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EX-32.2 - EXHIBIT 32.2 - WhiteHorse Finance, Inc.tv498934_ex32-2.htm
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EX-31.2 - EXHIBIT 31.2 - WhiteHorse Finance, Inc.tv498934_ex31-2.htm
EX-31.1 - EXHIBIT 31.1 - WhiteHorse Finance, Inc.tv498934_ex31-1.htm

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

Form 10-Q

 

(Mark One)

 

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

 

For the quarterly period ended June 30, 2018

or

 

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

 

For the transition period from  ______________ to ______________

Commission file number: 814-00967

 

WHITEHORSE FINANCE, INC.

(Exact Name of Registrant as Specified in its Charter)

 

Delaware 45-4247759
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)

 

1450 Brickell Avenue, 31st Floor

Miami, Florida

33131
(Address of Principal Executive Offices) (Zip Code)

 

(305) 381-6999

(Registrant’s Telephone Number, Including Area Code)

 

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

 

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

 

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

 

Large accelerated filer   ¨ Accelerated filer   x
           
Non-accelerated filer   ¨ Smaller reporting company   ¨
           
      Emerging growth company   ¨

 

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

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Securities Exchange Act of 1934).  Yes  ¨    No x

 

As of August 8, 2018 the Registrant had 20,546,032 shares of common stock, $0.001 par value, outstanding.

 

 

 

 

 

 

WHITEHORSE FINANCE, INC.

 

TABLE OF CONTENTS

 

      Page
Part I. Financial Information   3
Item 1. Financial Statements   3
  Consolidated Statements of Assets and Liabilities as of June 30, 2018 (Unaudited) and December 31, 2017   3
  Consolidated Statements of Operations for the three and six months ended June 30, 2018 (Unaudited) and 2017 (Unaudited)   4
  Consolidated Statements of Changes in Net Assets for the six months ended June 30, 2018 (Unaudited) and 2017 (Unaudited)   5
  Consolidated Statements of Cash Flows for the six months ended June 30, 2018 (Unaudited) and 2017 (Unaudited)   6
  Consolidated Schedules of Investments as of June 30, 2018 (Unaudited) and December 31, 2017   7
  Notes to the Consolidated Financial Statements (Unaudited)   15
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations   31
Item 3. Quantitative and Qualitative Disclosures about Market Risk   45
Item 4. Controls and Procedures   45
Part II. Other Information   46
Item 1. Legal Proceedings   46
Item 1A. Risk Factors   46
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds   47
Item 3. Defaults Upon Senior Securities   47
Item 4. Mine Safety Disclosures   47
Item 5. Other Information   47
Item 6. Exhibits   47

 

 2 

 

 

Part I. Financial Information

 

Item 1. Financial Statements

 

WhiteHorse Finance, Inc.

Consolidated Statements of Assets and Liabilities

(in thousands, except share and per share data)

 

   June 30, 2018   December 31, 2017 
   (Unaudited)     
Assets        
Investments, at fair value          
Non-controlled/non-affiliate company investments  $454,514   $404,434 
Non-controlled affiliate company investments   56,856    36,246 
Total investments, at fair value (amortized cost $499,563 and $448,522, respectively)   511,370    440,680 
Cash and cash equivalents   14,461    35,219 
Restricted cash and cash equivalents   4,092    3,717 
Interest receivable   5,356    4,947 
Receivables from investments sold   1,702    783 
Prepaid expenses and other receivables   1,486    185 
Total assets  $538,467   $485,531 
           
Liabilities          
Debt  $215,311   $182,122 
Distributions payable   7,289    7,289 
Management fees payable   8,682    7,848 
Accounts payable and accrued expenses   1,133    701 
Interest payable   659    527 
Advances received from unfunded credit facilities   112    92 
Total liabilities   233,186    198,579 
           
Commitments and contingencies (See Note 7)          
           
Net assets          
Common stock, 20,531,948 shares issued and outstanding, par value $0.001 per share and 100,000,000 authorized   20    20 
Paid-in capital in excess of par   302,292    302,292 
Accumulated overdistributed net investment income   (8,177)   (6,784)
Accumulated net realized losses on investments   (661)   (734)
Accumulated net unrealized appreciation (depreciation) on investments   11,807    (7,842)
Total net assets   305,281    286,952 
Total liabilities and total net assets  $538,467   $485,531 
           
Number of shares outstanding   20,531,948    20,531,948 
Net asset value per share  $14.87   $13.98 

 

See notes to the consolidated financial statements

 

 3 

 

 

WhiteHorse Finance, Inc.

Consolidated Statements of Operations (Unaudited)

(in thousands, except share and per share data)

  

 

   Three months ended June 30,   Six months ended June 30, 
   2018    2017   2018    2017 
Investment income                    
From non-controlled/non-affiliate company investments                    
Interest income  $13,265   $12,577   $27,028   $24,595 
Fee income   788    1,058    2,980    1,825 
From non-controlled affiliate company investments                    
Dividend income   601    650    1,251    1,440 
Total investment income   14,654    14,285    31,259    27,860 
                     
Expenses                    
Interest expense   2,801    2,559    5,366    5,003 
Base management fees   2,607    2,390    5,052    4,652 
Performance-based incentive fees   3,891    1,734    6,035    3,365 
Administrative service fees   175    158    350    292 
General and administrative expenses   573   508    1,271    1,090 
Total expenses   10,047   7,349    18,074    14,402 
Net investment income   4,607    6,936    13,185    13,458 
                     
Realized and unrealized gains (losses) on investments                    
Net realized gains                     
Non-controlled/non-affiliate company investments   73    -    73    23 
Net realized gains    73    -    73    23 
Net change in unrealized appreciation (depreciation)                    
Non-controlled/non-affiliate company investments   1,950    (2,294)   (961)   933 
Non-controlled affiliate company investments   12,424    2,633    20,610    2,490 
Net change in unrealized appreciation   14,374    339    19,649    3,423 
Net realized and unrealized gains on investments   14,447    339    19,722    3,446 
Net increase in net assets resulting from operations  $19,054   $7,275   $32,907   $16,904 
                     
Per Common Share Data                    
Basic and diluted earnings per common share  $0.93   $0.39   $1.60   $0.91 
Dividends and distributions declared per common share  $0.36   $0.36   $0.71   $0.71 
Basic and diluted weighted average common shares outstanding   20,531,948    18,341,967    20,531,948    18,323,034 

 

See notes to the consolidated financial statements

 

 4 

 

 

WhiteHorse Finance, Inc.

Consolidated Statements of Changes in Net Assets (Unaudited)

(in thousands, except share and per share data)

 

   Common Stock  

Paid-in

Capital in

  

Accumulated

Overdistributed
Net

Investment

  

Accumulated

Net Realized

Losses

on

  

Accumulated

Net
Unrealized
Appreciation

(Depreciation)
on

   Total Net 
   Shares   Par amount   Excess of Par   Income   Investments   Investments   Assets 
Balance at December 31, 2016   18,303,890   $18   $272,242   $(5,423)  $(842)  $(16,606)  $249,389 
                                    
Stock issued in connection with public offering   2,200,000    2    30,294                   30,296 
                                    
Stock issued in connection with distribution reinvestment plan   14,214    -    197                   197 
                                    
Net increase in net assets resulting from operations   -    -    -    13,458    23    3,423    16,904 
                                    
Distributions declared   -    -    -    (13,001)   -    -    (13,001)
                                    
Balance at June 30, 2017   20,518,104   $20   $302,733   $(4,966)  $(819)  $(13,183)  $283,785 
                                    
Balance at December 31, 2017   20,531,948   $20   $302,292   $(6,784)  $(734)  $(7,842)  $286,952 
                                    
Net increase in net assets resulting from operations   -    -    -    13,185    73    19,649    32,907 
                                    
Distributions declared   -    -    -    (14,578)   -    -    (14,578)
                                    
Balance at June 30, 2018   20,531,948   $20   $302,292   $(8,177)  $(661)  $11,807   $305,281 

 

See notes to the consolidated financial statements

 

 5 

 

 

WhiteHorse Finance, Inc.

