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EX-99.(32)(1) - CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER - Goldman Sachs BDC, Inc.d603989dex99321.htm
EX-99.(31)(2) - CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO SECURITIES EXCHANGE ACT - Goldman Sachs BDC, Inc.d603989dex99312.htm
EX-99.(31)(1) - CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO SECURITIES EXCHANGE ACT - Goldman Sachs BDC, Inc.d603989dex99311.htm

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

 

 

 

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

For the quarterly period ended September 30, 2018

or

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

Commission file number 814-00998

 

 

Goldman Sachs BDC, Inc.

(Exact Name of Registrant as Specified in Its Charter)

 

 

 

Delaware   46-2176593

(State or Other Jurisdiction of

Incorporation or Organization)

 

(I.R.S. Employer

Identification No.)

200 West Street, New York, New York   10282
(Address of Principal Executive Offices)   (Zip Code)

Registrant’s Telephone Number, Including Area Code: (212) 902-0300

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  ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).    YES  ☐    NO  ☐

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

 

Large accelerated filer:   X    Accelerated filer:      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 Act).    YES  ☐    NO  X

The number of shares of the registrant’s common stock, $0.001 par value per share, outstanding as of November 1, 2018 was 40,227,625.

 

 

 


GOLDMAN SACHS BDC, INC.

 

    

INDEX

   PAGE
PART I    FINANCIAL INFORMATION        4
ITEM 1.    Financial Statements        4
   Consolidated Statements of Assets and Liabilities as of September 30, 2018 (Unaudited) and December 31, 2017        4
   Consolidated Statements of Operations for the three and nine months ended September 30, 2018 (Unaudited) and 2017 (Unaudited)        5
   Consolidated Statements of Changes in Net Assets for the nine months ended September 30, 2018 (Unaudited) and 2017 (Unaudited)        6
   Consolidated Statements of Cash Flows for the nine months ended September 30, 2018 (Unaudited) and 2017 (Unaudited)        7
   Consolidated Schedules of Investments as of September 30, 2018 (Unaudited) and December 31, 2017        8
   Notes to the Consolidated Financial Statements (Unaudited)        17
ITEM 2.    Management’s Discussion and Analysis of Financial Condition and Results of Operations        47
ITEM 3.    Quantitative and Qualitative Disclosures About Market Risk        72
ITEM 4.    Controls and Procedures        73
PART II    OTHER INFORMATION        73
ITEM 1.    Legal Proceedings        73
ITEM 1A.    Risk Factors        73
ITEM 2.    Unregistered Sales of Equity Securities and Use of Proceeds        76
ITEM 3.    Defaults Upon Senior Securities        76
ITEM 4.    Mine Safety Disclosures        76
ITEM 5.    Other Information        76
ITEM 6.    Exhibits        76
SIGNATURES        78


CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This report contains forward-looking statements that involve substantial risks and uncertainties. You can identify these statements by the use of forward-looking terminology such as “may,” “will,” “should,” “expect,” “anticipate,” “project,” “target,” “estimate,” “intend,” “continue” or “believe” or the negatives of, or other variations on, these terms or comparable terminology. You should read statements that contain these words carefully because they discuss our plans, strategies, prospects and expectations concerning our business, operating results, financial condition and other similar matters. We believe that it is important to communicate our future expectations to our investors. Our forward-looking statements include information in this report regarding general domestic and global economic conditions, our future financing plans, our ability to operate as a business development company (“BDC”) and the expected performance of, and the yield on, our portfolio companies. There may be events in the future, however, that we are not able to predict accurately or control. The factors listed under “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2017 and in this report, as well as any cautionary language in this report, provide examples of risks, uncertainties and events that may cause our actual results to differ materially from the expectations we describe in our forward-looking statements. The occurrence of the events described in these risk factors and elsewhere in this report could have a material adverse effect on our business, results of operations and financial position. Any forward-looking statement made by us in this report speaks only as of the date of this report. Factors or events that could cause our actual results to differ from our forward-looking statements may emerge from time to time, and it is not possible for us to predict all of them. You are advised to consult any additional disclosures that we may make directly to you or through reports that we in the future may file with the U.S. Securities and Exchange Commission (the “SEC”), including annual reports on Form 10-K, registration statements on Form N-2, quarterly reports on Form 10-Q and current reports on Form 8-K. Under Section 21E(b)(2)(B) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995 do not apply to statements made in periodic reports we file under the Exchange Act, such as this quarterly report on Form 10-Q.

The following factors are among those that may cause actual results to differ materially from our forward-looking statements:

 

   

our future operating results;

   

changes in political, economic or industry conditions, the interest rate environment or conditions affecting the financial and capital markets;

   

uncertainty surrounding the financial and political stability of the United States, the United Kingdom, the European Union and China;

   

our business prospects and the prospects of our portfolio companies;

   

the impact of investments that we expect to make;

   

the impact of increased competition;

   

our contractual arrangements and relationships with third parties;

   

the dependence of our future success on the general economy and its impact on the industries in which we invest;

   

the ability of our current and prospective portfolio companies to achieve their objectives;

   

the relative and absolute performance of our investment adviser;

   

our expected financings and investments;

   

the use of borrowed money to finance a portion of our investments;

   

our ability to make distributions;

   

the adequacy of our cash resources and working capital;

   

the timing of cash flows, if any, from the operations of our portfolio companies;

   

the impact of future acquisitions and divestitures;

   

the effect of changes in tax laws and regulations and interpretations thereof;

   

our ability to maintain our status as a BDC and a regulated investment company (“RIC”) under Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”);

   

actual and potential conflicts of interest with Goldman Sachs Asset Management, L.P. and its affiliates;

   

general price and volume fluctuations in the stock market;

   

the ability of our investment adviser to attract and retain highly talented professionals;

   

the impact on our business from new or amended legislation or regulations;

   

the availability of credit and/or our ability to access the equity and capital markets; and

   

currency fluctuations could adversely affect the results of our investments in foreign companies, particularly to the extent that we receive payments denominated in foreign currency rather than U.S. dollars.

 

3


PART I. FINANCIAL INFORMATION

 

ITEM 1.

FINANCIAL STATEMENTS

Goldman Sachs BDC, Inc.

Consolidated Statements of Assets and Liabilities

(in thousands, except share and per share amounts)

 

     September 30, 2018
(Unaudited)
  December 31, 2017
Assets

 

Investments, at fair value

 

Non-controlled/non-affiliated investments (cost of $1,082,170 and $1,053,226, respectively)

   $ 1,076,354     $ 1,050,179  

Non-controlled affiliated investments (cost of $143,138 and $109,528, respectively)

     126,676       95,468  

Controlled affiliated investments (cost of $119,065 and $114,911, respectively)

     115,290       112,666  
Investments in affiliated money market fund (cost of $4 and $11,539, respectively)      4       11,539  
Cash      4,648       11,606  
Receivable for investments sold      268        
Unrealized appreciation on foreign currency forward contracts      2        
Interest and dividends receivable from non-controlled/affiliated investments and non-controlled/non-affiliated investments      10,815       8,302  
Dividend receivable from controlled affiliated investments      3,000       2,400  
Other income receivable from controlled affiliated investments            1,308  
Deferred financing costs      5,773       4,847  
Deferred offering costs      145       275  
Other assets      228       2  
  

 

 

 

 

 

 

 

Total assets    $ 1,343,203     $ 1,298,592  
  

 

 

 

 

 

 

 

Liabilities

 

Debt (net of debt issuance costs of $5,644 and $3,724, respectively)    $ 573,292     $ 542,526  
Interest and other debt expenses payable      4,594       1,688  
Management fees payable      3,255       4,647  
Incentive fees payable      4,962       3,180  
Distribution payable      18,088       18,059  
Payable for investments purchased      5,465        
Directors’ fees payable      107        
Accrued offering costs      362       289  
Accrued expenses and other liabilities      4,438       2,373  
  

 

 

 

 

 

 

 

Total liabilities    $ 614,563     $ 572,762  
  

 

 

 

 

 

 

 

Commitments and Contingencies (Note 8)     
Net Assets     
Preferred stock, par value $0.001 per share (1,000,000 shares authorized, no shares issued and outstanding)    $ _     $  
Common stock, par value $0.001 per share (200,000,000 shares authorized, 40,196,049 and 40,130,665 shares issued and outstanding as of September 30, 2018 and December 31, 2017, respectively)      40       40  
Paid-in capital in excess of par      802,046       799,936  
Accumulated net realized gain (loss)      (84,304     (85,451
Accumulated undistributed net investment income      38,305       32,078  
Net unrealized appreciation (depreciation)      (26,026     (19,352
Allocated income tax expense      (1,421     (1,421
  

 

 

 

 

 

 

 

TOTAL NET ASSETS    $ 728,640     $ 725,830  
  

 

 

 

 

 

 

 

TOTAL LIABILITIES AND NET ASSETS    $ 1,343,203     $ 1,298,592  
  

 

 

 

 

 

 

 

Net asset value per share    $ 18.13     $ 18.09  

The accompanying notes are part of these unaudited consolidated financial statements.

 

4


Goldman Sachs BDC, Inc.

