 | 33,647 | 9,467 | 0.6 | % | ||||||||||||
Catapult Learning, LLC (c) (i) (m) | Diversified Consumer Services | L+6.50% (7.88%), 7/16/2020 | 27,138 | 26,861 | 25,917 | 1.7 | % | ||||||||||||
CCW, LLC (c) (f) (i) | Hotels, Restaurants & Leisure | L+7.00% (8.63%), 3/21/2021 | 26,525 | 26,292 | 26,525 | 1.8 | % | ||||||||||||
Central Security Group, Inc. (c) (i) (j) | Commercial Services & Supplies | L+5.63% (7.19%), 10/6/2021 | 25,293 | 24,999 | 25,294 | 1.7 | % | ||||||||||||
Chicken Soup for the Soul Publishing, LLC (c) | Media | L+6.25% (7.61%), 1/8/2019 | 27,536 | 27,465 | 24,369 | 1.6 | % | ||||||||||||
Chloe Ox Parent, LLC (j) | Health Care Providers & Services | L+5.00% (6.64%), 12/23/2024 | 10,768 | 10,660 | 10,768 | 0.7 | % | ||||||||||||
Clover Technologies Group, LLC (j) | Commercial Services & Supplies | L+4.50% (6.07%), 5/8/2020 | 13,548 | 13,495 | 10,070 | 0.7 | % | ||||||||||||
Community Care Health Network, LLC (c) (j) | Health Care | L+5.50% (7.07%), 10/19/2021 | 2,376 | 2,384 | 2,377 | 0.2 | % | ||||||||||||
CONSOL Energy, Inc. (j) | Metals & Mining | L+6.00% (7.47%), 11/28/2022 | 3,240 | 3,176 | 3,275 | 0.2 | % | ||||||||||||
Contura Energy Inc. (j) | Energy Equipment & Services | L+5.00% (6.63%), 3/18/2024 | 7,491 | 7,425 | 7,379 | 0.5 | % | ||||||||||||
ConvergeOne Holdings Corp. (j) | Technology | L+4.75% (6.44%), 6/20/2024 | 16,475 | 16,323 | 16,489 | 1.1 | % | ||||||||||||
Cvent, Inc. (c) (j) | Internet Software & Services | L+3.75% (5.32%), 11/29/2024 | 16,436 | 16,333 | 16,436 | 1.1 | % | ||||||||||||
DigiCert, Inc (j) | Internet Software & Services | L+4.75% (6.13%), 10/31/2024 | 10,800 | 10,747 | 10,930 | 0.7 | % | ||||||||||||
Eagle Rx, LLC (c) (i) | Health Care Providers & Services | L+4.25% (5.61%), 8/15/2019 | 27,279 | 27,192 | 27,279 | 1.8 | % | ||||||||||||
Elo Touch Solutions, Inc (j) | Technology | L+6.00% (7.44%), 10/31/2023 | 3,781 | 3,744 | 3,772 | 0.3 | % | ||||||||||||
ERG Holding Company (c) (i) (m) | Health Care Providers & Services | L+6.75% (8.45%), 4/4/2019 | 34,099 | 33,846 | 33,587 | 2.3 | % | ||||||||||||
ERG Holding Company (c) (f) | Health Care Providers & Services | L+6.75% (8.45%), 4/4/2019 | 136 | 136 | 134 | 0.1 | % | ||||||||||||
Everi Payments, Inc. (j) | Hotels, Restaurants & Leisure | L+3.50% (4.98%), 5/9/2024 | 10,654 | 10,639 | 10,748 | 0.7 | % | ||||||||||||
Excelitas Technologies Corp. (j) | Electronic Equipment, Instruments & Components | L+3.50% (5.16%), 12/2/2024 | 10,000 | 9,975 | 10,066 | 0.7 | % | ||||||||||||
Genesys Telecommunications Laboratories, Inc. (j) | Diversified Telecommunication Services | L+3.75% (5.44%), 12/1/2023 | 24,751 | 24,435 | 24,874 | 1.7 | % | ||||||||||||
Greenwave Holdings, Inc. (c) (d) (l) | Internet Software & Services | 13.00%, 7/8/2019 | 12,184 | 12,136 | 12,184 | 0.8 | % | ||||||||||||
GTCR Valor Companies, Inc. (j) | Internet Software & Services | L+4.25% (5.94%), 6/16/2023 | 9,975 | 9,952 | 10,079 | 0.7 | % | ||||||||||||
HC Group Holdings III, Inc. (j) | Health Care | L+5.00% (6.57%), 4/7/2022 | 14,781 | 14,567 | 14,911 | 1.0 | % | ||||||||||||
Hexion Inc. (x) | Chemicals | 10.38%, 2/1/2022 | 920 | 920 | 853 | 0.1 | % | ||||||||||||
Ideal Tridon Holdings, Inc. (c) (m) | Commercial Services & Supplies | L+6.50% (7.74%), 7/31/2023 | 23,917 | 23,472 | 23,465 | 1.6 | % | ||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
21
BUSINESS DEVELOPMENT CORPORATION OF AMERICA
CONSOLIDATED SCHEDULES OF INVESTMENTS
(dollars in thousands)
December 31, 2017 | |||||||||||||||||||
Portfolio Company (q) | Industry | Investment Coupon Rate / Maturity (y) | Principal / Number of Shares | Amortized Cost | Fair Value | % of Net Assets (b) | |||||||||||||
Ideal Tridon Holdings, Inc. (c) (f) | Commercial Services & Supplies | L+6.50% (7.74%), 7/31/2022 | $ | 546 | $ | 511 | $ | 536 | — | % | |||||||||
Indivior Finance S.A.R.L. (i) | Health Care | L+4.50% (6.11%), 12/18/2022 | 6,983 | 6,948 | 7,001 | 0.5 | % | ||||||||||||
InMotion Entertainment Group, LLC (c) (i) | Specialty Retail | L+7.25% (8.95%), 10/1/2021 | 13,343 | 13,299 | 13,343 | 0.9 | % | ||||||||||||
InMotion Entertainment Group, LLC (c) (f) (i) | Specialty Retail | L+7.75% (9.45%), 10/1/2021 | 327 | 327 | 327 | — | % | ||||||||||||
Intelsat S.A (m) | Diversified Telecommunication Services | L+4.50% (6.19%), 1/2/2024 | 665 | 665 | 672 | — | % | ||||||||||||
Intelsat S.A (m) | Diversified Telecommunication Services | L+4.50% (6.63%), 1/2/2024 | 2,211 | 2,211 | 2,231 | 0.1 | % | ||||||||||||
Internap Corporation (m) | Communications Equipment | L+7.00% (8.41%), 4/6/2022 | 8,208 | 8,102 | 8,280 | 0.6 | % | ||||||||||||
IPC Corp. (j) | Diversified Telecommunication Services | L+4.50% (5.89%), 8/6/2021 | 7,103 | 6,995 | 6,943 | 0.5 | % | ||||||||||||
Jackson Hewitt, Inc. (j) | Diversified Consumer Services | L+7.00% (8.38%), 7/30/2020 | 6,515 | 6,448 | 6,409 | 0.4 | % | ||||||||||||
K2 Pure Solutions NoCal, L.P. (c) (i) | Chemicals | L+6.00% (7.57%), 2/19/2021 | 6,500 | 6,445 | 6,500 | 0.4 | % | ||||||||||||
Kahala Ireland OpCo Designated Activity Company (a) (c) (l) (o) | Aerospace & Defense | L+8.00% (13.00%), 12/23/2028 | 141,549 | 141,549 | 141,549 | 9.5 | % | ||||||||||||
Kissner Milling Co. Ltd. (c) (x) | Chemicals | 8.38%, 12/1/2022 | 21,199 | 21,530 | 21,430 | 1.4 | % | ||||||||||||
Lakeland Tours, LLC (f) | Diversified Consumer Services | L+4.00% (5.59%), 12/15/2024 | 5,634 | 5,620 | 5,683 | 0.4 | % | ||||||||||||
LenderLive Services, LLC (c) | Business Services | L+12.00% (13.50%), 8/11/2020 | 10,000 | 9,869 | 9,650 | 0.7 | % | ||||||||||||
Lightsquared LP (l) | Diversified Telecommunications Services | L+8.75% (10.27%), 6/15/2020 | 11,315 | 10,598 | 10,481 | 0.7 | % | ||||||||||||
Lionbridge Technologies, Inc. (c) (i) | Business Services | L+5.50% (7.07%), 2/28/2024 | 13,764 | 13,703 | 13,702 | 0.9 | % | ||||||||||||
MCS Acquisition Corp. (c) (j) | Professional Services | L+4.75% (6.25%), 5/18/2024 | 14,297 | 14,239 | 14,297 | 1.0 | % | ||||||||||||
Medallion Midland Acquisition, L.P. (j) | Energy Equipment & Services | L+3.25% (4.82%), 11/13/2024 | 4,450 | 4,439 | 4,456 | 0.3 | % | ||||||||||||
Medical Depot Holdings, Inc. (c) (i) | Health Care | L+5.50% (7.19%), 1/3/2023 | 19,771 | 18,270 | 18,407 | 1.2 | % | ||||||||||||
Metal Services LLC (j) | Metals & Mining | L+7.50% (9.19%), 6/30/2019 | 10,806 | 10,726 | 10,846 | 0.7 | % | ||||||||||||
Michael Baker International, LLC (j) | Business Services | L+4.50% (5.94%), 11/21/2022 | 5,607 | 5,552 | 5,593 | 0.4 | % | ||||||||||||
Midwest Can Company, LLC (c) (f) (i) | Energy Equipment & Services | L+6.75% (8.32%), 1/26/2022 | 5,067 | 4,994 | 5,008 | 0.3 | % | ||||||||||||
MMM Holdings, LLC (c) (d) (j) (l) | Health Care | L+8.75% (10.32%), 6/28/2019 | 7,028 | 7,029 | 6,818 | 0.5 | % | ||||||||||||
Monitronics International, Inc. (j) | Diversified Consumer Services | L+5.50% (7.19%), 9/30/2022 | 2,963 | 2,950 | 2,933 | 0.2 | % | ||||||||||||
Montreign Operating Company, LLC (c) (m) | Hotels, Restaurants & Leisure | L+8.25% (9.82%), 1/24/2023 | 27,161 | 26,732 | 27,473 | 1.8 | % | ||||||||||||
Mood Media Corporation (c) (m) | Business Services | L+7.25% (8.94%), 6/28/2022 | 13,912 | 13,638 | 13,608 | 0.9 | % | ||||||||||||
Motion Recruitment Partners, LLC (c) (f) (i) | Professional Services | L+6.00% (7.57%), 2/13/2020 | 17,194 | 17,021 | 17,194 | 1.2 | % | ||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
22
BUSINESS DEVELOPMENT CORPORATION OF AMERICA
CONSOLIDATED SCHEDULES OF INVESTMENTS
(dollars in thousands)
December 31, 2017 | |||||||||||||||||||
Portfolio Company (q) | Industry | Investment Coupon Rate / Maturity (y) | Principal / Number of Shares | Amortized Cost | Fair Value | % of Net Assets (b) | |||||||||||||
MSO of Puerto Rico, LLC (c) (d) (j) (l) | Health Care | L+8.75% (10.32%), 6/28/2019 | $ | 5,110 | $ | 5,110 | $ | 4,956 | 0.3 | % | |||||||||
Murray Energy Holdings Co. (j) | Energy Equipment & Services | L+7.25% (8.94%), 4/16/2020 | 13,408 | 12,929 | 11,778 | 0.8 | % | ||||||||||||
National Technical Systems, Inc. (c) (i) | Professional Services | L+6.25% (7.61%), 6/12/2021 | 16,469 | 16,376 | 15,481 | 1.0 | % | ||||||||||||
Navitas Midstream Midland Basin, LLC (j) | Energy Equipment & Services | L+4.50% (5.98%), 12/13/2024 | 7,969 | 7,929 | 7,969 | 0.5 | % | ||||||||||||
New Star Metals Inc. (c) (d) (l) (m) | Business Services | L+9.50% (11.00%), 12/22/2021 | 24,388 | 23,959 | 24,413 | 1.6 | % | ||||||||||||
NexSteppe Inc. (c) (f) (l) (t) | Chemicals | 12.00%, 9/30/2018 | 1,533 | 1,500 | — | — | % | ||||||||||||
NexSteppe Inc. (c) (l) (t) | Chemicals | 12.00%, 9/30/2018 | 11,998 | 10,453 | — | — | % | ||||||||||||
Noosa Acquirer, Inc. (c) (i) (m) | Food Products | L+5.25% (6.94%), 11/21/2020 | 25,000 | 24,819 | 25,000 | 1.7 | % | ||||||||||||
NTM Acquisition Corp. (c) (i) | Media | L+6.25% (7.94%), 6/7/2022 | 18,681 | 18,490 | 18,587 | 1.2 | % | ||||||||||||
Office Depot, Inc. (j) | Specialty Retail | L+7.00% (8.41%), 11/8/2022 | 9,130 | 8,949 | 9,153 | 0.6 | % | ||||||||||||
Optiv, Inc. (j) | Business Services | L+3.25% (4.63%), 2/1/2024 | 4,455 | 4,229 | 4,160 | 0.3 | % | ||||||||||||
Orchid Underwriters Agency, LLC (c) (f) (i) | Insurance Broker | L+5.00% (6.31%), 3/17/2022 | 18,480 | 18,325 | 18,480 | 1.2 | % | ||||||||||||
ORG Chemical Holdings, LLC (c) (i) (m) | Chemicals | L+5.75% (7.44%), 6/30/2022 | 27,822 | 27,322 | 27,338 | 1.8 | % | ||||||||||||
ORG GC Holdings, LLC (c) (i) m) | Business Services | L+6.75% (8.08%), 7/31/2022 | 25,550 | 25,199 | 25,266 | 1.7 | % | ||||||||||||
Peabody Energy Corp. (j) | Metals & Mining | L+3.50% (5.07%), 3/31/2022 | 2,608 | 2,602 | 2,641 | 0.2 | % | ||||||||||||
PeopLease Holdings, LLC (c) (i) | Commercial Services & Supplies | L+9.00% (10.70%), 2/26/2021 | 20,000 | 19,872 | 15,000 | 1.0 | % | ||||||||||||
PetVet Care Centers, LLC (c) (i) | Business Services | L+6.00% (7.69%), 6/8/2023 | 19,454 | 19,296 | 19,386 | 1.3 | % | ||||||||||||
PetVet Care Centers, LLC (c) (f) | Business Services | L+6.00% (7.35%), 6/8/2023 | 4,425 | 4,425 | 4,409 | 0.3 | % | ||||||||||||
PetVet Care Centers, LLC (c) (f) | Business Services | L+6.00% (9.50%), 6/8/2023 | 1,676 | 1,676 | 1,676 | 0.1 | % | ||||||||||||
PGX Holdings, Inc. (c) (j) | Transportation Infrastructure | L+5.25% (6.82%), 9/29/2020 | 12,547 | 12,500 | 12,547 | 0.8 | % | ||||||||||||
Premier Dental Services, Inc. (i) (j) | Health Care | L+5.25% (6.82%), 6/30/2023 | 33,018 | 32,764 | 33,162 | 2.2 | % | ||||||||||||
Premier Global Services, Inc. (j) | Diversified Telecommunication Services | L+6.50% (7.83%), 12/8/2021 | 9,357 | 9,093 | 9,182 | 0.6 | % | ||||||||||||
Pre-Paid Legal Services, Inc. (c) (j) | Diversified Consumer Services | L+5.25% (6.82%), 7/1/2019 | 12,010 | 12,026 | 12,010 | 0.8 | % | ||||||||||||
Pride Plating, Inc. (c) (i) | Aerospace & Defense | L+5.50% (7.19%), 6/13/2019 | 8,376 | 8,351 | 8,293 | 0.6 | % | ||||||||||||
PSKW, LLC (c) (i) | Health Care Providers & Services | L+4.25% (5.94%), 11/25/2021 | 1,569 | 1,559 | 1,569 | 0.1 | % | ||||||||||||
PSKW, LLC (c) (m) | Health Care Providers & Services | L+8.26% (9.95%), 11/25/2021 | 17,750 | 17,518 | 17,750 | 1.2 | % | ||||||||||||
PSKW, LLC (c) (m) | Health Care Providers & Services | L+8.26% (9.95%), 11/25/2021 | 1,972 | 1,934 | 1,972 | 0.1 | % | ||||||||||||
PT Network, LLC (c) (f) (i) | Health Care | L+5.50% (6.86%), 11/30/2021 | 16,935 | 16,802 | 16,931 | 1.1 | % | ||||||||||||
Pure Barre, LLC (c) (i) (m) | Hotels, Restaurants & Leisure | L+7.00% (8.57%), 6/11/2020 | 25,698 | 25,478 | 25,441 | 1.7 | % | ||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
23
BUSINESS DEVELOPMENT CORPORATION OF AMERICA
CONSOLIDATED SCHEDULES OF INVESTMENTS
(dollars in thousands)
December 31, 2017 | |||||||||||||||||||
Portfolio Company (q) | Industry | Investment Coupon Rate / Maturity (y) | Principal / Number of Shares | Amortized Cost | Fair Value | % of Net Assets (b) | |||||||||||||
Pure Barre, LLC (c) (f) | Hotels, Restaurants & Leisure | L+7.00% (8.57%), 6/11/2020 | $ | 500 | $ | 500 | $ | 495 | — | % | |||||||||
Resco Products, Inc. (c) (i) | Metals & Mining | L+6.25% (7.82%), 3/7/2020 | 10,000 | 10,000 | 9,750 | 0.7 | % | ||||||||||||
Sage Automotive Holdings, Inc. (j) | Auto Components | L+5.00% (6.57%), 11/8/2022 | 18,461 | 18,321 | 18,576 | 1.2 | % | ||||||||||||
SHO Holding II Corporation (c) (j) | Specialty Retail | L+5.00% (6.42%), 10/27/2022 | 9,770 | 9,702 | 9,379 | 0.6 | % | ||||||||||||
Skillsoft Corp. (j) | Technology | L+4.75% (6.32%), 4/28/2021 | 12,829 | 12,158 | 12,325 | 0.8 | % | ||||||||||||
Squan Holding Corp. (c) (p) | Diversified Telecommunication Services | L+4.50% (6.20%), 10/10/2019 | 17,052 | 14,680 | 13,642 | 0.9 | % | ||||||||||||
SSH Group Holdings, Inc. (c) (i) | Diversified Consumer Services | L+5.00% (6.69%), 10/2/2024 | 6,088 | 6,029 | 6,027 | 0.4 | % | ||||||||||||
SunGard Availability Services Capital, Inc. (c) (j) | IT Services | L+10.00% (11.56%), 3/31/2019 | 6,860 | 6,842 | 6,688 | 0.5 | % | ||||||||||||
Tax Defense Network, LLC (c) (l) (t) | Diversified Consumer Services | L+13.00% (14.70%), 8/28/2019 | 29,670 | 26,532 | 7,477 | 0.5 | % | ||||||||||||
Thoughtworks, Inc. (j) | Business Services | L+4.50% (6.07%), 10/12/2024 | 4,420 | 4,409 | 4,420 | 0.3 | % | ||||||||||||
Tillamook Country Smoker, LLC (c) (f) (i) | Food Products | L+5.75% (7.19%), 5/19/2022 | 10,244 | 10,110 | 10,111 | 0.7 | % | ||||||||||||
Traverse Midstream Partners, LLC (j) | Energy Equipment & Services | L+4.00% (5.85%), 9/27/2024 | 6,352 | 6,321 | 6,435 | 0.4 | % | ||||||||||||
Trilogy International Partners, LLC (x) | Diversified Telecommunication Services | 8.88%, 5/1/2022 | 14,875 | 14,810 | 15,247 | 1.0 | % | ||||||||||||
Trojan Battery Company, LLC (c) (j) | Auto Components | L+4.75% (6.32%), 6/12/2021 | 10,478 | 10,425 | 10,399 | 0.7 | % | ||||||||||||
Turning Tech LLC (c) (i) | Software | L+10.75% (12.45%), 6/30/2020 | 23,476 | 23,271 | 20,542 | 1.4 | % | ||||||||||||
Twenty Eighty, Inc. (c) (f) (l) (p) | Media | 8.00%, 3/31/2020 | 6,291 | 4,535 | 4,719 | 0.3 | % | ||||||||||||
Twenty Eighty, Inc. (c) (f) (l) (p) | Media | L+8.00% (9.42%), 3/31/2020 | 2,911 | 2,426 | 2,853 | 0.2 | % | ||||||||||||
Twenty Eighty, Inc. (c) (f) (l) (p) | Media | 9.00%, 3/31/2020 | 5,753 | 4,164 | 3,739 | 0.3 | % | ||||||||||||
United Central Industrial Supply Company, LLC (c) (i) (j) | Commercial Services & Supplies | L+7.25% (8.82%), 10/9/2018 | 8,504 | 8,483 | 7,943 | 0.5 | % | ||||||||||||
US Salt, LLC (c) (f) (i) (m) | Food Products | L+4.75% (6.11%), 12/1/2023 | 5,189 | 5,137 | 5,137 | 0.3 | % | ||||||||||||
VCVH Holding Corp. (c) (i) (j) | Health Care | L+5.00% (6.70%), 6/1/2023 | 22,875 | 22,801 | 23,081 | 1.5 | % | ||||||||||||
Veritas US Inc. (j) | Technology | L+4.50% (6.19%), 1/27/2023 | 15,018 | 15,061 | 15,044 | 1.0 | % | ||||||||||||
VetCor Professional Practices LLC (c) (f) (i) | Diversified Consumer Services | L+6.00% (7.69%), 4/20/2021 | 4,909 | 4,877 | 4,859 | 0.3 | % | ||||||||||||
VetCor Professional Practices LLC (c) | Diversified Consumer Services | L+6.00% (7.69%), 4/20/2021 | 2,569 | 2,569 | 2,543 | 0.2 | % | ||||||||||||
VetCor Professional Practices LLC (c) (i) | Diversified Consumer Services | L+6.00% (7.69%), 4/20/2021 | 9,750 | 9,696 | 9,653 | 0.7 | % | ||||||||||||
Von Drehle Corporation (c) (i) (m) | Life Sciences Tools & Services | L+7.50% (9.19%), 3/6/2023 | 26,549 | 26,167 | 26,220 | 1.8 | % | ||||||||||||
Xplornet Communications, Inc. (a) (j) | Diversified Telecommunication Services | L+4.75% (6.44%), 9/9/2021 | 13,127 | 13,051 | 13,242 | 0.9 | % | ||||||||||||
Sub Total Senior Secured First Lien Debt | $ | 1,865,392 | $ | 1,776,534 | 118.8 | % | |||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
24
BUSINESS DEVELOPMENT CORPORATION OF AMERICA
CONSOLIDATED SCHEDULES OF INVESTMENTS
(dollars in thousands)
December 31, 2017 | |||||||||||||||||||
Portfolio Company (q) | Industry | Investment Coupon Rate / Maturity (y) | Principal / Number of Shares | Amortized Cost | Fair Value | % of Net Assets (b) | |||||||||||||
Senior Secured Second Lien Debt - 16.0% (b) | |||||||||||||||||||
Anchor Glass Container Corporation (c) (m) | Containers & Packaging | L+7.75% (9.18%), 12/7/2024 | $ | 20,000 | $ | 19,826 | $ | 20,060 | 1.3 | % | |||||||||
Answers Corporation (c) (p) | Technology | L+7.90% (9.00%), 9/15/2021 | 4,675 | 4,088 | 4,371 | 0.3 | % | ||||||||||||
Astro AB Merger Sub, Inc. (m) | Diversified Financial Services | L+7.50% (8.88%), 4/30/2023 | 7,758 | 7,758 | 7,777 | 0.5 | % | ||||||||||||
Boston Market Corporation (c) (m) | Hotels, Restaurants & Leisure | L+8.25% (9.73%), 12/16/2018 | 24,101 | 24,026 | 23,860 | 1.6 | % | ||||||||||||
BrandMuscle Holdings Inc. (c) (m) | Internet Software & Services | L+8.50% (9.84%), 6/1/2022 | 24,500 | 24,166 | 24,500 | 1.6 | % | ||||||||||||
Cayan Holdings (c) (m) | IT Services | L+8.50% (10.18%), 3/24/2022 | 20,000 | 19,673 | 20,000 | 1.3 | % | ||||||||||||
CDS U.S. Intermediate Holdings, Inc. (c) (m) | Hotels, Restaurants & Leisure | L+8.25% (9.94%), 7/8/2023 | 7,927 | 7,809 | 7,828 | 0.5 | % | ||||||||||||
CIG Financial, LLC (a) (c) (m) | Consumer Finance | 10.50%, 6/30/2019 | 9,000 | 8,973 | 8,550 | 0.6 | % | ||||||||||||
CIG Financial, LLC (a) (c) (f) | Consumer Finance | 10.50%, 6/30/2019 | 1,000 | 1,000 | 950 | 0.1 | % | ||||||||||||
CREDITCORP (x) | Consumer Finance | 12.00%, 7/15/2018 | 13,250 | 13,238 | 11,925 | 0.8 | % | ||||||||||||
Epic Health Services, Inc. (c) (m) | Health Care Providers & Services | L+8.00% (9.57%), 3/17/2025 | 15,000 | 14,796 | 14,531 | 1.0 | % | ||||||||||||
Hertz Corp. (x) | Automobiles | 7.63%, 6/1/2022 | 14,194 | 14,194 | 14,930 | 1.0 | % | ||||||||||||
PI US Holdco III Limited (c) (m) | Consumer Finance | L+7.25% (8.92%), 12/20/2025 | 6,696 | 6,629 | 6,629 | 0.4 | % | ||||||||||||
Recess Holdings, Inc. (c) (m) | Hotels, Restaurants & Leisure | L+3.75% (5.25%), 9/29/2025 | 13,008 | 12,816 | 12,813 | 0.9 | % | ||||||||||||
Rx30 HoldCo, Inc. (c) (m) | Health Care Technology | L+9.00% (10.35%), 6/15/2022 | 11,500 | 11,353 | 11,500 | 0.8 | % | ||||||||||||
Rx30 HoldCo, Inc. (c) (m) | Health Care Technology | L+9.00% (10.50%), 6/15/2022 | 1,229 | 1,204 | 1,229 | 0.1 | % | ||||||||||||
TierPoint, LLC (c) (m) | Technology | L+7.25% (8.82%), 5/5/2025 | 5,334 | 5,285 | 5,281 | 0.4 | % | ||||||||||||
U.S. Auto (c) (m) | Diversified Consumer Services | L+11.75% (13.12%), 6/8/2020 | 30,000 | 29,743 | 29,100 | 2.0 | % | ||||||||||||
US Salt, LLC (c) (m) | Food Products | L+8.75% (10.18%), 12/1/2024 | 12,872 | 12,681 | 12,679 | 0.8 | % | ||||||||||||
Sub Total Senior Secured Second Lien Debt | $ | 239,258 | $ | 238,513 | 16.0 | % | |||||||||||||
Subordinated Debt - 6.3% (b) | |||||||||||||||||||
BMC Software Finance, Inc. (x) | Software | 8.13%, 7/15/2021 | $ | 8,461 | $ | 8,422 | $ | 8,482 | 0.6 | % | |||||||||
Gold, Inc. (c) (m) | Textiles, Apparel & Luxury Goods | 10.00%, 6/30/2019 | 3,742 | 3,670 | 3,312 | 0.2 | % | ||||||||||||
Frontier Communications (x) | Diversified Telecommunication Services | 8.13%, 10/1/2018 | 5,500 | 5,494 | 5,479 | 0.4 | % | ||||||||||||
Frontier Communications (x) | Diversified Telecommunication Services | 8.50%, 4/15/2020 | 10,000 | 9,143 | 8,300 | 0.5 | % | ||||||||||||
Park Ave RE Holdings, LLC (c) (d) (l) (o) | Real Estate Management & Development | L+8.00% (13.00%), 12/31/2021 | 37,192 | 37,192 | 37,192 | 2.5 | % | ||||||||||||
Steel City Media (c) (l) | Media | 16.00%, 3/29/2020 | 23,661 | 23,461 | 20,585 | 1.4 | % | ||||||||||||
Xplornet Communications, Inc. (a) (l) (x) | Diversified Telecommunication Services | 10.63%, 6/1/2022 | 10,534 | 10,534 | 10,989 | 0.7 | % | ||||||||||||
Sub Total Subordinated Debt | $ | 97,916 | $ | 94,339 | 6.3 | % | |||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
25
BUSINESS DEVELOPMENT CORPORATION OF AMERICA
CONSOLIDATED SCHEDULES OF INVESTMENTS
(dollars in thousands)
December 31, 2017 | |||||||||||||||||||
Portfolio Company (q) | Industry | Investment Coupon Rate / Maturity (y) | Principal / Number of Shares | Amortized Cost | Fair Value | % of Net Assets (b) | |||||||||||||
Collateralized Securities - 10.7% (b) | |||||||||||||||||||
Collateralized Securities - Debt Investment | |||||||||||||||||||
NewStar Exeter Fund CLO - Debt (a) (c) (p) | Diversified Investment Vehicles | L+7.50% (8.86%), 1/19/2027 | $ | 10,728 | $ | 9,262 | $ | 8,660 | 0.6 | % | |||||||||
Collateralized Securities - Equity Investment (n) | |||||||||||||||||||
B&M CLO 2014-1, LTD. Subordinated Notes (a) (c) (p) (v) | Diversified Investment Vehicles | 0.00%, 4/16/2026 | $ | 40,250 | $ | 15,385 | $ | 12,804 | 0.8 | % | |||||||||
CVP Cascade CLO, LTD. Subordinated Notes (a) (c) (p) (v) | Diversified Investment Vehicles | 0.00%, 1/16/2026 | 31,000 | 7,618 | 4,121 | 0.3 | % | ||||||||||||
Figueroa CLO 2014-1, LTD. Subordinated Notes (a) (c) (p) (v) | Diversified Investment Vehicles | 0.00%, 1/15/2027 | 35,057 | 16,421 | 12,508 | 0.8 | % | ||||||||||||
MidOcean Credit CLO II, LLC Income Notes (a) (c) (p) (v) | Diversified Investment Vehicles | 15.75%, 1/29/2025 | 37,600 | 20,876 | 20,651 | 1.4 | % | ||||||||||||
MidOcean Credit CLO III, LLC Subordinated Notes (a) (c) (p) (v) | Diversified Investment Vehicles | 1.31%, 7/21/2026 | 40,250 | 20,323 | 17,508 | 1.2 | % | ||||||||||||
MidOcean Credit CLO IV, LLC Income Notes (a) (c) (p) (v) | Diversified Investment Vehicles | 1.44%, 4/15/2027 | 21,500 | 13,289 | 12,212 | 0.8 | % | ||||||||||||
NewStar Arlington Senior Loan Program LLC Subordinated Notes (a) (c) (p) (v) | Diversified Investment Vehicles | 12.62%, 7/25/2025 | 31,603 | 21,849 | 25,439 | 1.7 | % | ||||||||||||
NewStar Exeter Fund CLO - Equity (a) (c) (p) (v) | Diversified Investment Vehicles | 3.45%, 1/19/2027 | 31,575 | 19,471 | 13,089 | 0.9 | % | ||||||||||||
OFSI Fund VI, Ltd. Subordinated Notes (a) (c) (p) (v) | Diversified Investment Vehicles | 0.00%, 3/20/2025 | 38,000 | 14,006 | 10,162 | 0.7 | % | ||||||||||||
Related Fee Agreements (a) (c) (s) | Diversified Investment Vehicles | 6,959 | 3,917 | 0.2 | % | ||||||||||||||
Silver Spring CLO, Ltd. Subordinated Notes (a) (c) (p) (v) | Diversified Investment Vehicles | 0.00%, 10/16/2026 | 31,500 | 15,123 | 10,363 | 0.7 | % | ||||||||||||
WhiteHorse VIII, Ltd. CLO Subordinated Notes (a) (c) (p) (v) | Diversified Investment Vehicles | 10.03%, 5/1/2026 | 36,000 | 12,947 | 8,761 | 0.6 | % | ||||||||||||
Sub Total Collateralized Securities | $ | 193,529 | $ | 160,195 | 10.7 | % | |||||||||||||
Equity/Other - 15.7% (b) | |||||||||||||||||||
Answers Corporation - Common Equity (c) (e) (p) | Technology | 909 | $ | 11,361 | $ | 14,231 | 1.0 | % | |||||||||||
Avaya Holdings Corp. (e) (x) | Communications Equipment | 611 | 9,696 | 10,716 | 0.7 | % | |||||||||||||
Basho Technologies, Inc. - Series G Senior Participating Preferred Stock Warrant (c) (e) | Software | Expire 3/9/2025 | 306,122 | — | — | — | % | ||||||||||||
Basho Technologies, Inc. - Series G Senior Preferred Stock (c) (e) | Software | 2,040,816 | 2,000 | — | — | % | |||||||||||||
California Resources Development JV, LLC - Preferred Equity (c) (u) | Metals & Mining | 9.00% | 26,717,000 | 26,183 | 26,984 | 1.8 | % | ||||||||||||
Capstone Nutrition - Common Stock (fka Integrity Nutraceuticals, Inc.) (c) (e) (o) | Food Products | 6,023 | 1,630 | — | — | % | |||||||||||||