Consolidated Statements of Cash Flows (Unaudited)

(in thousands)

 

  

Six months ended 
June 30,

 
   2018   2017 
Cash flows from operating activities          
Net increase in net assets resulting from operations  $32,907   $16,904 
Adjustments to reconcile net increase in net assets resulting from operations to net cash used in operating activities:          
Paid-in-kind income   (315)   (326)
Net realized gains on investments   (73)   (23)
Net unrealized appreciation on investments   (19,649)   (3,423)
Accretion of discount   (2,397)   (1,689)
Amortization of deferred financing costs   389    428 
Acquisition of investments   (164,479)   (86,453)
Proceeds from principal payments and sales of portfolio investments   116,223    65,735 
Net changes in operating assets and liabilities:          
Interest receivable   (409)   (931)
Prepaid expenses and other receivables   (1,301)   14 
Receivable from investments sold   (919)   881 
Payables for investments purchased   -    (995)
Management fees payable   834   485 
Accounts payable and accrued expenses   432    475 
Interest payable   132    23 
Advances received from unfunded credit facilities   20    - 
Net cash used in operating activities   (38,605)   (8,895)
           
Cash flows from financing activities          
Proceeds from sales of common stock, net of offering costs   -    30,296 
Borrowings   85,100    102,567 
Repayment of debt   (52,300)   (95,317)
Deferred financing costs   -    (1,028)
Distributions paid to common stockholders, net of distributions reinvested   (14,578)   (12,799)
Net cash provided by financing activities   18,222    23,719 
           
Net change in cash, cash equivalents and restricted cash   (20,383)   14,824 
Cash, cash equivalents and restricted cash at beginning of period   38,936    28,894 
Cash, cash equivalents and restricted cash at end of period  $18,553   $43,718 
           
Supplemental disclosure of cash flow information:          
Interest paid  $4,845   $4,552 

 

The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the consolidated statements of assets and liabilities that sum to the total of the same amounts presented in the consolidated statements of cash flows:

 

   June 30, 
   2018   2017 
Cash and cash equivalents  $14,461   $39,731 
Restricted cash   4,092    3,987 
           
Total cash, cash equivalents and restricted cash presented in consolidated statements of cash flows  $18,553   $43,718 

 

See notes to the consolidated financial statements

 

 6 

 

 

WhiteHorse Finance, Inc.

Consolidated Schedule of Investments (Unaudited)

June 30, 2018

(in thousands)

  

Investment Type(1)  Spread Above
Index(2)
  Interest
Rate(3)
  Maturity
Date
  Principal/
Share
Amount
   Amortized
Cost
   Fair
Value(10)
   Fair Value
As A
Percentage
of Net
Assets
 
North America                             
Debt Investments                             
Advertising                             
Fluent, LLC                             
First Lien Secured Term Loan  L+ 7.00%  9.09%  03/27/23   12,344   $12,344   $12,344    4.04%
   (0.50% Floor)                          
Outcome Health                             
First Lien Secured Term Loan  L+ 9.50%  11.88%  12/22/21   10,189    9,523    8,624    2.82 
   (1.00% Floor)  (3.00% PIK)                       
             22,533    21,867    20,968    6.86 
Application Software                             
Intermedia Holdings, Inc.                             
Second Lien Secured Term Loan  L+ 9.50%  12.04%  02/03/25   18,000    17,702    17,919    5.87 
   (1.00% Floor)                          
Automotive Retail                             
Team Car Care Holdings, LLC                             
First Lien Secured Term Loan(11)  base rate+ 7.99%  10.11%  02/23/23   18,453    18,066    18,122    5.94 
   (1.00% Floor)                          
First Lien Secured Revolving Loan(7)  P+ 7.00%  12.00%  02/23/23   430    421    426    0.14 
   (1.00% Floor)                          
             18,883    18,487    18,548    6.08 
Broadcasting                             
Multicultural Radio Broadcasting, Inc.                             
First Lien Secured Term Loan  L+ 8.00%  10.09%  12/28/22   18,824    18,485    18,598    6.09 
   (1.00% Floor)                          
Rural Media Group, Inc.                             
First Lien Secured Term Loan  L+ 7.85%  10.21%  12/29/22   7,089    6,961    6,989    2.29 
   (1.00% Floor)                          
             25,913    25,446    25,587    8.38 
Cable & Satellite                             
Bulk Midco, LLC                             
First Lien Secured Term Loan  L+ 7.35%  9.67%  06/08/23   15,000    14,778    14,792    4.85 
   (1.00% Floor)                          
                              
Data Processing & Outsourced Services                             
FPT Operating Company, LLC/                             
TLabs Operating Company, LLC                             
First Lien Secured Term Loan  L+ 8.25%  10.23%  12/23/21   23,008    22,723    22,681    7.43 
   (1.00% Floor)                          
Department Stores                             
Mills Fleet Farm Group, LLC                             
Second Lien Secured Term Loan  L+ 9.75%  11.84%  02/26/23   7,146    7,048    7,146    2.34 
   (1.00% Floor)                          
Diversified Support Services                             
Account Control Technology Holdings, Inc.                             
First Lien Secured Term Loan  L+ 8.50%  11.11%  04/28/22   7,585    7,418    7,535    2.47 
   (1.00% Floor)                          
ImageOne Industries, LLC                             
First Lien Secured Term Loan  L+ 8.00%  10.09%  01/11/23   7,416    7,282    7,387    2.42 
   (1.00% Floor)                          
Sitel Worldwide Corporation                             
Second Lien Secured Term Loan  L+ 9.50%  11.88%  09/18/22   8,670    8,565    8,757    2.87 
   (1.00% Floor)                          
             23,671    23,265    23,679    7.76 
Environmental & Facilities Services                             
Montrose Environmental Group, Inc.                             
Second Lien Secured Term Loan  L+ 9.50%  11.86%  09/30/20   8,500    8,373    8,404    2.75 
   (1.00% Floor)                          
Food Retail                             
AG Kings Holdings, Inc.                             
First Lien Secured Term Loan  L+ 9.95%  12.29%  08/10/21   13,113    12,761    12,758    4.18 
   (1.00% Floor)                          

 

See notes to consolidated financial statements

 

 7 

 

 

WhiteHorse Finance, Inc.

Consolidated Schedule of Investments (Unaudited) - (continued)

June 30, 2018

(in thousands)

 

Investment Type(1)  Spread Above
Index(2)
  Interest
Rate(3)
  Maturity
Date
  Principal/
Share
Amount
   Amortized
Cost
   Fair
Value(10)
   Fair Value
As A
Percentage
of Net
Assets
 
Crews of California, Inc.                             
First Lien Secured Term Loan  L+ 11.00%  13.07%  11/20/19   16,508   $16,421   $16,343    5.35 %
   (1.00% Floor)  (1.00% PIK)                       
First Lien Secured Revolving Loan  L+ 11.00%  13.07%  11/20/19   5,145    5,109    5,094    1.67 
   (1.00% Floor)  (1.00% PIK)                       
First Lien Secured Delayed Draw Loan  L+ 11.00%  13.07%  11/20/19   4,784    4,752    4,736    1.55 
   (1.00% Floor)  (1.00% PIK)                       
             39,550    39,043    38,931    12.75 
Health Care Facilities                             
Grupo HIMA San Pablo, Inc.                             
First Lien Secured Term Loan  L+ 9.00%  11.37%  05/31/19   14,250    14,250    11,229    3.68 
   (1.50% Floor)                          
Second Lien Secured Term Loan(8)  N/A  15.75%  07/31/18   1,028    1,024    103    0.03 
      (2.00% PIK)                       
             15,278    15,274    11,332    3.71 
Health Care Services                             
PMA Holdco, LLC                             
First Lien Secured Term Loan  L+ 7.50%  9.84%  06/28/23   15,063    14,744    14,743    4.83 
   (1.00% Floor)                          
Internet Retail                             
Clarus Commerce, LLC                             
First Lien Secured Term Loan  L+ 8.59%  10.69%  03/09/23   17,100    16,909    16,903    5.54 
   (1.00% Floor)                          
Internet Software & Services                             
London Trust Media Incorporated                             
First Lien Secured Term Loan  L+ 8.00%  10.36%  02/01/23   11,213    11,058    11,054    3.62 
   (1.00% Floor)                          
StackPath, LLC & Highwinds Capital, Inc.                             
Second Lien Secured Term Loan  L+ 9.50%  12.01%  02/02/24   18,000    17,640    17,726    5.81 
   (1.00% Floor)                          
             29,213    28,698    28,780    9.43 
Investment Banking & Brokerage                             
JVMC Holdings Corp. (f/k/a RJO Holdings Corp)                             
First Lien First Out Secured Term Loan  L+ 8.02%  10.11%  05/05/22   12,825    12,603    12,825    4.20 
   (1.00% Floor)                          
First Lien Last Out Secured Term Loan  L+ 12.00%  14.09%  05/05/22   4,750    4,668    4,750    1.56 
   (1.00% Floor)                          
             17,575    17,271    17,575    5.76 
IT Consulting & Other Services                             
AST-Applications Software Technology LLC                             
First Lien Secured Term Loan  L+ 9.00%  11.09%  01/10/23   4,192    4,118    4,067    1.33 
   (1.00% Floor)  (2.00% PIK)                       
Leisure Facilities                             
Planet Fit Indy 10 LLC                             
First Lien Incremental Term Loan  L+ 7.25%  9.58%  03/07/22   1,925    1,909    1,925    0.63 
   (1.00% Floor)                          
First Lien Initial Delayed Draw Loan  L+ 7.25%  9.56%  03/07/22   6,183    6,160    6,183    2.03 
   (1.00% Floor)                          
First Lien Initial Term Loan  L+ 7.25%  9.57%  03/07/22   131    130    131    0.04 
   (1.00% Floor)                          
Lift Brands, Inc.                             
First Lien Secured Term Loan  L+ 7.00%  9.09%  04/16/23   10,913    10,693    10,697    3.50 
   (1.00% Floor)                          
First Lien Secured Revolving Loan(7)  L+ 7.00%  9.09%  04/16/23   -    -    -    - 
   (1.00% Floor)                          
             19,152    18,892    18,936    6.20 
Oil & Gas Exploration & Production                             
Caelus Energy Alaska O3, LLC                             
Second Lien Secured Term Loan  L+ 7.50%  9.83%  04/15/20   13,000    12,945    11,794    3.86 
   (1.25% Floor)                          
Other Diversified Financial Services                             
Sigue Corporation(4)                             
Second Lien Secured Term Loan  L+ 12.00%  14.33%  12/27/18   25,000    24,951    24,000    7.86 
   (1.00% Floor)                          
Packaged Foods & Meats                             
Lenny & Larry's, LLC                             
First Lien Secured Term Loan  L+ 6.86%  8.93%  05/15/23   13,543    13,279    13,273    4.35 
   (1.00% Floor)                          

 

See notes to consolidated financial statements

 

 8 

 

 

WhiteHorse Finance, Inc.