Consolidated Statements of Operations

(in thousands, except share and per share amounts)

(Unaudited)

 

     For the three months ended
September 30,
  For the nine months ended
September 30,
     2018   2017   2018   2017
Investment Income:

 

   
From non-controlled/non-affiliated investments:         

Interest income

   $ 30,322     $ 28,204     $ 91,340     $ 85,383  

Payment-in-kind

     672             672        

Other income

     508       1,255       1,481       2,090  
  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total investment income from non-controlled/non-affiliated investments

     31,502       29,459       93,493       87,473  
From non-controlled affiliated investments:         

Payment-in-kind

     2,028       1,885       5,931       5,287  

Interest income

     889       354       1,936       1,476  

Dividend income

     86       7       103       20  

Other income

     11       7       26       19  
  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total investment income from non-controlled affiliated investments

     3,014       2,253       7,996       6,802  
From controlled affiliated investments:         

Payment-in-kind

     467             1,273        

Dividend income

     3,000       2,350       8,000       7,250  

Other income

           350             1,096  
  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total investment income from controlled affiliated investments

     3,467       2,700       9,273       8,346  
  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total investment income    $ 37,983     $ 34,412     $ 110,762     $ 102,621  
  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Expenses:         

Interest and other debt expenses

   $ 6,432     $ 4,884     $ 18,328     $ 14,235  

Management fees

     3,255       4,369       12,537       13,181  

Incentive fees

     4,962       4,624       13,988       9,595  

Professional fees

     580       509       2,308       1,443  

Administration, custodian and transfer agent fees

     230       219       693       608  

Directors’ fees

     118       177       336       525  

Other expenses

     412       302       1,091       925  
  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total expenses    $ 15,989     $ 15,084     $ 49,281     $ 40,512  
  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NET INVESTMENT INCOME (LOSS) BEFORE TAXES    $ 21,994     $ 19,328     $ 61,481     $ 62,109  
  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Excise tax    $ 428     $ 383     $ 1,017     $ 1,116  
  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NET INVESTMENT INCOME (LOSS) AFTER TAXES    $ 21,566     $ 18,945     $ 60,464     $ 60,993  
  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net realized and unrealized gains (losses):         
Net realized gain (loss) from:

 

Non-controlled/non-affiliated investments

   $ (1   $ 138     $ 1,766     $ (38,138

Non-controlled affiliated investments

           (2,495     9       (2,495

Foreign currency transactions

     (182           (182      
Net change in unrealized appreciation (depreciation) from:

 

Non controlled/non-affiliated investments

     (1,985     (341     (2,769     24,874  

Non-controlled affiliated investments

     75       1,574       (2,402     (7,942

Controlled affiliated investments

     (481     291       (1,530     (30

Foreign currency forward contracts

     2             2        

Foreign currency translations

     171             171        
  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net realized and unrealized gains (losses)    $ (2,401   $ (833   $ (4,935   $ (23,731
  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Provision) benefit for taxes on realized gain/loss on investments    $     $     $ (446   $  
(Provision) benefit for taxes on unrealized appreciation/depreciation on investments      (146           (146      
  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS    $ 19,019     $ 18,112     $ 54,937     $ 37,262  
  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net investment income (loss) per share (basic and diluted)

   $ 0.54     $ 0.47     $ 1.51     $ 1.60  

Earnings per share (basic and diluted)

   $ 0.47     $ 0.45     $ 1.37     $ 0.98  

Weighted average shares outstanding

     40,192,683       40,106,702       40,171,874       38,130,304  

Distributions declared per share

   $ 0.45     $ 0.45     $ 1.35     $ 1.35  

The accompanying notes are part of these unaudited consolidated financial statements.

 

5


Goldman Sachs BDC, Inc.

Consolidated Statements of Changes in Net Assets

(in thousands, except share and per share amounts)

(Unaudited)

 

     For the nine
months ended
September 30, 2018
  For the nine
months ended
September 30, 2017
Increase (decrease) in net assets resulting from operations:

 

Net investment income

   $ 60,464     $ 60,993  

Net realized gain (loss)

     1,593       (40,633

Net change in unrealized appreciation (depreciation)

     (6,528     16,902  

(Provision) benefit for taxes on realized gain/loss on investments

     (446      

(Provision) benefit for taxes on unrealized appreciation/depreciation on investments

     (146      
  

 

 

 

 

 

 

 

Net increase (decrease) in net assets resulting from operations    $ 54,937     $ 37,262  
  

 

 

 

 

 

 

 

Distributions to stockholders from:     

Net investment income

   $ (54,237   $ (52,445
  

 

 

 

 

 

 

 

Total distributions to stockholders    $ (54,237   $ (52,445
  

 

 

 

 

 

 

 

Capital transactions:     

Issuance of common stock (0 and 3,737,500 shares, respectively)

   $     $ 80,288  

Equity component of convertible notes

     801        

Reinvestment of stockholder distributions (65,384 and 40,743 shares, respectively)

     1,309       917  
  

 

 

 

 

 

 

 

Net increase (decrease) in net assets resulting from capital transactions    $ 2,110     $ 81,205  
  

 

 

 

 

 

 

 

TOTAL INCREASE (DECREASE) IN NET ASSETS    $ 2,810     $ 66,022  
  

 

 

 

 

 

 

 

Net assets at beginning of period    $ 725,830     $ 665,137  
  

 

 

 

 

 

 

 

Net assets at end of period    $ 728,640     $ 731,159  
  

 

 

 

 

 

 

 

Accumulated undistributed net investment income

   $ 38,305     $ 34,172  
  

 

 

 

 

 

 

 

The accompanying notes are part of these unaudited consolidated financial statements.

 

6


Goldman Sachs BDC, Inc.

Consolidated Statements of Cash Flows

(in thousands, except share and per share amounts)

(Unaudited)

 

     For the nine
months ended
September 30, 2018
  For the nine
months ended
September 30, 2017
Cash flows from operating activities:     
Net increase (decrease) in net assets resulting from operations:    $ 54,937     $ 37,262  

Adjustments to reconcile net increase (decrease) in net assets resulting from operations to net cash provided by (used for) operating activities:

    

Purchases of investments

     (319,846     (494,609

Payment-in-kind interest capitalized

     (7,020     (5,177

Investments in affiliated money market fund, net

     11,535       (2

Proceeds from sales of investments and principal repayments

     268,624       472,443  

Net realized (gain) loss on investments

     (1,775     40,633  

Net change in unrealized (appreciation) depreciation on investments

     6,701       (16,902

Net change in unrealized (appreciation) depreciation) on foreign currency forward contracts

     (2      

Amortization of premium and accretion of discount, net

     (6,691     (7,785

Amortization of deferred financing and debt issuance costs

     1,653       1,484  

Amortization of original issue discount on convertible notes

     164       92  
Increase (decrease) in operating assets and liabilities:     

(Increase) decrease in receivable for investments sold

     (268      

(Increase) decrease in interest and dividends receivable

     (3,113     (201

(Increase) decrease in other income receivable

     1,308       1,116  

(Increase) decrease in other assets

     (226     (623

Increase (decrease) in interest and other debt expenses payable

     2,491       1,282  

Increase (decrease) in management fees payable

     (1,392     (37

Increase (decrease) in incentive fees payable

     1,782       3,150  

Increase (decrease) in investments purchased payable

     5,465        

-Increase (decrease) in directors’ fees payable

     107       167  

Increase (decrease) in accrued expenses and other liabilities

     2,065       (784
  

 

 

 

 

 

 

 

Net cash provided by (used for) operating activities    $ 16,499     $ 31,509  
  

 

 

 

 

 

 

 

Cash flows from financing activities:     

Proceeds from issuance of common stock (net of underwriting costs)

   $     $ 81,571  

Offering costs paid

     203       (829

Distributions paid

     (52,899     (49,828

Deferred financing and debt issuance costs paid

     (3,447     (21

Borrowings on debt

     347,436       405,350  

Repayments of debt

     (314,750     (460,350
  

 

 

 

 

 

 

 

Net cash provided by (used for) financing activities    $ (23,457   $ (24,107
  

 

 

 

 

 

 

 

Net increase (decrease) in cash      (6,958     7,402  
Cash, beginning of period      11,606       4,565  
  

 

 

 

 

 

 

 

Cash, end of period    $ 4,648     $ 11,967  
  

 

 

 

 

 

 

 

Supplemental and non-cash financing activities     
Interest expense paid    $ 13,467     $ 10,601  
Accrued but unpaid excise tax expense    $ 1,215     $ 1,079  
Accrued but unpaid deferred financing and debt issuance costs    $ 415     $ 52  
Accrued but unpaid offering costs    $ 362     $ 527  
Accrued but unpaid distributions    $ 18,088     $ 18,049  
Reinvestment of stockholder distributions    $ 1,309     $ 917  
Exchange of Investments    $ 19,583     $  

The accompanying notes are part of these unaudited consolidated financial statements.

 

7


Goldman Sachs BDC, Inc.

Consolidated Schedule of Investments as of September 30, 2018

(in thousands, except share and per share amounts)

(Unaudited)

 

Portfolio Company   Industry   Interest
Rate (+)
 

Reference Rate and

Spread (+)

  Maturity     Par
Amount(++)
    Cost     Fair Value  
Investments at Fair Value – 180.93% #

 

Corporate Debt (1) – 162.87%

 

1st Lien/Senior Secured Debt – 83.69%

 