Capstone Nutrition - Class B and C Common Stock (fka Integrity Nutraceuticals, Inc.) (c) (e) (o) (u) | Food Products | 24,656 | — | — | — | % | |||||||||||||
Danish CRJ LTD. - Common Equity (a) (c) (e) (p) (r) | Aerospace & Defense | 10,000 | 1 | 605 | — | % | |||||||||||||
Evolution Research Group - Preferred Equity (c) (e) | Health Care Providers & Services | 8.00% | 500,000 | 500 | 535 | — | % | ||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
26
BUSINESS DEVELOPMENT CORPORATION OF AMERICA
CONSOLIDATED SCHEDULES OF INVESTMENTS
(dollars in thousands)
December 31, 2017 | |||||||||||||||||||
Portfolio Company (q) | Industry | Investment Coupon Rate / Maturity (y) | Principal / Number of Shares | Amortized Cost | Fair Value | % of Net Assets (b) | |||||||||||||
Greenwave Holdings, Inc. - Series C Preferred Stock Warrant (c) (e) | Internet Software & Services | Expire 8/16/2025 | 172,414 | $ | — | $ | — | — | % | ||||||||||
Kahala Ireland OpCo Designated Activity Company - Common Equity (a) (c) (e) (h) (o) | Aerospace & Defense | 137 | — | 11,709 | 0.8 | % | |||||||||||||
Kahala Ireland OpCo Designated Activity Company - Profit Participating Note (a) (c) (e) (h) (o) | Aerospace & Defense | 3,250,000 | 2,851 | 3,250 | 0.2 | % | |||||||||||||
Kahala US OpCo LLC - Class A Preferred Units (c) (e) (k) (o) | Aerospace & Defense | 13.00% | 4,413,472 | — | — | — | % | ||||||||||||
Mood Media Corporation - Warrants (c) (e) | Business Services | 121,021 | 27 | 47 | — | % | |||||||||||||
New Star Metals Inc. - Warrants (c) (e) | Business Services | Expire 12/22/2036 | 100,216 | 151 | 272 | — | % | ||||||||||||
NexSteppe Inc. - Series C Preferred Stock Warrant (c) (e) | Chemicals | 237,240 | 737 | — | — | % | |||||||||||||
NMFC Senior Loan Program I, LLC (a) (p) | Diversified Investment Vehicles | 50,000 | 50,000 | 50,805 | 3.4 | % | |||||||||||||
Orchid Underwriters Agency, LLC - Preferred Shares (c) (e) (u) | Insurance Broker | 5,000 | 113 | 616 | — | % | |||||||||||||
Orchid Underwriters Agency, LLC - Common Shares (c) (e) (u) | Insurance Broker | 5,000 | — | — | — | % | |||||||||||||
Park Ave RE Holdings, LLC - Common Shares (c) (e) (o) (w) | Real Estate Management & Development | 1,000 | — | 12,678 | 0.8 | % | |||||||||||||
Park Ave RE Holdings, LLC - Preferred Shares (c) (e) (o) (w) | Real Estate Management & Development | 8.00% | 47,290 | 23,645 | 23,645 | 1.6 | % | ||||||||||||
PennantPark Credit Opportunities Fund II, LP (a) (f) (g) (p) | Diversified Investment Vehicles | 9,952 | 9,952 | 10,136 | 0.7 | % | |||||||||||||
South Grand MM CLO I, LLC (a) (f) (p) | Diversified Investment Vehicles | 29,524 | 29,095 | 28,904 | 2.0 | % | |||||||||||||
Squan Holding Corp. - Class A Common Stock (c) (e) (p) | Diversified Telecommunication Services | 180,835 | — | — | — | % | |||||||||||||
Squan Holding Corp. - Series A Preferred Stock (c) (e) (p) | Diversified Telecommunication Services | 8,962 | — | 60 | — | % | |||||||||||||
Tax Defense Network, LLC - Common Equity (c) (e) | Diversified Consumer Services | 106,346 | 425 | — | — | % | |||||||||||||
Tennenbaum Waterman Fund, L.P. (a) | Diversified Investment Vehicles | 10,000 | 10,000 | 10,427 | 0.7 | % | |||||||||||||
TCG BDC, Inc. - Common Stock (fka Carlyle GMS Finance, Inc.) (a) (x) | Diversified Investment Vehicles | 404,899 | 7,765 | 7,843 | 0.5 | % | |||||||||||||
The SAVO Group, Ltd. - Warrants (c) (e) | Internet Software & Services | Expire 3/23/2023 | 138,000 | — | — | — | % | ||||||||||||
THL Credit Greenway Fund II LLC (a) (p) | Diversified Investment Vehicles | 12,141 | 12,141 | 11,373 | 0.9 | % | |||||||||||||
Twentyeighty, Inc. - Class A Common Equity (c) (e) | Media | 54,586 | — | — | — | % | |||||||||||||
TZ Holdings, Inc. - Warrants (fka Zimbra, Inc.) (c) (e) | Software | — | — | — | — | % | |||||||||||||
TZ Holdings, Inc. - Preferred Shares (fka Zimbra, Inc.) (c) (e) | Software | 1,000,000 | 10 | 179 | — | % | |||||||||||||
U.S. Auto - Series A Common Units (c) (e) (u) | Diversified Consumer Services | 10,000 | 10 | — | — | % | |||||||||||||
U.S. Auto - Series A Preferred Units (c) (e) (u) | Diversified Consumer Services | 490 | 490 | 513 | — | % | |||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
27
BUSINESS DEVELOPMENT CORPORATION OF AMERICA
CONSOLIDATED SCHEDULES OF INVESTMENTS
(dollars in thousands)
December 31, 2017 | |||||||||||||||||||
Portfolio Company (q) | Industry | Investment Coupon Rate / Maturity (y) | Principal / Number of Shares | Amortized Cost | Fair Value | % of Net Assets (b) | |||||||||||||
World Business Lenders, LLC - Preferred Stock (c) (e) | Consumer Finance | 922,669 | $ | 3,750 | $ | 3,759 | 0.3 | % | |||||||||||
Xplornet Communications, Inc. - Warrants (a) (c) (e) | Diversified Telecommunication Services | Expire 10/25/2023 | 10,284 | — | 4,655 | 0.3 | % | ||||||||||||
Sub Total Equity/Other | $ | 202,533 | $ | 233,942 | 15.7 | % | |||||||||||||
TOTAL INVESTMENTS - 167.5% (b) | $ | 2,598,628 | $ | 2,503,523 | 167.5 | % | |||||||||||||
_____________
(a) | All of the Company's investments, except the investments noted by this footnote, are qualifying assets under Section 55(a) of the Investment Company Act of 1940, as amended (the "1940 Act"). Under the 1940 Act, we may not acquire any non-qualifying asset unless, at the time the acquisition is made, qualifying assets represent at least 70% of our total assets. Qualifying assets represent 73.8% of the Company's total assets. The significant majority of all investments held are deemed to be illiquid. |
(b) | Percentages are based on net assets of $1,494,516 as of December 31, 2017. |
(c) | The fair value of investments with respect to securities for which market quotations are not readily available is determined in good faith by the Company's board of directors as required by the 1940 Act. Such investments are valued using significant unobservable inputs (See Note 3 to the consolidated financial statements). |
(d) | As of the date of election, the portfolio company elected to pay cash interest, noting the company has the option to elect a portion of the interest to be payment-in-kind (“PIK”). |
(e) | Non-income producing at December 31, 2017. |
The accompanying notes are an integral part of these consolidated financial statements.
28
BUSINESS DEVELOPMENT CORPORATION OF AMERICA
CONSOLIDATED SCHEDULES OF INVESTMENTS
(dollars in thousands)
December 31, 2017
(f)The Company has various unfunded commitments to portfolio companies. The remaining amount of these unfunded commitments as of December 31, 2017 are comprised of the following:
Portfolio Company Name | Investment Type | Commitment Type | Original Commitment | Remaining Commitment | ||||||||
AMI Entertainment Network, LLC | Senior Secured First Lien Debt | Revolver term loan | $ | 1,234 | $ | 1,234 | ||||||
Amteck, LLC | Senior Secured First Lien Debt | Revolver term loan | 5,000 | 5,000 | ||||||||
AqGen Ascensus, Inc. | Senior Secured First Lien Debt | Delayed draw term loan | 5,000 | 1,667 | ||||||||
Berner Food & Beverage LLC | Senior Secured First Lien Debt | Delayed draw term loan | 2,693 | 2,693 | ||||||||
Black Mountain Sand LLC | Senior Secured First Lien Debt | Delayed draw term loan | 13,050 | 13,050 | ||||||||
CCW, LLC | Senior Secured First Lien Debt | Revolver term loan | 3,000 | 600 | ||||||||
CIG Financial, LLC | Senior Secured Second Lien Debt | Delayed draw term loan | 5,000 | 4,000 | ||||||||
ERG Holding Company | Senior Secured First Lien Debt | Delayed draw term loan | 263 | 136 | ||||||||
ERG Holding Company | Senior Secured First Lien Debt | Revolver term loan | 87 | 78 | ||||||||
Ideal Tridon Holdings, Inc. | Senior Secured First Lien Debt | Revolver term loan | 2,731 | 2,185 | ||||||||
InMotion Entertainment Group, LLC | Senior Secured First Lien Debt | Delayed draw term loan | 2,200 | 1,843 | ||||||||
Lakeland Tours, LLC | Senior Secured First Lien Debt | Delayed draw term loan | 464 | 464 | ||||||||
Midwest Can Company, LLC | Senior Secured First Lien Debt | Delayed draw term loan | 828 | 828 | ||||||||
Motion Recruitment Partners, LLC | Senior Secured First Lien Debt | Revolver term loan | 2,000 | 2,000 | ||||||||
NexSteppe Inc. | Senior Secured First Lien Debt | Delayed draw term loan | 2,825 | 250 | ||||||||
Orchid Underwriters Agency, LLC | Senior Secured First Lien Debt | Revolver term loan | 2,200 | 2,200 | ||||||||
PennantPark Credit Opportunities Fund II, LP | Equity/Other | Equity capital commitment | 10,764 | 538 | ||||||||
PetVet Care Centers, LLC | Senior Secured First Lien Debt | Delayed draw term loan | 6,704 | 2,272 | ||||||||
PT Network, LLC | Senior Secured First Lien Debt | Delayed draw term loan | 6,579 | 6,579 | ||||||||
PT Network, LLC | Senior Secured First Lien Debt | Revolver term loan | 1,316 | 1,316 | ||||||||
Pure Barre, LLC | Senior Secured First Lien Debt | Revolver term loan | 2,500 | 2,000 | ||||||||
South Grand MM CLO I, LLC | Equity/Other | Equity capital commitment | 35,000 | 5,476 | ||||||||
Tillamook Country Smoker, LLC | Senior Secured First Lien Debt | Revolver term loan | 2,696 | 2,696 | ||||||||
Twentyeighty, Inc. | Senior Secured First Lien Debt | Revolver term loan | 442 | 442 | ||||||||
US Salt, LLC | Senior Secured First Lien Debt | Delayed draw term loan | 1,297 | 1,297 | ||||||||
VetCor Professional Practices LLC | Senior Secured First Lien Debt | Delayed draw term loan | 3,656 | 3,656 | ||||||||
Total | $ | 119,529 | $ | 64,500 | ||||||||
(g) | The investment is subject to a three year lock-up restriction on withdrawals in year 4. |
(h) | The Company's investment is held through the consolidated subsidiaries, Kahala Aviation Holdings, LLC and Kahala LuxCo, which own 100% of the equity of the operating company, Kahala Ireland OpCo Designated Activity Company. |
(i) | The Company's investment or a portion thereof is pledged as collateral under the Wells Fargo Credit Facility. Individual investments can be divided into parts which are pledged to separate credit facilities. |
(j) | The Company's investment or a portion thereof is pledged as collateral under the Citi Credit Facility. Individual investments can be divided into parts which are pledged to separate credit facilities. |
(k) | The Company's investment is held through the consolidated subsidiaries, Kahala Aviation Holdings, LLC and Kahala Aviation US, Inc. which own 100% of the equity of the operating company, Kahala US OpCo LLC. |
The accompanying notes are an integral part of these consolidated financial statements.
29
BUSINESS DEVELOPMENT CORPORATION OF AMERICA
CONSOLIDATED SCHEDULES OF INVESTMENTS
(dollars in thousands)
December 31, 2017
(l)For the year ended December 31, 2017, the following investments paid or have the option to pay all or a portion of interest and dividends via payment-in-kind (“PIK”):
Portfolio Company | Investment Type | Cash | PIK | All-in Rate | PIK Earned for the Year ended December 31, 2017 | ||||||||||
Basho Technologies, Inc. | Senior Secured First Lien Debt | 17.00 | % | — | % | 17.00 | % | $ | — | ||||||
Capstone Nutrition (fka Integrity Nutraceuticals, Inc.) | Senior Secured First Lien Debt | — | % | 13.88 | % | 13.88 | % | — | |||||||
Greenwave Holdings, Inc. | Senior Secured First Lien Debt | 10.00 | % | 3.00 | % | 13.00 | % | 476 | |||||||
ILC Dover LP | Senior Secured First Lien Debt | 8.24 | % | 2.00 | % | 10.24 | % | 214 | |||||||
Kahala Ireland OpCo Designated Activity Company | Senior Secured First Lien Debt | — | % | 13.00 | % | 13.00 | % | 141 | |||||||
Lightsquared LP | Senior Secured First Lien Debt | — | % | 10.27 | % | 10.27 | % | 1,069 | |||||||
MMM Holdings, LLC | Senior Secured First Lien Debt | 10.32 | % | — | % | 10.32 | % | — | |||||||
MSO of Puerto Rico, LLC | Senior Secured First Lien Debt | 10.32 | % | — | % | 10.32 | % | — | |||||||
New Star Metals Inc. | Senior Secured First Lien Debt | 11.00 | % | — | % | 11.00 | % | — | |||||||
NexSteppe Inc. | Senior Secured First Lien Debt | — | % | 12.00 | % | 12.00 | % | 135 | |||||||
Park Ave RE Holdings, LLC | Subordinated Debt | 13.00 | % | — | % | 13.00 | % | — | |||||||
Steel City Media | Subordinated Debt | — | % | 16.00 | % | 16.00 | % | 2,243 | |||||||
Tax Defense Network, LLC | Senior Secured First Lien Debt | — | % | 14.70 | % | 14.70 | % | 266 | |||||||
Twentyeighty, Inc. | Senior Secured First Lien Debt | 4.92 | % | 4.50 | % | 9.42 | % | 108 | |||||||
Twentyeighty, Inc. | Senior Secured First Lien Debt | 1.00 | % | 7.00 | % | 8.00 | % | 390 | |||||||
Twentyeighty, Inc. | Senior Secured First Lien Debt | 0.25 | % | 8.75 | % | 9.00 | % | 441 | |||||||
Xplornet Communications, Inc. | Subordinated Debt | — | % | 13.00 | % | 13.00 | % | 946 | |||||||
Xplornet Communications, Inc. | Subordinated Debt | — | % | 10.63 | % | 10.63 | % | 534 | |||||||
Total | $ | 6,963 | |||||||||||||
(m) | The Company's investment or a portion thereof is pledged as collateral under the UBS Credit Facility. Individual investments can be divided into parts which are pledged to separate credit facilities. |
(n) | For equity investments in Collateralized Securities, the effective yield is presented in place of the investment coupon rate for each investment. Refer to footnote (v) for a further description of an equity investment in a Collateralized Security. |
(o) | The provisions of the 1940 Act classify investments based on the level of control that we maintain in a particular portfolio company. As defined in the 1940 Act, a company is generally presumed to be "non-controlled" when we own 25% or less of the portfolio company's voting securities and "controlled" when we own more than 25% of the portfolio company's voting securities. The Company classifies this investment as "controlled". |
(p) | The provisions of the 1940 Act classify investments further based on the level of ownership that we maintain in a particular portfolio company. As defined in the 1940 Act, a company is generally deemed as "non-affiliated" when we own less than 5% of a portfolio company's voting securities and "affiliated" when we own 5% or more of a portfolio company's voting securities. The Company classifies this investment as "affiliated". |
(q) | Unless otherwise indicated, all investments in the schedule of investments are non-affiliated, non-controlled investments. |
(r) | The Company's investment is held through the Consolidated Holding Company, Kahala Aviation Holdings, LLC, which owns 49% of the operating company, Danish CRJ LTD. |
(s) | Related Fee Agreements consist of four investments with a total fair value of $3.9 million that are classified as Affiliated Investments. |
(t) | The investment is on non-accrual status as of December 31, 2017. |
(u) | Investments are held in the taxable wholly-owned, consolidated subsidiary, 54th Street Equity Holdings, Inc. |
(v) | The Collateralized Securities - subordinated notes are treated as equity investments and are entitled to recurring distributions which are generally equal to the remaining cash flow of the payments made by the underlying fund’s securities less contractual payments to debt holders and fund expenses. The estimated yield indicated is based upon a current projection of the amount and timing of these recurring distributions and the estimated amount of repayment of principal upon termination. Such projections are periodically reviewed and adjusted, and the estimated yield may not ultimately be realized. |
(w) | The Company's investment is held through the consolidated subsidiary, Park Ave RE, Inc., which owns 100% of the equity of the operating company, Park Ave RE Holdings, LLC. |
(x) | The Company's investment or a portion thereof is pledged as collateral under the JPMC PB Account. Individual investments can be divided into parts which are pledged to separate credit facilities. |
(y) | The majority of the investments bear interest at a rate that may be determined by reference to London Interbank Offered Rate ("LIBOR" or "L") or Prime ("P") and which reset daily, monthly, quarterly or semiannually. For each, the Company has provided the spread over LIBOR or Prime and the current interest rate in effect at December 31, 2017. Certain investments are subject to a LIBOR or Prime interest rate floor. For fixed rate loans, a spread above a reference rate is not applicable. |
The accompanying notes are an integral part of these consolidated financial statements.
30
BUSINESS DEVELOPMENT CORPORATION OF AMERICA
CONSOLIDATED SCHEDULES OF INVESTMENTS
(dollars in thousands)
December 31, 2017
The following table shows the portfolio composition by industry grouping based on fair value at December 31, 2017:
At December 31, 2017 | ||||||
Investments at Fair Value | Percentage of Total Portfolio | |||||
Diversified Investment Vehicles | $ | 279,683 | 11.2 | % | ||
Business Services | 197,181 | 7.9 | ||||
Aerospace & Defense | 165,406 | 6.6 | ||||
Hotels, Restaurants & Leisure | 149,551 | 6.0 | ||||
Health Care | 148,156 | 5.9 | ||||
Diversified Telecommunication Services | 125,997 | 5.0 | ||||
Health Care Providers & Services | 121,732 | 4.9 | ||||
Diversified Consumer Services | 116,717 | 4.7 | ||||
Commercial Services & Supplies | 116,524 | 4.6 | ||||
Technology | 97,471 | 3.9 | ||||
Media | 95,534 | 3.8 | ||||
Food Products | 84,966 | 3.4 | ||||
Energy Equipment & Services | 84,496 | 3.4 | ||||
Internet Software & Services | 74,129 | 3.0 | ||||
Real Estate Management & Development | 73,515 | 2.9 | ||||
Metals & Mining | 68,738 | 2.6 | ||||
Chemicals | 56,121 | 2.2 | ||||
Professional Services | 46,972 | 1.9 | ||||
Communications Equipment | 44,658 | 1.8 | ||||
Software | 36,903 | 1.5 | ||||
Gaming/Lodging | 33,823 | 1.3 | ||||
Specialty Retail | 32,202 | 1.3 | ||||
Consumer Finance | 31,813 | 1.3 | ||||
Diversified Financial Services | 31,736 | 1.3 | ||||
Auto Components | 28,975 | 1.2 | ||||
Transportation Infrastructure | 27,423 | 1.1 | ||||
IT Services | 26,688 | 1.1 | ||||
Life Sciences Tools & Services | 26,220 | 1.0 | ||||
Containers & Packaging | 20,060 | 0.8 | ||||
Insurance | 19,096 | 0.8 | ||||
Automobiles | 14,930 | 0.6 | ||||
Health Care Technology | 12,729 | 0.5 | ||||
Electronic Equipment, Instruments & Components | 10,066 | 0.4 | ||||
Textiles, Apparel & Luxury Goods | 3,312 | 0.1 | ||||
Total | $ | 2,503,523 | 100.0 | % | ||
The accompanying notes are an integral part of these consolidated financial statements.
31
BUSINESS DEVELOPMENT CORPORATION OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts, percentages and as otherwise indicated)
For the period ended March 31, 2018
(Unaudited)
Note 1 — Organization and Basis of Presentation
Business Development Corporation of America (the “Company”) is an externally managed, non-diversified closed-end management investment company incorporated in Maryland in May 2010 that has elected to be regulated as a business development company (“BDC”) under the Investment Company Act of 1940, as amended (“the 1940 Act”). In addition, the Company has elected to be treated for tax purposes as a regulated investment company (“RIC”) under Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”). The Company’s investment activities are managed by BDCA Adviser, LLC (the “Adviser”), a subsidiary of Benefit Street Partners L.L.C. (“BSP”) and supervised by the Company’s board of directors, a majority of whom are independent of the Adviser and its affiliates. As a BDC, the Company is required to comply with certain regulatory requirements.
The Company’s investment objective is to generate both current income and to a lesser extent long-term capital appreciation through debt and equity investments. The Company invests primarily in first and second lien senior secured loans and mezzanine debt issued by middle market companies. The Company defines middle market companies as those with annual revenues up to $1 billion. The Company also purchases interests in loans through secondary market transactions. First and second lien secured loans generally are senior debt instruments that rank ahead of subordinated debt and equity in bankruptcy priority and are generally secured by liens on the operating assets of a borrower, which may include inventory, receivables, plant, property and equipment. Mezzanine debt is subordinated to senior loans and is generally unsecured. The Company may invest in the equity and junior debt tranches of collateralized loan obligation investment vehicles (“Collateralized Securities” or "CLOs"). Structurally, CLOs are entities that are formed to manage a portfolio of senior secured loans made to companies whose debt is rated below investment grade or, in limited circumstances, unrated. The senior secured loans within these Collateralized Securities meet specified credit and diversity criteria and are subject to concentration limitations in order to create a diverse investment portfolio. In most cases, companies to whom we provide customized financing solutions will be privately held at the time the Company invests in them.
During the three months ended March 31, 2018, the Company invested approximately $284.4 million to portfolio companies to contribute to the support of their business objectives of which some were contractually obligated. See also Note 6 - Commitments and Contingencies. As of March 31, 2018, the Company held investments in loans it made to investee companies with aggregate principal amounts of $2,427.1 million. The details of such investments have been disclosed on the consolidated schedule of investments as well as in Note 3 - Fair Value of Financial Instruments. In addition to providing loans to investee companies, from time to time the Company may assist investee companies in securing financing from other sources by introducing such investee companies to sponsors or other lending institutions.
While the structure of the Company’s investments is likely to vary, we may invest in senior secured debt, senior unsecured debt, subordinated secured debt, subordinated unsecured debt, mezzanine debt, convertible debt, convertible preferred equity, preferred equity, common equity, warrants, CLOs and other instruments, many of which generate current yields. If the Adviser deems appropriate, the Company may invest in more liquid senior secured and second lien debt securities, some of which may be traded. The Company will make such investments to the extent allowed by the 1940 Act and consistent with its continued qualification as a RIC for federal income tax purposes.
On January 25, 2011, the Company commenced its initial public offering (the “IPO”) on a “reasonable best efforts basis” of up to 150.0 million shares of common stock, $0.001 par value per share, and subsequently amended the offering to issue up to an additional 101.1 million shares of its common stock (the “Offering”). The Company closed the Offering to new investments on April 30, 2015. As of March 31, 2018, the Company had issued 197.0 million shares of common stock for gross proceeds of $2.1 billion including the shares purchased by affiliates and shares issued under the Company's distribution reinvestment plan (“DRIP”). As of March 31, 2018, the Company had repurchased a cumulative 18.8 million shares of common stock through its share repurchase program for payments of $166.2 million.