Consolidated Schedule of Investments (Unaudited) - (continued)

June 30, 2018

(in thousands)

 

Investment Type(1)  Spread Above
Index(2)
  Interest
Rate(3)
  Maturity
Date
  Principal/
Share
Amount
   Amortized
Cost
   Fair
Value(10)
   Fair Value
As A
Percentage
of Net
Assets
 
Research & Consulting Services                             
Nelson Worldwide, LLC                             
First Lien Secured Term Loan  L+ 8.00%  10.33%  01/09/23   17,666   $17,266   $17,290    5.66%
   (1.00% Floor)                          
First Lien Secured Revolving Loan(7)  L+ 8.00%  10.33%  01/09/23   1,234    1,206    1,210    0.40 
   (1.00% Floor)                          
             18,900    18,472    18,500    6.06 
Security & Alarm Services                             
SecurAmerica, LLC                             
First Lien Secured Term Loan  L+ 8.50%  10.81%  11/17/22   11,320    11,072    11,102    3.64 
   (1.00% Floor)                          
Specialized Finance                             
Golden Pear Funding III, LLC(5)                             
Second Lien Secured Term Loan  L+ 11.25%  13.61%  06/25/20   25,000    24,884    24,907    8.16 
   (1.00% Floor)                          
Second Lien Secured Revolving Loan(7)  L+ 11.25%  13.61%  06/25/20   -    -    2    - 
   (1.00% Floor)                          
Oasis Legal Finance, LLC(5)                             
Second Lien Secured Term Loan  L+ 10.75%  12.73%  03/09/22   20,000    19,732    20,000    6.55 
   (1.00% Floor)                          
             45,000    44,616    44,909    14.71 
Technology Hardware, Storage & Peripherals                             
Source Code Midco, LLC                             
First Lien Secured Term Loan  L+ 8.75%  11.11%  05/04/23   14,545    14,193    14,182    4.65 
   (1.00% Floor)                          
First Lien Secured Revolving Loan(7)  L+ 8.75%  11.09%  05/04/23   582    568    567    0.19 
   (1.00% Floor)                          
             15,127    14,761    14,749    4.84 
Trucking                             
Sunteck / TTS Holdings, LLC                             
Second Lien Secured Term Loan  L+ 9.00%  11.34%  06/15/22   3,500    3,456    3,500    1.15 
   (1.00% Floor)                          
Total Debt Investments            465,167    458,190    452,818    148.34 
                              
                              
Equity Investments                             
Advertising                             
Fluent, Inc. (f/k/a Cogint, Inc.)(4)(9)  N/A  N/A  12/08/25   187    560    457    0.15 
                              
Food Retail                             
Crews of California, Inc. Warrants (4)  N/A  N/A  12/31/24   -    -    8    - 
Nicholas & Associates, LLC Warrants(4)  N/A  N/A  12/31/24   3    -    153    0.05 
Pinnacle Management Group, LLC Warrants(4)  N/A  N/A  12/31/24   3    -    153    0.05 
RC3 Enterprises, LLC Warrants(4)  N/A  N/A  12/31/24   3    -    153    0.05 
             9    -    467    0.15 
                              
Health Care Services                             
PMA Holdco, LLC Warrants(4)  N/A  N/A  N/A   8    -    345    0.11 
                              
Other Diversified Financial Services                             
Aretec Group, Inc. (4)(5)(6)  N/A  N/A  N/A   536    20,693    37,363    12.24 
                              
RCS Creditor Trust Class B Units(4)(6)  N/A  N/A  N/A   143    -    535    0.18 
                              
SFS Global Holding Company Warrants(4)  N/A  N/A  N/A   -    -    -    - 
                              
Sigue Corporation Warrants(4)  N/A  N/A  N/A   6    -    327    0.11 
             685    20,693    38,225    12.53 
Specialized Finance                             
NMFC Senior Loan Program I LLC Units (4)(5)(6)  N/A  N/A  06/13/20   20,000    20,120    18,958    6.21 
                              
Trucking                             
Fox Rent A Car, Inc. Warrants(4)  N/A  N/A  N/A   -    -    100    0.03 
                              
Total Equity Investments            20,889    41,373    58,552    19.18 
                              
Total Investments           $486,056   $499,563   $511,370    167.52%

 

See notes to consolidated financial statements

 

 9 

 

 

WhiteHorse Finance, Inc.

Consolidated Schedule of Investments (Unaudited) - (continued)

June 30, 2018

(in thousands)

 

(1) Except as otherwise noted, all investments are non-controlled/non-affiliate investments as defined by the Investment Company Act of 1940, as amended (the “1940 Act”), and provide collateral for the Company’s credit facility.

 

(2) The investments bear interest at a rate that may be determined by reference to the London Interbank Offered Rate (“LIBOR” or “L”), which resets monthly, quarterly or semiannually, or the U.S. Prime Rate as published by the Wall Street Journal (“Prime” or “P”). The one, three and six-month LIBOR were 2.1%, 2.3% and 2.5%, respectively, as of June 30, 2018. The Prime was 5.0% as of June 30, 2018.

 

(3) The interest rate is the “all-in-rate” including the current index and spread, the fixed rate, and the payment-in-kind (“PIK”) interest rate, as the case may be.

 

(4) The investment or a portion of the investment does not provide collateral for the Company’s credit facility.

 

(5) Not a qualifying asset under Section 55(a) of the 1940 Act. Under the 1940 Act, the Company may not acquire any non-qualifying asset unless, at the time the acquisition is made, qualifying assets represent at least 70% of total assets. Qualifying assets represented 81%, of total assets as of the date of the consolidated schedule of investments.

 

(6) Investment is a non-controlled/affiliate investment as defined by the 1940 Act.

 

(7) The investment has an unfunded commitment in addition to any amounts presented in the consolidated schedule of investments as of June 30, 2018. See Note 7.

 

(8) The investment is on non-accrual status.

 

(9) The fair value of the investment was determined using observable inputs. See Note 4.

 

(10) Except as otherwise noted, the fair value of each investment was determined using significant unobservable inputs. See Note 4.

 

(11) The investment was comprised of two contracts, which were indexed to different base rates, L and P, respectively. The Spread Above Index and Interest Rate presented represent the weighted average of both contracts.

 

See notes to consolidated financial statements

 

 10 

 

 

WhiteHorse Finance, Inc.

Consolidated Schedule of Investments

December 31, 2017

(in thousands) 

 

Investment Type(1)  

Spread Above

Index (2)

 

Interest

Rate (3)

 

Maturity

Date

 

Principal/

Share

Amount

   

Amortized

Cost

   

Fair

Value (7)

   

Fair Value

As A

Percentage

of Net

Assets

 
North America                                            
Debt Investments                                            
Advertising                                            
Fluent, LLC (f/k/a Fluent Acquisition II, LLC)                                            
First Lien Secured Term Loan  

L+ 11.50%

(0.50% Floor)

 

13.05%

(1.00% PIK)

  12/08/20     25,650     $ 25,352     $ 25,651       8.94 %
Outcome Health                                            
First Lien Secured Term Loan  

L+ 6.50%

(1.00% Floor)

  8.13%   12/22/21     14,853       13,667       12,372       4.31  
                  40,503       39,019       38,023       13.25  
Application Software                                            
Intermedia Holdings, Inc.                                            
Second Lien Secured Term Loan  

L+ 9.50%

(1.00% Floor)

  10.88%   02/03/25     18,000       17,680       17,892       6.24  
Auto Parts & Equipment                                            
Crowne Group, LLC                                            
First Lien Secured Term Loan  

L+ 9.25%

(1.00% Floor)

  10.73%   05/26/21     12,031       11,747       12,031       4.19  
Broadcasting                                            
Multicultural Radio Broadcasting, Inc.                                            
First Lien Secured Term Loan  

L+ 8.00%

(1.00% Floor)

  9.56%   12/28/22     20,000       19,601       19,600       6.83  
Rural Media Group, Inc.                                            
First Lien Secured Term Loan  

P+ 5.75%

(1.00% Floor)

  10.25%   12/29/22     7,133       6,991       6,991       2.44  
First Lien Secured Delayed Draw Loan (8)  

P+ 5.75%

(1.00% Floor)

  10.25%   12/29/22     -       -       -       -  
                  27,133       26,592       26,591       9.27  
Data Processing & Outsourced Services                                            
FPT Operating Company, LLC/                                            
TLabs Operating Company, LLC                                            
First Lien Secured Term Loan  

L+ 8.25%

(1.00% Floor)

  9.61%   12/23/21     23,305       22,975       23,188       8.08  
Department Stores                                            
Mills Fleet Farm Group, LLC                                            
Second Lien Secured Term Loan  

L+ 9.75%

(1.00% Floor)

  11.32%   02/26/23     7,146       7,038       7,146       2.49  
Diversified Support Services                                            
Account Control Technology Holdings, Inc.                                            
First Lien Secured Term Loan(4)  

L+ 8.50%

(1.00% Floor)

  9.88%   04/28/22     14,329       13,971       14,180       4.94  
Sitel Worldwide Corporation                                            
Second Lien Secured Term Loan  

L+ 9.50%

(1.00% Floor)

  10.88%   09/18/22     8,670       8,553       8,651       3.01  
                  22,999       22,524       22,831       7.95  
Environmental & Facilities Services                                            
Montrose Environmental Group, Inc.                                            
Second Lien Secured Term Loan  

L+ 9.50%

(1.00% Floor)

  10.88%   09/30/20     8,500       8,345       8,423       2.94  

 

See notes to consolidated financial statements

 

 11 

 

 

WhiteHorse Finance, Inc.