Accuity Delivery Systems,
LLC^ (2) (3)
  Health Care Providers & Services   9.34%   L + 7.00%; 1.00% Floor     06/13/2023     $ 10,170     $ 9,879     $ 9,865  
Artesyn Embedded Technologies, Inc.(4)   Electronic Equipment, Instruments & Components   9.75%       10/15/2020       20,000       20,000       19,150  
Associations, Inc.(2)   Real Estate Management & Development   11.25%   P + 6.00% (incl. 3.00% PIK); 2.00% Floor     07/30/2024       11,785       11,641       11,637  
Associations, Inc.(2) (5) (6)   Real Estate Management & Development     P + 5.00%; 2.00% Floor     07/30/2024       587       (7     (7
Associations, Inc.(2) (5)   Real Estate Management & Development   11.25%   P + 6.00% (incl. 3.00% PIK); 2.00% Floor     07/30/2024       2,937       1,010       1,009  
Businessolver.com, Inc.(2) (3)   Health Care Technology   9.81%   L + 7.50%; 1.00% Floor     05/15/2023       12,549       12,313       12,298  
Businessolver.com, Inc.(2) (3) (5) (6)   Health Care Technology     L + 7.50%; 1.00% Floor     05/15/2023       1,569       (29     (31
Businessolver.com, Inc.(2) (3) (5)   Health Care Technology   9.81%   L + 7.50%; 1.00% Floor     05/15/2023       1,882       293       276  
Collaborative Imaging,
LLC^^^ (2) (3)
  Health Care Providers & Services   8.85%   L + 6.50%; 1.00% Floor     03/28/2025       7,600       7,492       7,448  
Collaborative Imaging,
LLC^^^ (2) (3)
  Health Care Providers & Services   8.85%   L + 6.50%; 1.00% Floor     03/28/2025       1,300       1,282       1,274  
Continuum Managed Services
LLC(2) (3)
  IT Services   8.25%   L + 6.00%; 1.00% Floor     06/08/2023       21,389       20,902       20,961  
Continuum Managed Services
LLC(2) (3) (5) (6)
  IT Services     L + 6.00%; 1.00% Floor     06/08/2023       1,800       (38     (36
Continuum Managed Services
LLC(2) (3) (5) (6)
  IT Services     L + 6.00%; 1.00% Floor     06/08/2022       2,220       (45     (44
Dade Paper & Bag, LLC(2) (3)   Distributors   9.74%   L + 7.50%; 1.00% Floor     06/10/2024       10,961       10,773       10,824  
Dade Paper & Bag, LLC(2) (3)   Distributors   9.24%   L + 7.00%; 1.00% Floor     06/10/2024       1,398       1,385       1,346  
Datto, Inc.(2) (3)   IT Services   10.15%   L + 8.00%; 1.00% Floor     12/07/2022       35,750       35,132       35,124  
Datto, Inc.(2) (3) (5) (6)   IT Services     L + 8.00%; 1.00% Floor     12/07/2022       2,406       (40     (42
Diligent Corporation(2)   Professional Services   8.03%   L + 5.50%; 1.00% Floor     04/14/2022     16,219       18,526       18,549  
Diligent Corporation(2) (5)   Professional Services   8.03%   L + 5.50%; 1.00% Floor     04/14/2022       760       502       502  
Elemica, Inc.(3)   Software   9.24%   L + 7.00%; 1.00% Floor     07/07/2021       41,544       40,896       40,921  
Elemica, Inc.(3) (5) (6)   Software     L + 7.00%; 1.00% Floor     07/07/2021       6,000       (88     (90
Empirix, Inc.(2)   Diversified Telecommunication Services   8.47%   L + 6.25%; 1.00% Floor     09/25/2024       22,300       21,911       21,910  
Empirix, Inc.(2) (5) (6)   Diversified Telecommunication Services     L + 6.25%; 1.00% Floor     09/25/2023       1,300       (23     (23
Fenergo Finance 3 Limited(2) (7)   Diversified Financial Services   8.64%   L + 6.25%; 1.00% Floor     09/05/2024     17,800       20,332       20,305  
Fenergo Finance 3 Limited(2) (5) (6) (7)   Diversified Financial Services     L + 6.25%; 1.00% Floor     09/05/2024       1,182       (20     (21
Fenergo Finance 3 Limited(2) (5) (6) (7)   Diversified Financial Services     L + 6.25%; 1.00% Floor     09/05/2024     1,500       (30     (33
Gastro Health Holdco, LLC(2)   Health Care Providers & Services   8.32%   L + 6.00%; 1.00% Floor     09/04/2024       10,200       9,998       9,996  
Gastro Health Holdco, LLC(2) (5) (6)   Health Care Providers & Services     L + 6.00%; 1.00% Floor     09/04/2023       2,000       (39     (40
Gastro Health Holdco, LLC(2) (5) (6)   Health Care Providers & Services     L + 6.00%; 1.00% Floor     09/04/2024       5,100       (63     (64
Heligear Acquisition Co.(3) (4)   Aerospace & Defense   10.25%       10/15/2019       17,500       17,418       17,150  
Hygiena Borrower LLC(3)   Life Sciences Tools & Services   6.38%   L + 4.00%; 1.00% Floor     08/26/2022       3,779       3,725       3,703  
Hygiena Borrower LLC(3) (5) (6)   Life Sciences Tools & Services     L + 4.00%; 1.00% Floor     08/26/2022       571       (4     (12
Hygiena Borrower LLC (3) (5) (6)   Life Sciences Tools & Services     L + 4.00%; 1.00% Floor     08/26/2022       380       (5     (8
iCIMS, Inc.(2)   Software   8.64%   L + 6.50%; 1.00% Floor     09/12/2024       29,895       29,301       29,297  
iCIMS, Inc.(2) (5) (6)   Software     L + 6.50%; 1.00% Floor     09/12/2024       1,868       (37     (37
Infinity Sales Group(3) (8)   Media   12.89%   L + 10.50%; 1.00% Floor     11/23/2020       29,529       29,853       29,529  
Integral Ad Science, Inc.(2) (3)   Media   9.50%   L + 7.25% (incl. 1.25% PIK); 1.00% Floor     07/19/2024       23,656       23,197       23,183  
Integral Ad Science, Inc.(2) (3) (5) (6)   Media     L + 6.00%; 1.00% Floor     07/19/2023       1,815       (35     (36
Iracore International Holdings,
Inc.^ (3)
  Energy Equipment & Services   11.50%   L + 9.00%; 1.00% Floor     04/12/2021       3,389       3,389       3,389  
Kawa Solar Holdings
Limited^ (3) (7) (9)
  Construction & Engineering     L + 8.00% PIK     05/26/2020       8,562       8,482       8,006  

 

The accompanying notes are part of these unaudited consolidated financial statements.

 

8


Goldman Sachs BDC, Inc.

Consolidated Schedule of Investments as of September 30, 2018 (continued)

(in thousands, except share and per share amounts)

(Unaudited)

 

Portfolio Company   Industry   Interest
Rate (+)
  Reference Rate and
Spread (+)
  Maturity     Par
Amount(++)
    Cost     Fair Value  
Kawa Solar Holdings Limited^ (3) (7) (10)   Construction & Engineering         05/26/2020     $ 4,869     $ 2,351     $  
Legacy Buyer Corp.(3)   Health Care Providers & Services   10.39%   L + 8.00%; 1.00% Floor     10/24/2019       23,034       22,910       23,034  
Legacy Buyer Corp.(3) (5) (6)   Health Care Providers & Services     L + 8.00%; 1.00% Floor     10/24/2019       2,500       (13      
Lithium Technologies, Inc.(2) (3) (5)   Internet Software & Services   10.35%   L + 8.00%; 1.00% Floor     10/03/2022       38,966       20,701       20,820  
Lithium Technologies, Inc (2) (3) (5) (6)   Internet Software & Services     L + 8.00%; 1.00% Floor     10/03/2022       2,684       (28     (21
Madison-Kipp Corporation(3)   Machinery   11.25%   L + 9.00%; 1.00% Floor     05/26/2020       29,972       29,734       29,897  
Netvoyage Corporation(2) (3)   Software   11.25%   L + 9.00%; 1.00% Floor     03/24/2022       8,623       8,491       8,515  
Netvoyage Corporation(2) (3) (5) (6)   Software     L + 9.00%; 1.00% Floor     03/24/2022       654       (9     (8
Picture Head Midco LLC(2)   Media   8.99%   L + 6.75%; 1.00% Floor     08/31/2023       23,120       22,664       22,658  
Picture Head Midco LLC(2) (5) (6)   Media     L + 6.75%; 1.00% Floor     08/31/2023       2,540       (25     (25
Picture Head Midco LLC(2) (5) (6)   Media     L + 6.75%; 1.00% Floor     08/31/2023       2,540       (50     (51
SF Home Décor, LLC(2)   Household Products   11.89%   L + 9.50%; 1.00% Floor     07/13/2022       20,063       19,575       19,461  
SPay, Inc.(2) (3)   Internet Software & Services   7.91%   L + 5.75%; 1.00% Floor     06/17/2024       10,300       10,102       10,094  
SPay, Inc.(2) (3) (5) (6)   Internet Software & Services     L + 5.75%; 1.00% Floor     06/17/2024       5,720       (54     (114
SPay, Inc.(2) (3) (5)   Internet Software & Services   8.02%   L + 5.75%; 1.00% Floor     06/17/2024       1,140       814       813  
The Merit Distribution Group, LLC(3)   Distributors   13.64%   L + 11.25%; 0.50% Floor     04/08/2021       22,750       22,411       22,750  
US Med Acquisition, Inc.(3)   Health Care Equipment & Supplies   11.39%   L + 9.00%; 1.00% Floor     08/13/2021       30,031       29,694       27,704  
Vexos, Inc.(3)   Electronic Equipment, Instruments & Components   11.84%   L + 9.50%; 1.00% Floor     10/09/2019       36,547       36,353       35,999  
Xactly Corporation(2) (3)   Internet Software & Services   9.50%   L + 7.25%; 1.00% Floor     07/29/2022       22,860       22,483       22,574  
Xactly Corporation(2) (3) (5) (6)   Internet Software & Services     L + 7.25%; 1.00% Floor     07/29/2022       1,697       (26     (21
Yasso, Inc.(2) (3)   Food Products   9.99%   L + 7.75%; 1.00% Floor     03/23/2022       8,964       8,830       8,605  
           

 

 

   

 

 

 

Total 1st Lien/Senior Secured Debt

            616,037       609,812  
1st Lien/Last-Out Unitranche (11) – 18.13%

 

Avenue Stores, LLC(3)   Specialty Retail   10.24%   L + 8.00%; 1.00% Floor     09/19/2019       30,000       29,823       29,100  
Intelligent Document Solutions, Inc.(2) (3)   Diversified Financial Services   8.39%   L + 6.00%; 1.00% Floor     02/28/2024       11,900       11,542       11,513  
Mervin Manufacturing, Inc.(3)   Leisure Equipment & Products   9.84%   L + 7.50%; 1.00% Floor     10/10/2019       11,165       11,106       10,606  
NTS Communications, Inc.^ (3)   Diversified Telecommunication Services   11.39% PIK   L + 9.00%; 1.25% Floor     06/06/2019       6,317       6,085       6,317  
NTS Communications, Inc.^ (3)   Diversified Telecommunication Services   11.39% PIK   L + 9.00%; 1.25% Floor     06/06/2019       57,068       55,968       51,363  
RugsUSA, LLC(2) (3)   Household Products   8.89%   L + 6.50%; 1.00% Floor     04/30/2023       5,840       5,785       5,782  
Smarsh, Inc.(2) (3)   Software   10.13%   L + 7.88%; 1.00% Floor     03/31/2021       17,622       17,405       17,402  
           