The Company intends to co-invest, subject to the conditions included in the exemptive order the Company received from the Securities and Exchange Commission ("SEC"), with certain of our affiliates. The Company believes that such co-investments may afford it additional investment opportunities and an ability to achieve greater diversification.
As a BDC, the Company is generally required to invest at least 70% of our total assets primarily in securities of private and certain U.S. public companies (other than certain financial institutions), cash, cash equivalents and U.S. government securities and other high quality debt investments that mature in one year or less.
32
BUSINESS DEVELOPMENT CORPORATION OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts, percentages and as otherwise indicated)
For the period ended March 31, 2018
(Unaudited)
The Company is permitted to borrow money from time to time within the levels permitted by the 1940 Act (which generally currently allows it to incur leverage for up to one half of its total assets). The Company has used, and expects to continue to use, its credit facilities and other borrowings, along with proceeds from the rotation of its portfolio and proceeds from private securities offerings to finance its investment objectives.
Note 2 — Summary of Significant Accounting Policies
Basis of Presentation
The accompanying consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”). The consolidated financial statements reflect all adjustments, both normal and recurring which, in the opinion of management, are necessary of the fair presentation of the Company’s results of operations and financial condition for the periods presented. The Company is an investment company and follows accounting and reporting guidance in Accounting Standards Codification ("ASC") Topic 946 - Financial Services - Investment Companies ("ASC 946").
The Company consolidates the following subsidiaries for accounting purposes: BDCA Funding I, LLC (“Funding I”), BDCA-CB Funding, LLC (“CB Funding”), BDCA Helvetica Funding, Ltd. (“Helvetica Funding”), 54th Street Equity Holdings, Inc. and the Consolidated Holding Companies. All significant intercompany balances and transactions have been eliminated in consolidation. In conjunction with the consolidation of subsidiaries, the Company recognizes non-controlling interests attributable to third party ownership in the following Consolidated Holding Companies: Kahala Aviation Holdings, LLC, Kahala Aviation US, Inc., and Kahala LuxCo.
Interim financial statements are prepared in accordance with U.S. GAAP for interim financial information and pursuant to the requirements for reporting on Form 10-Q and Regulation S-X, as appropriate. Accordingly, the consolidated financial statements may not include all of the information and notes required by U.S. GAAP for annual consolidated financial statements. U.S. GAAP requires management to make estimates and assumptions that affect the reported amount of assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reported periods. Changes in the economic environment, financial markets and any other parameters used in determining these estimates could cause actual results to differ materially. The current period’s results of operations will not necessarily be indicative of results that ultimately may be achieved for the fiscal year ending on December 31, 2018.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Consolidation
As provided under Regulation S-X and ASC 946, the Company will generally not consolidate its investment in a company other than a substantially wholly-owned investment company or controlled operating company whose business consists of providing services to the Company. Accordingly, the Company consolidated the accounts of the Company's substantially wholly-owned subsidiaries in its consolidated financial statements.
33
BUSINESS DEVELOPMENT CORPORATION OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts, percentages and as otherwise indicated)
For the period ended March 31, 2018
(Unaudited)
Valuation of Portfolio Investments
Portfolio investments are reported on the consolidated statements of assets and liabilities at fair value. On a quarterly basis, the Company performs an analysis of each investment to determine fair value as follows:
Securities for which market quotations are readily available on an exchange are valued at the reported closing price on the valuation date. The Company may also obtain quotes with respect to certain of the Company's investments from pricing services or brokers or dealers in order to value assets. When doing so, the Company determines whether the quote obtained is readily available according to U.S. GAAP to determine the fair value of the security. If determined readily available, the Company uses the quote obtained.
Investments without a readily determined market value are primarily valued using a market approach, an income approach, or both approaches, as appropriate. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities (including a business). The income approach uses valuation techniques to convert future amounts (for example, cash flows or earnings) to a single present amount (discounted). The measurement is based on the value indicated by current market expectations about those future amounts. In following these approaches, the types of factors that the Company may take into account in fair value pricing the Company's investments include, as relevant: 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, its earnings and discounted cash flows, the markets in which the portfolio company does business, comparisons of financial ratios of peer companies that are public, M&A comparables, and enterprise values, among other factors. When available, broker quotations and/or quotations provided by pricing services are considered as an input in the valuation process.
With respect to investments for which market quotations are not readily available, the Adviser undertakes a multi-step valuation process each quarter, as described below:
• | Each portfolio company or investment will be valued by the Adviser, with assistance from one or more independent valuation firms engaged by our board of directors or as noted below, with respect to investments in an investment fund; |
• | The independent valuation firm(s) conduct independent appraisals and make an independent assessment of the value of each investment; and |
• | The board of directors determines the fair value of each investment, in good faith, based on the input of the Adviser and independent valuation firm (to the extent applicable). |
For an investment in an investment fund that does not have a readily determinable fair value, the Company measures the fair value of the investment predominately based on the net asset value per share of the investment fund if the net asset value of the investment fund is calculated in a manner consistent with the measurement principles of ASC 946, as of the Company's measurement date.
The Company’s investments in funds that offer periodic liquidity have redemption frequencies which range from monthly to quarterly and redemption notice periods which range from 30 to 90 days. Investments in private equity typically do not offer liquidity and instead, capital is returned through periodic distributions.
Because there is not a readily available market value for most of the investments in its portfolio, the Company values substantially all of its portfolio investments at fair value as determined in good faith by its board of directors, as described herein. Due to the inherent uncertainty of determining the fair value of investments that do not have a readily available market value, the fair value of the Company's investments may fluctuate from period to period. Additionally, the fair value of the Company's investments may differ significantly from the values that would have been used had a ready market existed for such investments and may differ materially from the values that the Company may ultimately realize. Further, such investments are generally subject to legal and other restrictions on resale or otherwise are less liquid than publicly traded securities. If the Company was required to liquidate a portfolio investment in a forced or liquidation sale, the Company could realize significantly less than the value at which the Company has recorded it.
34
BUSINESS DEVELOPMENT CORPORATION OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts, percentages and as otherwise indicated)
For the period ended March 31, 2018
(Unaudited)
Investment Classification
The Company classifies its investments in accordance with the requirements of the 1940 Act. Under the 1940 Act, “Control” is defined as the power to exercise a controlling influence over the management or policies of a company, unless such power is solely the result of an official position with such company. In addition, any person “who owns beneficially, either directly or through one or more controlled companies, more than 25% of the voting securities of a company shall be presumed to control such company. Typically, any person who does not so own more than 25% of the voting securities of any company shall be presumed not to control such company”. Consistent with the 1940 Act, “Affiliated Investments” are defined as those investments in companies in which the Company owns 5% or more of the voting securities. Consistent with the 1940 Act, “Non-affiliated Investments” are defined as investments that are neither Control Investments nor Affiliated Investments.
Where appropriate, prior period consolidated financial statements may have been reclassified to disclose the Company's Control Investments and Affiliate Investments as defined above. In addition, prior period consolidated financial statements may have been reclassified to present investment industry classifications in a consistent manner with the current year.
Cash and Cash Equivalents
Cash and cash equivalents include short-term, liquid investments in a money market deposit account. Cash and cash equivalents are carried at cost which approximates fair value.
Offering Costs
The Company incurs certain costs in connection with the registration of shares of its common stock. Offering costs principally relate to professional fees, printing costs, direct marketing expenses, due diligence costs, fees paid to regulators and other expenses, including the salaries and/or expenses of the Adviser and its affiliates engaged in registering and marketing the Company’s common stock. Such allocated expenses of the Adviser and its affiliates may include the development of marketing materials and presentations, training and educational meetings, and generally coordinating the marketing process for the Company.
Pursuant to the Investment Advisory Agreement, the Company and the Adviser have agreed that the Company will not be liable for organization and offering costs, including transfer agent fees, in excess of 1.5% of the aggregate gross proceeds from the Company’s on-going offering. Should the Company resume continually offering its shares, any offering costs incurred will be capitalized and amortized as an expense on a straight-line basis over a 12-month period. For the period ended March 31, 2018 and December 31, 2017, the Company did not incur any offering costs.
Deferred Financing Costs
Financing costs incurred in connection with the Company’s unsecured notes and revolving credit facilities with Wells Fargo, Citi, and UBS are capitalized and amortized into expense using the straight-line method, which approximates the effective yield method over the life of the respective facility. See Note 5 - Borrowings - for details on the Credit Facilities and unsecured notes.
Distributions
The Company’s board of directors has authorized, and has declared, cash distributions payable on a monthly basis to stockholders of record on each day since it commenced operations. From November 2013 until July 2017, the distribution rate has been $0.002378082 per day, which is equivalent to $0.868 per annum, per share of common stock, except for 2016 where the daily distribution rate was $0.002371585 per day to accurately reflect 2016 being a leap year. In July 2017, the board of directors reduced the distribution rate with respect to the Company's cash distributions to $0.001780822 per day, which is equivalent to $0.65 annually, per share of common stock.
The amount of each such distribution is subject to the discretion of the board of directors and applicable legal restrictions related to the payment of distributions. The Company calculates each stockholder’s specific distribution amount for the month using record and declaration dates and accrue distributions on the date the Company accepts a subscription for shares of the Company’s common stock. The distributions are payable by the fifth day following each month end to stockholders of record at
35
BUSINESS DEVELOPMENT CORPORATION OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts, percentages and as otherwise indicated)
For the period ended March 31, 2018
(Unaudited)
the close of business each day during the prior month. From time to time, the Company may also pay interim distributions, including capital gains distributions, at the discretion of the Company’s board of directors. The Company’s distributions may exceed earnings, especially during the period before it has substantially invested the proceeds from the offering. As a result, a portion of the distributions made by the Company may represent a return of capital for U.S. federal income tax purposes. A return of capital is a return of each stockholder’s investment rather than earnings or gains derived from the Company’s investment activities.
The Company may fund cash distributions to stockholders from any sources of funds available to the Company, including advances from the Adviser that are subject to reimbursement, as well as offering proceeds, borrowings, net investment income from operations, capital gain proceeds from the sale of assets, and non-capital gain proceeds from the sale of assets. The Company has not established limits on the amount of funds it may use from available sources to make distributions. See Note 12 - Income Tax Information and Distributions to Stockholders for additional information.
Revenue Recognition
Interest Income
Investment transactions are accounted for on the trade date. Interest income, adjusted for amortization of premium and accretion of discount, is recorded on an accrual basis. Discount and premium on investments purchased are accreted/amortized over the expected life of the respective investment using the effective yield method. The amortized cost of investments represents the original cost adjusted for the accretion of discount and amortization of premium on investments.
The Company has a number of investments in Collateralized Securities. Interest income from investments in the “equity” class of these Collateralized Securities (in the Company's case, preferred shares or subordinated notes) is recorded based upon an estimation of an effective yield to expected maturity utilizing assumed cash flows in accordance with ASC 325-40-35, Beneficial Interests in Securitized Financial Assets ("ASC 325-40-35"). The Company monitors the expected cash inflows from its equity investments in Collateralized Securities, including the expected principal repayments. The effective yield is determined and updated quarterly. In accordance with ASC 325-40, investments in CLOs are periodically assessed for other-than-temporary impairment ("OTTI"). When the Company determines that a CLO has OTTI, the amortized cost basis of the CLO is written down as of the date of the determination based on events and information evaluated and that write-down is recognized as a realized loss.
Fee Income
Fee income, such as structuring fees, origination, closing, amendment fees, commitment, termination and other upfront fees are generally non-recurring and are recognized as revenue when earned, either upon receipt or amortized into income. Upon the re-payment of a loan or debt security, any prepayment penalties and unamortized loan origination, structuring, closing, commitment and other upfront fees are recorded as income.
Payment-in-Kind Interest/Dividends
The Company holds debt and equity investments in its portfolio that contain payment-in-kind (“PIK”) interest and dividend provisions. The PIK interest and PIK dividend, which represent contractually deferred interest or dividends that add to the investment balance that is generally due at maturity, are generally recorded on the accrual basis.
Non-accrual income
Investments may be placed on non-accrual status when principal or interest/dividend payments are past due 30 days or more and/or when there is reasonable doubt that principal or interest will be collected. Accrued interest which may include un-capitalized PIK interest is generally reversed when an investment is placed on non-accrual status. Previously capitalized PIK interest is not reversed when an investment is placed on non-accrual status. Interest payments received on non-accrual investments may be recognized as income or applied to principal depending upon management's judgment of the ultimate outcome. Non-accrual investments are restored to accrual status when past due principal and interest is paid and, in management's judgment, are likely to remain current.
36
BUSINESS DEVELOPMENT CORPORATION OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts, percentages and as otherwise indicated)
For the period ended March 31, 2018
(Unaudited)
Net Realized Gains or Losses and Net Change in Unrealized Appreciation or Depreciation
Gains or losses on the sale of investments are calculated using the specific identification method. The Company measures realized gains or losses by the difference between the net proceeds from the repayment or sale and the amortized cost basis of the investment, without regard to unrealized appreciation or depreciation previously recognized. Net change in unrealized appreciation or depreciation will reflect the change in portfolio investment values during the reporting period, including any reversal of previously recorded unrealized appreciation or depreciation, when gains or losses are realized.
Income Taxes
The Company has elected to be treated for federal income tax purposes as a RIC under Subchapter M of the Code. Generally, a RIC is not subject to federal income taxes in respect of each taxable year if it distributes dividends for federal income tax purposes to stockholders of an amount generally equal to at least 90% of ‘‘investment company taxable income,’’ as defined in the Code, and determined without regard to any deduction for dividends paid. Distributions declared prior to the filing of the previous year's tax return and paid up to twelve months after the previous tax year can be carried back to the prior tax year in determining the distributions paid in such tax year. The Company intends to make sufficient distributions to maintain its ability to be subject to be taxed as a RIC each year. The Company may be subject to federal excise tax imposed at a rate of 4% on certain undistributed amounts. See Note 12 - Income Tax Information and Distributions to Stockholders for additional information.
New Accounting Pronouncements
In August 2016, the FASB issued ASU 2016-15, “Statement of Cash Flows (Topic 230)”, which seeks to reduce diversity in how certain cash payments are presented in the Statement of Cash Flows. Under ASU 2016-15, an entity will need to conform to the presentation as prescribed for eight specific cash flow issues. ASU 2016-15 is effective for annual and interim reporting periods after December 15, 2017. The Company has evaluated the impact of ASU 2016-15 on its consolidated financial statements and disclosures and determined that the adoption of ASU 2016-15 has not had a material impact on its consolidated financial statements.
In November 2016, FASB issued ASU 2016-18, Statement of Cash Flows, which will amend FASB ASC 230. The amendments in this Update require that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The amendments in this Update apply to all entities that have restricted cash or restricted cash equivalents and are required to present a statement of cash flows under Topic 230. For public business entities, the amendments are effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. The Company adopted this guidance and the application did not have a material impact on the Company's consolidated financial statements.
In October 2016, the SEC adopted new rules and amended rules (together, “final rules”) intended to modernize the reporting and disclosure of information by registered investment companies. In part, the final rules amend Regulation S-X and require standardized, enhanced disclosure about derivatives in investment company financial statements, as well as other amendments. The compliance date for the amendments to Regulation S-X was August 1, 2017. The application of this guidance did not have a material impact on the Company's consolidated financial statements.
In April 2016, the FASB issued ASU 2016-10, “Revenue from Contracts with Customers (Topic 606 "Identifying Performance Obligations and Licensing"),” which amends the criteria for revenue recognition where an entity enters into contracts with customers to transfer goods or services or where there is a transfer of non-financial assets. Under ASU 2016-10, an entity should recognize revenue in an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services. The Company has evaluated the impact of ASU 2016-10 on its consolidated financial statements and disclosures and determined that the adoption of ASU 2016-10 has not had a material impact on its consolidated financial statements.
In January 2016, the FASB issued ASU 2016-01, Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities (“ASU 2016-01”). ASU 2016-01 retains many current requirements for the classification and measurement of financial instruments; however, it significantly revises an entity’s accounting related to (1) the classification and measurement of investments in equity securities and (2) the presentation of certain fair value changes
37
BUSINESS DEVELOPMENT CORPORATION OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts, percentages and as otherwise indicated)
For the period ended March 31, 2018
(Unaudited)
for financial liabilities measured at fair value. ASU 2016-01 also amends certain disclosure requirements associated with the fair value of financial instruments. This guidance is effective for annual and interim periods beginning after December 15, 2017, and early adoption is not permitted for public business entities. The Company has evaluated the impact of ASU 2016-01 on its consolidated financial statements and disclosures and determined that the adoption of ASU 2016-01 has not had a material impact on its consolidated financial statements.
Management does not believe that any other recently issued, but not yet effective, accounting pronouncements, if currently adopted, would have a material effect on the Company’s consolidated financial statements.
Note 3 — Fair Value of Financial Instruments
The Company’s fair value measurements are classified into a fair value hierarchy in accordance with ASC Topic 820, Fair Value Measurement, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value. Market price observability is affected by a number of factors, including the type of investment and the characteristics specific to the investment. Investments with readily available active quoted prices or for which fair value can be measured from actively quoted prices generally will have a higher degree of market price observability and a lesser degree of judgment used in measuring fair value.
The Company determines fair value based on quoted prices when available or through the use of alternative approaches, such as discounting the expected cash flows using market interest rates commensurate with the credit quality and duration of the investment. This alternative approach also reflects the contractual terms of the derivatives, if any, including the period to maturity, and uses observable market-based inputs, including interest rate curves and implied volatilities. The guidance defines three levels of inputs that may be used to measure fair value:
• | Level 1—Quoted prices in active markets for identical assets and liabilities that the reporting entity has the ability to access at the measurement date. |
• | Level 2—Inputs other than quoted prices included within Level 1 that are observable for the asset and liability or can be corroborated with observable market data for substantially the entire contractual term of the asset or liability. |
• | Level 3—Unobservable inputs that reflect the entity’s own assumptions about the assumptions that market participants would use in the pricing of the asset or liability and are consequently not based on market activity, but rather through particular valuation techniques. |
The determination of where an asset or liability falls in the above hierarchy requires significant judgment and factors specific to the asset or liability. In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety. The Company evaluates its hierarchy disclosures each quarter and depending on various factors, it is possible that an asset or liability may be classified differently from quarter to quarter.
For investments for which Level 1 inputs, such as quoted prices, were not available at March 31, 2018, the investments were valued at fair value as determined in good faith using the valuation policy approved by the board of directors using Level 2 and Level 3 inputs. The Company evaluates the source of inputs, including any markets in which the Company's investments are trading, in determining fair value. Due to the inherent uncertainty in the valuation process, the estimate of fair value of the Company’s investment portfolio at March 31, 2018 may differ materially from values that would have been used had a ready market for the securities existed.
In addition to using the above inputs in investment valuations, the Company continues to employ the valuation policy approved by the board of directors. Portfolio investments are reported on the consolidated statements of assets and liabilities at fair value. On a quarterly basis the Company performs an analysis of each investment to determine fair value as described below.
Securities for which market quotations are readily available on an exchange are valued at the reported closing price on the valuation date. The Company may also obtain quotes with respect to certain of the Company's investments from pricing services or brokers or dealers in order to value assets. When doing so, the Company determines whether the quote obtained is readily available according to U.S. GAAP to determine the fair value of the security. If determined readily available, the Company uses the quote obtained.
38
BUSINESS DEVELOPMENT CORPORATION OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts, percentages and as otherwise indicated)
For the period ended March 31, 2018
(Unaudited)
Investments without a readily determined market value are primarily valued using a market approach, an income approach, or both approaches, as appropriate. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities (including a business). The income approach uses valuation techniques to convert future amounts (for example, cash flows or earnings) to a single present amount (discounted). The measurement is based on the value indicated by current market expectations about those future amounts. In following these approaches, the types of factors that the Company may take into account in fair value pricing the Company's investments include, as relevant: 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, its earnings and discounted cash flows, the markets in which the portfolio company does business, comparisons of financial ratios of peer companies that are public, M&A comparables, and enterprise values, among other factors. When available, broker quotations and/or quotations provided by pricing services are considered as an input in the valuation process.
For an investment in an investment fund that does not have a readily determinable fair value, the Company measures the fair value of the investment predominately based on the net asset value per share of the investment fund if the net asset value of the investment fund is calculated in a manner consistent with the measurement principles of ASC Topic 946, as of the Company's measurement date.
For investments in Collateralized Securities, the Adviser models both the assets and liabilities of each Collateralized Securities' capital structure. The model uses a waterfall engine to store the collateral data, generate cash flows from the assets, and distribute the cash flows to the liability structure based on priority of payments. The cash flows are discounted using rates that incorporate risk factors such as default risk, interest rate risk, downgrade risk, and credit spread risk, among others. In addition, the Adviser considers broker quotations and/or comparable trade activity is considered as an input to determining fair value when available.
As part of the Company's quarterly valuation process, the Adviser may be assisted by one or more independent valuation firms engaged by the Company. The board of directors determines the fair value of each investment, in good faith, based on the input of the Adviser and the independent valuation firm(s) (to the extent applicable).
Determination of fair values involves subjective judgments and estimates. Accordingly, the notes to the consolidated financial statements refer to the uncertainty with respect to the possible effect of such valuations, and any change in such valuations on the consolidated financial statements.
For discussion of the fair value measurement of the Company's borrowings, refer to Note 5.
The following table presents fair value measurements of investments, by major class, as of March 31, 2018, according to the fair value hierarchy:
Fair Value Measurements | |||||||||||||||||||
Level 1 | Level 2 | Level 3 | Measured at Net Asset value (1) | Total | |||||||||||||||
Senior Secured First Lien Debt | $ | — | $ | 554,140 | $ | 1,346,829 | — | $ | 1,900,969 | ||||||||||
Senior Secured Second Lien Debt | — | 61,618 | 175,706 | — | 237,324 | ||||||||||||||
Subordinated Debt | — | 67,463 | 61,645 | — | 129,108 | ||||||||||||||
Collateralized Securities | — | — | 161,934 | — | 161,934 | ||||||||||||||
Equity/Other | 7,489 | 5,293 | 93,020 | 91,715 | 197,517 | ||||||||||||||
Total | $ | 7,489 | $ | 688,514 | $ | 1,839,134 | $ | 91,715 | $ | 2,626,852 | |||||||||
______________
(1) In accordance with ASC Subtopic 820-10, certain investments that are measured at fair value using the net asset value per share (or its equivalent) practical expedient election have not been classified in the fair value hierarchy. The fair value amounts presented
39
BUSINESS DEVELOPMENT CORPORATION OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts, percentages and as otherwise indicated)
For the period ended March 31, 2018
(Unaudited)
in this table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the consolidated statements of assets and liabilities.
The following table presents fair value measurements of investments, by major class, as of December 31, 2017, according to the fair value hierarchy:
Fair Value Measurements | |||||||||||||||||||
Level 1 | Level 2 | Level 3 | Measured at Net Asset value (1) | Total | |||||||||||||||
Senior Secured First Lien Debt | $ | — | $ | 522,031 | $ | 1,254,503 | — | $ | 1,776,534 | ||||||||||
Senior Secured Second Lien Debt | — | 34,632 | 203,881 | — | 238,513 | ||||||||||||||
Subordinated Debt | — | 33,250 | 61,089 | — | 94,339 | ||||||||||||||
Collateralized Securities | — | — | 160,195 | — | 160,195 | ||||||||||||||
Equity/Other | 10,716 | 7,843 | 103,738 | 111,645 | 233,942 | ||||||||||||||
Total | $ | 10,716 | $ | 597,756 | $ | 1,783,406 | $ | 111,645 | $ | 2,503,523 | |||||||||
______________
(1) In accordance with ASC Subtopic 820-10, certain investments that are measured at fair value using the net asset value per share (or its equivalent) practical expedient election have not been classified in the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the amounts 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 March 31, 2018:
Senior Secured First Lien Debt | Senior Secured Second Lien Debt | Subordinated Debt | Collateralized Securities | Equity/Other | Total | ||||||||||||||||||
Balance as of December 31, 2017 | $ | 1,254,503 | $ | 203,881 | $ | 61,089 | $ | 160,195 | $ | 103,738 | $ | 1,783,406 | |||||||||||
Net change in unrealized appreciation (depreciation) on investments | 6,338 | (3,364 | ) | (549 | ) | 29,996 | (6,750 | ) | 25,671 | ||||||||||||||
Purchases and other adjustments to cost | 168,863 | 17,296 | 1,152 | 7,679 | 55 | 195,045 | |||||||||||||||||
Sales and redemptions | (78,336 | ) | (20,074 | ) | — | (5,936 | ) | (5,802 | ) | (110,148 | ) | ||||||||||||
Net realized gains (losses) | (8,450 | ) | 326 | (47 | ) | (30,000 | ) | 1,779 | (36,392 | ) | |||||||||||||
Transfers in | 3,911 | — | — | — | — | 3,911 | |||||||||||||||||
Transfers out | — | (22,359 | ) | — | — | — | (22,359 | ) | |||||||||||||||
Balance as of March 31, 2018 | $ | 1,346,829 | $ | 175,706 | $ | 61,645 | $ | 161,934 | $ | 93,020 | $ | 1,839,134 | |||||||||||
Net change in unrealized appreciation (depreciation) for the period relating to those Level 3 assets that were still held by the Company at the end of the period: | $ | (3,057 | ) | $ | (3,038 | ) | $ | (549 | ) | $ | 29,995 | $ | (4,094 | ) | $ | 19,257 | |||||||
Purchases represent the acquisition of new investments at cost. Redemptions represent principal payments received during the period.
40
BUSINESS DEVELOPMENT CORPORATION OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts, percentages and as otherwise indicated)
For the period ended March 31, 2018
(Unaudited)
For the three months ended March 31, 2018, there were no transfers out of Level 1 to Level 2. For the three months ended March 31, 2018, eight investments were transferred out of Level 2 to Level 3. For the three months ended March 31, 2018, eight investments were transferred out of Level 3 to Level 2. Transfers during the period were due to changes in management's assessment of liquidity in the underlying positions.
Transfers between levels, if any, are recognized at the beginning of the period in which transfers occur.
The following table provides a reconciliation of the beginning and ending balances for investments that use Level 3 inputs for the year ended December 31, 2017:
Senior Secured First Lien Debt | Senior Secured Second Lien Debt | Subordinated Debt | Collateralized Securities | Equity/Other | Total | ||||||||||||||||||
Balance as of December 31, 2016 | $ | 916,099 | $ | 205,051 | $ | 80,540 | $ | 249,582 | $ | 56,794 | $ | 1,508,066 | |||||||||||
Net change in unrealized appreciation (depreciation) on investments | (23,259 | ) | (558 | ) | (2,718 | ) | (8,140 | ) | 13,805 | (20,870 | ) | ||||||||||||
Purchases and other adjustments to cost | 427,865 | 79,561 | 3,167 | 161 | 38,817 | 549,571 | |||||||||||||||||
Sales and redemptions | (342,176 | ) | (117,696 | ) | (21,453 | ) | (79,376 | ) | (3,980 | ) | (564,681 | ) | |||||||||||
Net realized gains (losses) | (11,753 | ) | 1,144 | 1,553 | (2,032 | ) | (1,698 | ) | (12,786 | ) | |||||||||||||
Transfers in | 287,727 | 36,379 | — | — | — | 324,106 | |||||||||||||||||
Transfers out | — | — | — | — | — | — | |||||||||||||||||
Balance as of December 31, 2017 | $ | 1,254,503 | $ | 203,881 | $ | 61,089 | $ | 160,195 | $ | 103,738 | $ | 1,783,406 | |||||||||||
Net change in unrealized appreciation (depreciation) for the period relating to those Level 3 assets that were still held by the Company at the end of the period: | $ | (36,523 | ) | $ | (841 | ) | $ | (1,678 | ) | $ | (9,353 | ) | $ | 13,573 | $ | (34,822 | ) | ||||||
Purchases represent the acquisition of new investments at cost. Redemptions represent principal payments received during the period.
For the year ended December 31, 2017, there were no transfers out of Level 1 to Level 2 and Level 3 to Level 2. For the year ended December 31, 2017, twenty-five investments were transferred out of Level 2 to Level 3. Transfers during the period were due to changes in management's assessment of liquidity in the underlying positions.