Consolidated Schedule of Investments - (continued)

December 31, 2017

(in thousands)

 

Investment Type(1)  

Spread Above

Index (2)

 

Interest

Rate (3)

 

Maturity

Date

 

Principal/

Share

Amount

   

Amortized

Cost

   

Fair

Value (7)

   

Fair Value

As A

Percentage

of Net

Assets

 
Food Retail                                            
AG Kings Holdings, Inc.                                            
First Lien Secured Term Loan  

L+ 9.95%

(1.00% Floor)

  11.64%   08/10/21     13,615     $ 13,190     $ 13,479       4.70 %
Crews of California, Inc.                                            
First Lien Secured Term Loan  

L+ 11.00%

(1.00% Floor)

 

12.48%

(1.00% PIK)

  11/20/19     16,853       16,732       16,516       5.76  
First Lien Secured Revolving Loan  

L+ 11.00%

(1.00% Floor)

 

12.48%

(1.00% PIK)

  11/20/19     5,119       5,070       5,017       1.75  
First Lien Secured Delayed Draw Loan  

L+ 11.00%

(1.00% Floor)

 

12.48%

(1.00% PIK)

  11/20/19     4,884       4,840       4,786       1.67  
                  40,471       39,832       39,798       13.88  
Health Care Facilities                                            
Grupo HIMA San Pablo, Inc.                                            
First Lien Secured Term Loan  

L+ 9.00%

(1.50% Floor)

  10.50%   01/31/18     14,250       14,245       12,430       4.33  
Second Lien Secured Term Loan   N/A  

15.75%

(2.00% PIK)

  07/31/18     1,027       1,023       239       0.08  
                  15,277       15,268       12,669       4.41  
Internet Retail                                            
Clarus Commerce, LLC                                            
First Lien Secured Term Loan  

L+ 9.77%

(1.00% Floor)

  11.34%   03/17/21     6,000       5,923       6,000       2.09  
Internet Software & Services                                            
StackPath, LLC & Highwinds Capital, Inc.                                            
Second Lien Secured Term Loan  

L+ 9.50%

(1.00% Floor)

  10.88%   02/02/24     18,000       17,608       17,576       6.13  
Investment Banking & Brokerage                                            
JVMC Holdings Corp. (f/k/a RJO Holdings Corp)                                            
First Lien First Out Secured Term Loan  

L+ 8.02%

(1.00% Floor)

  9.59%   05/05/22     13,163       12,905       13,042       4.55  
First Lien Last Out Secured Term Loan  

L+ 12.00%

(1.00% Floor)

  13.57%   05/05/22     4,875       4,780       4,830       1.68  
                  18,038       17,685       17,872       6.23  
IT Consulting & Other Services                                            
AST-Applications Software Technology LLC                                            
First Lien Secured Term Loan  

L+ 9.00%

(1.00% Floor)

 

10.57%

(2.00% PIK)

  01/10/23     4,150       4,067       3,901       1.36  
Leisure Facilities                                            
Planet Fit Indy 10 LLC                                            
First Lien Initial Secured Term Loan  

L+ 7.25%

(1.00% Floor)

  8.77%   03/07/22     132       131       131       0.05  
First Lien Incremental Secured Term Loan  

L+ 7.25%

(1.00% Floor)

  8.94%   03/07/22     1,935       1,916       1,916       0.67  
First Lien Initial Secured Delayed Draw Loan  (8)  

L+ 7.25%

(1.00% Floor)

  8.73%   03/07/22     2,658       2,632       2,632       0.92  
                  4,725       4,679       4,679       1.64  

 

See notes to consolidated financial statements

 

 12 

 

  

WhiteHorse Finance, Inc. 

Consolidated Schedule of Investments - (continued)

December 31, 2017

(in thousands)

 

Investment Type(1)  

Spread Above

Index (2)

 

Interest

Rate (3)

 

Maturity

Date

 

Principal/

Share

Amount

   

Amortized

Cost

   

Fair

Value (7)

   

Fair Value

As A

Percentage

of Net

Assets

 
Office Services & Supplies                                            
Katun Corporation                                            
Second Lien Secured Term Loan  

L+ 11.25%

(1.00% Floor)

  12.61%   01/25/21     4,422     $ 4,402     $ 4,466       1.56 %
Oil & Gas Exploration & Production                                            
Caelus Energy Alaska O3, LLC                                            
Second Lien Secured Term Loan  

L+ 7.50%

(1.25% Floor)

  9.10%   04/15/20     13,000       12,929       10,837       3.78  
Other Diversified Financial Services                                            
Sigue Corporation(4)                                            
Second Lien Secured Term Loan  

L+ 11.50%

(1.00% Floor)

  13.19%   12/27/18     25,000       24,901       24,872       8.67  
The Pay-O-Matic Corp.                                            
First Lien Secured Term Loan  

L+ 11.00%

(1.00% Floor)

  12.38%   04/02/18     12,044       12,003       12,044       4.20  
                  37,044       36,904       36,916       12.87  
Research & Consulting Services                                            
Project Time & Cost, LLC                                            
First Lien Secured Term Loan  

L+ 12.00%

(0.50% Floor)

  13.53%   10/09/20     9,104       9,004       8,440       2.94  
Security & Alarm Services                                            
SecurAmerica, LLC                                            
First Lien Secured Term Loan  

L+ 9.50%

(1.00% Floor)

  10.92%   11/17/22     11,320       11,044       11,084       3.86  
Specialized Consumer Services                                            
Pre-Paid Legal Services, Inc.                                            
Second Lien Secured Term Loan  

L+ 9.00%

(1.25% Floor)

  10.57%   07/01/20     19,000       18,912       19,000       6.62  
Specialized Finance                                            
Golden Pear Funding III, LLC (5)                                            
Second Lien Secured Term Loan  

L+ 10.25%

(1.00% Floor)

  11.63%   06/25/20     25,000       24,855       24,760       8.63  
Second Lien Secured Revolving Loan  

L+ 10.25%

(1.00% Floor)

  11.63%   06/25/20     5,000       4,971       4,952       1.73  
Oasis Legal Finance, LLC(5)                                            
Second Lien Secured Term Loan  

L+ 10.75%

(1.00% Floor)

  12.11%   03/09/22     20,000       19,696       20,000       6.97  
                  50,000       49,522       49,712       17.33  
Trucking                                            
Sunteck/TTS Holdings, LLC                                            
Second Lien Secured Term Loan  

L+ 9.00%

(1.00% Floor)

  10.59%   06/15/22     3,500       3,450       3,456       1.20  
Total Debt Investments                 413,668       407,149       402,531       140.31  
Equity Investments                                            
Advertising                                            
Cogint, Inc. (f/k/a IDI, Inc.)(4)   N/A   N/A   12/08/25     187       560       821       0.29  
Food Retail                                            
Crews of California, Inc. Warrants (4)   N/A   N/A   12/31/24     -       -       14       0.00  
Nicholas & Associates, LLC Warrants (4)   N/A   N/A   12/31/24     3       -       296       0.10  

 

See notes to consolidated financial statements

 

 13 

 

 

WhiteHorse Finance, Inc. 

Consolidated Schedule of Investments - (continued)

December 31, 2017

(in thousands)

 

Investment Type(1)  

Spread Above

Index (2)

 

Interest

Rate (3)

 

Maturity

Date

 

Principal/

Share

Amount

   

Amortized

Cost

   

Fair

Value (7)

   

Fair Value

As A

Percentage

of Net

Assets

 
Pinnacle Management Group, LLC Warrants(4)   N/A   N/A   12/31/24     3     $ -     $ 296       0.10 %
RC3 Enterprises, LLC Warrants(4)   N/A   N/A   12/31/24     3       -       296       0.10  
                  9       -       902       0.30  
Other Diversified Financial Services                                            
Aretec Group, Inc.(4)(5)(6)   N/A   N/A   N/A     536       20,693       17,314       6.03  
RCS Creditor Trust Class B Units(4)(6)   N/A   N/A   N/A     143       -       428       0.15  
                  679       20,693       17,742       6.18  
Specialized Finance                                            
NMFC Senior Loan Program I LLC Units(4)(5)(6)   N/A   N/A   06/13/20     20,000       20,120       18,504       6.45  
Trucking                                            
Fox Rent A Car, Inc. Warrants(4)   N/A   N/A   N/A     -       -       180       0.06  
Total Equity Investments                 20,875       41,373       38,149       13.28  
Total Investments                 434,543     $ 448,522     $ 440,680       153.59 %

 

(1)Except as otherwise noted, all investments are non-controlled/non-affiliate investments as defined by the 1940 Act, and provide collateral for the Company’s credit facility.