 

 

   

 

 

 

Total 1st Lien/Last-Out Unitranche

            137,714       132,083  
2nd Lien/Senior Secured Debt – 60.17%

 

American Dental Partners, Inc.(2) (3)   Health Care Providers & Services   10.89%   L + 8.50%; 1.00% Floor     09/25/2023       8,500       8,325       8,330  
ASC Acquisition Holdings, LLC(3)   Distributors   19.34%   L + 17.00% (incl. 4.00% PIK); 1.00% Floor     12/15/2022       30,000       29,354       29,400  
ASC Acquisition Holdings, LLC(3)   Distributors   19.34%   L + 17.00% (incl. 4.00% PIK); 1.00% Floor     12/15/2022       24,600       24,151       24,108  
Bolttech Mannings, Inc.^^   Commercial Services & Supplies   10.32%   L + 8.00%     11/19/2021       18,132       18,132       18,132  
Country Fresh Holdings, LLC(2) (3)   Food Products   11.09%   L + 8.75%; 1.00% Floor     10/02/2023       9,400       9,240       8,742  
DiscoverOrg, LLC(3)   Software   10.75%   L + 8.50%; 1.00% Floor     02/23/2024       59,500       58,505       59,054  
DuBois Chemicals, Inc.(2) (12)   Chemicals   10.21%   L + 8.00%; 1.00% Floor     03/15/2025       26,220       25,762       25,958  
ERC Finance, LLC(2) (3)   Health Care Providers & Services   10.46%   L + 8.22%; 1.00% Floor     09/22/2025       19,800       19,394       19,404  

 

The accompanying notes are part of these unaudited consolidated financial statements.

 

9


Goldman Sachs BDC, Inc.

Consolidated Schedule of Investments as of September 30, 2018 (continued)

(in thousands, except share and per share amounts)

(Unaudited)

 

Portfolio Company   Industry   Interest
Rate (+)
  Reference Rate and
Spread (+)
  Maturity    

Par

Amount(++)

    Cost     Fair Value  
Genesis Acquisition Co.(2)   Diversified Financial Services   9.74%   L + 7.50%;     07/31/2025     $ 7,000     $ 6,828     $ 6,825  
Genesis Acquisition Co.(2) (5) (6)   Diversified Financial Services     L + 7.50%;     07/31/2025       1,800       (22     (23
Hygiena Borrower LLC(3)   Life Sciences Tools & Services   10.14%   L + 7.75%; 1.00% Floor     08/26/2023       1,860       1,824       1,823  
Hygiena Borrower LLC(3) (5)   Life Sciences Tools & Services   10.06%   L + 7.75%; 1.00% Floor     08/26/2023       680       90       84  
ICP Industrial, Inc.(2) (3)   Chemicals   10.38%   L + 8.25%; 1.00% Floor     05/03/2024       16,600       16,229       16,227  
ICP Industrial, Inc.(2) (3)   Chemicals   10.48%   L + 8.25%; 1.00% Floor     05/03/2024       3,800       3,716       3,715  
IHS Intermediate Inc.(3)   Health Care Providers & Services   10.59%   L + 8.25%; 1.00% Floor     07/20/2022       10,000       9,873       9,625  
Institutional Shareholder Services Inc.(2)   Diversified Financial Services   10.14%   L + 7.75%; 1.00% Floor     10/16/2025       5,100       5,077       5,126  
Market Track, LLC(2) (3)   Internet Catalog & Retail   9.94%   L + 7.75%; 1.00% Floor     06/05/2025       22,200       21,612       21,312  
MedPlast Holdings, Inc.(2)   Health Care Equipment & Supplies   10.09%   L + 7.75%     07/02/2026       8,260       8,179       8,363  
MPI Products LLC(3)   Auto Components   11.34%   L + 9.00%; 1.00% Floor     01/30/2020       20,000       19,907       19,900  
National Spine and Pain Centers, LLC(2) (3)   Health Care Providers & Services   10.49%   L + 8.25%; 1.00% Floor     12/02/2024       19,100       18,600       18,623  
Oasis Outsourcing Holdings,
Inc.(2) (3)
  Diversified Financial Services   9.64%   L + 7.25%; 1.00% Floor     07/01/2024       22,760       22,465       22,475  
Odyssey Logistics & Technology Corporation(2) (3)   Road & Rail   10.24%   L + 8.00%; 1.00% Floor     10/12/2025       18,722       18,330       18,441  
P2 Upstream Acquisition Co.   Software   10.35%   L + 8.00%; 1.00% Floor     04/30/2021       4,500       4,481       4,179  
Pathway Partners Vet Management Company, LLC   Health Care Providers & Services   10.24%  

L + 8.00%; 1.00% Floor

    10/10/2025       18,993       18,820       18,803  
Pathway Partners Vet Management Company, LLC(5)   Health Care Providers & Services   10.24%  

L + 8.00%; 1.00% Floor

    10/10/2025       643       385       385  
Pathway Partners Vet Management Company, LLC   Health Care Providers & Services   10.24%  

L + 8.00%; 1.00% Floor

    10/10/2025       1,007       998       997  
SMB Shipping Logistics, LLC(2) (3)   Air Freight & Logistics   11.10%   L + 8.75%; 1.00% Floor     02/03/2025       25,000       24,680       24,687  
Spectrum Plastics Group, Inc.(2)   Containers & Packaging   9.24%   L + 7.00%; 1.00% Floor     01/31/2026       6,248       6,218       6,154  
Young Innovations, Inc.(2) (3)   Health Care Equipment & Supplies   10.14%   L + 7.75%; 1.00% Floor     11/07/2025       15,300       14,877       14,879  
Zep Inc.(2)   Chemicals   10.64%   L + 8.25%; 1.00% Floor     08/11/2025       23,800       23,260       22,669  
           

 

 

   

 

 

 

Total 2nd Lien/Senior Secured Debt

            439,290       438,397  
Unsecured Debt - 0.88%

 

CB-HDT Holdings, Inc.^ (3)   Aerospace & Defense   12.00% PIK       12/15/2019       3,707       3,707       3,707  
CB-HDT Holdings, Inc.^ (3)   Aerospace & Defense   12.00% PIK       03/05/2021       1,618       1,618       1,618  
Conergy Asia & ME Pte.
LTD.^ (3) (7)
  Construction & Engineering   10.00%       05/26/2020       1,064       1,064       1,064  
           

 

 

   

 

 

 

Total Unsecured Debt

              6,389       6,389  
           

 

 

   

 

 

 

Total Corporate Debt

              1,199,430       1,186,681  
Portfolio Company   Industry        Coupon          Shares     Cost     Fair Value  
Preferred Stock (1) – 2.41%              
Accuity Delivery Systems,
LLC^ (2) (3) (4) (10)
  Health Care Providers & Services           97,130     $ 3,200     $ 3,520  
CB-HDT Holdings,
Inc.^ (3) (4) (10)
  Aerospace & Defense           1,108,333       10,186       14,087  
Conergy Asia Holdings,
Ltd.^ (3) (4) (7) (10)
  Construction & Engineering           600,000       600        
Kawa Solar Holdings
Limited^ (3) (4) (7) (9)
  Construction & Engineering     8.00% PIK       57,272       778        
NTS Communications,
Inc.^ (3) (4) (10)
  Diversified Telecommunication Services           263       187        
           

 

 

   

 

 

 

Total Preferred Stock

            14,951       17,607  

 

The accompanying notes are part of these unaudited consolidated financial statements.

 

10


Goldman Sachs BDC, Inc.

Consolidated Schedule of Investments as of September 30, 2018 (continued)

(in thousands, except share and per share amounts)

(Unaudited)

 

Portfolio Company   Industry       

Coupon

        

Shares

    Cost     Fair
Value
 
Common Stock (1) – 2.94%

 

Bolttech Mannings, Inc.^^ (3) (4) (10)   Commercial Services & Supplies           8,000     $ 6,591     $ 4,570  
CB-HDT Holdings, Inc.^ (3) (4) (10)   Aerospace & Defense           453,383       2,393       4,579  
Collaborative Imaging Holdco, LLC – Class B^^^ (2) (3) (4)   Health Care Providers & Services           8,464       1,141       1,264  
Collaborative Imaging Holdco, LLC – Class C^^^ (2) (3) (4) (7) (10)   Health Care Providers & Services           7,988     $ 159       180  
Conergy Asia Holdings,
Ltd.^ (3) (4) (7) (10)
  Construction & Engineering           2,000       4,700        
Continuum Managed Services LLC – Class A(2) (3) (4) (10)   IT Services           733       732       823  
Continuum Managed Services LLC – Class B(2) (3) (4) (10)   IT Services           496,698       7       387  
Elah Holdings, Inc.^ (2) (3) (4) (10)   Capital Markets           46,214       2,234       2,234  
Iracore International Holdings,
Inc.^ (3) (4) (10)
  Energy Equipment & Services           28,898       7,003       5,705  
Kawa Solar Holdings
Limited^ (3) (4) (7) (10)
  Construction & Engineering           1,399,556              
National Spine and Pain Centers,
LLC(2) (3) (4) (10)
  Health Care Providers & Services           600       600       372  
NTS Communications,
Inc.^ (3) (4) (10)
  Diversified Telecommunication Services           595,215       3        
Prairie Provident Resources,
Inc.^^^ (7) (10)
  Oil, Gas & Consumable Fuels           3,579,988       9,237       1,056  
Yasso, Inc.(2) (3) (4) (10)   Food Products           850       850       274  
           