The composition of the Company’s investments as of March 31, 2018, at amortized cost and fair value, were as follows:
Investments at Amortized Cost | Investments at Fair Value | Fair Value Percentage of Total Portfolio | ||||||||
Senior Secured First Lien Debt | $ | 1,982,847 | $ | 1,900,969 | 72.4 | % | ||||
Senior Secured Second Lien Debt | 241,107 | 237,324 | 9.0 | |||||||
Subordinated Debt | 131,037 | 129,108 | 4.9 | |||||||
Collateralized Securities | 165,274 | 161,934 | 6.2 | |||||||
Equity/Other | 171,235 | 197,517 | 7.5 | |||||||
Total | $ | 2,691,500 | $ | 2,626,852 | 100.0 | % | ||||
41
BUSINESS DEVELOPMENT CORPORATION OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts, percentages and as otherwise indicated)
For the period ended March 31, 2018
(Unaudited)
The composition of the Company’s investments as of December 31, 2017, at amortized cost and fair value, were as follows:
Investments at Amortized Cost | Investments at Fair Value | Fair Value Percentage of Total Portfolio | ||||||||
Senior Secured First Lien Debt | $ | 1,865,392 | $ | 1,776,534 | 71.0 | % | ||||
Senior Secured Second Lien Debt | 239,258 | 238,513 | 9.5 | |||||||
Subordinated Debt | 97,916 | 94,339 | 3.8 | |||||||
Collateralized Securities | 193,529 | 160,195 | 6.4 | |||||||
Equity/Other | 202,533 | 233,942 | 9.3 | |||||||
Total | $ | 2,598,628 | $ | 2,503,523 | 100.0 | % | ||||
Significant Unobservable Inputs
The following table summarizes the significant unobservable inputs used to value the majority of the Level 3 investments as of March 31, 2018. The table is not intended to be all-inclusive, but instead identifies the significant unobservable inputs relevant to the determination of fair values.
Range | |||||||||||||||||
Asset Category | Fair Value | Primary Valuation Technique | Unobservable Inputs | Minimum | Maximum | Weighted Average (a) | |||||||||||
Senior Secured First Lien Debt (b) | $ | 1,025,569 | Yield Analysis | Market Yield | 5.50 | % | 25.00 | % | 9.74 | % | |||||||
Senior Secured First Lien Debt (b) (c) | $ | 141,549 | Waterfall Analysis | Discount Rate | 15.00 | % | 17.00 | % | N/A | ||||||||
Senior Secured Second Lien Debt (d) | $ | 162,073 | Yield Analysis | Market Yield | 9.25 | % | 19.11 | % | 13.25 | % | |||||||
Subordinated Debt (c) (e) | $ | 37,192 | Waterfall Analysis | Discount Rate | 8.35 | % | 8.55 | % | N/A | ||||||||
Subordinated Debt (c) (e) | $ | 3,443 | Yield Analysis | Market Yield | 12.50 | % | 14.60 | % | N/A | ||||||||
Collateralized Securities | $ | 161,934 | Discounted Cash Flow | Discount Rate | 5.60 | % | 30.50 | % | 18.46 | % | |||||||
Equity/Other (f) | $ | 50,041 | Waterfall Analysis | Discount Rate | 8.50% | 17.50% | 10.68% | ||||||||||
Equity/Other (f) | $ | 25,413 | Discounted Cash Flow | Discount Rate | 5.49% | 11.69% | 11.58% | ||||||||||
Equity/Other (f) | $ | 1,708 | Waterfall Analysis | EBITDA Multiple | 1.40x | 10.00x | 6.66x | ||||||||||
Equity/Other (f) | $ | 48 | Option Pricing Method | Volatility | 30.00% | 50.00% | 40.00% | ||||||||||
______________
(a) | Weighted averages are calculated based on fair value of investments. |
(b) | The remaining $179.7 million of senior secured first lien debt consisted of $114.9 million which were valued using a Scenario-Based analysis technique factoring in various unobservable inputs and $64.8 million which were valued based on their respective acquisition prices as the investments closed near year end. |
(c) | Weighted average not applicable as this asset category contains one investment. |
(d) | The remaining $13.6 million of senior secured second lien debt were valued based on their respective acquisition prices as the investments closed near year end. |
(e) | The remaining $21.0 million of subordinated debt were valued using a Scenario-Based analysis technique factoring in various unobservable inputs. |
42
BUSINESS DEVELOPMENT CORPORATION OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts, percentages and as otherwise indicated)
For the period ended March 31, 2018
(Unaudited)
(f) | The remaining $15.6 million of equity/other investments were valued using the Current Method, factoring in various unobservable inputs and $0.2 million which were valued based on their respective acquisition prices as the investments closed near year end. |
There were no significant changes in valuation approach or technique as of March 31, 2018.
Increases or decreases in any of the above unobservable inputs in isolation would result in a lower or higher fair value measurement for such assets.
The following table summarizes the significant unobservable inputs used to value the majority of the Level 3 investments as of December 31, 2017. The table is not intended to be all-inclusive, but instead identifies the significant unobservable inputs relevant to the determination of fair values.
Range | |||||||||||||||||
Asset Category | Fair Value | Primary Valuation Technique | Unobservable Inputs | Minimum | Maximum | Weighted Average (a) | |||||||||||
Senior Secured First Lien Debt (b) | $ | 967,773 | Yield Analysis | Market Yield | 5.00 | % | 26.75 | % | 9.21 | % | |||||||
Senior Secured First Lien Debt (b) (c) | $ | 141,549 | Waterfall Analysis | Discount Rate | 15.00 | % | 17.00 | % | N/A | ||||||||
Senior Secured Second Lien Debt (d) | $ | 184,572 | Yield Analysis | Market Yield | 9.25 | % | 15.05 | % | 11.91 | % | |||||||
Subordinated Debt (c) (e) | $ | 37,192 | Waterfall Analysis | Discount Rate | 8.20 | % | 9.20 | % | N/A | ||||||||
Subordinated Debt (c) (e) | $ | 3,312 | Yield Analysis | Market Yield | 12.50 | % | 14.60 | % | N/A | ||||||||
Collateralized Securities | $ | 160,195 | Discounted Cash Flow | Discount Rate | 12.35 | % | 37.50 | % | 20.37 | % | |||||||
Equity/Other (f) | $ | 51,282 | Waterfall Analysis | Discount Rate | 8.45% | 16.00% | 10.65% | ||||||||||
Equity/Other (f) | $ | 27,589 | Discounted Cash Flow | Discount Rate | 5.63% | 12.19% | 12.05% | ||||||||||
Equity/Other (f) | $ | 1,462 | Waterfall Analysis | EBITDA Multiple | 4.00x | 10.50x | 9.31x | ||||||||||
Equity/Other (f) | $ | 47 | Option Pricing Method | Volatility | 30.00% | 50.00% | 40.00% | ||||||||||
______________
(a) | Weighted averages are calculated based on fair value of investments. |
(b) | The remaining $145.2 million of senior secured first lien debt consisted of $113.5 million which were valued using a Scenario-Based analysis technique factoring in various unobservable inputs and $31.7 million which were valued based on their respective acquisition prices as the investments closed near year end. |
(c) | Weighted average not applicable as this asset category contains one investment. |
(d) | The remaining $19.3 million of senior secured second lien debt were valued based on their respective acquisition prices as the investments closed near year end. |
(e) | The remaining $20.6 million of subordinated debt were valued using a Scenario-Based analysis technique factoring in various unobservable inputs. |
(f) | The remaining $23.2 million of equity/other investments were valued using the Current Method, factoring in various unobservable inputs and $0.2 million which were valued based on their respective acquisition prices as the investments closed near year end. |
There were no significant changes in valuation approach or technique as of December 31, 2017.
43
BUSINESS DEVELOPMENT CORPORATION OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts, percentages and as otherwise indicated)
For the period ended March 31, 2018
(Unaudited)
Increases or decreases in any of the above unobservable inputs in isolation would result in a lower or higher fair value measurement for such assets.
As of March 31, 2018, the Company had four portfolio companies, which represented eight portfolio investments, on non-accrual status with a total principal amount of $142.7 million, amortized cost of $116.2 million, and fair value of $41.4 million which represented 4.5%, 4.3% and 1.6% of the investment portfolio's total principal, amortized cost and fair value, respectively. As of December 31, 2017, the Company had four portfolio companies, which represented eight portfolio investments, on non-accrual status with a total principal amount of $120.2 million, amortized cost of $97.6 million, and fair value of $21.0 million which represented 4.0%, 3.8% and 0.8% of the investment portfolio's total principal, amortized cost and fair value, respectively. Refer to Note 2 - Summary of Significant Accounting Policies - for additional details regarding the Company’s non-accrual policy.
Note 4 — Related Party Transactions and Arrangements
Investment Advisory Agreement
Pursuant to the Investment Advisory Agreement and for the investment advisory and management services provided thereunder, the Company pays the Adviser a base management fee and an incentive fee.
Base Management Fee
The base management fee is calculated at an annual rate of 1.5% of the Company’s average gross assets. The base management fee is payable quarterly in arrears. Average gross assets is calculated based on the average value of the Company’s gross assets at the end of the two most recently completed calendar quarters. All or any part of the base management fee not taken as to any quarter may be deferred without interest and may be taken in such other quarter as the Adviser will determine within three years. The base management fee for any partial month or quarter is appropriately pro-rated.
As of March 31, 2018 and December 31, 2017, $10.0 million and $9.9 million was payable to the Adviser for base management fees, respectively.
Incentive Fees
The incentive fee consists of two parts. The first part is referred to as the incentive fee on income and it is calculated and payable quarterly in arrears based on the Company’s “Pre-Incentive Fee Net Investment Income” for the immediately preceding quarter. “Pre-Incentive Fee Net Investment Income” means interest income, dividend income and any other income (including any other fees, other than fees for providing managerial assistance, such as commitment, origination, structuring, diligence and consulting fees or other fees that the Company receives from portfolio companies) accrued during the calendar quarter, minus the Company’s operating expenses for the quarter (including the base management fee, expenses payable under the administration agreement and any interest expense and 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 payment-in-kind interest and zero coupon securities), accrued income that the Company has not yet received in cash. Pre-Incentive Fee Net Investment Income does not include any realized capital gains, realized capital losses or unrealized capital appreciation or depreciation. The payment of the incentive fee on income shall be subject to payment of a preferred return to investors each quarter, expressed as a quarterly rate of return on the value of our net assets at the end of the most recently completed calendar quarter, of 1.75% (7.00% annualized), subject to a “catch up” feature (as described below). The calculation of the incentive fee on income for each quarter is as follows:
• | No incentive fee on income shall be payable to the Adviser in any calendar quarter in which the Company’s Pre-Incentive Fee Net Investment Income does not exceed the preferred return rate of 1.75% or 7.00% annualized (the “Preferred Return”) on net assets; |
• | 100% of the Company’s Pre-Incentive Fee Net Investment Income, if any, that exceeds the preferred return but is less than or equal to 2.1875% in any calendar quarter (8.75% annualized) shall be payable to the Adviser. This portion of the Company’s incentive fee on income is referred to as the “catch up” and is intended to provide the Adviser with an incentive fee of 20% on all of the Company’s Pre-Incentive Fee Net Investment Income when the Company’s Pre-Incentive Fee Net Investment Income reaches 2.1875% (8.75% annualized) in any calendar quarter; and |
44
BUSINESS DEVELOPMENT CORPORATION OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts, percentages and as otherwise indicated)
For the period ended March 31, 2018
(Unaudited)
• | For any quarter in which our Pre-Incentive Fee Net Investment Income exceeds 2.1875% (8.75% annualized), the incentive fee on income shall equal 20% of the amount of the Company’s Pre-Incentive Fee Net Investment Income, as the Preferred Return and catch-up will have been achieved. |
As of March 31, 2018 and December 31, 2017, $4.6 million and $4.6 million was payable to the Adviser for the incentive fee on income, respectively.
The second part of the incentive fee, referred to as the “incentive fee on capital gains during operations,” shall be an incentive fee on capital gains earned on liquidated investments from the portfolio during operations prior to the Company’s liquidation and shall be determined and payable in arrears as of the end of each calendar year (or upon termination of the Investment Advisory Agreement, if earlier). This fee shall equal 20.0% of the Company’s incentive fee capital gains, which shall equal the Company’s realized capital gains on a cumulative basis from inception, calculated as of the end of each calendar year, computed net of all realized capital losses and unrealized capital depreciation on a cumulative basis, less the aggregate amount of any previously paid capital gain incentive fees.
The Transaction
On July 19, 2016, American Realty Capital II Advisors, LLC, the former parent of the Adviser, entered into a membership interest purchase agreement with a subsidiary of BSP, pursuant to which such subsidiary acquired all of the outstanding limited liability company interests of the Adviser (the “Transaction”). In connection with the Transaction, the Company amended the Investment Advisory Agreement, effective as of November 1, 2016, to allow the Adviser to serve as investment adviser to the Company following the closing of the Transaction.
Administration Agreement
In connection with the closing of the Transaction, the Company terminated the previous administration agreement and entered into a new administration agreement with BSP on November 1, 2016. In connection with the New Administration Agreement, BSP provides the Company with office facilities and administrative services. As of March 31, 2018 and December 31, 2017, $0.1 million and $0.6 million was payable to BSP under the New Administration Agreement, respectively.
Co-Investment Relief
The 1940 Act generally prohibits BDCs from entering into negotiated co-investments with affiliates absent an order from the SEC. The SEC staff has granted the Company exemptive relief that allows it to enter into certain negotiated co-investment transactions alongside with other funds managed by the Adviser or its affiliates (“Affiliated Funds”) in a manner consistent with its investment objective, positions, policies, strategies and restrictions as well as regulatory requirements and other pertinent factors, subject to compliance with certain conditions (the “Order”). Pursuant to the Order, the Company is permitted to co-invest with its affiliates if a “required majority” (as defined in Section 57(o) of the 1940 Act) of its eligible directors make certain conclusions in connection with a co-investment transaction, including that (1) the terms of the transactions, including the consideration to be paid, are reasonable and fair to the Company and our stockholders and do not involve overreaching in respect of the Company or our stockholders on the part of any person concerned, and (2) the transaction is consistent with the interests of the Company’s stockholders and is consistent with the Company’s investment objective and strategies.
Transactions with Affiliates
In connection with the closing of the Transaction, an affiliate of BSP purchased $10.0 million of the Company’s common stock based on its net asset value per share in a private placement in reliance on Section 4(a)(2) of the Securities Act of 1933, as amended (the "Securities Act"). On November 7, 2016, the Company issued approximately 1.2 million shares of its common stock to such BSP affiliate.
Offering Costs
The Company incurs certain costs in connection with the registration of shares of its common stock. Offering costs principally relate to professional fees, printing costs, direct marketing expenses, due diligence costs, fees paid to regulators and
45
BUSINESS DEVELOPMENT CORPORATION OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts, percentages and as otherwise indicated)
For the period ended March 31, 2018
(Unaudited)
other expenses, including the salaries and/or expenses of the Adviser and its affiliates engaged in registering and marketing the Company’s common stock. Such allocated expenses of the Adviser and its affiliates may include the development of marketing materials and presentations, training and educational meetings, and generally coordinating the marketing process for the Company.
Other Affiliated Parties
The Adviser is the investment adviser of BDCA. The Adviser is an affiliate of BSP, an SEC registered investment adviser. The Adviser and BSP are under common control. The Adviser is affiliated and under common control with Providence Equity Capital Markets L.L.C. (“PECM”), an SEC registered investment adviser on the BSP platform. The Adviser is affiliated and under common control with Providence Equity Partners L.L.C. (“PEP”), an SEC registered investment adviser. PEP is a global private equity investment adviser and maintains an information barrier between itself and the Adviser, BSP and PECM. The Adviser is affiliated and under common control with Merganser Capital Management, LLC (“Merganser”), an SEC registered investment adviser. BSP, the Adviser, PECM, Merganser and PEP’s respective Form ADV’s are publicly available for review on the SEC Investment Adviser Public Disclosure website.
Note 5 — Borrowings
Wells Fargo Credit Facility
On July 24, 2012, the Company, through a wholly-owned, consolidated special purpose financing subsidiary, Funding I, entered into a revolving credit facility with Wells Fargo and U.S. Bank as collateral agent, account bank and collateral custodian (the “Wells Fargo Credit Facility”). The Wells Fargo Credit Facility, which was subsequently amended on April 26, 2013, September 9, 2013, June 30, 2014, May 29, 2015, November 4, 2015, and May 18, 2017 provides for borrowings in an aggregate principal amount of up to $400.0 million on a committed basis. The Wells Fargo Credit Facility has a maturity date of May 18, 2022.
The Wells Fargo Credit Facility is priced at the one-month maturity London Interbank Offered Rate (“LIBOR”), with no LIBOR floor, plus a spread ranging between 1.65% and 2.50% per annum, depending on the composition of the portfolio of loans owned by Funding I for the relevant period. Interest is payable quarterly in arrears. Funding I is subject to a non-usage fee to the extent the aggregate principal amount available under the Wells Fargo Credit Facility has not been borrowed. The non-usage fee per annum is 0.50% for the first 25% of the unused balance and 2.0% for the portion of the unused balance that exceeds 25%.
Borrowings under the Wells Fargo Credit Facility are subject to compliance with a borrowing base, pursuant to which the amount of funds advanced to Funding I varies depending upon the types of loans in Funding I's portfolio. The Wells Fargo Credit Facility may be prepaid in whole or in part, subject to customary breakage costs.
The Wells Fargo Credit Facility contains customary default provisions for facilities of this type pursuant to which Wells Fargo may terminate the rights, obligations, power and authority of the Company, in its capacity as servicer of the portfolio assets under the Wells Fargo Credit Facility, including, but not limited to, non-performance of Wells Fargo Credit Facility obligations, insolvency, defaults of certain financial covenants and other events with respect to the Company that may be adverse to Wells Fargo and the secured parties under the Wells Fargo Credit Facility.
In connection with the Wells Fargo Credit Facility, Funding I has made certain representations and warranties, is required to comply with various covenants, reporting requirements and other customary requirements for similar facilities and is subject to certain customary events of default. Upon the occurrence and during the continuation of an event of default, Wells Fargo may declare the outstanding advances and all other obligations under the Wells Fargo Credit Facility immediately due and payable. During the continuation of an event of default, Funding I must pay interest at a default rate.
46
BUSINESS DEVELOPMENT CORPORATION OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts, percentages and as otherwise indicated)
For the period ended March 31, 2018
(Unaudited)
Citi Credit Facility
On June 27, 2014, the Company, through a wholly-owned, special purpose financing subsidiary, CB Funding, entered into a credit facility (the “Citi Credit Facility”) with Citibank, N.A. ("Citi") as administrative agent and U.S. Bank as collateral agent, account bank and collateral custodian. The Citi Credit Facility, which was subsequently amended on October 14, 2015, provides for borrowings in an aggregate principal amount of up to $400.0 million on a committed basis, subject to the administrative agent’s right to approve the assets acquired by CB Funding and pledged as collateral under the Citi Credit Facility. The Citi Credit Facility was amended on November 28, 2017 to extend the investment period to May 31, 2019. The Citi Credit Facility has a maturity date of May 28, 2020.
The Citi Credit Facility is priced at three month LIBOR, with no LIBOR floor, plus a spread of 1.60% per annum through and including the last day of the investment period and 2.00% per annum thereafter. Interest is payable quarterly in arrears. CB Funding is subject to a non-usage fee to the extent the aggregate principal amount available under the Citi Credit Facility has not been borrowed. The non-usage fee per annum is 0.50%. Any amounts borrowed under the Citi Credit Facility along with any accrued and unpaid interest thereunder will mature, and will be due and payable, in three years.
UBS Credit Facility
On April 7, 2015, the Company, through a wholly-owned, special-purpose, bankruptcy-remote subsidiary, Helvetica Funding, entered into a debt financing facility with UBS AG, London Branch (“UBS”), pursuant to which $150.0 million has been made available to the Company to fund investments in new securities and for other general corporate purposes (the “UBS Credit Facility”). The UBS Credit Facility was subsequently amended on July 10, 2015 to increase the amount of debt available to the Company under the facility from $150.0 million to $210.0 million. On June 6, 2016, the UBS credit facility was again amended to increase the amount of debt available from $210.0 million to $232.5 million. In addition, the amended facility increased the applicable spread over a three-month LIBOR from 3.90% to 4.05% per annum for the relevant period and increased the permissible percentage of second lien loans from 60% to 70%. Pricing under the transaction is based on three-month LIBOR plus a spread of 4.05% per annum for the relevant period. The UBS Credit Facility has a maturity date of April 7, 2018.
2020 Notes
On August 26, 2015, the Company entered into a Purchase Agreement with the initial purchasers, relating to the Company’s sale of $100.0 million aggregate principal amount of its 6.00% fixed rate senior notes due 2020 to the initial purchasers in a private placement in reliance on Section 4(a)(2) of the Securities Act and for initial resale by the initial purchasers to qualified institutional buyers pursuant to the exemption from registration provided by Rule 144A promulgated under the Securities Act (the “2020 Notes”). The Company relied upon these exemptions from registration based in part on representations made by the initial purchasers. The Purchase Agreement includes customary representations, warranties and covenants by the Company. Under the terms of the Purchase Agreement, the Company has agreed to indemnify the initial purchasers against certain liabilities under the Securities Act. The 2020 Notes have not been registered under the Securities Act and may not be offered or sold in the United States absent registration or an applicable exemption from registration requirements. The net proceeds from the sale of the 2020 Notes was approximately $97.9 million, after deducting initial purchasers’ discounts and commissions of approximately $1.6 million payable by the Company and estimated offering expenses of approximately $0.5 million payable by the Company. The Company used the net proceeds to make investments in accordance with the Company’s investment objectives and for general corporate purposes.
The 2020 Notes were issued pursuant to the Indenture, dated as of August 31, 2015, between the Company and the Trustee. The 2020 Notes will mature on September 1, 2020, and may be redeemed in whole or in part at the Company’s option at any time, or from time to time, at the redemption prices set forth in the Indenture. The 2020 Notes bear interest at a rate of 6.00% per year payable semi-annually on March 1 and September 1 of each year, commencing on March 1, 2016. The 2020 Notes will be general unsecured obligations of the Company that rank senior in right of payment to all of the Company’s existing and future indebtedness that is expressly subordinated in right of payment to the 2020 Notes. The 2020 Notes will rank equally in right of payment with all of the Company’s existing and future senior liabilities that are not so subordinated, effectively junior to any of the Company’s secured indebtedness (including unsecured indebtedness that the Company later secures) to the extent of the value of the assets securing such indebtedness, and structurally junior to all existing and future indebtedness incurred by the Company’s subsidiaries, financing vehicles or similar facilities, including credit facilities held by the Company’s wholly owned, special purpose financing subsidiaries.
47
BUSINESS DEVELOPMENT CORPORATION OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts, percentages and as otherwise indicated)
For the period ended March 31, 2018
(Unaudited)
The Indenture contains certain covenants, including covenants requiring the Company to: (i) comply with the asset coverage requirements of Section 18(a)(1)(A) as modified by Section 61(a)(1) of the 1940 Act as in effect immediately prior to the issuance of the 2020 Notes, whether or not the Company is subject to such provisions; (ii) provide financial information to the holders of the 2020 Notes and the Trustee if the Company is no longer subject to the reporting requirements under the Securities Exchange Act of 1934, as amended; and (iii) maintain total unencumbered assets, as defined in the Indenture, of at least 175% of the aggregate principal amount of all of the Company and the Company’s consolidated subsidiaries’ outstanding unsecured debt determined on a consolidated basis in accordance with U.S. GAAP. These covenants are subject to important limitations and exceptions that are described in the Indenture.
2022 Notes
On December 14, 2017, the Company entered into a Purchase Agreement (the “Purchase Agreement”) with Sandler O’Neill & Partners, L.P (the “Initial Purchaser”) relating to the Company's sale of $150.0 million aggregate principal amount of its 4.75% fixed rate notes due 2022 (the “2022 Notes”) to the Initial Purchaser in a private placement in reliance on Section 4(a)(2) of the Securities Act of 1933, as amended (the “Securities Act”), and for initial resale by the Initial Purchaser to qualified institutional buyers pursuant to the exemption from registration provided by Rule 144A promulgated under the Securities Act and to institutional accredited investors under Rule 501(a)(1), (2), (3) or (7) under the Securities Act. The Company relied upon these exemptions from registration based in part on representations made by the Initial Purchaser. The Purchase Agreement also includes customary representations, warranties and covenants by the Company. Under the terms of the Purchase Agreement, the Company has agreed to indemnify the Initial Purchaser against certain liabilities under the Securities Act. The 2022 Notes have not been registered under the Securities Act and may not be offered or sold in the United States absent registration or an applicable exemption from registration. The net proceeds from the sale of the 2022 Notes was approximately $147.0 million, after deducting an offering price discount of approximately $0.8 million, as well as Initial Purchaser’s discounts and commissions of approximately $1.7 million and estimated offering expenses of approximately $0.6 million, each payable by the Company. The Company used the net proceeds to repay outstanding indebtedness, to make investments in portfolio companies in accordance with its investment objectives and for general corporate purposes.
The 2022 Notes were issued pursuant to an Indenture dated as of December 19, 2017 (the “Indenture”), between the Company and U.S. Bank National Association, trustee (the “Trustee”), and a Supplemental Indenture, dated as of December 19, 2017 (the “Supplemental Indenture”), between the Company and the Trustee. The 2022 Notes will mature on December 30, 2022, unless repurchased or redeemed in accordance with their terms prior to such date. The Notes bear interest at a rate of 4.75% per year payable semi-annually on June 30 and December 30 of each year, commencing on June 30, 2018. The 2022 Notes will be general unsecured obligations of the Company that rank senior in right of payment to all of the Company's existing and future indebtedness that is expressly subordinated in right of payment to the 2022 Notes. The 2022 Notes will rank equally in right of payment with all of the Company's existing and future senior liabilities that are not so subordinated, effectively junior to any of the Company's secured indebtedness (including unsecured indebtedness that the Company later secures) to the extent of the value of the assets securing such indebtedness, and structurally junior to all existing and future indebtedness incurred by the Company's subsidiaries, financing vehicles or similar facilities, including credit facilities entered into by the Company's wholly owned, special purpose financing subsidiaries.
The Indenture contains certain covenants, including covenants requiring the Company to (i) comply with the asset coverage requirements of the 1940 Act, whether or not it is subject to those requirements, and (ii) provide financial information to the holders of the 2022 Notes and the Trustee if the Company is no longer subject to the reporting requirements under the Securities Exchange Act of 1934, as amended. These covenants are subject to important limitations and exceptions that are described in the Indenture.
In addition, if a change of control repurchase event, as defined in the Indenture, occurs prior to maturity, holders of the 2022 Notes will have the right, at their option, to require the Company to repurchase for cash some or all of the 2022 Notes at a repurchase price equal to 100% of the principal amount of the 2022 Notes being repurchased, plus accrued and unpaid interest to, but excluding, the repurchase date.
JP Morgan Securities LLC Prime Brokerage Account
On January 20, 2017, the Company entered into a prime brokerage account agreement with JP Morgan Securities LLC (the “JPMC PB Account”). The JPMC PB Account provides a full suite of services around the custody of bonds and equities
48
BUSINESS DEVELOPMENT CORPORATION OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts, percentages and as otherwise indicated)
For the period ended March 31, 2018
(Unaudited)
and also access to leverage, which is dependent on the price, credit quality and diversity of the pool of assets held within the account. The borrowing availability is recalculated daily based on changes to the assets, with margin calls issued in the morning as appropriate. The cost to borrow is 1 week LIBOR + 90 bps and there is no mandatory usage or period wherein the debt needs to be repaid.
As of March 31, 2018, the Company had borrowings of $71.2 million and additional borrowing capacity of $0.9 million under the JPMC PB Account.
The weighted average annualized interest cost for all borrowings for the three months ended March 31, 2018, and March 31, 2017 was 4.36% and 3.79%, respectively. The average daily debt outstanding for the three months ended March 31, 2018, and March 31, 2017 was $1,090.0 million and $926.7 million, respectively. The maximum debt outstanding for the three months ended March 31, 2018, and March 31, 2017 was $1,175.9 million and $945.6 million, respectively.