 

(2)The investments bear interest at a rate that may be determined by reference to LIBOR, which resets monthly, quarterly or semiannually, or Prime. The one, three and six-month LIBOR were 1.6%, 1.7% and 1.8%, respectively, as of December 31, 2017. The Prime was 4.5% as of December 31, 2017.

 

(3)The interest rate is the “all-in-rate” including the current index and spread, the fixed rate, and the payment-in-kind (“PIK”) interest rate, as the case may be.

 

(4)The investment or a portion of the investment does not provide collateral for the Company’s credit facility.

 

(5)Not a qualifying asset under Section 55(a) of the 1940 Act. Under the 1940 Act, the Company may not acquire any non-qualifying asset unless, at the time the acquisition is made, qualifying assets represent at least 70% of total assets. Qualifying assets represented 82% of total assets as of the date of the consolidated schedule of investments.

 

(6)Investment is a non-controlled/affiliate investment as defined by the 1940 Act.

 

(7)Except as otherwise noted, the fair value of each investment was determined using significant unobservable inputs. See Note 4.

 

(8)The investment has an unfunded commitment in addition to any amounts presented in the consolidated schedule of investments as of December 31, 2017. See note 7.

 

See notes to consolidated financial statements

 

 14 

 

 

WhiteHorse Finance, Inc.

Notes to Consolidated Financial Statements (Unaudited)

June 30, 2018

(in thousands, except share and per share data)

 

NOTE 1 - ORGANIZATION

 

WhiteHorse Finance, Inc. (“WhiteHorse Finance” and, together with its subsidiaries, the “Company”) is an externally managed, non-diversified, closed-end management investment company that has elected to be treated as a business development company under the 1940 Act. In addition, for tax purposes, WhiteHorse Finance elected to be treated as a regulated investment company (“RIC”) under Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”). WhiteHorse Finance’s common stock trades on the NASDAQ Global Select Market under the symbol “WHF.”

 

The Company’s investment objective is to generate attractive risk-adjusted returns primarily by originating and investing in senior secured loans, including first lien and second lien facilities, to performing lower middle market companies across a broad range of industries that typically carry a floating interest rate based on the London Interbank Offered Rate (“LIBOR”) and have a term of three to six years. While the Company focuses principally on originating senior secured loans to lower middle market companies, it may also opportunistically make investments at other levels of a company’s capital structure, including mezzanine loans or equity interests and may receive warrants to purchase common stock in connection with its debt investments.

 

WhiteHorse Finance’s investment activities are managed by H.I.G. WhiteHorse Advisers, LLC (“WhiteHorse Advisers”). H.I.G. WhiteHorse Administration, LLC (“WhiteHorse Administration”) provides administrative services necessary for the Company to operate.

 

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Basis of Presentation: The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”) and include the accounts of WhiteHorse Finance, Inc. and its wholly owned subsidiaries, WhiteHorse Finance Credit I, LLC (“WhiteHorse Credit”), and its subsidiary WhiteHorse Finance (CA), LLC (“WhiteHorse California”), and WhiteHorse Finance Warehouse, LLC (“WhiteHorse Warehouse”). The Company meets the definition of an investment company under Accounting Standards Codification (“ASC”) Topic 946, Financial Services - Investment Companies, and therefore applies the accounting and reporting guidance discussed therein to its consolidated financial statements. All significant intercompany balances and transactions have been eliminated.

 

Additionally, the accompanying consolidated financial statements and related financial information have been prepared pursuant to the requirements for reporting on Form 10-Q and Articles 6, 10 and 12 of Regulation S-X. Accordingly, certain disclosures accompanying the annual financial statements prepared in accordance with GAAP are omitted. In the opinion of management, the unaudited consolidated financial results included herein contain all adjustments, consisting solely of normal recurring accruals, considered necessary for the fair presentation of financial statements for the interim periods included herein. This Form 10-Q should be read in conjunction with the Company’s annual report on Form 10-K for the year ended December 31, 2017. The current period’s results of operations will not necessarily be indicative of results that ultimately may be achieved for the year ending December 31, 2018.

   

Principles of Consolidation: Under the investment company rules and regulations pursuant to ASC Topic 946, WhiteHorse Finance is precluded from consolidating any entity other than another investment company. As provided under ASC Topic 946, WhiteHorse Finance generally consolidates any investment company when it owns 100% of its partners’ or members’ capital or equity units.

 

Use of Estimates: The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the financial statements. Actual results could differ from those estimates.

 

Fair Value of Financial Instruments: The Company determines the fair value of its financial instruments in accordance with ASC Topic 820 - Fair Value Measurements and Disclosures. ASC Topic 820 defines fair value, establishes a framework used to measure fair value and requires disclosures for fair value measurements. In accordance with ASC Topic 820, the Company has categorized its financial instruments carried at fair value, based on the priority of the valuation technique, into a three-level fair value hierarchy. Fair value is a market-based measure considered from the perspective of the market participant who holds the financial instrument. Therefore, when market assumptions are not readily available, the Company’s own assumptions are set to reflect those that management believes market participants would use in pricing the financial instrument at the measurement date.

 

 15 

 

 

Investments are measured at fair value as determined in good faith by the Company’s investment committee, generally on a quarterly basis, and such valuations are reviewed by the audit committee of the board of directors and ultimately approved by the board of directors, based on, among other factors, consistently applied valuation procedures on each measurement date. Any changes to the valuation methodology are reviewed by management and the Company’s board of directors to confirm that the changes are justified. The Company continues to review and refine its valuation procedures in response to market changes.

 

The Company engages independent external valuation firms to periodically review material investments. These external reviews are used by the board of directors to review the Company’s internal valuation of each investment over the year.

 

Investment Transactions: The Company records investment transactions on a trade date basis. These transactions may settle subsequent to the trade date depending on the transaction type. Certain expenses related to legal and tax consultation, due diligence, rating fees, valuation expenses and independent collateral appraisals may arise when the Company makes certain investments. These expenses are recognized in the consolidated statements of operations as they are incurred.

 

Revenue Recognition: The Company’s revenue recognition policies are as follows:

 

Sales: Realized gains or losses on the sales of investments are calculated by using the specific identification method.

 

Investment Income: Interest income, adjusted for amortization of premium and accretion of discount, is recorded on an accrual basis. The Company may also receive closing, commitment, prepayment, amendment and other fees from portfolio companies in the ordinary course of business.

 

Dividend income is recorded on the record date for private portfolio companies or on the ex-dividend date for publicly traded portfolio companies.

 

Closing fees associated with investments in portfolio companies are deferred and recognized as interest income over the respective terms of the applicable loans. Upon the prepayment of a loan or debt security, any unamortized loan closing fees are recorded as part of interest income. Commitment fees are based upon the undrawn portion committed by the Company and are recorded as interest income on an accrual basis. Prepayment, amendment and other fees are recognized when earned, generally when such fees are receivable, and are included in fee income on the consolidated statements of operations.

 

The Company may invest in loans that contain a PIK interest rate provision. PIK interest is accrued at the contractual rates and added to loan principal on the reset dates to the extent such amounts are expected to be collected.

 

Non-accrual loans: Loans are placed on non-accrual status when principal or interest payments are past due 30 days or more or when there is reasonable doubt that principal or interest will be collected. The Company may conclude that non-accrual status is not required if the loan has sufficient collateral value and is in the process of collection. Accrued interest is generally reversed when a loan is placed on non-accrual status. Interest payments received on non-accrual loans may be recognized as income or applied to principal depending upon management’s judgment. Non-accrual loans are restored to accrual status when past due principal and interest is paid and, in management’s judgment, are likely to remain current.

 

Cash and Cash Equivalents: Cash and cash equivalents include cash, deposits with financial institutions, and short-term liquid investments in money market funds with original maturities of three months or less.

 

Restricted Cash and Cash Equivalents: Restricted cash and cash equivalents include amounts that are collected and held by the trustee appointed as custodian of the assets securing the Company’s revolving credit facility. Restricted cash is held by the trustee for the payment of interest expense and principal on the outstanding borrowings or reinvestment into new assets. Restricted cash that represents interest or fee income is transferred to unrestricted cash accounts by the trustee generally once a quarter after the payment of operating expenses and amounts due under the Company’s revolving credit facility.

 

Offering Costs: The Company may incur legal, accounting, regulatory, investment banking and other costs in relation to equity offerings. Offering costs are deferred and charged against paid-in capital in excess of par on completion of the related offering.