 

 

   

 

 

 

Total Common Stock

            35,650       21,444  
Portfolio Company               LLC Interest     Cost     Fair
Value
 
Investment Funds & Vehicles (1) – 12.71%

 

Senior Credit Fund, LLC^^ (7)

          $ 94,342     $ 94,342     $ 92,588  
           

 

 

   

 

 

 

Total Investment Funds & Vehicles

            94,342       92,588  
               Yield          Shares     Cost     Fair
Value
 
Investments in Affiliated Money Market Fund (1) – 0.00% #

 

Goldman Sachs Financial Square Government Fund – Institutional Shares^^^     1.98%(13)       3,675     $ 4     $ 4  
           

 

 

   

 

 

 

Total Investments in Affiliated Money Market Fund

            4       4  
           

 

 

   

 

 

 
TOTAL INVESTMENTS – 180.93%

 

  $ 1,344,377     $ 1,318,324  
           

 

 

   

 

 

 
LIABILITIES IN EXCESS OF OTHER ASSETS – (80.93%)

 

  $ (589,684
             

 

 

 
NET ASSETS – 100.00%

 

  $ 728,640  
             

 

 

 

 

(+)   

The Consolidated Schedule of Investments discloses the actual interest rate for partially or fully funded debt in effect as of the reporting date. Variable rate loans bear interest at a rate that may be determined by reference to either LIBOR (“L”) or alternate base rate (commonly based on the Prime Rate (“P”)), at the borrower’s option, which reset periodically based on the terms of the credit agreement. L loans are typically indexed to 12 month, 6 month, 3 month, 2 month, 1 month or 1 week L rates. As of September 30, 2018, rates for the 12 month, 6 month, 3 month, 2 month, 1 month and 1 week L are 2.92%, 2.60%, 2.40%, 2.31%, 2.26% and 2.20%, respectively. As of September 30, 2018, P was 5.25%. For investments with multiple reference rates or alternate base rates, the interest rate shown is the weighted average interest rate in effect at September 30, 2018.

(++)   

Par amount is denominated in U.S. Dollars (“$”) unless noted as denominated in Euro (“€”).

#   

Percentages are based on net assets.

^   

As defined in the Investment Company Act of 1940, the portfolio company is deemed to be an “affiliated person” of the Company because the Company owns, either directly or indirectly, 5% or more of the portfolio company’s outstanding voting securities. See Note 3 “ Significant Agreements and Related Party Transactions”.

 

The accompanying notes are part of these unaudited consolidated financial statements.

 

11


Goldman Sachs BDC, Inc.

Consolidated Schedule of Investments as of September 30, 2018 (continued)

(in thousands, except share and per share amounts)

(Unaudited)

 

^^  

As defined in the Investment Company Act of 1940, the portfolio company is deemed to be a “controlled affiliated person” of the Company because the Company owns, either directly or indirectly, 25% or more of the portfolio company’s outstanding voting securities or has the power to exercise control over management or policies of such portfolio company. See Note 3 “Significant Agreements and Related Party Transactions”.

^^^   

The portfolio company is otherwise deemed to be an “affiliated person” of the Company under the Investment Company Act of 1940. See Note 3 “Significant Agreements and Related Party Transactions”.

(1)   

Assets are pledged as collateral for the Revolving Credit Facility. See Note 6 “Debt”.

(2)   

Represent co-investments made with the Company’s affiliates in accordance with the terms of the exemptive relief that the Company received from the U.S. Securities and Exchange Commission. See Note 3 “Significant Agreements and Related Party Transactions”.

(3)   

The fair value of the investment was determined using significant unobservable inputs. See Note 5 “Fair Value Measurement”.

(4)   

Security exempt from registration under the Securities Act of 1933 (the “Securities Act”), and may be deemed to be “restricted securities” under the Securities Act. As of September 30, 2018, the aggregate fair value of these securities is $74,295 or 10.20% of the Company’s net assets. The acquisition dates of the restricted securities are as follows:

 

Investment    Acquisition Date

Accuity Delivery Systems, LLC – Preferred Stock

   06/13/2018

Artesyn Embedded Technologies, Inc. – 1st Lien/Senior Secured Debt

   09/26/2013

Bolttech Mannings, Inc. – Common Stock

   12/22/2017

CB-HDT Holdings, Inc. – Preferred Stock

   07/01/2016

CB-HDT Holdings, Inc. – Common Stock

   07/01/2016

Collaborative Imaging Holdco, LLC – Class B – Common Stock

   03/30/2018

Collaborative Imaging Holdco, LLC – Class C – Common Stock

   03/30/2018

Conergy Asia Holdings, Ltd. – Common Stock

   07/31/2017

Conergy Asia Holdings, Ltd. – Preferred Stock

   08/23/2017

Continuum Managed Services LLC – Class A – Common Stock

   06/08/2017

Continuum Managed Services LLC – Class B – Common Stock

   06/08/2017

Elah Holdings, Inc. – Common Stock

   05/09/2018

Heligear Acquisition Co. – 1st Lien/Senior Secured Debt

   09/30/2014

Iracore International Holdings, Inc. – Common Stock

   04/13/2017

Kawa Solar Holdings Limited – Common Stock

   08/17/2016

Kawa Solar Holdings Limited – Preferred Stock

   10/25/2016

NTS Communications, Inc. – Preferred Stock

   07/22/2016

NTS Communications, Inc. – Common Stock

   07/22/2016

National Spine and Pain Centers, LLC – Common Stock

   06/02/2017

Yasso, Inc. – Common Stock

   03/23/2017

 

(5)   

Position or portion thereof is an unfunded loan commitment, and no interest is being earned on the unfunded portion. The unfunded loan commitment may be subject to a commitment termination date that may expire prior to the maturity date stated. See Note 7 “Commitments and Contingencies”.

(6)   

The negative cost is the result of the capitalized discount being greater than the principal amount outstanding on the loan. The negative fair value is the result of the capitalized discount on the loan.

(7)   

The investment is not a qualifying asset under Section 55(a) of the Investment Company Act of 1940. The Company may not acquire any non-qualifying asset unless, at the time of acquisition, qualifying assets represent at least 70% of the Company’s total assets. As of September 30, 2018 the aggregate fair value of these securities is $123,145 or 9.17% of the Company’s total assets.

(8)   

The investment includes an exit fee that is receivable upon repayment of the loan. See Note 2 “Significant Accounting Policies”.

(9)   

The investment is on non-accrual status as of September 30, 2018.

(10)   

Non-income producing security.

(11)   

In exchange for the greater risk of loss, the “last-out” portion of the Company’s unitranche loan investment generally earns a higher interest rate than the “first-out” portions. The “first-out” portion of the loan would generally receive priority with respect to payment of principal, interest and any other amounts due thereunder over the “last-out” portion that the Company would continue to hold.

(12)   

Position or portion thereof unsettled as of September 30, 2018.

(13)   

The rate shown is the annualized seven-day yield as of September 30, 2018.

PIK – Payment-In-Kind

ADDITIONAL INFORMATION

 

Foreign currency forward contracts  
Counterparty    Currency Purchased    Currency Sold    Settlement      Unrealized Appreciation
(Depreciation)
 

Bank of America, N.A.

   USD 81    EUR 70      10/03/2018      $  

Bank of America, N.A.

   USD 285    EUR 245      11/05/2018        1  

Bank of America, N.A.

   USD 352    EUR 300      01/04/2019         

Bank of America, N.A.

   USD 288    EUR 245      02/05/2019        1  

Bank of America, N.A.

   USD 355    EUR 301      04/03/2019         

Bank of America, N.A.

   USD 308    EUR 260      05/06/2019         

Bank of America, N.A.

   USD 375    EUR 315      07/03/2019         

Bank of America, N.A.

   USD 311    EUR 260      08/05/2019         

Bank of America, N.A.

   USD 394    EUR 329      10/04/2019         

Bank of America, N.A.

   USD 324    EUR 269      11/05/2019         

Bank of America, N.A.

   USD 393    EUR 325      01/06/2020         

Bank of America, N.A.

   USD 399    EUR 327      04/06/2020         

Bank of America, N.A.

   USD 400    EUR 325      07/06/2020         
            $ 2  
           

 

 

 

Currency Abbreviations:

EUR – EURO

USD – U.S. Dollar

 

The accompanying notes are part of these unaudited consolidated financial statements.

 

12


Goldman Sachs BDC, Inc.

Consolidated Schedule of Investments as of December 31, 2017

(in thousands, except share and per share amounts)

 

Portfolio Company   Industry   Interest(+)   Maturity     Par Amount     Cost     Fair Value  
Investments at Fair Value – 173.36% #

 

Corporate Debt (1) – 155.62%

 

1st Lien/Senior Secured Debt – 56.08%

 