The following table represents borrowings as of March 31, 2018:
Maturity Date | Total Aggregate Borrowing Capacity | Total Principal Outstanding | Less Deferred Financing Costs | Amount per Balance Sheet | ||||||||||||||
Wells Fargo Credit Facility | 5/18/2022 | $ | 400,000 | $ | 266,052 | $ | (5,944 | ) | $ | 260,108 | ||||||||
Citi Credit Facility | 5/28/2020 | 400,000 | 356,003 | (1,708 | ) | 354,295 | ||||||||||||
UBS Credit Facility | 4/7/2018 | 232,500 | 232,500 | (7 | ) | 232,493 | ||||||||||||
2022 Notes | 12/30/2022 | 150,000 | 149,216 | (2,167 | ) | 147,049 | ||||||||||||
2020 Notes | 9/1/2020 | 100,000 | 99,236 | (304 | ) | 98,932 | ||||||||||||
JPMC PB Account | n/a | 72,089 | 71,173 | — | 71,173 | |||||||||||||
Totals | $ | 1,354,589 | $ | 1,174,180 | $ | (10,130 | ) | $ | 1,164,050 | |||||||||
The following table represents borrowings as of December 31, 2017:
Maturity Date | Total Aggregate Borrowing Capacity | Total Principal Outstanding | Less Deferred Financing Costs | Amount per Balance Sheet | ||||||||||||||
Wells Fargo Credit Facility | 5/18/2022 | $ | 400,000 | $ | 188,051 | $ | (6,299 | ) | $ | 181,752 | ||||||||
Citi Credit Facility | 5/28/2020 | 400,000 | 336,003 | (1,902 | ) | 334,101 | ||||||||||||
UBS Credit Facility | 4/7/2018 | 232,500 | 232,500 | (110 | ) | 232,390 | ||||||||||||
2022 Notes | 12/30/2022 | 150,000 | 149,175 | (2,280 | ) | 146,895 | ||||||||||||
2020 Notes | 9/1/2020 | 100,000 | 99,158 | (335 | ) | 98,823 | ||||||||||||
JPMC PB Account | n/a | 49,994 | 36,262 | — | 36,262 | |||||||||||||
Totals | $ | 1,332,494 | $ | 1,041,149 | $ | (10,926 | ) | $ | 1,030,223 | |||||||||
49
BUSINESS DEVELOPMENT CORPORATION OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts, percentages and as otherwise indicated)
For the period ended March 31, 2018
(Unaudited)
The following table represents interest and debt fees for the three months ended March 31, 2018:
Three months ended March 31, 2018 | |||||||||||||||
Interest Rate | Non-Usage Rate | Interest Expense | Deferred Financing Costs (3) | Other Fees (4) | |||||||||||
Wells Fargo Credit Facility | (1) | (2) | $ | 2,161 | $ | 355 | $ | 498 | |||||||
Citi Credit Facility | L+1.60% | 0.50% | 2,798 | 195 | 96 | ||||||||||
UBS Credit Facility | L+4.05% | n/a | 3,372 | 103 | 25 | ||||||||||
2022 Notes | 4.75% | n/a | 1,822 | 112 | 4 | ||||||||||
2020 Notes | 6.00% | n/a | 1,578 | 31 | — | ||||||||||
JPMC PB Account | L+0.90% | n/a | 300 | — | — | ||||||||||
Totals | $ | 12,031 | $ | 796 | $ | 623 | |||||||||
_________________
(1) Interest rate is priced at one month's LIBOR with no LIBOR floor, plus a spread ranging between 1.65% and 2.50% per annum, depending on the composition of the portfolio of loans owned.
(2) The non-usage fee per annum is 0.50% for the first 25% of the unused balance and 2.0% for the unused balance that exceeds 25%.
(3) Amortization of deferred financing costs.
(4) Includes non-usage fees, custody fees and trustee fees.
The following table represents interest and debt fees for the three months ended March 31, 2017:
Three months ended March 31, 2017 | |||||||||||||||
Interest Rate | Non-Usage Rate | Interest Expense | Deferred Financing Costs (3) | Other Fees (4) | |||||||||||
Wells Fargo Credit Facility | (1) | (2) | $ | 2,368 | $ | 212 | $ | 238 | |||||||
Citi Credit Facility | L+1.70% | 0.50% | 2,032 | 182 | 140 | ||||||||||
UBS Credit Facility | L+4.05% | n/a | 2,931 | 102 | 23 | ||||||||||
2020 Notes | 6.00% | n/a | 1,578 | 31 | 7 | ||||||||||
JPMC PB Account | L+0.90% | n/a | 6 | — | — | ||||||||||
Totals | $ | 8,915 | $ | 527 | $ | 408 | |||||||||
______________
(1) Interest rate is priced at one month's LIBOR with no LIBOR floor, plus a spread ranging between 1.75% and 2.50% per annum, depending on the composition of the portfolio of loans owned.
(2) The non-usage fee per annum for the first nine months is 0.50%; thereafter, 0.50% for the first 20% of the unused balance and 2.0% for the unused balance that exceeds 20%.
(3) Amortization of deferred financing costs.
(4) Includes non-usage fees, custody fees and trustee fees.
The Company is required to disclose the fair value of financial instruments for which it is practicable to estimate fair value. The fair value of short-term financial instruments such as cash and cash equivalents, due to affiliates and accounts payable approximate their carrying value on the accompanying consolidated statements of assets and liabilities due to their short-term nature. The fair value of the Company's 2020 Notes and 2022 Notes are derived from market indications provided by Bloomberg Finance L.P. at March 31, 2018 and December 31, 2017, respectively.
50
BUSINESS DEVELOPMENT CORPORATION OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts, percentages and as otherwise indicated)
For the period ended March 31, 2018
(Unaudited)
At March 31, 2018, the carrying amount of our secured borrowings 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 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 March 31, 2018 and December 31, 2017, our borrowings would be deemed to be Level 3, as defined in Note 3.
The fair values of the Company’s remaining financial instruments that are not reported at fair value on the accompanying consolidated statements of assets and liabilities are reported below (amounts in thousands):
Level | Carrying Amount at March 31, 2018 | Fair Value at March 31, 2018 | |||||||
Wells Fargo Credit Facility | 3 | $ | 266,052 | $ | 266,052 | ||||
Citi Credit Facility | 3 | 356,003 | 356,003 | ||||||
UBS Credit Facility | 3 | 232,500 | 232,500 | ||||||
2022 Notes | 3 | 149,216 | 150,899 | ||||||
2020 Notes | 3 | 99,236 | 103,524 | ||||||
JPMC PB Account | 3 | 71,173 | 71,173 | ||||||
$ | 1,174,180 | $ | 1,180,151 | ||||||
Level | Carrying Amount at December 31, 2017 | Fair Value at December 31, 2017 | |||||||
Wells Fargo Credit Facility | 3 | $ | 188,051 | $ | 188,051 | ||||
Citi Credit Facility | 3 | 336,003 | 336,003 | ||||||
UBS Credit Facility | 3 | 232,500 | 232,500 | ||||||
2022 Notes | 3 | 149,175 | 148,811 | ||||||
2020 Notes | 3 | 99,158 | 103,276 | ||||||
JPMC PB Account | 3 | 36,262 | 36,262 | ||||||
$ | 1,041,149 | $ | 1,044,903 | ||||||
Note 6 — Commitments and Contingencies
Commitments
In the ordinary course of business, the Company may enter into future funding commitments. As of March 31, 2018, the Company had unfunded commitments on delayed draw term loans of $28.1 million, unfunded commitments on revolver term loans of $21.5 million and unfunded equity capital commitments of $6.0 million. As of December 31, 2017, the Company had unfunded commitments on delayed draw term loans of $38.7 million, unfunded commitments on revolver term loans of $19.8 million and unfunded equity capital commitments of $6.0 million. The unfunded commitments are disclosed in the Company's consolidated schedule of investments. The Company maintains sufficient cash on hand and available borrowings to fund such unfunded commitments.
Litigation and Regulatory Matters
In the ordinary course of business, the Company may become subject to litigation, claims and regulatory matters. The Company has no knowledge of material legal or regulatory proceedings pending or known to be contemplated against the Company at this time.
51
BUSINESS DEVELOPMENT CORPORATION OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts, percentages and as otherwise indicated)
For the period ended March 31, 2018
(Unaudited)
Indemnifications
In the ordinary course of its business, the Company may enter into contracts or agreements that contain indemnifications or warranties. Future events could occur that lead to the execution of these provisions against the Company. Based on its history and experience, management feels that the likelihood of such an event is remote.
Guarantees
The Company has provided a guarantee to its controlled portfolio company, Park Ave RE Holdings, LLC, in connection with a secured loan whereby the Company will be responsible for certain liabilities of the portfolio company upon the occurrence of certain events (such as a bankruptcy or the incurrence of additional indebtedness in violation of the terms of the loan).
Note 7 — Economic Dependency
Under various agreements, the Company has engaged or will engage the Adviser and its affiliates to provide certain services that are essential to the Company, including asset management services, asset acquisition and disposition decisions, the sale of shares of the Company’s common stock available for issuance, as well as other administrative responsibilities for the Company including accounting services and investor relations.
As a result of these relationships, the Company is dependent upon the Adviser and its affiliates. In the event that these companies were unable to provide the Company with the respective services, the Company would be required to find alternative providers of these services.
Note 8 — Common Stock
On August 25, 2011, the Company had raised sufficient funds to break escrow on its IPO. On July 1, 2014, the Company's registration statement on Form N-2 (File No.333-193241) for its Follow-on was declared effective by the SEC. Simultaneously with the effectiveness of the registration statement of the Follow-on, the Company's IPO terminated. Through March 31, 2018, the Company sold 197.0 million shares of common stock for gross proceeds of $2.1 billion, including the shares purchased by an affiliate of BSP and shares issued under the Company's DRIP. Following the time the Company's updated registration statement was declared effective on June 30, 2015, the Company issued shares for subscription agreements that had been accepted through that date. The Company is no longer issuing new shares except for DRIP shares. As of March 31, 2018, the Company had repurchased 18.8 million shares of common stock through its share repurchase program for payments of $166.2 million.
The following table reflects the common stock activity for the three months ended March 31, 2018 (dollars in thousands except share amounts):
Shares | Value | ||||||
Shares Sold | — | $ | — | ||||
Shares Issued through DRIP | 1,223,362 | 10,167 | |||||
Share Repurchases | (2,711,841 | ) | (22,549 | ) | |||
(1,488,479 | ) | $ | (12,382 | ) | |||
The following table reflects the common stock activity for the year ended December 31, 2017 (dollars in thousands except share amounts):
52
BUSINESS DEVELOPMENT CORPORATION OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts, percentages and as otherwise indicated)
For the period ended March 31, 2018
(Unaudited)
Shares | Value | ||||||
Shares Sold | — | $ | — | ||||
Shares Issued through DRIP | 6,162,092 | 52,455 | |||||
Share Repurchases | (3,548,885 | ) | (30,212 | ) | |||
2,613,207 | $ | 22,243 | |||||
Note 9 — Share Repurchase Program
The Company intends to conduct semi-annual tender offers pursuant to its share repurchase program (“SRP”). The Company’s board of directors considers the following factors in making its determination regarding whether to cause the Company to offer to repurchase shares and under what terms:
•the effect of such repurchases on the Company's qualification as a RIC (including the consequences of
any necessary asset sales);
•the liquidity of the Company's assets (including fees and costs associated with disposing of assets);
•the Company's investment plans and working capital requirements;
•the relative economies of scale with respect to the Company's size;
•the Company's history in repurchasing shares or portions thereof;
•the condition of the securities markets.
On March 8, 2016, the Company's board of directors amended the Company's SRP. The Company intends to conduct tender offers on a semi-annual basis, instead of on a quarterly basis as was done previously. The Company intends to continue to limit the number of shares to be repurchased in any calendar year to 10% of the weighted average number of shares outstanding in the prior calendar year, or 5.0% at each semi-annual tender offer. In addition, in the event of a stockholder’s death or disability, any repurchases of shares made in connection with a stockholder’s death or disability may be included within the overall limitation imposed on tender offers during the relevant redemption period, which provides that the Company may limit the number of shares to be repurchased during any redemption period to the number of shares of common stock the Company is able to repurchase with the proceeds received from the sale of shares of common stock under the DRIP during such redemption period. The Company's four most recent tender offers were oversubscribed.
53
BUSINESS DEVELOPMENT CORPORATION OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts, percentages and as otherwise indicated)
For the period ended March 31, 2018
(Unaudited)
Offer Date | Repurchase Date | Shares Tendered | Shares Repurchased | Repurchase Price Per Share | Aggregate Consideration for Repurchased Shares (in thousands) | |||||||||||
September 12, 2012 | October 8, 2012 | — | — | $ | 9.71 | $ | — | |||||||||
December 13, 2012 | January 15, 2013 | 46,975 | 10,732 | $ | 9.90 | $ | 106.22 | |||||||||
March 27, 2013 | April 25, 2013 | 29,625 | 29,625 | $ | 10.18 | $ | 301.58 | |||||||||
July 15, 2013 | August 13, 2013 | 30,365 | 30,365 | $ | 10.18 | $ | 308.97 | |||||||||
October 22, 2013 | November 21, 2013 | 55,255 | 55,255 | $ | 10.36 | $ | 572.44 | |||||||||
February 4, 2014 | March 6, 2014 | 68,969 | 68,969 | $ | 10.36 | $ | 714.52 | |||||||||
June 6, 2014 | July 11, 2014 | 117,425 | 117,425 | $ | 10.36 | $ | 1,216.38 | |||||||||
August 7, 2014 | September 10, 2014 | 111,854 | 111,854 | $ | 10.36 | $ | 1,158.80 | |||||||||
December 19, 2014 | January 23, 2015 | 313,101 | 313,101 | $ | 10.36 | $ | 3,243.73 | |||||||||
March 16, 2015 | April 15, 2015 | 162,688 | 162,688 | $ | 10.36 | $ | 1,685.45 | |||||||||
June 26, 2015 | July 31, 2015 | 533,527 | 533,527 | $ | 9.72 | $ | 5,185.88 | |||||||||
September 18, 2015 | October 20, 2015 | 728,874 | 728,874 | $ | 9.53 | $ | 6,946.17 | |||||||||
December 23, 2015 | January 25, 2016 | 7,375,871 | 3,053,869 | $ | 9.22 | $ | 28,156.67 | |||||||||
July 26, 2016 | December 31, 2016 | 17,004,354 | 6,715,864 | $ | 8.58 | $ | 57,622.10 | |||||||||
June 8, 2017 | July 6, 2017 | 11,747,753 | 3,433,482 | $ | 8.52 | $ | 28,576.26 | |||||||||
December 19, 2017 | January 19, 2018 | 21,521,235 | 2,547,524 | $ | 8.31 | $ | 21,350.21 | |||||||||
Share amounts in the table above represent amounts filed in the tender offer.
Through March 31, 2018, the Company had repurchased an aggregate of 18.8 million shares of common stock for payments of $166.2 million. As of December 31, 2017, the Company had repurchased 16.0 million shares of common stock for payments of $143.6 million. Amounts include additional shares tendered for death and disability as permitted.
Note 10 — Earnings Per Share
Basic earnings per share is computed by dividing earnings available to common stockholders by the weighted average number of shares outstanding during the period. Other potentially dilutive shares, and the related impact to earnings, are considered when calculating earnings per share on a diluted basis. The Company had no potentially dilutive securities as of March 31, 2018 and December 31, 2017.
The following information sets forth the computation of the weighted average basic and diluted net increase in net assets per share resulting from operations for the three months ended March 31, 2018 and March 31, 2017.
For the Three Months Ended March 31, | For the Three Months Ended March 31, | ||||||
2018 | 2017 | ||||||
Basic and diluted | |||||||
Net increase in net assets resulting from operations | $ | 21,976 | $ | 19,367 | |||
Weighted average common shares outstanding | 179,247,608 | 178,215,971 | |||||
Net increase in net assets resulting from operations per share | $ | 0.12 | $ | 0.11 | |||
54
BUSINESS DEVELOPMENT CORPORATION OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts, percentages and as otherwise indicated)
For the period ended March 31, 2018
(Unaudited)
Note 11 — Distributions
The Company’s board of directors has authorized, and has declared, cash distributions payable on a monthly basis to stockholders of record on each day since it commenced operations. From November 2013 until July 2017, the distribution rate has been $0.002378082 per day, which is equivalent to $0.868 per annum, per share of common stock, except for 2016 where the daily distribution rate was $0.002371585 per day to accurately reflect 2016 being a leap year. In July 2017, the board of directors reduced the distribution rate with respect to the Company's cash distributions to $0.001780822 per day, which is equivalent to $0.65 annually, per share of common stock.
The amount of each such distribution is subject to the discretion of the board of directors and applicable legal restrictions related to the payment of distributions. The Company calculates each stockholder’s specific distribution amount for the month using record and declaration dates and accrue distributions on the date the Company accepts a subscription for shares of the Company’s common stock. The distributions are payable by the fifth day following each month end to stockholders of record at the close of business each day during the prior month.
From time to time, the Company may also pay interim distributions at the discretion of its board of directors. The Company may fund its cash distributions to stockholders from any sources of funds available to it, including offering proceeds, borrowings, net investment income from operations, capital gains proceeds from the sale of assets and non-capital gains proceeds from the sale of assets. The Company’s distributions may exceed its earnings, especially during the period before the Company has substantially invested the proceeds from its IPO and Follow-on. As a result, a portion of the distributions the Company will make may represent a return of capital for tax purposes. As of March 31, 2018, the Company had accrued $9.8 million in stockholder distributions that were unpaid. As of December 31, 2017, the Company had accrued $9.9 million in stockholder distributions that were unpaid.
55
BUSINESS DEVELOPMENT CORPORATION OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts, percentages and as otherwise indicated)
For the period ended March 31, 2018
(Unaudited)
The table below reflects the cash distributions per share that we have paid on our common stock since January 2016.
Record Date | Payment Date | Per share | Distributions Paid in Cash | Distributions Paid Through the DRIP | Total Distributions Paid | |||||||||||||
2016: | ||||||||||||||||||
January 31, 2016 | February 3, 2016 | $ | 0.07 | $ | 8,922 | $ | 4,298 | $ | 13,220 | |||||||||
February 28, 2016 | March 1, 2016 | 0.07 | 7,014 | 5,333 | 12,347 | |||||||||||||
March 31, 2016 | April 1, 2016 | 0.07 | 7,363 | 5,718 | 13,081 | |||||||||||||
April 30, 2016 | May 2, 2016 | 0.07 | 12,708 | (2 | ) | 12,706 | ||||||||||||
May 31, 2016 | June 2, 2016 | 0.07 | 7,582 | 5,539 | 13,121 | |||||||||||||
June 30, 2016 | July 1, 2016 | 0.07 | 7,438 | 5,304 | 12,742 | |||||||||||||
July 31, 2016 | August 1, 2016 | 0.07 | 7,789 | 5,421 | 13,210 | |||||||||||||
August 31, 2016 | September 1, 2016 | 0.07 | 7,908 | 5,351 | 13,259 | |||||||||||||
September 30, 2016 | October 3, 2016 | 0.07 | 7,745 | 5,127 | 12,872 | |||||||||||||
October 31, 2016 | November 1, 2016 | 0.07 | 8,067 | 5,273 | 13,340 | |||||||||||||
November 30, 2016 | December 1, 2016 | 0.07 | 7,947 | 5,073 | 13,020 | |||||||||||||
December 31, 2016 | January 3, 2017 | 0.07 | 8,311 | 5,205 | 13,516 | |||||||||||||
$ | 98,794 | $ | 57,640 | $ | 156,434 | |||||||||||||
2017: | ||||||||||||||||||
January 31, 2017 | February 3, 2017 | $ | 0.07 | $ | 7,983 | $ | 5,081 | $ | 13,064 | |||||||||
February 28, 2017 | March 1, 2017 | 0.07 | 7,250 | 4,612 | 11,862 | |||||||||||||
March 31, 2017 | April 3, 2017 | 0.07 | 8,135 | 5,060 | 13,195 | |||||||||||||
April 30, 2017 | May 1, 2017 | 0.07 | 7,942 | 4,881 | 12,823 | |||||||||||||
May 31, 2017 | June 1, 2017 | 0.07 | 8,270 | 4,995 | 13,265 | |||||||||||||
June 30, 2017 | July 3, 2017 | 0.07 | 8,064 | 4,813 | 12,877 | |||||||||||||
July 31, 2017 | August 3, 2017 | 0.06 | 6,307 | 3,692 | 9,999 | |||||||||||||
August 31, 2017 | September 1, 2017 | 0.06 | 6,223 | 3,622 | 9,845 | |||||||||||||
September 30, 2017 | October 2, 2017 | 0.05 | 6,060 | 3,477 | 9,537 | |||||||||||||
October 31, 2017 | November 1, 2017 | 0.06 | 6,303 | 3,574 | 9,877 | |||||||||||||
November 30, 2017 | December 1, 2017 | 0.05 | 6,140 | 3,443 | 9,583 | |||||||||||||
December 31, 2017 | January 2, 2018 | 0.06 | 6,388 | 3,535 | 9,923 | |||||||||||||
$ | 85,065 | $ | 50,785 | $ | 135,850 | |||||||||||||
2018: | ||||||||||||||||||
January 31, 2018 | February 1, 2018 | 0.06 | $ | 6,443 | $ | 3,503 | $ | 9,946 | ||||||||||
February 28, 2018 | March 1, 2018 | 0.05 | 5,809 | 3,129 | 8,938 | |||||||||||||
March 31, 2018 | April 1, 2018 | 0.06 | 6,436 | 3,407 | 9,843 | |||||||||||||
$ | 18,688 | $ | 10,039 | $ | 28,727 | |||||||||||||
The Company has not established any limit on the extent to which it may use borrowings, if any, or proceeds from its IPO and Follow-on to fund distributions (which may reduce the amount of capital it ultimately invests in assets). There can be no assurance that the Company will be able to sustain distributions at any particular level.
56
BUSINESS DEVELOPMENT CORPORATION OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts, percentages and as otherwise indicated)
For the period ended March 31, 2018
(Unaudited)
Note 12 — Income Tax Information and Distributions to Stockholders
The Company has elected to be treated for federal income tax purposes as a RIC under the Code. Generally, a RIC is exempt from federal income taxes if it meets, certain quarterly asset diversification requirements, annual income tests, and distributes to stockholders its ‘‘investment company taxable income,’’ as defined in the Code, each taxable year. Distributions declared prior to the filing of the previous year's tax return and paid up to one year after the previous tax year can be carried back to the prior tax year for determining the distributions paid in such tax year. The Company intends to make sufficient distributions to maintain its RIC status each year. The Company may also be subject to federal excise taxes of 4%.
A RIC is limited in its ability to deduct expenses in excess of its “investment company taxable income” (which is, generally, ordinary income plus net realized short-term capital gains in excess of net realized long-term capital losses). If the Company's expenses in a given taxable year exceed gross taxable income (e.g., as the result of large amounts of equity-based compensation), it would incur a net operating loss for that year. However, a RIC is not permitted to carry forward net operating losses to subsequent taxable years and such net operating losses do not pass through to the RIC’s stockholders. In addition, deductible expenses can be used only to offset investment company taxable income, not net capital gain. A RIC may not use any net capital losses (that is, realized capital losses in excess of realized capital gains) to offset the RIC’s investment company taxable income, but may carry forward such net capital losses, and use them to offset capital gains indefinitely. Due to these limits on the deductibility of expenses and net capital losses, the Company may for tax purposes have aggregate taxable income for several taxable years that it is required to distribute and that is taxable to stockholders even if such taxable income is greater than the aggregate net income the Company actually earned during those taxable years. Such required distributions may be made from the Company cash assets or by liquidation of investments, if necessary. The Company may realize gains or losses from such liquidations. In the event the Company realizes net capital gains from such transactions, the Company may receive a larger capital gain distribution than it would have received in the absence of such transactions.
Depending on the level of taxable income earned in a tax year, the Company may choose to carry forward taxable income in excess of current year distributions into the next tax year and incur a 4% U.S. federal 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 distributions, the Company accrues excise tax, if any, on estimated excess taxable income as taxable income is earned.
The Company did not have any uncertain tax positions that met the recognition or measurement criteria of ASC 740-10-25, Income Taxes (“ASC Topic 740”), nor did the Company have any unrecognized tax benefits as of the periods presented herein. The Company's 2017, 2016, 2015 and 2014 federal tax returns remain subject to examination by the Internal Revenue Service.
As of March 31, 2018, the Company had a deferred tax asset of $1.6 million and a deferred tax liability of $(4.2) million. Given the losses generated by certain entities, deferred tax assets have been offset by valuation allowances of $1.6 million. As of December 31, 2017, the Company had a deferred tax asset of $1.6 million and a deferred tax liability of $(3.6) million. Given the losses generated by certain entities, deferred tax assets have been offset by valuation allowances of $1.6 million.
On December 22, 2017, the Tax Cuts and Jobs Act of 2017 (“the Tax Act”) was signed into law. The Tax Act reduced the statutory income tax rate applicable to corporations from 35 percent to 21 percent. Additionally, the Tax Act makes changes regarding the use of net operating losses, repeals the corporate alternative minimum tax, restricts corporate deductibility of interest expense, and makes significant changes to the U.S. international tax rules. These changes affect the Company’s estimates of the current income tax expense and the deferred tax asset and liability balances used in the calculation of its net asset value.
The Company has assessed that the reduction in the corporate tax rate did not have a significant impact on the Company’s net asset value. The Company will continue to assess the effects of the Tax Act on the deferred tax asset and liability balances and valuation allowances and continually assess the recoverability of their deferred tax assets based upon the weight of available evidence.
The deferred tax asset valuation allowance has been determined pursuant to the provisions of ASC Topic 740, including the Company's estimation of future taxable income, if necessary, and is adequate to reduce the total deferred tax asset to an amount that will more likely than not be realized.