 

 16 

 

 

Deferred Financing Costs: Deferred financing costs represent fees and other direct incremental costs incurred in connection with the Company’s borrowings. These amounts are amortized and are included in interest expense in the consolidated statements of operations over the estimated life of the borrowings. Deferred financing costs are presented in the consolidated statements of assets and liabilities as a direct reduction from the carrying amount of the related debt liability.

 

Income Taxes: The Company elected to be treated as a RIC under Subchapter M of the Code. In order to maintain its status as a RIC, among other requirements, the Company is required to distribute dividends for U.S. federal income tax purposes to its shareholders each taxable year generally of an amount at least equal to 90% of the sum of ordinary income and realized net short-term capital gains in excess of realized net long-term capital losses, if any, out of the assets legally available for distribution. In addition, the Company will incur a nondeductible excise tax equal to 4% of the amount by which (1) 98% of ordinary income for the calendar year (taking into account certain deferrals and elections), (2) 98.2% of capital gains in excess of capital losses, adjusted for certain ordinary losses, for the one-year period ending on October 31 of the calendar year and (3) any ordinary income and capital gain income for preceding years that were not distributed during such years and on which the Company incurred no U.S. federal income tax exceed distributions for the year. The Company accrues estimated excise tax on the amount, if any, that estimated taxable income is expected to exceed the level of stockholder distributions described above.

 

The Company recognizes the financial statement benefit of a tax position only after determining that the relevant tax authority would more-likely-than-not sustain the position following an audit. For tax positions meeting the more-likely-than-not threshold, the amount recognized in the financial statement is the largest benefit or expense that has a greater than 50% likelihood of being realized upon ultimate settlement with the relevant tax authority. Any tax positions not deemed to satisfy the more likely than not threshold are reversed and recorded as tax benefit or tax expense, as appropriate, in the current year. Management has analyzed the Company’s tax positions, and the Company has concluded that the Company did not have any unrecognized tax benefits or unrecognized tax liabilities related to uncertain tax positions as of June 30, 2018 and December 31, 2017.

 

Penalties or interest that may be assessed related to any income taxes would be classified as general and administrative expenses on the consolidated statements of operations. The Company had no amounts accrued for interest or penalties as of June 30, 2018 or December 31, 2017. The Company does not expect the total amount of unrecognized tax benefits to significantly change in the next twelve months. The Company’s tax returns are subject to examination by federal, state and local taxing authorities. Because many types of transactions are susceptible to varying interpretations under U.S. federal and state income tax laws and regulations, the amounts reported in the accompanying consolidated financial statements may be subject to change at a later date by the respective taxing authorities. Tax returns for each of the federal tax years since 2014 remain subject to examination by the Internal Revenue Service.

 

As of June 30, 2018 and December 31, 2017, the cost of investments for federal income tax purposes was $501,509 and $448,937, resulting in net unrealized appreciation of $9,861 and net unrealized depreciation of $8,256, respectively. This is comprised of gross unrealized appreciation of $18,303 and $3,953, and gross unrealized depreciation of $8,442 and $12,209, on a tax basis, as of June 30, 2018 and December 31, 2017, respectively.

 

Dividends and Distributions: Dividends and distributions to common stockholders are recorded on the ex-dividend date. Quarterly distribution payments are determined by the board of directors and are paid from taxable earnings estimated by management and may include a return of capital and/or capital gains. Net realized capital gains, if any, are distributed at least annually, although the Company may decide to retain such capital gains for investment. 

 

The Company maintains an “opt out” distribution reinvestment plan for common stockholders. As a result, if the Company declares a distribution or other dividend, stockholders’ cash distributions will be automatically reinvested in additional shares of common stock, unless they specifically “opt out” of the distribution reinvestment plan so as to receive cash distributions.

 

Earnings per Share: The Company calculates earnings per share as earnings available to stockholders divided by the weighted average number of shares outstanding during the period.

 

Risks and Uncertainties: In the normal course of business, the Company encounters primarily two significant types of economic risks: credit and market. Credit risk is the risk of default on the Company’s investments that result from an issuer’s, borrower’s or derivative counterparty’s inability or unwillingness to make contractually required payments. Market risk reflects changes in the value of investments due to changes in interest rates, spreads or other market factors, including the value of the collateral underlying investments held by the Company. Management believes that the carrying value of the Company’s investments are fairly stated, taking into consideration these risks along with estimated collateral values, payment histories and other market information.

 

 17 

 

  

Recent Accounting Pronouncements: During March 2017, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2017-08, Receivables-Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities, to amend the amortization period for certain purchased callable debt securities held at a premium. Under current guidance, entities generally amortize the premium as an adjustment of yield over the contractual life of the instrument. The new guidance shortened the amortization period for the premium to the earliest call date. The amendments do not require an accounting change for securities held at a discount; the discount continues to be amortized to maturity. The amendments in this guidance are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. The Company is currently evaluating the impact of this guidance on its consolidated financial statements and related disclosures and does not expect this guidance to have a material impact as the Company does not hold any material purchased callable debt securities at a premium.

 

During January 2017, the FASB issued ASU 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business, which clarifies the definition of a business with the objective of adding guidance to assist companies with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The new guidance is expected to reduce the number of transactions that need to be further evaluated as businesses. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. The Company adopted this guidance effective January 1, 2018, and the adoption of this standard did not have an impact on the Company’s financial condition, results of operations, or cash flows.

 

During August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments, which addresses eight specific cash flow issues including, among other things, the classification of debt prepayment or debt extinguishment costs. ASU 2016-15 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. The guidance only affects the classification of transactions as presented on the consolidated statements of cash flows. The Company adopted this guidance effective January 1, 2018, and the adoption of this standard did not have a material impact on the Company’s cash flows or disclosures.

 

During January 2016, the FASB issued ASU 2016-01, Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities, which, among other things, requires that (i) all equity investments, other than equity-method investments, in unconsolidated entities generally be measured at fair value through earnings and (ii) an entity to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments. Additionally, this ASU changes the disclosure requirements for financial instruments. This guidance is effective for annual reporting periods, and the interim periods within those periods, beginning after December 15, 2017. The Company adopted this guidance effective January 1, 2018, and the adoption of this guidance did not have a material impact on the Company’s consolidated financial statements or related disclosures as the Company does not hold any investments at amortized cost.

 

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606). The guidance in this ASU supersedes the revenue recognition requirements in Revenue Recognition (Topic 605). Under the new guidance, an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The amendments in ASU 2014-09 are effective for annual reporting periods, including interim periods within those reporting periods, beginning after December 15, 2017. In March 2016, the FASB issued ASU 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations, which clarifies the guidance in ASU 2014-09. In April 2016, the FASB issued ASU 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing, an update on identifying performance obligations and accounting for licenses of intellectual property. In May 2016, the FASB issued ASU 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients, which includes amendments for enhanced clarification of the guidance. In December 2016, the FASB issued ASU 2016-20, Technical Corrections and Improvements to Revenue from Contracts with Customers (Topic 606). The amendments in this update are of a similar nature to the items typically addressed in the technical corrections and improvements project. Additionally, in February 2017, the FASB issued ASU 2017-05, Other Income - Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic 610-20): Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets, an update clarifying that a financial asset is within the scope of Subtopic 610-20 if it is deemed an “in-substance non-financial asset.” All of the guidance issued in conjunction with ASU 2014-09 have the same effective date as the original standard and should be adopted concurrent with the adoption of ASU 2014-09. The Company adopted the revised provisions to ASC Topic 606 effective January 1, 2018 using the modified retrospective method. The adoption of this guidance did not result in a change to the accounting for any of its revenue streams; as such, no cumulative effect adjustment was recorded.

 

 18 

 

 

NOTE 3 - INVESTMENTS

 

Investments consisted of the following:

 

   June 30, 2018   December 31, 2017 
   Amortized Cost   Fair Value   Amortized Cost   Fair Value 
First lien secured loans  $311,870   $308,560   $232,786   $230,261 
Second lien secured loans   146,320    144,258    174,363    172,270 
Equity   41,373    58,552    41,373    38,149 
Total  $499,563   $511,370   $448,522   $440,680 

 

The following table shows the portfolio composition by industry grouping at fair value:

 

   June 30, 2018   December 31, 2017 
Advertising  $21,425    4.19%  $38,844    8.81%
Application Software   17,919    3.50    17,892    4.06 
Auto Parts & Equipment   -    -    12,031    2.73 
Automotive Retail   18,548    3.63    -    - 
Broadcasting   25,587    5.00    26,591    6.03 
Cable & Satellite   14,792    2.89    -    - 
Data Processing & Outsourced Services   22,681    4.44    23,188    5.26 
Department Stores   7,146    1.40    7,146    1.62 
Diversified Support Services   23,679    4.63    22,831    5.18 
Environmental & Facilities Services   8,404    1.64    8,423    1.91 
Food Retail   39,398    7.70    40,700    9.24 
Health Care Facilities   11,332    2.22    12,669    2.87 
Health Care Services   15,088    2.95    -    - 
Internet Retail   16,903    3.31    6,000    1.36 
Internet Software & Services   28,780    5.63    17,576    3.99 
Investment Banking & Brokerage   17,575    3.44    17,872    4.06 
IT Consulting & Other Services   4,067    0.80    3,901    0.89 
Leisure Facilities   18,936    3.70    4,679    1.06 
Office Services & Supplies   -    -    4,466    1.01 
Oil & Gas Exploration & Production   11,794    2.31    10,837    2.46 
Other Diversified Financial Services   62,225    12.17    54,658    12.40 
Packaged Foods & Meats   13,273    2.59    -    - 
Research & Consulting Services   18,500    3.62    8,440    1.92 
Security & Alarm Services   11,102    2.17    11,084    2.52 
Specialized Consumer Services   -    -    19,000    4.31 
Specialized Finance   63,867    12.49    68,216    15.48 
Technology Hardware, Storage & Peripherals   14,749    2.88    -    - 
Trucking   3,600    0.70    3,636    0.83 
Total  $511,370    100.00%  $440,680    100.00%

 

The portfolio companies underlying the investments are located in the United States. As of June 30, 2018 and December 31, 2017, the weighted average remaining term of the Company’s debt investments was approximately 3.7 years and 3.4 years, respectively.