Artesyn Embedded Technologies, Inc.(2)   Electronic Equipment, Instruments & Components   9.75%     10/15/2020     $ 20,000     $ 20,000     $ 19,600  
Continuum Managed Services
LLC(3)(4)
  IT Services   10.32% (L + 8.75%; 1.00% Floor)     06/08/2023       21,552       20,999       21,013  
Continuum Managed Services
LLC(3)(4)(5)(6)
  IT Services   (L + 8.75%; 1.00% Floor)     06/08/2023       1,800       (44     (45
Continuum Managed Services
LLC(3)(4)(5)(6)
  IT Services   (L + 8.75%; 1.00% Floor)     06/08/2022       2,220       (54     (56
Dade Paper & Bag, LLC(3)(4)   Distributors   8.93% (L + 7.50%; 1.00% Floor)     06/10/2024       11,045       10,836       10,851  
Datto, Inc.(3)   IT Services   9.41% (L + 8.00%; 1.00% Floor)     12/07/2022       35,750       35,044       35,035  
Datto, Inc.(3)(5)(6)   IT Services   (L + 8.00%; 1.00% Floor)     12/07/2022       2,406       (48     (48
Elemica, Inc.(4)   Software   9.57% (L + 8.00%; 1.00% Floor)     07/07/2021       41,863       41,059       41,130  
Elemica, Inc.(4)(5)(6)   Software   (L + 8.00%; 1.00% Floor)     07/07/2021       6,000       (111     (105
Heligear Acquisition Co.(2)(4)   Aerospace & Defense   10.25%     10/15/2019       17,500       17,365       17,719  
Infinity Sales Group(4)   Media   12.20% (L + 10.50%; 1.00% Floor)     11/21/2018       28,277       28,137       27,146  
Iracore International Holdings, Inc.^(4)   Energy Equipment & Services   10.63% (L + 9.00%; 1.00% Floor)     04/12/2021       3,389       3,389       3,389  
Kawa Solar Holdings Limited^(4)(7)   Construction & Engineering   9.69% PIK (L + 8.00%)     07/02/2018       9,720       9,624       8,918  
Kawa Solar Holdings Limited^(4)(7)(8)   Construction & Engineering       07/02/2018       4,229       1,711        
Legacy Buyer Corp.(4)   Health Care Providers & Services   9.70% (L + 8.00%; 1.00% Floor)     10/24/2019       24,495       24,276       24,127  
Legacy Buyer Corp.(4)(5)(6)   Health Care Providers & Services   (L + 8.00%; 1.00% Floor)     10/24/2019       2,500       (22     (37
Lithium Technologies, Inc.(3)   Internet Software & Services   9.39% (L + 8.00%; 1.00% Floor)     10/03/2022       21,100       20,642       20,625  
Lithium Technologies, Inc.(3)(5)(6)   Internet Software & Services   (L + 8.00%; 1.00% Floor)     10/03/2022       1,544       (33     (35
Madison-Kipp Corporation(4)   Machinery   10.57% (L + 9.00%; 1.00% Floor)     05/26/2020       33,447       33,075       33,280  
Netvoyage Corporation(3)(4)   Software   11.07% (L + 9.50%; 1.00% Floor)     03/24/2022       7,849       7,710       7,711  
Netvoyage Corporation(3)(4)(5)(6)   Software   (L + 9.50%; 1.00% Floor)     03/24/2022       654       (11     (11
SF Home Décor, LLC(3)(4)   Household Products   11.20% (L + 9.50%; 1.00% Floor)     07/13/2022       20,865       20,281       20,239  
The Merit Distribution Group, LLC(4)   Distributors   12.95% (L + 11.25%; 0.50% Floor)     04/08/2021       23,875       23,433       23,875  
US Med Acquisition, Inc.(4)   Health Care Equipment & Supplies   10.69% (L + 9.00%; 1.00% Floor)     08/13/2021       30,264       29,850       28,448  
Vexos, Inc.(4)   Electronic Equipment, Instruments & Components   10.84% (L + 9.50%; 1.00% Floor)     10/09/2019       37,485       37,153       36,173  
Xactly Corporation(3)(4)   Internet Software & Services   8.82% (L + 7.25%; 1.00% Floor)     07/29/2022       19,800       19,430       19,404  
Xactly Corporation(3)(4)(5)(6)   Internet Software & Services   (L + 7.25%; 1.00% Floor)     07/29/2022       1,697       (31     (34
Yasso, Inc.(3)(4)   Food Products   9.44% (L + 7.75%; 1.00% Floor)     03/23/2022       9,032       8,874       8,761  
         

 

 

   

 

 

 

Total 1st Lien/Senior Secured Debt

        412,534       407,073  
1st Lien/Last-Out Unitranche (9) – 37.75%          
Associations, Inc.(4)   Real Estate Management & Development   8.69% (L + 7.00%; 1.00% Floor)     12/23/2019       57,541       57,019       57,253  
Avenue Stores, LLC(4)   Specialty Retail   11.50% (P + 7.00%)     09/19/2019       30,000       29,696       29,550  
Bolttech Mannings, Inc.^^(4)   Commercial Services & Supplies   9.66% PIK (L + 8.00%; 1.00% Floor)     12/22/2022       8,087       8,087       8,087  
Bolttech Mannings, Inc.^^   Commercial Services & Supplies   9.66% PIK (L + 8.00%; 1.00% Floor)     12/22/2022       5,891       5,891       5,891  
Bolttech Mannings, Inc.^^(5)   Commercial Services & Supplies   (L + 8.00%; 1.00% Floor)     12/21/2018       1,500              
Intelligent Document Solutions, Inc.(3)(4)   Diversified Financial Services   9.95% (L + 8.25%; 1.00% Floor)     08/31/2022       11,900       11,618       11,722  
Mervin Manufacturing, Inc.(4)   Leisure Equipment & Products   8.86% (L + 7.50%; 1.00% Floor)     10/10/2019       11,165       11,066       10,327  
myON, LLC(3)(4)   Internet Software & Services   10.07% (L + 8.50%; 1.00% Floor)     02/17/2022       7,100       6,977       6,976  
NTS Communications, Inc.^(4)   Diversified Telecommunication Services   10.70% PIK (L + 9.00%; 1.25% Floor)     06/06/2019       58,400       55,818       51,538  
Pro-Pet, LLC(4)   Household Products   8.88% (L + 7.25%; 0.75% Floor)     11/21/2019       31,600       31,253       31,284  

 

The accompanying notes are part of these unaudited consolidated financial statements.

 

13


Goldman Sachs BDC, Inc.

Consolidated Schedule of Investments as of December 31, 2017 (continued)

(in thousands, except share and per share amounts)

 

Portfolio Company   Industry   Interest(+)   Maturity     Par Amount     Cost     Fair Value  
Smarsh, Inc.(3) (4)   Software   9.45% (L + 7.88%; 1.00% Floor)     03/31/2021     $ 17,711     $ 17,437     $ 17,445  
The Service Companies Inc.(4)   Professional Services   11.95% (L + 10.25%; 1.00% Floor)     03/26/2019       44,448       44,169       43,892  
         

 

 

   

 

 

 

Total 1st Lien/Last-Out Unitranche

        279,031       273,965  
2nd Lien/Senior Secured Debt – 61.25%          
American Dental Partners, Inc.(3)(4)   Health Care Providers & Services   10.19% (L + 8.50%; 1.00% Floor)     09/25/2023       8,500       8,306       8,309  
ASC Acquisition Holdings, LLC(4)   Distributors   14.34% (L + 13.00%; 1.00% Floor)     12/15/2022       30,000       29,275       29,700  
Country Fresh Holdings, LLC(3)(4)   Food Products   10.11% (L + 8.75%; 1.00% Floor)     10/02/2023       9,400       9,222       9,118  
DiscoverOrg, LLC(4)   Software   10.07% (L + 8.50%; 1.00% Floor)     02/23/2024       59,500       58,404       58,905  
DuBois Chemicals, Inc.(3)(4)   Chemicals   9.49% (L + 8.00%; 1.00% Floor)     03/15/2025       20,700       20,265       20,493  
ERC Finance, LLC(3)(4)   Health Care Providers & Services   9.58% (L + 8.22%; 1.00% Floor)     09/21/2025       19,800       19,365       19,354  
Global Tel*Link Corporation   Diversified Telecommunication Services   9.94% (L + 8.25%; 1.25% Floor)     11/23/2020       23,000       22,778       22,971  
ICP Industrial, Inc.(3)   Chemicals   9.62% (L + 8.25%; 1.00% Floor)     05/03/2024       16,600       16,193       16,185  
ICP Industrial, Inc.(3)(5)(6)   Chemicals   (L + 8.25%; 1.00% Floor)     05/03/2024       3,800       (93     (95
IHS Intermediate Inc.(4)   Health Care Providers & Services   9.62% (L + 8.25%; 1.00% Floor)     07/20/2022       10,000       9,853       9,550  
Institutional Shareholder Services
Inc.(3)
  Diversified Financial Services   9.11% (L + 7.75%; 1.00% Floor)     10/16/2025       5,100       5,075       5,113  
Market Track, LLC(3)(4)   Internet Catalog & Retail   9.10% (L + 7.75%; 1.00% Floor)     06/05/2025       22,200       21,567       21,534  
MedPlast Holdings, Inc.(4)   Health Care Equipment & Supplies   10.23% (L + 8.75%; 1.00% Floor)     06/06/2023       46,500       45,452       45,453  
MPI Products LLC(4)   Auto Components   10.38% (L + 9.00%; 1.00% Floor)     01/30/2020       20,000       19,860       19,900  
National Spine and Pain Centers,
LLC(3)(4)
  Health Care Providers & Services   9.94% (L + 8.25%; 1.00% Floor)     12/02/2024       19,100       18,558       18,575  
Oasis Outsourcing Holdings, Inc.(3)(4)   Diversified Financial Services   8.82% (L + 7.25%; 1.00% Floor)     07/01/2024       22,760       22,436       22,419  

Odyssey Logistics & Technology

Corporation(3)

  Road & Rail   9.57% (L + 8.00%; 1.00% Floor)     10/12/2025       13,500       13,168       13,433  
P2 Upstream Acquisition Co.   Software   9.40% (L + 8.00%; 1.00% Floor)     04/30/2021       5,000       4,973       4,550  
Pathway Partners Vet Management Company, LLC   Health Care Providers & Services   9.57% (L + 8.00%; 1.00% Floor)     10/10/2025       13,889       13,753       13,750  
Pathway Partners Vet Management Company, LLC(5)(6)   Health Care Providers & Services   (L + 8.00%; 1.00% Floor)     10/10/2025       6,111       (60     (61
PPC Industries Inc.(3)   Containers & Packaging   9.33% (L + 8.00%; 1.00% Floor)     05/08/2025       8,330       8,252       8,309  
SMB Shipping Logistics, LLC(3)(4)   Air Freight & Logistics   10.20% (L + 8.75%; 1.00% Floor)     02/03/2025       25,000       24,655       24,625  
SW Holdings, LLC(4)   Media   10.44% (L + 8.75%; 1.00% Floor)     12/30/2021       14,265       14,067       14,051  
Young Innovations, Inc.(3)   Health Care Equipment & Supplies   9.44% (L + 7.75%; 1.00% Floor)     11/07/2025       15,300       14,847       14,841  
Zep Inc.(3)   Chemicals   9.63% (L + 8.25%; 1.00% Floor)     08/11/2025       23,800       23,220       23,621  
         

 

 

   

 

 

 

Total 2nd Lien/Senior Secured Debt

        443,391       444,603  
Unsecured Debt – 0.54%          
CB-HDT Holdings, Inc.^(4)   Aerospace & Defense   12.00% PIK     12/15/2019       3,500       3,500       3,500  
Conergy Asia & ME Pte. LTD.^(7)   Construction & Engineering   10.00%     06/30/2018       400       400       400  
         

 

 

   

 

 

 

Total Unsecured Debt

        3,900       3,900  
         

 

 

   

 

 

 
Total Corporate Debt             1,138,856       1,129,541  

 

The accompanying notes are part of these unaudited consolidated financial statements.