57
BUSINESS DEVELOPMENT CORPORATION OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts, percentages and as otherwise indicated)
For the period ended March 31, 2018
(Unaudited)
Note 13 — Financial Highlights
The following is a schedule of financial highlights for the three months ended March 31, 2018 and March 31, 2017:
For the Three Months Ended March 31, | For the Three Months Ended March 31, | ||||||
2018 | 2017 | ||||||
Per share data: | |||||||
Net asset value, beginning of period | $ | 8.30 | $ | 8.62 | |||
Results of operations (1) Net investment income | 0.15 | 0.15 | |||||
Net realized and unrealized gain (loss), net of deferred taxes | (0.03 | ) | (0.04 | ) | |||
Net increase in net assets resulting from operations | 0.12 | 0.11 | |||||
Stockholder distributions (2) Distributions from net investment income | (0.16 | ) | (0.21 | ) | |||
Net decrease in net assets resulting from stockholder distributions | (0.16 | ) | (0.21 | ) | |||
Capital share transactions Issuance of common stock (3) | — | — | |||||
Repurchases of common stock | — | — | |||||
Net decrease in net assets resulting from capital share transactions | — | — | |||||
Net asset value, end of period | $ | 8.26 | $ | 8.52 | |||
Shares outstanding at end of period | 178,245,519 | 178,750,498 | |||||
Total return (4) | 1.47 | % | 1.32 | % | |||
Ratio/Supplemental data: | |||||||
Net assets, end of period (in thousands) | $ | 1,475,064 | $ | 1,525,136 | |||
Ratio of net investment income to average net assets (6) (7) | 8.09 | % | 8.38 | % | |||
Ratio of total expenses to average net assets (6) (7) | 7.82 | % | 6.50 | % | |||
Portfolio turnover rate (5) | 6.26 | % | 7.23 | % | |||
______________
(1) | The per share data was derived by using the weighted average shares outstanding during the period. |
(2) | The per share data for distributions reflects the actual amount of distributions declared per share during the period. |
(3) | The issuance of common stock on a per share basis reflects the incremental net asset value changes as a result of the issuance of shares of common stock mainly from the Company's DRIP. |
(4) | Total return is calculated assuming a purchase of shares of common stock at the current net asset value on the first day and a sale at the current net asset value on the last day of the periods reported. Distributions, if any, are assumed for purposes of this calculation to be reinvested at prices obtained under the DRIP. |
(5) | Portfolio turnover rate is calculated using the lesser of year-to-date purchases or sales over the average of the invested assets at fair value. Not annualized. |
(6) | Ratios are annualized, except for incentive fees. |
(7) | There were no offering costs during the period. |
58
BUSINESS DEVELOPMENT CORPORATION OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts, percentages and as otherwise indicated)
For the period ended March 31, 2018
(Unaudited)
Note 14 – Schedules of Investments and Advances to Affiliates
The following table presents the Schedule of Investments and Advances to Affiliates as of March 31, 2018:
Portfolio Company (1) | Type of Asset | Amount of dividends and interest included in income | Beginning Fair Value at December 31, 2017 | Gross additions* | Gross reductions** | Realized Gain/(Loss) | Change in Unrealized Gain (Loss) (6) | Fair Value at March 31, 2018 | ||||||||||||||||||||||
Control Investments | ||||||||||||||||||||||||||||||
California Resources Development JV, LLC - Preferred Equity | Equity/Other | $ | 1,457 | $ | 26,984 | $ | — | $ | (2,134 | ) | $ | — | $ | 102 | $ | 24,952 | ||||||||||||||
Capstone Nutrition Common Stock (fka Integrity Nutraceuticals, Inc.) (4) | Equity/Other | — | — | — | — | — | — | — | ||||||||||||||||||||||
Capstone Nutrition (fka Integrity Nutraceuticals, Inc.) (4) | Senior Secured First Lien Debt | — | — | 2,829 | — | — | 47 | 2,876 | ||||||||||||||||||||||
Capstone Nutrition (fka Integrity Nutraceuticals, Inc.) (4) | Senior Secured First Lien Debt | — | 4,096 | — | — | — | (1,127 | ) | 2,969 | |||||||||||||||||||||
Capstone Nutrition (fka Integrity Nutraceuticals, Inc.) (4) | Senior Secured First Lien Debt | — | 9,467 | — | — | — | (2,605 | ) | 6,862 | |||||||||||||||||||||
Capstone Nutrition - Common Stock (fka Integrity Nutraceuticals, Inc.) (4) | Equity/Other | — | — | — | — | — | — | — | ||||||||||||||||||||||
Kahala Ireland OpCo Designated Activity Company (3) | Senior Secured First Lien Debt | 4,600 | 141,549 | — | — | — | — | 141,549 | ||||||||||||||||||||||
Kahala Ireland OpCo Designated Activity Company - Common Equity (3) | Equity/Other | — | 11,709 | — | — | — | (2,860 | ) | 8,849 | |||||||||||||||||||||
Kahala Ireland OpCo Designated Activity Company - Profit Participating Note (3) | Equity/Other | — | 3,250 | — | — | — | — | 3,250 | ||||||||||||||||||||||
Kahala US OpCo LLC - Class A Preferred Units (3) | Equity/Other | — | — | — | 10 | — | (10 | ) | — | |||||||||||||||||||||
NexSteppe Inc. - Series C Preferred Stock Warrant | Equity/Other | — | — | — | — | — | — | — | ||||||||||||||||||||||
NexSteppe Inc. | Senior Secured First Lien Debt | — | — | 250 | — | — | (250 | ) | — | |||||||||||||||||||||
NexSteppe Inc. | Senior Secured First Lien Debt | — | — | — | — | — | — | — | ||||||||||||||||||||||
NMFC Senior Loan Program I, LLC | Equity/Other | 1,626 | 50,805 | — | — | — | 321 | 51,126 | ||||||||||||||||||||||
South Grand MM CLO I, LLC | Equity/Other | — | 28,904 | — | (19,800 | ) | 394 | 1,098 | 10,596 | |||||||||||||||||||||
Park Ave RE Holdings, LLC - Common Shares (2) | Equity/Other | — | 12,678 | — | 102 | — | 1,517 | 14,297 | ||||||||||||||||||||||
Park Ave RE Holdings, LLC - Preferred Shares (2) | Equity/Other | — | 23,645 | — | — | — | — | 23,645 | ||||||||||||||||||||||
Park Ave RE Holdings, LLC (2) | Subordinated Debt | 1,209 | 37,192 | — | — | — | — | 37,192 | ||||||||||||||||||||||
Total Control Investments | $ | 8,892 | $ | 350,279 | $ | 3,079 | $ | (21,822 | ) | $ | 394 | $ | (3,767 | ) | $ | 328,163 | ||||||||||||||
Affiliate Investments | ||||||||||||||||||||||||||||||
Answers Corporation - Common Equity | Equity/Other | $ | — | $ | 14,231 | $ | — | $ | — | $ | — | $ | (3,266 | ) | 10,965 | |||||||||||||||
Answers Corporation | Senior Secured First Lien Debt | 54 | 2,916 | 5 | (7 | ) | — | (5 | ) | 2,909 | ||||||||||||||||||||
Answers Corporation | Senior Secured Second Lien Debt | 143 | 4,371 | 39 | (12 | ) | 1 | (39 | ) | 4,360 | ||||||||||||||||||||
59
BUSINESS DEVELOPMENT CORPORATION OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts, percentages and as otherwise indicated)
For the period ended March 31, 2018
(Unaudited)
Portfolio Company (1) | Type of Asset | Amount of dividends and interest included in income | Beginning Fair Value at December 31, 2017 | Gross additions* | Gross reductions** | Realized Gain/(Loss) | Change in Unrealized Gain (Loss) (6) | Fair Value at March 31, 2018 | ||||||||||||||||||||||
B&M CLO 2014-1, LTD. Subordinated Notes | Collateralized Securities | 392 | 12,804 | — | (592 | ) | (1,857 | ) | 1,965 | 12,320 | ||||||||||||||||||||
Basho Technologies, Inc. (7) | Senior Secured First Lien Debt | — | — | — | — | (6,484 | ) | 6,484 | — | |||||||||||||||||||||
Basho Technologies, Inc. (7) | Senior Secured First Lien Debt | — | — | — | — | (2,550 | ) | 2,550 | — | |||||||||||||||||||||
Basho Technologies, Inc. - Series G Senior Participating Preferred Stock Warrant (7) | Equity/Other | — | — | — | — | (2,000 | ) | 2,000 | — | |||||||||||||||||||||
CVP Cascade CLO, LTD. Subordinated Notes | Collateralized Securities | 278 | 4,121 | — | (334 | ) | (5,500 | ) | 4,136 | 2,423 | ||||||||||||||||||||
Figueroa CLO 2014-1, LTD. Subordinated Notes | Collateralized Securities | 189 | 12,508 | — | (342 | ) | (4,000 | ) | 4,032 | 12,198 | ||||||||||||||||||||
Danish CRJ LTD. - Common Equity | Equity/Other | — | 605 | — | — | — | (145 | ) | 460 | |||||||||||||||||||||
MidOcean Credit CLO II, LLC Income Notes | Collateralized Securities | 602 | 20,651 | — | — | — | 1,169 | 21,820 | ||||||||||||||||||||||
MidOcean Credit CLO III, LLC Subordinated Notes | Collateralized Securities | 135 | 17,508 | — | (698 | ) | (3,300 | ) | 3,329 | 16,839 | ||||||||||||||||||||
MidOcean Credit CLO IV, LLC Income Notes | Collateralized Securities | 501 | 12,212 | — | (223 | ) | — | 1,101 | 13,090 | |||||||||||||||||||||
NewStar Arlington Senior Loan Program LLC Subordinated Notes | Collateralized Securities | 1,340 | 25,439 | — | (469 | ) | — | 466 | 25,436 | |||||||||||||||||||||
NewStar Exeter Fund CLO – Debt | Collateralized Securities | 287 | 8,660 | 40 | — | — | (255 | ) | 8,445 | |||||||||||||||||||||
NewStar Exeter Fund CLO – Equity | Collateralized Securities | (58 | ) | 13,089 | — | (850 | ) | (7,000 | ) | 5,832 | 11,071 | |||||||||||||||||||
OFSI Fund VI, Ltd. - Subordinated Note | Collateralized Securities | 313 | 10,162 | — | (777 | ) | (1,000 | ) | 1,385 | 9,770 | ||||||||||||||||||||
PennantPark Credit Opportunities Fund II, LP | Equity/Other | 253 | 10,136 | — | — | — | 31 | 10,167 | ||||||||||||||||||||||
Related Fee Agreements (5) | Collateralized Securities | (50 | ) | 3,917 | — | (710 | ) | (343 | ) | 635 | 3,499 | |||||||||||||||||||
Silver Spring CLO, Ltd. Subordinated Notes | Collateralized Securities | 217 | 10,363 | — | (553 | ) | (6,000 | ) | 4,692 | 8,502 | ||||||||||||||||||||
Tax Defense Network, LLC | Senior Secured First Lien Debt | 157 | 7,477 | — | — | — | 236 | 7,713 | ||||||||||||||||||||||
Tax Defense Network, LLC | Equity/Other | — | — | — | — | — | — | — | ||||||||||||||||||||||
Tennenbaum Waterman Fund, L.P. | Equity/Other | 350 | 10,427 | — | — | — | 3 | 10,430 | ||||||||||||||||||||||
THL Credit Greenway Fund II LLC | Equity/Other | 749 | 11,373 | — | (1,615 | ) | — | (362 | ) | 9,396 | ||||||||||||||||||||
Twenty Eighty, Inc. - Class A Common Equity | Equity/Other | — | — | — | — | — | — | — | ||||||||||||||||||||||
Twenty Eighty, Inc. | Senior Secured First Lien Debt | 274 | 4,719 | 213 | — | — | 1,297 | 6,229 | ||||||||||||||||||||||
Twenty Eighty, Inc. | Senior Secured First Lien Debt | 113 | 2,853 | 53 | (36 | ) | 5 | 12 | 2,887 | |||||||||||||||||||||
Twenty Eighty, Inc. | Senior Secured First Lien Debt | 262 | 3,739 | 259 | — | — | 1,764 | 5,762 | ||||||||||||||||||||||
WhiteHorse VIII, Ltd. CLO Subordinated Notes | Collateralized Securities | 72 | 8,761 | — | (389 | ) | (1,000 | ) | 1,523 | 8,895 | ||||||||||||||||||||
World Business Lenders, LLC - Preferred Stock | Equity/Other | — | 3,759 | — | — | — | — | 3,759 | ||||||||||||||||||||||
60
BUSINESS DEVELOPMENT CORPORATION OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts, percentages and as otherwise indicated)
For the period ended March 31, 2018
(Unaudited)
Portfolio Company (1) | Type of Asset | Amount of dividends and interest included in income | Beginning Fair Value at December 31, 2017 | Gross additions* | Gross reductions** | Realized Gain/(Loss) | Change in Unrealized Gain (Loss) (6) | Fair Value at March 31, 2018 | ||||||||||||||||||||||
Total Affiliate Investments | $ | 6,573 | $ | 236,801 | $ | 609 | $ | (7,607 | ) | $ | (41,028 | ) | $ | 40,570 | $ | 229,345 | ||||||||||||||
Total Control & Affiliate Investments | $ | 15,465 | $ | 587,080 | $ | 3,688 | $ | (29,429 | ) | $ | (40,634 | ) | $ | 36,803 | $ | 557,508 | ||||||||||||||
______________________________________________________
* Gross additions include increases in the cost basis of investments resulting from new portfolio investments, PIK interest or dividends, the amortization of unearned income, the exchange of one or more existing securities for one or more new securities and the movement of an existing portfolio company into this category from a different category.
** Gross reductions include decreases in the cost basis of investments resulting from principal collections related to investment repayments or sales, the exchange of one or more existing securities for one or more new securities and the movement of an existing portfolio company out of this category into a different category. During the period the cost basis for certain CLO positions was reduced due to the realization of an other than temporary impairment amounts realized were reserved against fair value in prior periods.
(1) | The principal amount and ownership detail are shown in the consolidated schedules of investments. |
(2) | This investment was not deemed significant under Regulation S-X as of March 31, 2018. |
(3) | This investment was not deemed significant under Regulation S-X as of March 31, 2018. |
(4) | This investment was not deemed significant under Regulation S-X as of March 31, 2018. |
(5) | Not all Related Fee Agreements shown on the consolidated schedules of investments are Affiliated Investments. |
(6) | Gross of deferred taxes in the amount of $0.5 million. |
(7) | Investment no longer held as of March 31, 2018. |
Dividends and interest for the three months ended March 31, 2018 and March 31, 2017 attributable to Controlled and Affiliated investments no longer held as of March 31, 2018 and March 31, 2017 was $0.0 and $0.05 million, respectively.
Realized gain (loss) for the three months ended March 31, 2018 and March 31, 2017 attributable to Controlled Affiliated investments no longer held as of March 31, 2018 and March 31, 2017 was $0.01 million and $0.9 million, respectively.
Change in unrealized gain (loss) for the three months ended March 31, 2018 and March 31, 2017 attributable to Controlled and Affiliated investments no longer held as of March 31, 2018 and March 31, 2017 was $(0.01) million and $(0.9) million, respectively.
The following table presents the Schedule of Investments and Advances to Affiliates as of December 31, 2017:
Portfolio Company (1) | Type of Asset | Amount of dividends and interest included in income | Beginning Fair Value at December 31, 2016 | Gross additions* | Gross reductions** | Realized Gain/(Loss) | Change in Unrealized Gain (Loss) (6) | Fair Value at December 31, 2017 | ||||||||||||||||||||||
Control Investments | ||||||||||||||||||||||||||||||
California Resources Development JV, LLC - Preferred Equity | Equity/Other | $ | 1,987 | $ | — | $ | 26,182 | $ | — | $ | — | $ | 802 | $ | 26,984 | |||||||||||||||
Capstone Nutrition (fka Integrity Nutraceuticals, Inc.) (4) | Senior Secured First Lien Debt | — | 19,708 | — | — | — | (6,145 | ) | 13,563 | |||||||||||||||||||||
Capstone Nutrition Common Stock (fka Integrity Nutraceuticals, Inc.) (4) | Equity/Other | — | — | — | — | — | — | — | ||||||||||||||||||||||
Capstone Nutrition Common Stock (fka Integrity Nutraceuticals, Inc.) (4) | Equity/Other | — | — | — | — | — | — | — | ||||||||||||||||||||||
Kahala Ireland OpCo Designated Activity Company (3) | Senior Secured First Lien Debt | 19,245 | 149,409 | 140 | (8,000 | ) | — | — | 141,549 | |||||||||||||||||||||
Kahala Ireland OpCo Designated Activity Company - Common Equity (3) | Equity/Other | — | 8,180 | — | — | — | 3,529 | 11,709 | ||||||||||||||||||||||
61
BUSINESS DEVELOPMENT CORPORATION OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts, percentages and as otherwise indicated)
For the period ended March 31, 2018
(Unaudited)
Portfolio Company (1) | Type of Asset | Amount of dividends and interest included in income | Beginning Fair Value at December 31, 2016 | Gross additions* | Gross reductions** | Realized Gain/(Loss) | Change in Unrealized Gain (Loss) (6) | Fair Value at December 31, 2017 | ||||||||||||||||||||||
Kahala Ireland OpCo Designated Activity Company - Profit Participating Note (3) | Equity/Other | — | 3,250 | — | (48 | ) | — | 48 | 3,250 | |||||||||||||||||||||
Kahala US OpCo LLC (4) | Senior Secured First Lien Debt | 120 | 2,690 | — | (2,690 | ) | — | — | — | |||||||||||||||||||||
Kahala US OpCo LLC - Class A Preferred Units (4) | Equity/Other | — | 4,000 | — | (2,491 | ) | (1,702 | ) | 193 | — | ||||||||||||||||||||
NexSteppe Inc. | Senior Secured First Lien Debt | 381 | — | 8,250 | (185 | ) | — | (8,065 | ) | — | ||||||||||||||||||||
NexSteppe Inc. | Senior Secured First Lien Debt | — | — | 1,500 | — | — | (1,500 | ) | — | |||||||||||||||||||||
NexSteppe Inc. - Series C Preferred Stock Warrant | Equity/Other | — | — | 1,280 | (1,000 | ) | — | (280 | ) | — | ||||||||||||||||||||
NMFC Senior Loan Program I, LLC | Equity/Other | 6,782 | — | 47,057 | — | — | 3,748 | 50,805 | ||||||||||||||||||||||
Park Ave RE Holdings, LLC (2) | Subordinated Debt | 4,902 | 37,192 | — | — | — | — | 37,192 | ||||||||||||||||||||||
Park Ave RE Holdings, LLC (2) - Common Shares | Equity/Other | — | 6,564 | — | — | — | 6,114 | 12,678 | ||||||||||||||||||||||
Park Ave RE Holdings, LLC (2) - Preferred Shares | Equity/Other | 946 | 23,645 | — | — | — | — | 23,645 | ||||||||||||||||||||||
South Grand MM CLO I, LLC | Equity/Other | 2,223 | — | 28,382 | — | — | 522 | 28,904 | ||||||||||||||||||||||
Total Control Investments | $ | 36,586 | $ | 254,638 | $ | 112,791 | $ | (14,414 | ) | $ | (1,702 | ) | $ | (1,034 | ) | $ | 350,279 | |||||||||||||
Affiliate Investments | ||||||||||||||||||||||||||||||
Answers Corporation | Senior Secured First Lien Debt | $ | 151 | $ | — | $ | 2,967 | $ | (23 | ) | $ | 1 | $ | (29 | ) | 2,916 | ||||||||||||||
Answers Corporation | Senior Secured First Lien Debt | (1 | ) | — | 17,064 | (15,365 | ) | (18,223 | ) | 16,524 | — | |||||||||||||||||||
Answers Corporation | Senior Secured First Lien Debt | 1 | — | 2,954 | (2,954 | ) | — | — | — | |||||||||||||||||||||
Answers Corporation | Senior Secured Second Lien Debt | 418 | — | 4,118 | (35 | ) | 4 | 284 | 4,371 | |||||||||||||||||||||
Answers Corporation | Equity/Other | — | — | 11,361 | — | — | 2,870 | 14,231 | ||||||||||||||||||||||
B&M CLO 2014-1, LTD. Subordinated Notes | Collateralized Securities | 277 | 16,772 | — | (4,946 | ) | — | 978 | 12,804 | |||||||||||||||||||||
Basho Technologies, Inc. | Senior Secured First Lien Debt | 72 | — | 3,904 | (3,967 | ) | 69 | (6 | ) | — | ||||||||||||||||||||
Basho Technologies, Inc. | Senior Secured First Lien Debt | — | — | 918 | — | — | (918 | ) | — | |||||||||||||||||||||
Basho Technologies, Inc. - Series G Senior Participating Preferred Stock Warrant | Equity/Other | — | — | — | — | — | — | — | ||||||||||||||||||||||
Basho Technologies, Inc. - Series G Senior Preferred Stock | Equity/Other | — | — | — | — | — | — | — | ||||||||||||||||||||||
CVP Cascade CLO, LTD. Subordinated Notes | Collateralized Securities | 3 | 8,868 | — | (2,934 | ) | — | (1,813 | ) | 4,121 | ||||||||||||||||||||
CVP Cascade CLO-2, LTD. Subordinated Notes (7) | Collateralized Securities | 191 | 11,593 | — | (10,837 | ) | (2,829 | ) | 2,073 | — | ||||||||||||||||||||
Danish CRJ LTD. | Senior Secured First Lien Debt | — | 20 | — | (7 | ) | — | (13 | ) | — | ||||||||||||||||||||
Danish CRJ LTD. | Equity/Other | — | 407 | — | — | — | 198 | 605 | ||||||||||||||||||||||
62
BUSINESS DEVELOPMENT CORPORATION OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts, percentages and as otherwise indicated)
For the period ended March 31, 2018
(Unaudited)
Portfolio Company (1) | Type of Asset | Amount of dividends and interest included in income | Beginning Fair Value at December 31, 2016 | Gross additions* | Gross reductions** | Realized Gain/(Loss) | Change in Unrealized Gain (Loss) (6) | Fair Value at December 31, 2017 | ||||||||||||||||||||||
Figueroa CLO 2014-1, LTD. Subordinated Notes | Collateralized Securities | (103 | ) | 16,101 | — | (3,520 | ) | — | (73 | ) | 12,508 | |||||||||||||||||||
MidOcean Credit CLO II, LLC Income Notes | Collateralized Securities | 2,380 | 22,419 | — | (2,216 | ) | — | 448 | 20,651 | |||||||||||||||||||||
MidOcean Credit CLO III, LLC Subordinated Notes | Collateralized Securities | 715 | 23,341 | — | (3,674 | ) | — | (2,159 | ) | 17,508 | ||||||||||||||||||||
MidOcean Credit CLO IV, LLC Income Notes | Collateralized Securities | 689 | 15,505 | — | (1,871 | ) | — | (1,422 | ) | 12,212 | ||||||||||||||||||||
NewStar Arlington Senior Loan Program LLC Subordinated Notes | Collateralized Securities | 4,930 | 24,491 | — | (1,945 | ) | — | 2,893 | 25,439 | |||||||||||||||||||||
NewStar Exeter Fund CLO – Debt | Collateralized Securities | 1,106 | 8,455 | 162 | — | — | 43 | 8,660 | ||||||||||||||||||||||
NewStar Exeter Fund CLO – Equity | Collateralized Securities | 1,645 | 20,579 | — | (2,609 | ) | — | (4,881 | ) | 13,089 | ||||||||||||||||||||
NMFC Senior Loan Program I, LLC | Equity/Other | — | 47,057 | — | (47,057 | ) | — | — | — | |||||||||||||||||||||
Ocean Trails CLO V, LTD. (7) | Collateralized Securities | 48 | 29,144 | — | (29,128 | ) | 906 | (922 | ) | — | ||||||||||||||||||||
OFSI Fund VI, Ltd. Subordinated Notes | Collateralized Securities | 617 | 17,354 | — | (5,007 | ) | — | (2,185 | ) | 10,162 | ||||||||||||||||||||
PennantPark Credit Opportunities Fund II, LP | Equity/Other | 705 | 9,788 | 2,691 | (2,691 | ) | 10 | 338 | 10,136 | |||||||||||||||||||||
Related Fee Agreements (5) | Collateralized Securities | 922 | 9,647 | — | (3,607 | ) | 42 | (2,165 | ) | 3,917 | ||||||||||||||||||||
Silver Spring CLO, Ltd. Subordinated Notes | Collateralized Securities | 94 | 12,007 | — | (3,554 | ) | — | 1,910 | 10,363 | |||||||||||||||||||||
South Grand MM CLO I, LLC | Equity/Other | — | 28,382 | — | (28,382 | ) | — | — | — | |||||||||||||||||||||
Squan Holding Corp. | Senior Secured First Lien Debt | — | 6,895 | — | (6,895 | ) | — | — | — | |||||||||||||||||||||
Squan Holding Corp. - Class A Common Stock | Equity/Other | — | — | — | — | — | — | — | ||||||||||||||||||||||
Squan Holding Corp. - Series A Preferred Stock | Equity/Other | — | — | — | — | — | — | — | ||||||||||||||||||||||
Tax Defense Network, LLC | Senior Secured First Lien Debt | 1,075 | — | 18,682 | (117 | ) | 1 | (11,089 | ) | 7,477 | ||||||||||||||||||||
Tax Defense Network, LLC - Common Equity | Equity/Other | — | — | — | — | — | — | — | ||||||||||||||||||||||
Tennenbaum Waterman Fund, L.P. | Equity/Other | 1,270 | — | 10,169 | — | — | 258 | 10,427 | ||||||||||||||||||||||
Twentyeighty, Inc. - First Lien Debt (TLA 3/20) | Senior Secured First Lien Debt | 378 | — | 2,426 | — | — | 427 | 2,853 | ||||||||||||||||||||||
Twentyeighty, Inc. - First Lien Debt (TLB 3/20) | Senior Secured First Lien Debt | 928 | — | 4,535 | — | — | 184 | 4,719 | ||||||||||||||||||||||
Twentyeighty, Inc. - First Lien Debt (TLC 3/20) | Senior Secured First Lien Debt | 881 | — | 4,164 | — | — | (425 | ) | 3,739 | |||||||||||||||||||||
Twentyeighty, Inc. - Class A Common Equity | Equity/Other | — | — | — | — | — | — | — | ||||||||||||||||||||||
Twentyeighty, Inc. - Revolver (TL 3/20) | Senior Secured First Lien Debt | 2 | — | — | — | — | — | — | ||||||||||||||||||||||
THL Credit Greenway Fund II LLC | Equity/Other | 957 | 12,850 | — | (1,849 | ) | — | 372 | 11,373 | |||||||||||||||||||||
WhiteHorse VIII, Ltd. CLO Subordinated Notes | Collateralized Securities | 712 | 12,563 | — | (2,859 | ) | — | (943 | ) | 8,761 | ||||||||||||||||||||
World Business Lenders, LLC - Preferred Stock | Equity/Other | — | — | 4,441 | — | — | (682 | ) | 3,759 | |||||||||||||||||||||
Total Affiliate Investments | $ | 21,063 | $ | 354,238 | $ | 90,556 | $ | (188,049 | ) | $ | (20,019 | ) | $ | 75 | $ | 236,801 | ||||||||||||||
Total Control & Affiliate Investments | $ | 57,649 | $ | 608,876 | $ | 203,347 | $ | (202,463 | ) | $ | (21,721 | ) | $ | (959 | ) | $ | 587,080 | |||||||||||||
63
BUSINESS DEVELOPMENT CORPORATION OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts, percentages and as otherwise indicated)
For the period ended March 31, 2018
(Unaudited)
______________________________________________________
* Gross additions include increases in the cost basis of investments resulting from new portfolio investments, PIK interest or dividends, the amortization of unearned income, the exchange of one or more existing securities for one or more new securities and the movement of an existing portfolio company into this category from a different category.
** Gross reductions include decreases in the cost basis of investments resulting from principal collections related to investment repayments or sales, the exchange of one or more existing securities for one or more new securities and the movement of an existing portfolio company out of this category into a different category.
(1) | The principal amount and ownership detail are shown in the consolidated schedules of investments. |
(2) | This investment was not deemed significant under Regulation S-X as of December 31, 2017. |
(3) | For the year ended December 31, 2017, the Company had determined that it must include audited financial statements of Kahala Ireland Opco Designated Activity Company because it was a controlled investment and was required to do so under SEC Rule 3-09. The audited financial statements were attached as Exhibit 99.1 in the Company's 2017 Form 10-K. |
(4) | This investment was not deemed significant under Regulation S-X as of December 31, 2017. |
(5) | Not all Related Fee Agreements shown on the consolidated schedules of investments are Affiliated Investments. |
(6) | Gross of deferred taxes. |
(7) | Investment no longer held as of December 31, 2017. |
Dividends and interest for the year ended December 31, 2017 attributable to Controlled and Affiliated investments no longer held as of December 31, 2017 was $49 thousand.
Realized gain (loss) for the year ended December 31, 2017 attributable to Controlled Affiliated investments no longer held as of December 31, 2017 was $0.9 million.
Change in unrealized gain (loss) for the year ended December 31, 2017 attributable to Controlled and Affiliated investments no longer held as of December 31, 2017 was $(0.9) million, respectively.
Note 15 – Subsequent Events
The Company has evaluated subsequent events through the filing of this Form 10-Q and determined that there have been no events that have occurred that would require adjustments to the Company’s disclosures in the consolidated financial statements except for the following:
Asset Purchase Agreement
On April 3, 2018, Benefit Street Partners L.L.C. (“BSP”), through an affiliate, entered into an Asset Purchase Agreement (the “APA”) with Triangle Capital Corporation (“Triangle”) under which certain funds advised by BSP will acquire Triangle’s Investment Portfolio (the “Triangle Portfolio”) for $981.2 million in cash, as adjusted in accordance with the terms of the APA (the “Triangle Transaction”). Our Adviser is an affiliate of BSP, and we intend to participate in the Triangle Transaction by purchasing a portion of the Triangle Portfolio. The final allocation of the assets in the Triangle Portfolio among the Company and the other funds advised by BSP will be determined prior to the closing of the Triangle Transaction in accordance with BSP’s allocation policy. This allocation policy typically results in the Company receiving approximately 20-25% of the allocation of each BSP transaction in which the Company participates. However, the final allocation of the investments in the Triangle Portfolio by BSP will be based on a number of factors, including, among others, our available capital at the time of allocation, changes in the composition of the Triangle Portfolio between the signing of the APA and the closing of the Triangle Transaction, the suitability of the investments in Triangle’s Portfolio for the Company as compared to the other funds managed by BSP, regulatory guidance (if any) regarding the allocation of certain Triangle Portfolio assets between funds managed by BSP and changes in the relative size of the funds managed by BSP. Subject to certain required approvals, including stockholder approval, and closing conditions, as described below, the parties anticipate that the Triangle Transaction will close in June or July of 2018.
The APA contains customary representations, warranties and covenants, including covenants regarding the non-solicitation of competing offers from third parties. The obligations of the parties to complete the Triangle Transaction are subject to certain customary conditions, including: (a) the approval by Triangle’s stockholders of the APA and the matters that are conditions to closing of the APA; (b) the approval by Triangle’s stockholders of the matters to be voted upon by them that are conditions to
64
BUSINESS DEVELOPMENT CORPORATION OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts, percentages and as otherwise indicated)
For the period ended March 31, 2018
(Unaudited)
closing under the Stock Purchase and Transaction Agreement (the “SPA”) by and between Triangle and Barings LLC; (c) no law, injunction, order, decree entered by a governmental entity is in effect preventing or prohibiting the transactions contemplated by the APA; (d) if applicable, the expiration or termination of all waiting periods (and any extension thereof) under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended; and (e) the absence of a pending suit or proceeding by a governmental entity that has a reasonable likelihood of success (i) challenging the Triangle Transaction, seeking to restrain or prohibit the consummation of the Triangle Transaction or seeking to obtain from Triangle or BSP any damages that are material in relation to Triangle and its subsidiaries taken as a whole, or (ii) seeking to prohibit BSP or any of its subsidiaries from effectively controlling in any material respect the business or operations of Triangle and its subsidiaries.