 

As of June 30, 2018, the total fair value of non-accrual loans was $103. As of December 31, 2017, the Company had no non-accrual loans.

 

 19 

 

 

The following table presents the schedule of investments in and advances to affiliated persons (as defined by the 1940 Act) as of and for the six months ended June 30, 2018:

 

Affiliated Person(1) 

Type of

Asset

 

Amount of

dividends and

interest

included in

income

  

Beginning

Fair Value at

December 31,

2017

   Purchases   Sales  

Net

Realized

Gain (Loss)

  

Net Change in

Unrealized

Appreciation

(Depreciation)

  

Ending Fair

Value at

June 30,

2018

 
Aretec Group, Inc.  Equity  $-   $17,314   $-   $-   $-   $20,049   $37,363 
NMFC Senior Loan Program I LLC Units  Equity   650    18,504    -    -    -    454    18,958 
RCS Creditor Trust Class B Units  Equity   -    428    -         -    107    535 
Total     $650   $36,246   $-   $-   $-   $20,610   $56,856 

 

The following table presents the schedule of investments in and advances to affiliated persons (as defined by the 1940 Act) as of and for the year ended December 31, 2017:

 

Affiliated Person(1)  Type of
Asset
  Amount of
dividends and
interest
included in
income
   Beginning
Fair Value at
December 31,
2016
   Purchases   Sales   Net
Realized
Gain (Loss)
   Net Change in
Unrealized
Appreciation
(Depreciation)
   Ending Fair
Value at
December 31,
2017
 
Aretec Group, Inc.  Equity  $-   $7,505   $-   $-   $-   $9,809   $17,314 
NMFC Senior Loan Program I LLC Units  Equity   2,713    18,993    -    -    -    (489)   18,504 
RCS Creditor Trust Class B Units  Equity   -    -    -         -    428    428 
Total     $2,713   $26,498   $-   $-   $-   $9,748   $36,246 

  

(1)Refer to the consolidated schedule of investments for the principal amount, industry classification and other security detail of each portfolio company.

 

During the fourth quarter of 2015, the Company placed its second lien investment in RCS Capital Corporation on non-accrual status in anticipation of a voluntary petition for a “pre-packaged” Chapter 11 Bankruptcy in the U.S. Bankruptcy Court for the District of Delaware, which was filed on January 31, 2016. On May 23, 2016, the Company’s second lien investment, with a cost basis of $20,693, converted to 536,042 shares of common stock in Aretec Group, Inc. (previously known as RCS Capital Corporation). As of June 30, 2018 and December 31, 2017, the fair value of the Company’s investment in Aretec Group, Inc. was $37,363 and $17,314, respectively.

 

NOTE 4 - FAIR VALUE MEASUREMENTS

 

Accounting standards establish a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value:

 

Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active public markets that the entity has the ability to access as of the measurement date.

Level 2: Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

Level 3: Significant unobservable inputs that reflect a reporting entity’s own assumptions about what market participants would use in pricing an asset or liability.

 

In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, a financial instrument’s categorization within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the financial instrument.

 

A review of the fair value hierarchy classifications is conducted on a quarterly basis. Changes in the observability of valuation inputs may result in a reclassification for certain financial assets or liabilities. Reclassifications impacting Level 3 of the fair value hierarchy are reported as transfers in or out of the Level 3 category as of the beginning of the quarter in which the reclassifications occur. During the six months ended June 30, 2018 and 2017, there were no changes in the observability of valuation inputs that would have resulted in a reclassification of assets between any levels.

 

Fair value for each investment is derived using a combination of valuation methodologies that, in the judgment of the investment committee of WhiteHorse Advisers are most relevant to such investment, including, without limitation, being based on one or more of the following: (i) market prices obtained from market makers for which the investment committee has deemed there to be enough breadth (number of quotes) and depth (firm bids) to be indicative of fair value, (ii) the price paid or realized in a completed transaction or binding offer received in an arms’-length transaction, (iii) a discounted cash flow analysis, (iv) the guideline public company method, (v) the similar transaction method or (vi) the option pricing method.

 

 20 

 

 

 The following table presents investments (as shown on the consolidated schedule of investments) that were measured at fair value as of June 30, 2018:

 

   Level 1   Level 2   Level 3   Total 
First lien secured loans  $-   $-   $308,560   $308,560 
Second lien secured loans   -    -    144,258    144,258 
Equity   457    -    58,095    58,552 
Total investments  $457   $-   $510,913   $511,370 

 

The following table presents investments (as shown on the consolidated schedule of investments) that were measured at fair value as of December 31, 2017:

 

   Level 1   Level 2   Level 3   Total 
First lien secured loans  $-   $-   $230,261   $230,261 
Second lien secured loans   -    -    172,270    172,270 
Equity   821    -    37,328    38,149 
Total investments  $821   $-   $439,859   $440,680 

 

The following table presents the changes in investments measured at fair value using Level 3 inputs for the three months ended June 30, 2018:

 

   First Lien
Secured
Loans
   Second Lien
Secured
Loans
   Equity   Total
Investments
 
Fair value, beginning of period  $255,551   $166,559   $45,013   $467,123 
Acquisition of investments   78,573    23    -    78,596 
Paid-in-kind income   173    -    -    173 
Accretion of discount   596    203    -    799 
Proceeds from principal payments and sales of portfolio investments   (26,263)   (24,000)   -    (50,263)
Net realized losses   (51)   -    -    (51)
Net unrealized appreciation (depreciation)   (19)   1,473    13,082    14,536 
Fair value, end of period  $308,560   $144,258   $58,095   $510,913 
Change in unrealized appreciation (depreciation) on investments still held as of June 30, 2018  $  50   $  1,552   $  13,082   $  14,684 

  

 

 The following table presents the changes in investments measured at fair value using Level 3 inputs for the six months ended June 30, 2018:

 

  

First Lien

Secured

Loans

  

Second Lien
Secured

Loans

   Equity  

Total

Investments

 
Fair value, beginning of period  $230,261   $172,270   $37,328   $439,859 
Acquisition of investments   164,456    23    -    164,479 
Paid-in-kind income   315    -    -    315 
Accretion of discount   2,040    357    -    2,397 
Proceeds from principal payments and sales of portfolio investments   (87,677)   (28,422)   -    (116,099)
Net realized losses   (51)   -    -    (51)
Net unrealized appreciation (depreciation)   (784)   30    20,767    20,013 
Fair value, end of period  $308,560   $144,258   $58,095   $510,913 
Change in unrealized appreciation (depreciation) on investments still held as of June 30, 2018  $(648)  $183   $20,767   $20,302 

 

 21 

 

 

The following table presents the changes in investments measured at fair value using Level 3 inputs for the three months ended June 30, 2017:

 

  

First Lien

Secured

Loans

  

Second Lien 

Secured

Loans

   Equity  

Total

Investments

 
Fair value, beginning of period  $237,865   $163,858   $29,942   $431,665 
Acquisition of investments   40,407    -    -    40,407 
Paid-in-kind income   172    -    -    172 
Accretion of discount   727    125    -    852 
Proceeds from principal payments and sales of portfolio investments   (34,964)   (578)   -    (35,542)
Net realized gains (losses)   -    -    -    - 
Net unrealized appreciation (depreciation)   (1,548)   (117)   2,004    339 
Fair value, end of period  $242,659   $163,288   $31,946   $437,893 
Change in unrealized appreciation (depreciation) on investments still held as of June 30, 2017  $(969)  $(112)  $2,004   $923 

 

 The following table presents the changes in investments measured at fair value using Level 3 inputs for the six months ended June 30, 2017:

 

  

First Lien

Secured

Loans

  

Second Lien 

Secured

Loans

   Equity  

Total

Investments

 
Fair value, beginning of period  $245,213   $135,895   $30,606   $411,714 
Acquisition of investments   51,263    35,190    -    86,453 
Paid-in-kind income   326    -    -    326 
Accretion of discount   1,454    235    -    1,689 
Proceeds from principal payments and sales of portfolio investments   (56,067)   (9,668)   -    (65,735)
Net realized gains (losses)   -    23    -    23 
Net unrealized appreciation   470    1,613    1,340    3,423 
Fair value, end of period  $242,659   $163,288   $31,946   $437,893 
Change in unrealized appreciation (depreciation) on investments still held as of June 30, 2017  $(52)  $1,392   $1,340   $2,680 

 

 The significant unobservable inputs used in the fair value measurement of the Company’s investments are the discount rate, market quotes and exit multiples. An increase or decrease in the discount rate in isolation may result in significantly lower or higher fair value measurement, respectively. An increase or decrease in the market quote for an investment may in isolation result in significantly higher or lower fair value measurement, respectively. An increase or decrease in the exit multiple may in isolation result in significantly higher or lower fair value measurement, respectively. As the fair value of a debt investment diverges from par, which would generally be the case for non-accrual loans, the fair value measurement of that investment is more susceptible to volatility from changes in exit multiples as a significant unobservable input. 