 

14


Goldman Sachs BDC, Inc.

Consolidated Schedule of Investments as of December 31, 2017 (continued)

(in thousands, except share and per share amounts)

 

Portfolio Company   Industry   Coupon   Shares     Cost     Fair Value  
Preferred Stock (1) – 1.77%

 

CB-HDT Holdings, Inc.^ (2) (4)(8)   Aerospace & Defense       1,108,333     $ 10,185     $ 12,236  
Conergy Asia Holdings, Ltd.^ (2) (4)(7)(8)   Construction & Engineering       600,000       600       600  
Kawa Solar Holdings Limited^(2) (4)(7)(10)   Construction & Engineering   8.00% PIK     53,968       778        
NTS Communications, Inc.^ (2) (4)(8)   Diversified Telecommunication Services       263       187        
       

 

 

   

 

 

 

Total Preferred Stock

      11,750       12,836  
Common Stock (1) – 3.28%        
Bolttech Mannings, Inc.^^ (2) (4)(8)   Commercial Services & Supplies       8,000     $ 6,591     $ 6,591  
CB-HDT Holdings, Inc.^ (2) (4)(8)   Aerospace & Defense       453,383       2,393       3,609  
Conergy Asia Holdings, Ltd.^ (2) (4)(7)(8)   Construction & Engineering       2,000       4,700       3,832  
Continuum Managed Services LLC – Class A(2) (3)(4)(8)   IT Services       733       733       733  
Continuum Managed Services LLC – Class B(2) (3)(4)(8)   IT Services       496,698       7       7  
Iracore International Holdings, Inc.^ (2) (4) (8)   Energy Equipment & Services       28,898       7,003       6,213  
Kawa Solar Holdings Limited^ (2) (4) (7) (8)   Construction & Engineering       1,399,556              
myON, LLC(2) (3) (4) (8)   Internet Software & Services       16,087       600       600  
National Spine and Pain Centers, LLC(2) (3) (4) (8)   Health Care Providers & Services       600       600       510  
NTS Communications, Inc.^ (2) (4) (8)   Diversified Telecommunication Services       595,215       3        
Prairie Provident Resources, Inc.^^^ (7) (8)   Oil, Gas & Consumable Fuels       3,579,988       9,237       1,233  
Yasso, Inc. (2) (3) (4) (8)   Food Products       850       850       511  
       

 

 

   

 

 

 

Total Common Stock

      32,717       23,839  
Portfolio Company             LLC Interest     Cost     Fair Value  
Investment Funds & Vehicles (1) – 12.69%

 

Senior Credit Fund, LLC^^ (7)

      $ 94,342     $ 94,342     $ 92,097  
       

 

 

   

 

 

 

Total Investment Funds & Vehicles

      94,342       92,097  
     Yield        Shares     Cost     Fair Value  
Investments in Affiliated Money Market Fund (1) – 1.59% #        
Goldman Sachs Financial Square Government Fund – Institutional Shares   1.21%(11)       11,539,321     $ 11,539     $ 11,539  
       

 

 

   

 

 

 

Total Investments in Affiliated Money Market Fund

      11,539       11,539  
       

 

 

   

 

 

 
TOTAL INVESTMENTS – 174.95%

 

  $ 1,289,204     $ 1,269,852  
       

 

 

   

 

 

 
LIABILITIES IN EXCESS OF OTHER ASSETS – (74.95%)

 

  $ (544,022
         

 

 

 
NET ASSETS – 100.00%

 

  $ 725,830  
         

 

 

 

 

(+)  

The Consolidated Schedule of Investments discloses the actual interest rate for partially or fully funded debt in effect as of the reporting date. Variable rate loans bear interest at a rate that may be determined by reference to either L or alternate base rate (commonly based on P), at the borrower’s option, which reset periodically based on the terms of the credit agreement. L loans are typically indexed to 12 month, 6 month, 3 month, 2 month, 1 month or 1 week L rates. As of December 31, 2017, rates for the 12 month, 6 month, 3 month, 2 month, 1 month and 1 week L were 2.11%, 1.84%, 1.69%, 1.62%, 1.56% and 1.48%, respectively. As of December 31, 2017, P was 4.50%. For investments with multiple reference rates or alternate base rates, the interest rate shown is the weighted average interest rate in effect at December 31, 2017.

#  

Percentages are based on net assets.

^  

As defined in the Investment Company Act of 1940, the portfolio company is deemed to be an “affiliated person” of the Company because the Company owns, either directly or indirectly, 5% or more of the portfolio company’s outstanding voting securities. See Note 3 “Significant Agreements and Related Party Transactions”.

^^  

As defined in the Investment Company Act of 1940, the portfolio company is deemed to be a “controlled affiliated person” of the Company because the Company owns, either directly or indirectly, 25% or more of the portfolio company’s outstanding voting securities or has the power to exercise control over management or policies of such portfolio company. See Note 3 “Significant Agreements and Related Party Transactions”.

^^^  

The portfolio company is deemed to be an “affiliated person” of the Company because it falls under the definition of “affiliated person” in the Investment Company Act of 1940 with respect to the Company.

(1)  

Assets are pledged as collateral for the Revolving Credit Facility. See Note 6 “Debt”.

 

The accompanying notes are part of these unaudited consolidated financial statements.

 

15


Goldman Sachs BDC, Inc.

Consolidated Schedule of Investments as of December 31, 2017 (continued)

(in thousands, except share and per share amounts)

 

(2)   

Security exempt from registration under the Securities Act, and may be deemed to be “restricted securities” under the Securities Act. As of December 31, 2017, the aggregate fair value of these securities is $72,761 or 10.02% of the Company’s net assets. The acquisition dates of the restricted securities are as follows:

 

Investment    Acquisition Date  

Artesyn Embedded Technologies, Inc.

     9/26/2013  

Bolttech Mannings, Inc.

     12/22/2017  

CB-HDT Holdings – Common

     7/1/2016  

CB-HDT Holdings – Preferred

     7/1/2016  

Conergy Asia Holdings, Ltd. – Common

     7/31/2017  

Conergy Asia Holdings, Ltd. – Preferred

     8/23/2017  

Continuum Managed Services LLC – Class A

     6/8/2017  

Continuum Managed Services LLC – Class B

     6/8/2017  

Heligear Acquisition Co.

     9/30/2014  

Iracore International Holdings, Inc.

     4/13/2017  

Kawa Solar Holdings Limited – Common

     8/17/2016  

Kawa Solar Holdings Limited – Preferred

     10/25/2016  

myOn Holdings

     2/17/2017  

National Spine and Pain Centers, LLC

     6/2/2017  

NTS Communications – Common

     7/22/2016  

NTS Communications – Preferred

     7/22/2016  

Yasso, Inc.

     3/23/2017  

 

(3)  

Represent co-investments made with the Company’s affiliates in accordance with the terms of the exemptive relief that the Company received from the U.S. Securities and Exchange Commission. See Note 3 “Significant Agreements and Related Party Transactions”.

(4)  

The fair value of the investment was determined using significant unobservable inputs. See Note 5 “Fair Value Measurement”.

(5)  

Position or portion thereof is an unfunded loan commitment, and no interest is being earned on the unfunded portion. The unfunded loan commitment may be subject to a commitment termination date that may expire prior to the maturity date stated. See Note 8 “Commitments and Contingencies”.

(6)  

The negative cost is the result of the capitalized discount being greater than the principal amount outstanding on the loan. The negative fair value is the result of the capitalized discount on the loan.

(7)  

The investment is not a qualifying asset under Section 55(a) of the Investment Company Act of 1940. The Company may not acquire any non-qualifying asset unless, at the time of acquisition, qualifying assets represent at least 70% of the Company’s total assets. As of December 31, 2017 the aggregate fair value of non-qualifying assets was $107,080 or 8.25% of the Company’s total assets.

(8)  

Non-income producing security.

(9)  

In exchange for the greater risk of loss, the “last-out” portion of the Company’s unitranche loan investment generally earns a higher interest rate than the “first-out” portions. The “first-out” portion of the loan would generally receive priority with respect to payment of principal, interest and any other amounts due thereunder over the “last-out” portion that the Company would continue to hold.

(10)  

The investment was on non-accrual status as of December 31, 2017.

(11)  

The rate shown is the annualized seven-day yield as of December 31, 2017.

PIK – Payment-In-Kind

 

The accompanying notes are part of these unaudited consolidated financial statements.

 

16


Goldman Sachs BDC, Inc.

Notes to the Consolidated Financial Statements

(in thousands, except share and per share amounts)

(Unaudited)

 

1.