Triangle and BSP have the right to terminate the APA under certain circumstances, including (a) by mutual written agreement of each party; or (b) by either Triangle or BSP if: (i) any governmental entity that must grant regulatory approval has issued an order, decree or ruling or taken any other action, in each case permanently restraining, enjoining or otherwise prohibiting any of the transactions contemplated by the APA and such order, decree, ruling or other action has become final and nonappealable; (ii) the Triangle Transaction has not closed on or prior to October 5, 2018; (iii) Triangle’s stockholders do not approve the APA and the matters that are conditions to closing under the SPA; or (iv) there is a material breach of any covenants, agreements, representations or warranties by the other party that is not cured prior to the date of the closing of the Triangle Transaction.
Amendments to Wells Fargo Credit Facility
On April 3, 2018, the Company, through a wholly-owned, consolidated special purpose financing subsidiary Funding I, entered into an amendment to its revolving credit facility with BDCA, as the servicer, Wells Fargo Bank, National Association, as the administrative agent, and U.S. Bank as collateral agent, account bank and collateral custodian (the “Wells Fargo Credit Facility”), to, among other things, increase the aggregate amount of principal under the Wells Fargo Credit Facility from $400.0 million to $500.0 million.
On May 9, 2018, the Company, through a wholly-owned, consolidated special purpose financing subsidiary, Funding I, entered into another amendment to its revolving credit facility with BDCA, as the servicer, Wells Fargo Bank, National Association, as the administrative agent, and U.S. Bank as collateral agent, account bank and collateral custodian, to, among other things, extend the maturity date to May 9, 2023.
Maturity of UBS Credit Facility
On April 6, 2018, BDCA borrowed $90.6 million under Wells Fargo Credit Facility and used such proceeds, together with cash on hand, to repay at maturity the debt financing facility that it had entered into with UBS AG, London Branch through a wholly-owned special-purpose, bankruptcy-remote subsidiary, BDCA Helvetica Funding, Ltd.
JPMC PB Account Closure
On May 8, 2018 the Company fully repaid its borrowings under the JPMC PB Account and closed the account.
DRIP Sales
From April 1, 2018 through the filing of this Form 10-Q, the Company has issued 0.8 million shares of common stock including shares issued pursuant to the DRIP. Total gross proceeds from these issuances including proceeds from shares issued pursuant to the DRIP were $6.7 million.
65
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 the accompanying consolidated financial statements of Business Development Corporation of America and the notes thereto, and other financial information included elsewhere in this Quarterly Report on Form 10-Q. We are externally managed by our adviser, BDCA Adviser, LLC (the “Adviser”).
The forward-looking statements contained in this Quarterly Report on Form 10-Q may include statements as to:
• | our future operating results; |
• | our business prospects and the prospects of our portfolio companies; |
• | the impact of the investments that we expect to make; |
• | the ability of our portfolio companies to achieve their objectives; |
• | our contractual arrangements and relationships with third parties; |
• | our expected financings and investments; |
• | the adequacy of our cash resources and working capital; |
• | the timing of cash flows, if any, from the operations of our portfolio companies; |
• | our repurchase of shares; |
• | actual and potential conflicts of interest with our Adviser and its affiliates; |
• | the dependence of our future success on the general economy and its effect on the industries in which we invest; |
• | the ability to qualify and maintain our qualifications as a regulated investment company (“RIC”) and a business development company (“BDC”); |
• | the timing, form and amount of any distributions; |
• | the impact of fluctuations in interest rates on our business; |
• | the valuation of any investments in portfolio companies, particularly those having no liquid trading market; |
• | the impact of changes to generally accepted accounting principles, and the impact to BDCA; and |
• | the impact of changes to tax legislation and, generally, our tax position. |
In addition, words such as "anticipate," "believe," "expect" and "intend" indicate a forward-looking statement, although not all forward-looking statements include these words. The forward-looking statements contained in this Quarterly Report on Form 10-Q 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 discussed in Part I, Item 1A. "Risk Factors" in our Annual Report on Form 10-K. Other factors that could cause actual results to differ materially include:
• | changes in the economy; |
• | risks associated with possible disruption in our operations or the economy generally due to terrorism or natural disasters; and |
• | future changes in laws or regulations and conditions in our operating areas. |
You should not place undue reliance on these forward-looking statements. The forward-looking statements made in this Quarterly Report on Form 10-Q relate only to events as of the date on which the statements are made. We undertake no obligations to update any forward-looking statement to reflect events or circumstances occurring after the date of this Quarterly Report on Form 10-Q.
Overview
We are an externally managed, non-diversified closed-end management investment company incorporated in Maryland in May 2010 that has elected to be regulated as a BDC under the Investment Company Act of 1940, as amended (“the 1940 Act”). In addition, we have elected to be treated for tax purposes as a RIC under Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”). Our investment activities are managed by the Adviser, a subsidiary of Benefit Street Partners L.L.C. (“BSP”) and supervised by our board of directors, a majority of whom are independent of the Adviser and its affiliates. As a BDC, we are required to comply with certain regulatory requirements.
Our investment objective is to generate both current income and to a lesser extent long-term capital appreciation through
66
debt and equity investments. We invest primarily in senior secured loans, and to a lesser extent, mezzanine loans, unsecured loans and equity of predominantly private U.S. middle-market companies. We define middle market companies as those with annual revenues of less than $1 billion, although we may invest in larger or smaller companies. We may also purchase interests in loans or corporate bonds through secondary market transactions. We expect that each investment generally will range between approximately 0.5% and 3.0% of our total assets. As of March 31, 2018, 81.4% of our portfolio was invested in senior secured loans.
Senior secured loans generally are senior debt instruments that rank ahead of subordinated debt and equity in priority of payments and are generally secured by liens on the operating assets of a borrower which may include inventory, receivables, plant, property and equipment. Mezzanine debt is subordinated to senior loans and is generally unsecured. We may also invest in the equity and junior debt tranches of collateralized loan obligation investment vehicles (“Collateralized Securities” or “CLO's”).
Financial and Operating Highlights
(Dollars in millions, except per share amounts) | ||||
At March 31, 2018: | ||||
Investment Portfolio | $ | 2,626.9 | ||
Net Assets attributable to Business Development Corporation of America | 1,472.6 | |||
Debt (net of deferred financing costs) | 1,164.1 | |||
Net Asset Value per share | 8.26 | |||
Portfolio Activity for the Three Months Ended March 31, 2018: | ||||
Cost of investments purchased during period, including PIK | 285.8 | |||
Sales, repayments and other exits during the period | 160.6 | |||
Number of portfolio companies at end of period | 168 | |||
Operating results for the Three Months Ended March 31, 2018: | ||||
Net investment income per share | 0.15 | |||
Distributions declared per share | (0.16 | ) | ||
Net increase in net assets resulting from operations per share | 0.12 | |||
Net investment income | 26.2 | |||
Net realized and unrealized gain (loss) net of deferred taxes | (4.2 | ) | ||
Net increase in net assets resulting from operations | 22.0 | |||
Portfolio and Investment Activity
During the three months ended March 31, 2018, we made $284.4 million of investments in new and existing portfolio companies and had $160.6 million in aggregate amount of exits and repayments, resulting in net investments of $123.8 million for the period. The portfolio composition by loan market consisted of 74.6% Middle Market (1), 11.7% Large Corporate (2), and 13.7% Other (3) investments. In addition, the total portfolio of debt investments at fair value consisted of 91.5% bearing variable interest rates and 8.5% bearing fixed interest rates.
______________
(1) Middle market represents companies with annual revenues of less than $1 billion.
(2) Large corporate represents companies with annual revenues exceeding $1 billion.
(3) Other represents collateralized securities and equity investments.
Our portfolio composition, based on fair value at March 31, 2018 was as follows:
67
March 31, 2018 | |||||
Percentage of Total Portfolio | Weighted Average Current Yield for Total Portfolio (1) | ||||
Senior Secured First Lien Debt | 72.4 | % | 8.6 | % | |
Senior Secured Second Lien Debt | 9.0 | 10.3 | |||
Subordinated Debt | 4.9 | 10.6 | |||
Collateralized Securities (2) | 6.2 | 8.3 | |||
Equity/Other | 7.5 | N/A | |||
Total | 100.0 | % | 9.2 | % | |
______________
(1) Includes the effect of the amortization or accretion of loan premiums or discounts.
(2) Weighted average current yield for Collateralized Securities is based on the estimation of effective yield to expected maturity for each security as calculated in accordance with ASC Topic 325-40-35, Beneficial Interests in Securitized Financial Assets (see Note 2 - Summary of Significant Accounting Policies).
During the year ended December 31, 2017, we made $1,102.0 million of investments in new and existing portfolio companies and had $980.9 million in aggregate amount of exits and repayments, resulting in net investments of $121.1 million for the period. The portfolio composition by loan market consisted of 75.3% Middle Market (1), 8.9% Large Corporate (2), and 15.8% Other (3) investments. In addition, the total portfolio of debt investments at fair value consisted of 92.7% bearing variable interest rates and 7.3% bearing fixed interest rates.
______________
(1) Middle market represents companies with annual revenues of less than $1 billion.
(2) Large corporate represents companies with annual revenues exceeding $1 billion.
(3) Other represents collateralized securities and equity investments.
Our portfolio composition, based on fair value at December 31, 2017 was as follows:
______________
December 31, 2017 | |||||
Percentage of Total Portfolio | Weighted Average Current Yield for Total Portfolio (1) | ||||
Senior Secured First Lien Debt | 71.0 | % | 8.7 | % | |
Senior Secured Second Lien Debt | 9.5 | 10.4 | |||
Subordinated Debt | 3.8 | 13.0 | |||
Collateralized Securities (2) | 6.4 | 6.3 | |||
Equity/Other | 9.3 | N/A | |||
Total | 100.0 | % | 8.9 | % | |
(1) Includes the effect of the amortization or accretion of loan premiums or discounts.
(2) Weighted average current yield for Collateralized Securities is based on the estimation of effective yield to expected maturity for each security as calculated in accordance with ASC Topic 325-40-35, Beneficial Interests in Securitized Financial Assets (see Note 2 - Summary of Significant Accounting Policies).
Portfolio Asset Quality
Our Adviser employs an investment rating system to categorize our investments. In addition to various risk management and monitoring tools, our Adviser grades the credit risk of all debt investments on a scale of 1 to 5 no less frequently than quarterly. This system is intended primarily to reflect the underlying risk of a portfolio debt investment relative to the inherent risk at the time the original debt investment was made (i.e., at the time of acquisition), although it may also take into account under certain circumstances the performance of the portfolio company's business, the collateral coverage of the investment and other relevant factors.
68
Loan Rating | Summary Description | |
1 | Debt investment exceeding fundamental performance expectations and/or capital gain expected. Trends and risk factors since the time of investment are favorable. | |
2 | Performing consistent with expectations and a full return of principal and interest expected. Trends and risk factors are neutral to favorable. All investments are initially rated a “2”. | |
3 | Performing debt investment requiring closer monitoring. Trends and risk factors show some deterioration. | |
4 | Underperforming debt investment. Some loss of interest or dividend expected, but still expecting a positive return on investment. Trends and risk factors are negative. | |
5 | Underperforming debt investment with expected loss of interest and some principal. | |
The weighted average risk ratings of our investments based on fair value was 2.33 and 2.32 as of March 31, 2018 and December 31, 2017, respectively. As of March 31, 2018, we had four portfolio companies, which represented eight portfolio investments, on non-accrual status with a total principal amount of $142.7 million, amortized cost of $116.2 million, and fair value of $41.4 million, which represented 4.5%, 4.3% and 1.6% of the investment portfolio's total principal, amortized cost and fair value, respectively. As of December 31, 2017, we had four portfolio companies, which represented eight portfolio investments, on non-accrual status with a total principal amount of $120.2 million, amortized cost of $97.6 million, and fair value of $21.0 million which represented 4.0%, 3.8% and 0.8% of the investment portfolio's total principal, amortized cost and fair value, respectively. Refer to Note 2 - Summary of Significant Accounting Policies - in our consolidated financial statements included in this report for additional details regarding our non-accrual policy.
RESULTS OF OPERATIONS
Operating results for the three months ended March 31, 2018 and March 31, 2017 was as follows (dollars in thousands):
For the Three Months Ended March 31, | For the Three Months Ended March 31, | ||||||
2018 | 2017 | ||||||
Total investment income | $ | 58,504 | $ | 56,672 | |||
Total expenses | 32,085 | 29,264 | |||||
Income tax expense, including excise tax | 270 | 635 | |||||
Net investment loss attributable to non-controlling interests | (5 | ) | 3 | ||||
Net investment income | $ | 26,154 | $ | 26,770 | |||
Investment Income
For the three months ended March 31, 2018, total investment income was $58.5 million and was primarily attributable to interest income from investments in portfolio companies with an average portfolio fair value of $2.6 billion and a weighted average current yield of 9.2%. Included within total investment income was $1.4 million of fee income for the three months ended March 31, 2018. Fee income consists primarily of prepayment and amendment fees. For the three months ended March 31, 2017, total investment income was $56.7 million and was primarily attributable to interest income from investments in portfolio companies with an average portfolio fair value of $2.4 billion and a weighted average current yield of 9.6%. Included within total investment income was $1.4 million of fee income for the three months ended March 31, 2017. Fee income consists primarily of prepayment and amendment fees.
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Operating Expenses
The composition of our operating expenses for the three months ended March 31, 2018 and March 31, 2017 was as follows (dollars in thousands):
For the Three Months Ended March 31, | For the Three Months Ended March 31, | ||||||
2018 | 2017 | ||||||
Management fees | $ | 9,955 | $ | 9,538 | |||
Incentive fee on income | 4,611 | 6,367 | |||||
Interest and debt fees | 13,450 | 9,850 | |||||
Professional fees | 1,132 | 1,480 | |||||
Other general and administrative | 2,464 | 1,625 | |||||
Administrative services | 199 | 203 | |||||
Insurance | 1 | 6 | |||||
Directors' fees | 273 | 195 | |||||
Total operating expenses | $ | 32,085 | $ | 29,264 | |||
For the three months ended March 31, 2018, we incurred $10.0 million of management fees, of which the Adviser did not waive any such fees. For the three months ended March 31, 2018, we incurred $4.6 million of incentive fees on income, of which the Adviser did not waive any such fees. For the three months ended March 31, 2017, we incurred $9.5 million of management fees, of which the Adviser did not waive any such fees. For the three months ended March 31, 2017, we incurred $6.4 million of incentive fees on income, of which the Adviser did not waive any such fees.
For the three months ended March 31, 2018 and March 31, 2017, we incurred interest and debt fees of $13.5 million and $9.9 million, respectively. Interest and debt fees are comprised of interest expense, non-usage fees, trustee fees, amortization of deferred financing costs and amortization of discount if applicable related to the Wells Fargo Credit Facility, Citi Credit Facility, UBS Credit Facility, 2022 Notes, 2020 Notes and the JPMC PB Account. The increase in debt fees for the three months ended March 31, 2018 as compared to the same period in 2017 is a result of the issuance of the 2022 Notes, an increase in average debt outstanding under the Company's credit facilities and an increase in LIBOR rates.
Net Realized Gain (Loss) and Net Change in Unrealized Appreciation (Depreciation) on Investments and foreign currency transactions
Net realized gain (loss) and net change in unrealized appreciation (depreciation) on investments, net of deferred taxes for the three months ended March 31, 2018 and March 31, 2017 were as follows (dollars in thousands):
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For the Three Months Ended March 31, | For the Three Months Ended March 31, | ||||||
2018 | 2017 | ||||||
Net realized gain (loss) | |||||||
Control investments | $ | 394 | $ | — | |||
Affiliate investments | (41,028 | ) | 970 | ||||
Non-affiliate investments | 6,199 | (11,741 | ) | ||||
Net realized gain on foreign currency transactions | 26 | — | |||||
Total net realized loss | (34,409 | ) | (10,771 | ) | |||
Net change in unrealized appreciation (depreciation) on investments, net of deferred taxes | |||||||
Control investments | (4,309 | ) | (5,950 | ) | |||
Affiliate investments | 40,570 | 745 | |||||
Non-affiliate investments | (6,345 | ) | 8,781 | ||||
Total net change in unrealized appreciation on investments, net of deferred taxes | 29,916 | 3,576 | |||||
Net change in unrealized (appreciation) depreciation attributable to non-controlling interests | 315 | (208 | ) | ||||
Net realized and unrealized loss | $ | (4,178 | ) | $ | (7,403 | ) | |
Net realized and unrealized loss on investments and foreign currency transactions, net of deferred taxes, resulted in a net loss of $(4.2) million for the three months ended March 31, 2018 compared to a net loss of $(7.4) million for the same period in 2017. We look at net realized gains (losses) and change in unrealized appreciation (depreciation) together, as movement in unrealized appreciation or depreciation can be the result of realizations.
The net realized and unrealized loss for the three months ended March 31, 2018 was the result of approximately $30.0 million of realized loss on CLOs as a result of the Company's assessment for other than temporary impairment ("OTTI") in accordance with ASC 325-40. As this OTTI was previously reserved for as part of unrealized depreciation on CLOs, the movement between unrealized and realized gain(loss) during the period relates to the approximately $30.0 million realization and the offsetting reversal of approximately $30.0 million of previously reported unrealized depreciation of approximately $30.0 million. The remaining loss was driven by unrealized depreciation on investments.
Changes in Net Assets from Operations
For the three months ended March 31, 2018, we recorded a net increase in net assets resulting from operations of $22.0 million versus a net increase in net assets resulting from operations of $19.4 million for the three months ended March 31, 2017. The increase is primarily attributable to an increase in investment income. Based on the weighted average shares of common stock outstanding for the periods ended March 31, 2018 and 2017, respectively, our per share net increase in net assets resulting from operations was $0.12 for the three months ended March 31, 2018, versus a net increase in net assets resulting from operations of $0.11 for the three months ended March 31, 2017.
Cash Flows
For the three months ended March 31, 2018, net cash used in operating activities was $117.1 million. The level of cash flows used in or provided by operating activities is affected by the timing of purchases, redemptions and sales of portfolio
investments. The decrease in cash flows used in operating activities for the three months ended March 31, 2018 was primarily the result of purchases of investments of $284.4 million, offset by sales and repayments of investments of $160.6 million.
Net cash provided by financing activities of $91.8 million during the three months ended March 31, 2018 primarily related to net proceeds from the Wells Fargo Credit Facility, Citi Credit Facility, and the JPMC PB Account of $132.9 million partially offset by net repurchases of common stock of $22.2 million and payments of stockholder distributions of $18.6 million.
For the three months ended March 31, 2017, net cash used in operating activities was $12.9 million. The level of cash flows used in or provided by operating activities is affected by the timing of purchases, redemptions and sales of portfolio
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investments, among other factors. Net cash used in operating activities was primarily a result of purchases of investments of $171.2 million as well as an increase in receivable for unsettled trades of $27.7 million and a decrease in payable for unsettled trades of $47.3 million, partially offset by sales and repayments of investments of $202.8 million.
Net cash provided by financing activities of $49.1 million during the three months ended March 31, 2017 primarily related to net repurchases of common stock of $57.6 million and payments of stockholder distributions of $23.5 million, partially offset by proceeds from the Wells Fargo Credit Facility, Citi Credit Facility, UBS Credit Facility and the JPMC PB Account of $31.9 million.
Recent Developments
Asset Purchase Agreement
On April 3, 2018, Benefit Street Partners L.L.C. (“BSP”), through an affiliate, entered into an Asset Purchase Agreement (the “APA”) with Triangle Capital Corporation (“Triangle”) under which certain funds advised by BSP will acquire Triangle’s Investment Portfolio (the “Triangle Portfolio”) for $981.2 million in cash, as adjusted in accordance with the terms of the APA (the “Triangle Transaction”). Our Adviser is an affiliate of BSP, and we intend to participate in the Triangle Transaction by purchasing a portion of the Triangle Portfolio. The final allocation of the assets in the Triangle Portfolio among BDCA and the other funds advised by BSP will be determined prior to the closing of the Triangle Transaction in accordance with BSP’s allocation policy. This allocation policy typically results in BDCA receiving approximately 20-25% of the allocation of each BSP transaction in which BDCA participates. However, the final allocation of the investments in the Triangle Portfolio by BSP will be based on a number of factors, including, among others, our available capital at the time of allocation, changes in the composition of the Triangle Portfolio between the signing of the APA and the closing of the Triangle Transaction, the suitability of the investments in Triangle’s Portfolio for BDCA as compared to the other funds managed by BSP, regulatory guidance (if any) regarding the allocation of certain Triangle Portfolio assets between funds managed by BSP and changes in the relative size of the funds managed by BSP. Subject to certain required approvals, including stockholder approval, and closing conditions, as described below, the parties anticipate that the Triangle Transaction will close in June or July of 2018.
The APA contains customary representations, warranties and covenants, including covenants regarding the non-solicitation of competing offers from third parties. The obligations of the parties to complete the Triangle Transaction are subject to certain customary conditions, including: (a) the approval by Triangle’s stockholders of the APA and the matters that are conditions to closing of the APA; (b) the approval by Triangle’s stockholders of the matters to be voted upon by them that are conditions to closing under the Stock Purchase and Transaction Agreement (the “SPA”) by and between Triangle and Barings LLC; (c) no law, injunction, order, decree entered by a governmental entity is in effect preventing or prohibiting the transactions contemplated by the APA; (d) if applicable, the expiration or termination of all waiting periods (and any extension thereof) under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended; and (e) the absence of a pending suit or proceeding by a governmental entity that has a reasonable likelihood of success (i) challenging the Triangle Transaction, seeking to restrain or prohibit the consummation of the Triangle Transaction or seeking to obtain from Triangle or BSP any damages that are material in relation to Triangle and its subsidiaries taken as a whole, or (ii) seeking to prohibit BSP or any of its subsidiaries from effectively controlling in any material respect the business or operations of Triangle and its subsidiaries.
Triangle and BSP have the right to terminate the APA under certain circumstances, including (a) by mutual written agreement of each party; or (b) by either Triangle or BSP if: (i) any governmental entity that must grant regulatory approval has issued an order, decree or ruling or taken any other action, in each case permanently restraining, enjoining or otherwise prohibiting any of the transactions contemplated by the APA and such order, decree, ruling or other action has become final and nonappealable; (ii) the Triangle Transaction has not closed on or prior to October 5, 2018; (iii) Triangle’s stockholders do not approve the APA and the matters that are conditions to closing under the SPA; or (iv) there is a material breach of any covenants, agreements, representations or warranties by the other party that is not cured prior to the date of the closing of the Triangle Transaction.
Amendments to Wells Fargo Credit Facility
On April 3, 2018, the Company, through a wholly-owned, consolidated special purpose financing subsidiary, Funding I, entered into an amendment to its revolving credit facility with the Company, as the servicer, Wells Fargo Bank, National Association, as the administrative agent, and U.S. Bank as collateral agent, account bank and collateral custodian (the “Wells Fargo Credit Facility”), to, among other things, increase the aggregate amount of principal under the Wells Fargo Credit Facility from $400.0 million to $500.0 million.
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On May 9, 2018, the Company, through a wholly-owned, consolidated special purpose financing subsidiary, Funding I, entered into another amendment to its revolving credit facility with the Company, as the servicer, Wells Fargo Bank, National Association, as the administrative agent, and U.S. Bank as collateral agent, account bank and collateral custodian, to, among other things, extend the maturity date to May 9, 2023.
Maturity of UBS Credit Facility
On April 6, 2018, BDCA borrowed $90.6 million under Wells Fargo Credit Facility and used such proceeds, together with cash on hand, to repay at maturity the debt financing facility that it had entered into with UBS AG, London Branch through a wholly-owned special-purpose, bankruptcy-remote subsidiary, BDCA Helvetica Funding, Ltd.
JPMC PB Account Closure
On May 8, 2018 the Company fully repaid its borrowings under the JPMC PB Account and closed the account.
Distribution Reinvestment Plan (“DRIP”) Sales
From April 1, 2018 through the filing of this Form 10-Q, we issued 0.8 million shares of common stock including shares issued pursuant to the DRIP. Total gross proceeds from these issuances including proceeds from shares issued pursuant to the DRIP were $6.7 million.
Liquidity and Capital Resources
We generate cash flows from fees, interest and dividends earned from our investments, as well as proceeds from sales of our investments and, previously, from the net proceeds of our Offering. As of March 31, 2018, we had issued 197.0 million shares of our common stock for gross proceeds of $2.1 billion, including the shares purchased by affiliates and shares issued pursuant to the DRIP.
Our principal demands for funds in both the short-term and long-term are for portfolio investments, for the payment of operating expenses, distributions to our investors, repurchases under our share repurchase program, and for the payment of principal and interest on our outstanding indebtedness. We may also from time to time enter into other agreements with third parties whereby third parties will contribute to specific investment opportunities. Other potential future sources of capital include proceeds from secured or unsecured financings from banks or other lenders, proceeds from private offerings, proceeds from the sale of investments and undistributed funds from operations. However, our ability to incur additional debt will be dependent on a number of factors, including our degree of leverage, the value of our unencumbered assets and borrowing restrictions that may be imposed by lenders. Our ability to raise proceeds in our public offering will be dependent on a number of factors as well, including general market conditions for BDCs.
We intend to conduct semi-annual tender offers pursuant to our share repurchase program. Our board of directors will consider the following factors, among others, in making its determination regarding whether to cause us to offer to repurchase shares and under what terms:
• | the effect of such repurchases on our qualification as a RIC (including the consequences of any necessary asset sales); |
• | the liquidity of our assets (including fees and costs associated with disposing of assets); |
• | our investment plans and working capital requirements; |
• | the relative economies of scale with respect to our size; |
• | our history in repurchasing shares or portions thereof; and |
• | the condition of the securities markets. |
On March 8, 2016, our board of directors amended our share repurchase program. We intend to conduct tender offers on a semi-annual basis, instead of on a quarterly basis as was done previously. We intend to continue to limit the number of shares to be repurchased in any calendar year to 10% of the weighted average number of shares outstanding in the prior calendar year, or 5.0% at each semi-annual tender offer. In addition, in the event of a stockholder’s death or disability, any repurchases of shares made in connection with a stockholder’s death or disability may be included within the overall limitation imposed on tender offers during the relevant redemption period, which provides that we may limit the number of shares to be repurchased during any redemption period to the number of shares of common stock we are able to repurchase with the proceeds received from the sale of shares of common stock under the DRIP during such redemption period.
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Distributions
Our board of directors has authorized, and has declared, cash distributions payable on a monthly basis to stockholders of record on each day since it commenced operations. From November 2013 until July 2017, the distribution rate has been $0.002378082 per day, which is equivalent to $0.868 per annum, per share of common stock, except for 2016, where the daily distribution rate was $0.002371585 per day to accurately reflect 2016 being a leap year. In July 2017, the board of directors reduced the distribution rate with respect to our cash distributions to $0.001780822 per day, which is equivalent to $0.65 annually, per share of common stock.
The amount of each such distribution is subject to the discretion of our board of directors and applicable legal restrictions related to the payment of distributions. We calculate each stockholder’s specific distribution amount for the month using record and declaration dates and accrue distributions on the date we accept a subscription for shares of our common stock. The distributions are payable by the fifth day following each month end to stockholders of record at the close of business each day during the prior month.
From time to time, we may also pay interim distributions at the discretion of our board of directors. Our distributions may exceed our earnings, and as a result, a portion of the distributions we make may represent a return of capital for tax purposes.
The table below shows the components of the distributions we have declared and/or paid during the three months ended March 31, 2018 and 2017 (dollars in thousands).
For the Three Months Ended March 31, | For the Three Months Ended March 31, | ||||||
2018 | 2017 | ||||||
Distributions declared | $ | 28,727 | $ | 38,176 | |||
Distributions paid | $ | 28,807 | $ | 38,442 | |||
Portion of distributions paid in cash | $ | 18,640 | $ | 23,544 | |||
Portion of distributions paid in DRIP shares | $ | 10,167 | $ | 14,898 | |||
As of March 31, 2018, we had $9.8 million of distributions accrued and unpaid. As of December 31, 2017, we had $9.9 million of distributions accrued and unpaid.