 

Quantitative information about Level 3 fair value measurements is as follows:

 

Investment Type  Fair Value at
June 30, 2018
   Valuation
Techniques
  Unobservable
Inputs
  Range
 (Weighted Average)
First lien secured loans  $90,789   Discounted cash flows  Discount rate
Exit multiple
  10.8% – 15.7% (13.8%)
4.5x – 7.0x (5.6x)
    11,229   Market multiples  Exit multiple  2.7x
    206,542   Weighting of discounted
cash
flows and consensus pricing
  Discount rate
Market quotes
Exit multiple
  9.7% – 20.1% (11.8%)
84.8 – 100.0 (97.5)
4.5x – 9.0x (6.9x)
   $308,560          
               
Second lien secured loans  $90,291   Discounted cash flows  Discount rate
Exit multiple
  10.6% – 21.0% (15.2%)
4.1x – 8.0x (6.5x)
    103   Market multiples  Exit multiple  2.7x
    28,955   Weighting of discounted cash flows and consensus pricing  Discount rate
Market quotes
Exit multiple
  11.9% – 17.8% (16.0%)
93.3 – 100.1 (96.5)
8.5x
    24,909   Weighting of discounted cash flows and expected repayment  Discount rate
Expected repayment
  16.5%
100.0
   $144,258          
               
Common Equity  $18,958   Discounted cash flows  Discount rate
Discount for lack
of marketability
  10.7%
2.5%
    535   Consensus pricing  Market quotes  $3.8/s
    37,363   Weighting of discounted cash flows, market multiple and consensus pricing  Discount rate
Exit Multiple
Market quotes
Discount for lack
of marketability
  17.6%
9.5x
$69.3/s
11.0%
   $56,856          
               
Warrant  $1,139   Discounted cash flows and Option-pricing method  Discount rate
Exit multiple
Volatility
Discount for lack
of marketability
  16.0% - 31.0% (23.3%)
4.0x – 8.0x (5.6x)
2.7% - 25.0% (12.3%)
13.0% - 55.0% (35.4%)
    100   Market multiples  Exit multiple
Discount for lack
of marketability
  21.0x
15.0%
   $1,239          
               
Total Level 3 Investments  $510,913          

 

 22 

 

 

Investment Type  

Fair Value at

December 31,

2017

    Valuation Techniques   Unobservable Inputs   Range (Weighted Average)
First lien secured loans   $ 143,483     Discounted cash flows  

Discount rate

Exit multiple

 

10.8% - 79.8% (20.4%)

2.6x - 7.0x (5.8x)

      86,778    

Weighting of discounted cash

flows and consensus pricing

 

Discount rate

Market quotes

Exit multiple

 

9.7% - 15.2% (12.2%)

81.0 - 99.0 (94.9)

5.0x - 8.5x (6.4x)

      230,261              
Second lien secured loans     96,021     Discounted cash flows  

Discount rate

Exit multiple

 

11.7% - 112.2% (14.1%)

2.6x - 8.0x (7.3x)

      46,911    

Weighting of discounted cash

flows and consensus pricing

 

Discount rate

Market quotes

Exit multiple

 

9.7% - 15.3% (12.5%)

89.0 - 100.3 (96.5)

5.0x - 8.5x (6.5x)

      4,466     Expected repayment   Repayment price   101.0
      24,872    

Weighting of discounted cash

flows and expected repayment

 

Discount rate

Repayment price

 

15.4%

100.0

      172,270              
Common Equity     18,504     Discounted cash flows   Discount rate   11.3%
      428     Consensus pricing   Market quotes   $3.0/s
      17,314    

Weighting of discounted cash

flows, market multiple and

consensus pricing

 

Discount rate

Exit multiple

Market quotes

 

19.0%

7.3x

$38.0/s

      36,246              
Warrant     902    

Discounted cash flows and

Option-pricing method

 

Discount rate

Exit multiple

Volatility

 

27.0%

4.5x

25.0%

      180     Market multiple   Exit multiple   7.5x
      1,082              
Total Level 3 investments   $ 439,859              

 

Valuation of investments may be determined by weighting various valuation techniques. Significant judgment is required in selecting the assumptions used to determine the fair values of these investments. The valuation methods selected for a particular investment are based on the circumstances and on the sufficiency of data available to measure fair value. If more than one valuation method is used to measure fair value, the results are evaluated and weighted, as appropriate, considering the reasonableness of the range indicated by those results. A fair value measurement is the point within that range that is most representative of fair value in the circumstances.

 

The availability of observable inputs can vary depending on the financial instrument and is affected by a wide variety of factors, including, for example, the nature of the instrument, whether the instrument is traded on an active exchange or in the secondary market and the current market conditions. To the extent that the valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires a greater degree of judgment. Accordingly, the degree of judgment exercised by the Company in determining fair value is greatest for financial instruments classified as Level 3.

 

The determination of fair value using the selected methodologies takes into consideration a range of factors including the price at which the investment was acquired, the nature of the investment, local market conditions, trading values on public and private exchanges for comparable securities, current and projected operating performance and financing transactions subsequent to the acquisition of the investment, compliance with agreed upon terms and covenants, and assessment of credit ratings of an underlying borrower. These valuation methodologies involve a significant degree of judgment to be exercised.

 

As it relates to investments which do not have an active public market, there is no single standard for determining the estimated fair value. Valuations of privately held investments are inherently uncertain, and they may fluctuate over short periods of time and may be based on estimates. The determination of fair value may differ materially from the values that would have been used if a ready market for these investments existed.

 

 23 

 

 

In some cases, fair value for such investments is best expressed as a range of values derived utilizing different methodologies from which a single estimate may then be determined. Consequently, fair value for each investment may be derived using a combination of valuation methodologies that, in the judgment of the investment professionals, are most relevant to such investment. The selected valuation methodologies for a particular investment are consistently applied on each measurement date. However, a change in a valuation methodology or its application from one measurement date to another is possible if the change results in a measurement that is equally or more representative of fair value in the circumstances.

 

The following table presents the amortized cost and fair value of the Company’s borrowings as of June 30, 2018 and December 31, 2017. The amortized cost disclosed below excludes debt issuance costs. The fair value of the Credit Facility (as defined in Note 5) was estimated by discounting remaining payments using applicable market rates or market quotes for similar instruments at the measurement date, if available. The fair value of the Company’s 6.50% senior notes due 2020 (the “Senior Notes”) was estimated using the trailing 10-day volume weighted average quoted price as of the valuation date.

 

       June 30, 2018   December 31, 2017 
   Fair
Value Level
   Amortized Cost   Fair Value   Amortized Cost   Fair Value 
Credit Facility   3   $187,800   $190,492   $155,000   $157,139 
Senior Notes   2    30,000    30,721    30,000    30,666 
        $217,800   $221,213   $185,000   $187,805 

 

NOTE 5 - BORROWINGS

 

Historically, the 1940 Act has permitted the Company to issue “senior securities,” including borrowing money from banks or other financial institutions, only in amounts such that its asset coverage, as defined in the 1940 Act, equals at least 200% after such incurrence or issuance. In March 2018, the Small Business Credit Availability Act (the “SBCAA”) was enacted into law. The SBCAA, among other things, amended the 1940 Act to reduce the asset coverage requirements applicable to business development companies from 200% to 150% so long as the business development company meets certain disclosure requirements and obtains certain approvals. Effectiveness of the reduced asset coverage requirements to a business development company requires approval by either (1) a “required majority” (as defined in Section 57(o) of the 1940 Act) of such business development company’s board of directors, with effectiveness one year after the date of such approval, or (2) a majority of the votes cast at a special or annual meeting of such business development company’s stockholders at which a quorum is present, which is effective the day after such stockholder approval. On May 3, 2018, a “required majority” of the Company’s board of directors approved the reduced asset coverage requirements and separately recommended that the Company’s stockholders approve the reduced asset coverage requirements at the Company’s 2018 annual meeting. On August 1, 2018, the Company’s stockholders approved the reduced asset coverage requirement.  As a result, the Company’s asset coverage requirements applicable to senior securities decreased from 200% to 150%, effective August 2, 2018. As of June 30, 2018, the Company’s asset coverage for borrowed amounts was 240.2%.

 

Total borrowings outstanding and undrawn as of June 30, 2018, was as follows:

 

   Maturity   Rate   Face Amount   Undrawn