We may fund our cash distributions to stockholders from any sources of funds available to us, including offering proceeds, borrowings, net investment income from operations, capital gains proceeds from the sale of assets and non-capital gains proceeds from the sale of assets. We have not established limits on the amount of funds we may use from available sources to make distributions. We may have distributions which could be characterized as a return of capital for tax purposes. During the three months ended March 31, 2018 and 2017, no portion of our distributions was characterized as return of capital for tax purposes. The specific tax characteristics of our distributions made in respect of our anticipated fiscal year ending December 31, 2018 will be reported to stockholders shortly after the end of the calendar year 2018 as well as in our periodic reports with the SEC. Stockholders should read any written disclosure accompanying a distribution payment carefully and should not assume that the source of any distribution is our ordinary income or gains. Moreover, you should understand that any such distributions were not based on our investment performance and can only be sustained if we achieve positive investment performance in future periods and/or our Adviser continues to make such reimbursements. There can be no assurance that we will achieve the performance necessary to sustain our distributions or that we will be able to pay distributions at all.
The following table sets forth the distributions made during the three months ended March 31, 2018 and 2017 (dollars in thousands):
For the Three Months Ended March 31, | For the Three Months Ended March 31, | ||||||
2018 | 2017 | ||||||
Monthly distributions | $ | 28,727 | $ | 38,176 | |||
Total distributions | $ | 28,727 | $ | 38,176 | |||
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Taxation as a RIC
We have elected to be treated as a RIC under Subchapter M of the Code commencing with our tax year ended December 31, 2011, and intend to maintain our qualification as a RIC thereafter. As a RIC, we generally will not be subject to corporate-level U.S. federal income taxes on any income that we distribute as dividends for U.S. federal income tax purposes to our stockholders. To maintain our qualification as a RIC, we must, among other things, meet certain source-of-income and asset diversification requirements. In addition, in order to maintain RIC tax treatment, we must distribute to our stockholders, for each tax year, an amount equal to at least 90% of our “investment company taxable income,” which is generally our net ordinary income plus the excess, if any, of realized net short-term capital gain over realized net long-term capital loss and determined without regard to any deduction for dividends paid, or the annual distribution requirement. Even if we qualify as a RIC, we generally will be subject to corporate-level U.S. federal income tax on our undistributed taxable income and could be subject to state, local and foreign taxes.
Additionally, in order to avoid the imposition of a U.S. federal excise tax, we are required to distribute, in respect of each calendar year, dividends to our stockholders of an amount at least equal to the sum of 98% of our calendar year net ordinary income (taking into account certain deferrals and elections); 98.2% of our capital gain net income (adjusted for certain ordinary losses) for the one year period ending on October 31 of such calendar year; and any net ordinary income and capital gain net income for preceding calendar years that were not distributed during such calendar years and on which we previously did not incur any U.S. federal income tax. If we fail to qualify as a RIC for any reason and become subject to corporate tax, the resulting corporate taxes could substantially reduce our net assets, the amount of income available for distribution and the amount of our distributions. Such a failure would have a material adverse effect on us and our stockholders. In addition, we could be required to recognize unrealized gains, incur substantial taxes and interest and make substantial distributions in order to re-qualify as a RIC. We cannot assure stockholders that they will receive any distributions.
Related Party Transactions and Agreements
The Transaction
On July 19, 2016, American Realty Capital II Advisors, LLC, the former parent of the Adviser, entered into a membership interest purchase agreement with a subsidiary of BSP, pursuant to which such subsidiary acquired all of the outstanding limited liability company interests of the Adviser (the “Transaction”). In connection with the Transaction, we amended the Investment Advisory Agreement, effective as of November 1, 2016, to allow the Adviser to serve as investment adviser to us following the closing of the Transaction.
Investment Advisory Agreement
We entered into an Investment Advisory Agreement on November 1, 2016 under which the Adviser, subject to the overall supervision of our board of directors manages the day-to-day operations of, and provides investment advisory services to us. The Adviser and its affiliates also provide investment advisory services to other funds that have investment mandates that are similar, in whole and in part, with ours. The Adviser and its affiliates serve as investment adviser or sub-adviser to private funds and registered open-end funds, and serves as an investment adviser to a public real estate investment trust. The Adviser’s policies are designed to manage and mitigate the conflicts of interest associated with the allocation of investment opportunities. In addition, any affiliated fund currently formed or formed in the future and managed by the Adviser or its affiliates may have overlapping investment objectives with our own and, accordingly, may invest in asset classes similar to those targeted by us. However, in certain instances due to regulatory, tax, investment, or other restrictions, certain investment opportunities may not be appropriate for either us or other funds managed by the Adviser or its affiliates.
Administration Agreement
In connection with the closing of the Transaction, we terminated our previous administration agreement and entered into a new administration agreement with BSP on November 1, 2016. In connection with the New Administration Agreement, BSP will provide us with office facilities and administrative services.
Co-Investment Relief
The 1940 Act generally prohibits BDCs from entering into negotiated co-investments with affiliates absent an order from the SEC permitting the BDC to do so. The SEC staff has granted us exemptive relief that allows it to enter into certain negotiated co-investment transactions alongside other funds managed by the Adviser or its affiliates (“Affiliated Funds”) in a manner consistent
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with our investment objective, positions, policies, strategies and restrictions as well as regulatory requirements and other pertinent factors, subject to compliance with certain conditions (the “Order”). Pursuant to the Order, we are permitted to co-invest with our affiliates if a “required majority” (as defined in Section 57(o) of the 1940 Act) of our eligible directors make certain conclusions in connection with a co-investment transaction, including that (1) the terms of the transactions, including the consideration to be paid, are reasonable and fair to us and our stockholders and do not involve overreaching in respect of us or our stockholders on the part of any person concerned, and (2) the transaction is consistent with the interests of our stockholders and is consistent with our investment objective and strategies.
Transactions with Affiliates
In connection with the closing of the Transaction, an affiliate of BSP purchased $10.0 million of our common stock based on our net asset value per share as of September 30, 2016 in a private placement in reliance on Section 4(a)(2) of the Securities Act of 1933, as amended (the “Securities Act”). On November 7, 2016, we issued approximately 1.2 million shares of our common stock to such BSP affiliate.
Borrowings
We are only allowed to borrow money such that our asset coverage, which, as defined in the 1940 Act, measures the ratio of total assets less total liabilities not represented by senior securities to total borrowings, equals at least 200% after such borrowing, with certain limited exceptions. The Company is continually exploring additional forms of alternative debt financing, which could include new or expanded credit facilities or the issuance of debt securities. We may use borrowed funds, known as “leverage,” to make investments and to attempt to increase returns to our stockholders by reducing our overall cost of capital. We currently have credit facilities with Wells Fargo, Citi, JP Morgan Securities LLC and UBS and have sold $250.0 million in aggregate principal of unsecured notes.
Wells Fargo Credit Facility
On July 24, 2012, the Company, through a wholly-owned, consolidated special purpose financing subsidiary, Funding I, entered into a revolving credit facility with Wells Fargo and U.S. Bank as collateral agent, account bank and collateral custodian (the “Wells Fargo Credit Facility”). The Wells Fargo Credit Facility, which was subsequently amended on April 26, 2013, September 9, 2013, June 30, 2014, May 29, 2015, November 4, 2015, and May 18, 2017 provides for borrowings in an aggregate principal amount of up to $400.0 million on a committed basis, subject to compliance with a borrowing base. The Wells Fargo Credit Facility has a maturity date of May 18, 2022.
The Wells Fargo Credit Facility is priced at the one-month maturity London Interbank Offered Rate (“LIBOR”), with no LIBOR floor, plus a spread ranging between 1.65% and 2.50% per annum, depending on the composition of the portfolio of loans owned by Funding I for the relevant period. Interest is payable quarterly in arrears. Funding I is subject to a non-usage fee to the extent the aggregate principal amount available under the Wells Fargo Credit Facility has not been borrowed. The non-usage fee per annum is 0.50% for the first 25% of the unused balance and 2.0% for the portion of the unused balance that exceeds 25%.
In connection with the Wells Fargo Credit Facility, Funding I has made certain representations and warranties, is required to comply with various covenants, reporting requirements and other customary requirements for similar facilities and is subject to certain customary events of default. Upon the occurrence and during the continuation of an event of default, Wells Fargo may declare the outstanding advances and all other obligations under the Wells Fargo Credit Facility immediately due and payable. During the continuation of an event of default, Funding I must pay interest at a default rate.
Citi Credit Facility
On June 27, 2014, the Company, through a wholly-owned, special purpose financing subsidiary, CB Funding, entered into a credit facility (the “Citi Credit Facility”) with Citibank, N.A. as administrative agent and U.S. Bank as collateral agent, account bank and collateral custodian. The Citi Credit Facility, which was subsequently amended on October 14, 2015, provides for borrowings in an aggregate principal amount of up to $400.0 million on a committed basis, subject to the administrative agent’s right to approve the assets acquired by CB Funding and pledged as collateral under the Citi Credit Facility. The Citi Credit Facility was amended on November 28, 2017 to extend the investment period to May 31, 2019. The Citi Credit Facility has a maturity date of May 28, 2020.
The Citi Credit Facility is priced at three month LIBOR, with no LIBOR floor, plus a spread of 1.60% per annum through and including the last day of the investment period and 2.00% per annum thereafter. Interest is payable quarterly in arrears. CB Funding is subject to a non-usage fee to the extent the aggregate principal amount available under the Citi Credit Facility has not
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been borrowed. The non-usage fee per annum is 0.50%. Any amounts borrowed under the Citi Credit Facility along with any accrued and unpaid interest thereunder will mature, and will be due and payable, in three years.
UBS Credit Facility
On April 7, 2015, the Company, through a wholly-owned, special-purpose, bankruptcy-remote subsidiary, Helvetica Funding, entered into a debt financing facility with UBS AG, London Branch (“UBS”), pursuant to which $150.0 million has been made available to the Company to fund investments in new securities and for other general corporate purposes (the “UBS Credit Facility”). The UBS Credit Facility was subsequently amended on July 10, 2015 to increase the amount of debt available to the Company under the facility from $150.0 million to $210.0 million. On June 6, 2016, the UBS credit facility was again amended to increase the amount of debt available from $210.0 million to $232.5 million. In addition, the amended facility increased the applicable spread over a three-month LIBOR from 3.90% to 4.05% per annum for the relevant period and increased the permissible percentage of second lien loans from 60% to 70%. Pricing under the transaction is based on three-month LIBOR plus a spread of 4.05% per annum for the relevant period. The UBS Credit Facility has a maturity date of April 7, 2018.
2020 Notes
On August 26, 2015, the Company entered into a Purchase Agreement relating to the Company’s sale of $100.0 million aggregate principal amount of its 6.00% fixed rate senior notes due September 1, 2020 (the “2020 Notes”). The 2020 Notes are subject to customary indemnification provisions and representations, warranties and covenants. The net proceeds from the sale of the 2020 Notes were approximately $97.9 million. The 2020 Notes bear interest at a rate of 6.00% per year payable semi-annually.
2022 Notes
On December 14, 2017, the Company entered into a Purchase Agreement relating to the Company's sale of $150.0 million aggregate principal amount of its 4.75% fixed rate notes due December 30, 2022 (the “2022 Notes”). The 2020 Notes are subject to customary indemnification provisions and representations, warranties and covenants. The net proceeds from the sale of the 2022 Notes was approximately $147.0 million. The Notes bear interest at a rate of 4.75% per year payable semi-annually.
JP Morgan Securities LLC Prime Brokerage Account
On January 20, 2017, the Company entered into a prime brokerage account agreement with JP Morgan Securities LLC (the “JPMC PB Account”). The JPMC PB Account provides a full suite of services around the custody of bonds and equities and also access to leverage, which is dependent on the price, credit quality and diversity of the pool of assets held within the account. The borrowing availability is recalculated daily based on changes to the assets, with margin calls issued in the morning as appropriate. The cost to borrow is 1 week LIBOR + 90 bps and there is no mandatory usage or period wherein the debt needs to be repaid. As of March 31, 2018, the Company had borrowings of $71.2 million and additional borrowing capacity of $0.9 million under the JPMC PB Account.
See Note 5 to our consolidated financial statements contained in this Quarterly Report on Form 10-Q for a more detailed discussion of our borrowings.
Contractual Obligations
The following table shows our payment obligations for repayment of debt and other contractual obligations at March 31, 2018 (dollars in thousands):
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Payment Due by Period | |||||||||||||||||||
Total | Less than 1 year | 1 - 3 years | 3- 5 years | More than 5 years | |||||||||||||||
Wells Fargo Credit Facility (1) | $ | 266,052 | $ | — | $ | — | $ | 266,052 | $ | — | |||||||||
Citi Credit Facility (2) | 356,003 | — | 356,003 | — | — | ||||||||||||||
UBS Credit Facility (3) | 232,500 | 232,500 | — | — | — | ||||||||||||||
2022 Notes (4) | 149,216 | — | — | 149,216 | — | ||||||||||||||
2020 Notes (5) | 99,236 | — | 99,236 | — | — | ||||||||||||||
JPMC PB Account (6) | 71,173 | — | — | — | 71,173 | ||||||||||||||
Total contractual obligations | $ | 1,174,180 | $ | 232,500 | $ | 455,239 | $ | 415,268 | $ | 71,173 | |||||||||
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(1) | As of March 31, 2018, we had $133.9 million of unused borrowing capacity under the Wells Fargo Credit Facility, subject to borrowing base limits. |
(2) | As of March 31, 2018, we had $44.0 million of unused borrowing capacity under the Citi Credit Facility, subject to borrowing base limits. |
(3) | As of March 31, 2018, we had no unused borrowing capacity under the UBS Credit Facility, subject to borrowing base limits. |
(4) | As of March 31, 2018, we had no unused borrowing capacity under the 2022 Notes. |
(5) | As of March 31, 2018, we had no unused borrowing capacity under the 2020 Notes. |
(6) | As of March 31, 2018, we had $0.9 million of unused borrowing capacity under the JPMC PB Account. |
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.
Commitments
In the ordinary course of business, we may enter into future funding commitments. As of March 31, 2018, we had unfunded commitments on delayed draw term loans of $28.1 million, unfunded commitments on revolver term loans of $21.5 million and unfunded equity capital commitments of $6.0 million. As of December 31, 2017, we had unfunded commitments on delayed draw term loans of $38.7 million, unfunded commitments on revolver term loans of $19.8 million and unfunded equity capital commitments of $6.0 million. The unfunded commitments are disclosed in our consolidated schedule of investments. We believe we maintain sufficient cash on hand and available borrowing capacity to fund such unfunded commitments.
Significant Accounting Estimates and Critical Accounting Policies
Our discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
While our significant accounting policies are more fully described in Note 2 of notes to consolidated financial statements appearing elsewhere in this report, we believe the following accounting policies require the most significant judgment in the preparation of our consolidated financial statements.
Valuation of Portfolio Investments
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Portfolio investments are reported on the consolidated statements of assets and liabilities at fair value. On a quarterly basis we perform an analysis of each investment to determine fair value as follows:
Securities for which market quotations are readily available on an exchange are valued at the reported closing price on the valuation date. We may also obtain quotes with respect to certain of our investments from pricing services or brokers or dealers in order to value assets. When doing so, we determine whether the quote obtained is readily available according to U.S. GAAP to determine the fair value of the security. If determined readily available, we use the quote obtained.
Investments without a readily determined market value are primarily valued using a market approach, an income approach, or both approaches, as appropriate. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities (including a business). The income approach uses valuation techniques to convert future amounts (for example, cash flows or earnings) to a single present amount (discounted). The measurement is based on the value indicated by current market expectations about those future amounts. In following these approaches, the types of factors that we may take into account in fair value pricing our investments include, as relevant: 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, its earnings and discounted cash flows, the markets in which the portfolio company does business, comparisons of financial ratios of peer companies that are public, M&A comparables, and enterprise values, among other factors. When available, broker quotations and/or quotations provided by pricing services are considered as an input in the valuation process.
For an investment in an investment fund that does not have a readily determinable fair value, we measure the fair value of the investment predominately based on the net asset value per share of the investment fund if the net asset value of the investment fund is calculated in a manner consistent with the measurement principles of ASC 946, as of our measurement date.
For investments in Collateralized Securities, both the assets and liabilities of each Collateralized Securities' capital structure are modeled. The model uses a waterfall engine to store the collateral data, generate collateral cash flows from the assets, and distribute the cash flows to the liability structure based on the priority of payments. The waterfall cash flows are discounted using rates that incorporate risk factors such as default risk, interest rate risk, downgrade risk, and credit spread risk, among others. In addition, broker quotations and/or comparable trade activity is considered as an input to determining fair value when available.
As part of our quarterly valuation process the Adviser may be assisted by one or more independent valuation firms engaged by us. The board of directors determines the fair value of each investment, in good faith, based on the input of the Adviser and the independent valuation firm(s) (to the extent applicable).
With respect to investments for which market quotations are not readily available, the Adviser undertakes a multi-step valuation process each quarter, as described below:
• | Each portfolio company or investment will be valued by the Adviser, potentially with assistance from one or more independent valuation firms engaged by our board of directors; |
• | The independent valuation firm(s), if involved, will conduct independent appraisals and make an independent assessment of the value of each investment; and |
• | The board of directors determines the fair value of each investment, in good faith, based on the input of the Adviser, independent valuation firm (to the extent applicable) and the audit committee of the board of directors. |
Because there is not a readily available market value for most of the investments in its portfolio, we value substantially all of our portfolio investments at fair value as determined in good faith by our board of directors, as described herein. 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 fluctuate from period to period. Additionally, the fair value of our investments may differ significantly from the values that would have been used had a ready market existed for such investments and may differ materially from the values that we may ultimately realize. Further, such investments are generally subject to legal and other restrictions on resale or otherwise are less liquid than publicly traded securities. If we were required to liquidate a portfolio investment in a forced or liquidation sale, we could realize significantly less than the value at which we have recorded it.
Revenue Recognition
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Interest Income
Investment transactions are accounted for on the trade date. Interest income, adjusted for amortization of premium and accretion of discount, is recorded on an accrual basis. Discount and premium on investments purchased are accreted/amortized over the expected life of the respective investment using the effective yield method. The amortized cost of investments represents the original cost adjusted for the accretion of discount and amortization of premium on investments.
The Company has a number of investments in Collateralized Securities. Interest income from investments in the “equity” class of these Collateralized Securities (in the Company's case, preferred shares or subordinated notes) is recorded based upon an estimation of an effective yield to expected maturity utilizing assumed cash flows in accordance with ASC 325-40-35, Beneficial Interests in Securitized Financial Assets ("ASC 325-40-35"). The Company monitors the expected cash inflows from its equity investments in Collateralized Securities, including the expected principal repayments. The effective yield is determined and updated quarterly. In accordance with ASC 325-40, investments in CLOs are periodically assessed for other-than-temporary impairment ("OTTI"). When the Company determines that a CLO has OTTI, the amortized cost basis of the CLO is written down as of the date of the determination based on events and information evaluated and that write-down is recognized as a realized loss.
Fee Income
Fee income, such as structuring fees, origination, closing, amendment fees, commitment and other upfront fees are generally non-recurring and are recognized as revenue when earned, either upfront or amortized into income. Upon the payment of a loan or debt security, any prepayment penalties and unamortized loan origination, structuring, closing, commitment and other upfront fees are recorded as income.
Payment-in-Kind Interest/Dividends
We hold debt and equity investments in its portfolio that contain PIK interest and dividend provisions. The PIK interest and PIK dividend, which represent contractually deferred interest or dividends that add to the investment balance that is generally due at maturity, are generally recorded on the accrual basis.
Non-accrual income
Investments are placed on non-accrual status when principal or interest/dividend payments are past due 30 days or more and/or when there is reasonable doubt that principal or interest will be collected. Accrued cash and un-capitalized PIK interest is generally reversed when an investment is placed on non-accrual status. Previously capitalized PIK interest is not reversed when an investment is placed on non-accrual status. Interest payments received on non-accrual investments may be recognized as income or applied to principal depending upon management's judgment of the ultimate outcome. Non-accrual investments are restored to accrual status when past due principal and interest is paid and, in management's judgment, are likely to remain current.
Net Realized Gains or Losses and Net Change in Unrealized Appreciation or Depreciation
Gains or losses on the sale of investments are calculated using the specific identification method. We measure realized gains or losses by the difference between the net proceeds from the repayment or sale and the amortized cost basis of the investment, without regard to unrealized appreciation or depreciation previously recognized. Net change in unrealized appreciation or depreciation will reflect the change in portfolio investment values during the reporting period, including any reversal of previously recorded unrealized appreciation or depreciation, when gains or losses are realized.
See Note 2 to the consolidated financial statements for a description of other accounting policies and recently issued accounting pronouncements.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The market risk associated with financial instruments and derivative financial instruments is the risk of loss from
adverse changes in market prices or interest rates. Our market risk arises primarily from interest rate risk relating to interest rate
fluctuations. Many factors including governmental monetary and tax policies, domestic and international economic and
political considerations and other factors that are beyond our control contribute to interest rate risk. To meet our short and long-term liquidity requirements, we borrow funds at a combination of fixed and variable rates. Our interest rate risk management objectives are to limit the impact of interest rate changes in earnings and cash flows and to lower our overall borrowing costs. To achieve these objectives, from time to time, we may enter into interest rate hedge contracts such as swaps, collars and treasury lock agreements, subject to the requirements of the 1940 Act, in order to mitigate our interest rate risk with respect to various debt instruments. While hedging activities may insulate us against adverse changes in interest rates, they may also limit our ability to participate in benefits of lower interest rates with respect to our portfolio of investments with fixed interest rates. During the periods covered by this report, we did not engage in interest rate hedging activities. We would not hold or issue these derivative contracts for trading or speculative purposes. We do not have any foreign operations and thus we are not exposed to foreign currency fluctuations.
As of March 31, 2018, our debt included variable-rate debt, bearing a weighted average interest rate of LIBOR plus 2.38% and fixed rate debt, bearing a weighted average interest rate of 5.25% with a total carrying value of $1,164.0 million. The following table quantifies the potential changes in interest income net of interest expense should interest rates increase by 100 or 200 basis points or decrease by 100 basis points assuming that our current statement of assets and liabilities was to remain constant and no actions were taken to alter our existing interest rate sensitivity.
Change in Interest Rates | Estimated Percentage Change in Interest Income net of Interest Expense | ||
(-) 100 Basis Points | (8.48 | )% | |
Base Interest Rate | — | % | |
(+) 100 Basis Points | 8.61 | % | |
(+) 200 Basis Points | 17.23 | % | |
Because we may borrow money to make investments, our net investment income may be dependent on the difference
between the rate at which we borrow funds and the rate at which we invest these funds. In periods of increasing interest rates,
our cost of funds would increase, which may reduce our net investment income. As a result, there can be no assurance that a
significant change in market interest rates will not have a material adverse effect on our net investment income.
ITEM 4. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
In accordance with Rules 13a-15(b) and 15d-15(b) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), we, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) of the Exchange Act) as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on the foregoing, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were (a) designed to ensure that the information we are required to disclose in our reports under the Exchange Act is recorded, processed and reported in an accurate manner and on a timely basis and the information that we are required to disclose in our Exchange Act reports is accumulated and communicated to management to permit timely decisions with respect to required disclosure and (b) operating in an effective manner.
Change in Internal Control Over Financial Reporting
No change occurred in our internal control over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) of the Exchange Act) during the quarter ended March 31, 2018 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
As of March 31, 2018, we were not defendants in any material pending legal proceeding, and no such material proceedings are known to be contemplated. However, from time to time, we may be party to certain legal proceedings incidental to the normal course of our business including the enforcement of our rights under the contracts with our portfolio companies. Third parties may also seek to impose liability on us in connection with the activities of our portfolio companies.
ITEM 1A. RISK FACTORS
In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I., “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2017, which could materially affect our business, financial condition and/or operating results. The risks described in our Annual Report on Form 10-K are not the only risks we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results. There have been no material changes from the risk factors set forth in our Annual Report on Form 10-K for the year ended December 31, 2017, except as described below.
Risks Relating to the Triangle Transaction
The Triangle Transaction may not close, which may result in material adverse consequences to our business and operations.
The Triangle Transaction is subject to closing conditions, including the receipt of approval from Triangle’s stockholders of the Triangle Transaction and a parallel transaction to sell the stock of Triangle to Barings LLC pursuant to the terms of the SPA, which if not satisfied or waived, will result in the Triangle Transaction not being completed. Triangle and BSP also have the right to terminate the APA under certain circumstances, including (a) by mutual written agreement of each party; or (b) by either Triangle or BSP if: (i) any governmental entity that must grant regulatory approval does not grant it; (ii) the Triangle Transaction has not closed on or prior to October 5, 2018; (iii) Triangle’s stockholders do not approve the APA and the matters that are conditions to closing under the SPA; or (iv) there is a material breach of any covenants, agreements, representations or warranties by the other party that is not cured prior to the date of the closing of the Triangle Transaction.
If the Triangle Transaction is not completed, we will not realize any of the benefits anticipated as a result of the Triangle Transaction. In addition, we may be adversely impacted by the failure to pursue other beneficial opportunities due to the focus of management on the Triangle Transaction.
We may be unable to realize the benefits anticipated by the Triangle Transaction, including estimated cost savings and synergies, or it may take longer than anticipated to achieve such benefits.
The realization of certain benefits anticipated as a result of the Triangle Transaction will depend in part on the integration of acquired portions of Triangle's investment portfolio with our investment portfolio, and the performance of the acquired assets. While management has undertaken a review of Triangle’s portfolio, there can be no assurance that the acquired portions of Triangle’s investment portfolio will perform profitably or integrated successfully into our investment portfolio in a timely fashion or at all. The dedication of management resources to overseeing and managing the additional assets may detract attention from tour day-to-day business and there can be no assurance that there will not be substantial costs associated with the transition process or there will not be other material adverse effects that will reduce the value of the acquired portfolio assets. Such effects, including but not limited to, incurring unexpected costs or delays in connection with such integration and failure of the acquired portions of Triangle’s investment portfolio to perform as expected, could have a material adverse effect on our financial results. We also expect to achieve certain cost savings and economies of scale from the Triangle Transaction when we have fully integrated our investment portfolio with the acquired portion of Triangle’s investment portfolio. It is possible that the estimates of the potential cost savings and synergies could turn out to be incorrect. If the estimates turn out to be incorrect or we are not able to successfully combine our investment portfolio with the acquired portion of Triangle’s investment portfolio, the anticipated cost savings and synergies may not be fully realized or realized at all or may take longer to realize than expected.
Additionally, we do not know the ultimate allocation of assets from the Triangle Portfolio between us and other BSP advised and affiliated entities participating in the Triangle Transaction. The allocation will be made under the allocation policy of BSP and the funds it advises, and that the ultimate amount allocated to us will depend upon, among other things, refinancings and
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repayments between now and closing, regulatory guidance, if any, regarding the allocation of certain Triangle Portfolio assets between funds managed by BSP and changes in the relative size of the funds managed by BSP.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Issuer Purchases of Equity Securities
Repurchases of our common stock pursuant to our tender offer are as follows:
Period | Total Number of Shares Purchased | Average Price per Share | Cumulative Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Maximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased Under the Plans or Programs (in millions) | |||||||||
January 1, 2018 through January 31, 2018 | 2,547,524 | $ | 8.31 | 2,547,524 | — | ||||||||
February 1, 2018 through February 28, 2018 | — | $ | — | — | — | ||||||||
March 1, 2018 through March 31, 2018 | — | $ | — | — | — | ||||||||
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
Amendment No. 11 to Wells Fargo Credit Agreement
On May 9, 2018, the Company, though Funding I, entered into an amendment (the “Amendment”) to the Wells Fargo Credit Facility with Wells Fargo Securities, LLC and Wells Fargo Bank, National Association, and U.S. Bank National Association to, among other things, extend the maturity date of the Wells Fargo Credit Facility to May 9, 2023.
A copy of the Amendment is attached hereto as Exhibit 10.3 and is incorporated herein by reference. The description of the Amendment contained herein is qualified in its entirety by reference to the foregoing.
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ITEM 6. EXHIBITS
The following exhibits are included, or incorporated by reference, in this Quarterly Report on Form 10-Q for the three months ended March 31, 2018 (and are numbered in accordance with Item 601 of Regulation S-K).
Exhibit No. | Description |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated:
Signature | Title | Date | ||
/s/ Richard J. Byrne Richard J. Byrne | Chief Executive Officer, President and Chairman of the Board of Directors (Principal Executive Officer) | May 10, 2018 | ||
/s/ Corinne D. Pankovcin Corinne D. Pankovcin | Chief Financial Officer and Treasurer (Principal Financial and Accounting Officer) | May 10, 2018 | ||
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