ORGANIZATION

Goldman Sachs BDC, Inc. (the “Company,” which term refers to either Goldman Sachs BDC, Inc. or Goldman Sachs BDC, Inc. together with its consolidated subsidiaries, as the context may require) was initially established as Goldman Sachs Liberty Harbor Capital, LLC, a single member Delaware limited liability company (“SMLLC”), on September 26, 2012 and commenced operations on November 15, 2012 with The Goldman Sachs Group, Inc. (“Group Inc.”) as its sole member. On March 29, 2013, the Company elected to be regulated as a business development company (“BDC”) under the Investment Company Act of 1940, as amended (the “Investment Company Act”). Effective April 1, 2013, the Company converted from a SMLLC to a Delaware corporation. In addition, the Company has elected to be treated as a regulated investment company (“RIC”) under Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”), commencing with its taxable year ended December 31, 2013.

The Company’s investment objective is to generate current income and, to a lesser extent, capital appreciation primarily through direct originations of secured debt, including first lien, unitranche, including last-out portions of such loans, and second lien debt, and unsecured debt, including mezzanine debt, as well as through select equity investments.

Goldman Sachs Asset Management, L.P. (“GSAM”), a Delaware limited partnership and an affiliate of Goldman Sachs & Co. LLC (including its predecessors, “GS & Co.”), is the investment adviser (the “Investment Adviser”) of the Company. The term “Goldman Sachs” refers to Group Inc., together with GS & Co., GSAM and its other subsidiaries.

On March 23, 2015, the Company completed its initial public offering (“IPO”) and the Company’s common stock began trading on the New York Stock Exchange (“NYSE”) under the symbol “GSBD”.

The Company has formed wholly owned subsidiaries, which are structured as Delaware limited liability companies, to hold certain equity or equity-like investments in portfolio companies.

 

2.

SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The Company’s functional currency is U.S. dollars (“USD”) and these consolidated financial statements have been prepared in that currency. The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and pursuant to Regulation S-X. This requires the Company to make certain estimates and assumptions that may affect the amounts reported in the consolidated financial statements and accompanying notes. These consolidated financial statements reflect normal and recurring adjustments that in the opinion of the Company are necessary for the fair statement of the results for the periods presented. Actual results may differ from the estimates and assumptions included in the consolidated financial statements.

Certain financial information that is included in annual consolidated financial statements, including certain financial statement disclosures, prepared in accordance with GAAP, is not required for interim reporting purposes and has been condensed or omitted herein. These consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and notes related thereto for the year ended December 31, 2017, included in the Company’s Annual Report on Form 10-K, which was filed with the U.S. Securities and Exchange Commission (the “SEC”) on February 22, 2018. The results for the three and nine months ended September 30, 2018 are not necessarily indicative of the results to be expected for the full fiscal year, any other interim period or any future year or period.

Certain prior period information has been reclassified to conform to the current period presentation. The reclassification has no effect on the Company’s consolidated financial position or the consolidated results of operations as previously reported.

As an investment company, the Company applies the accounting and reporting guidance in Accounting Standards Codification (“ASC”) Topic 946, Financial Services – Investment Companies (“ASC 946”) issued by the Financial Accounting Standards Board (“FASB”).

Basis of Consolidation

As provided under ASC 946, the Company will not consolidate its investment in a company other than an investment company subsidiary or a controlled operating company whose business consists of providing services to the Company. Accordingly, the Company consolidated the financial position and results of operations of its wholly owned subsidiaries, BDC Blocker I, LLC (formerly known as My-On BDC Blocker, LLC) and GSBD Blocker II, LLC. All significant intercompany transactions and balances have been eliminated in consolidation.

 

17


The Company does not consolidate its equity interest in Senior Credit Fund, LLC (the “Senior Credit Fund”). For further description of the Company’s investment in the Senior Credit Fund, see Note 4 “Investments”.

Revenue Recognition

The Company records its investment transactions on a trade date basis. Realized gains and losses are based on the specific identification method.

Interest income, adjusted for amortization of premium and accretion of discount, is recorded on an accrual basis. Discounts and premiums to par value on investments purchased are accreted and amortized, respectively, into interest income over the life of the respective investment using the effective interest method. Loan origination fees, original issue discount (“OID”) and market discounts or premiums are capitalized and amortized into interest income using the effective interest method or straight-line method, as applicable. Exit fees that are receivable upon repayment of a loan or debt security are amortized into interest income over the life of the respective investment. Upon prepayment of a loan or debt security, any prepayment premiums, unamortized upfront loan origination fees and unamortized discounts are recorded as interest income. For the three and nine months ended September 30, 2018, the Company earned $545 and $2,411, respectively, in prepayment premiums and $1,371 and $2,712, respectively, in accelerated accretion of upfront loan origination fees and unamortized discounts. For the three and nine months ended September 30, 2017, the Company earned $726 and $2,538, respectively, in prepayment premiums and $696 and $4,364, respectively, in accelerated accretion of upfront loan origination fees and unamortized discounts.

Fees received from portfolio companies (directors’ fees, consulting fees, administrative fees, tax advisory fees and other similar compensation) are paid to the Company, unless, to the extent required by applicable law or exemptive relief, if any, therefrom, the Company only receives its allocable portion of such fees when invested in the same portfolio company as another account managed by the Investment Adviser.

Dividend income on preferred equity investments is recorded on an accrual basis to the extent that such amounts are payable by the portfolio company and are expected to be collected. Dividend income on common equity investments is recorded on the record date for private portfolio companies and on the ex-dividend date for publicly traded portfolio companies. Interest and dividend income are presented net of withholding tax, if any.

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

Certain structuring fees, amendment fees and syndication fees are recorded as other income when earned. Administrative agent fees received by the Company are recorded as other income when the services are rendered over time.

Non-Accrual Investments

Investments are placed on non-accrual status when it is probable that principal, interest or dividends will not be collected according to the contractual terms. Accrued interest or dividends generally are reversed when an investment is placed on non-accrual status. Interest or dividend payments received on non-accrual investments may be recognized as income or applied to principal depending upon management’s judgment. Non-accrual investments are restored to accrual status when past due principal and interest or dividends are paid and, in management’s judgment, principal and interest or dividend payments are likely to remain current. The Company may make exceptions to this treatment if an investment has sufficient collateral value and is in the process of collection. As of September 30, 2018, the Company had two investments on non-accrual status, which represented 0.7% and 0.6% of the total investments (excluding an investment in a money market fund managed by an affiliate of Group Inc. of $4) at amortized cost and at fair value, respectively. As of December 31, 2017, the Company had one investment on non-accrual status, which represented 0.1% and 0.0% of the total investments (excluding an investment in a money market fund managed by an affiliate of Group Inc. of $11,539) at amortized cost and at fair value, respectively.

Investments

The Company carries its investments in accordance with ASC Topic 820, Fair Value Measurements and Disclosures (“ASC 820”), issued by the FASB, which defines fair value, establishes a framework for measuring fair value and requires disclosures about fair value measurements. Fair value is generally based on quoted market prices provided by independent pricing services, broker or dealer quotations or alternative price sources. In the absence of quoted market prices, broker or dealer quotations or alternative price sources, investments are measured at fair value as determined by the board of directors (the “Board of Directors”) within the meaning of the Investment Company Act.

 

18


Due to the inherent uncertainties of valuation, certain estimated fair values may differ significantly from the values that would have been realized had a ready market for these investments existed, and these differences could be material. See Note 5 “Fair Value Measurement”.

The Company generally invests in illiquid securities, including debt and equity investments, of middle-market companies. The Board of Directors has delegated to the Investment Adviser day-to-day responsibility for implementing and maintaining internal controls and procedures related to the valuation of the Company’s portfolio investments. Under valuation procedures adopted by the Board of Directors, market quotations are generally used to assess the value of the investments for which market quotations are readily available. The Investment Adviser obtains these market quotations from independent pricing services or at the bid prices obtained from at least two brokers or dealers, if available; otherwise from a principal market maker or a primary market dealer. To assess the continuing appropriateness of pricing sources and methodologies, the Investment Adviser regularly performs price verification procedures and issues challenges as necessary to independent pricing services or brokers, and any differences are reviewed in accordance with the valuation procedures. If the Board of Directors or Investment Adviser has a bona fide reason to believe any such market quotation does not reflect the fair value of an investment, it may independently value such investment in accordance with valuation procedures for investments for which market quotations are not readily available.

With respect to investments for which market quotations are not readily available, or for which market quotations are deemed not reflective of the fair value, the valuation procedures adopted by the Board of Directors contemplate a multi-step valuation process each quarter, as described below:

 

  (1)

The quarterly valuation process begins with each portfolio company or investment being initially valued by the investment professionals of the Investment Adviser responsible for the portfolio investment;

 

  (2)

The Board of Directors also engages independent valuation firms (the “Independent Valuation Advisors”) to provide independent valuations of the investments for which market quotations are not readily available, or are readily available but deemed not reflective of the fair value of an investment. The Independent Valuation Advisors independently value such investments using quantitative and qualitative information provided by the investment professionals of the Investment Adviser and the portfolio companies as well as any market quotations obtained from independent pricing services, brokers, dealers or market dealers. The Independent Valuation Advisors also provide analyses to support their valuation methodology and calculations. The Independent Valuation Advisors provide an opinion on a final range of values on such investments to the Board of Directors or the Audit Committee. The Independent Valuation Advisors define fair value in accordance with ASC 820 and utilize valuation approaches including the market approach, the income approach or both. A portion of the portfolio is reviewed on a quarterly basis, and all investments in the portfolio for which market quotations are not readily available, or are readily available, but deemed not reflective of the fair value of an investment, are reviewed at least annually by an Independent Valuation Advisor;

 

  (3)

The Independent Valuation Advisors’ preliminary valuations are reviewed by the Investment Adviser and the Valuation Oversight Group (“VOG”), a team that is part of the Controllers Department within the Finance Division of Goldman Sachs. The Independent Valuation Advisors’ valuation ranges are compared to the Investment Adviser’s valuations to ensure the Investment Adviser’s valuations are reasonable. VOG presents the valuations to the Private Investment Valuation and Side Pocket Sub-Committee of the Investment Management Division Valuation Committee, which is comprised of representatives from GSAM who are independent of the investment decision making process;

 

  (4)

The Investment Management Division Valuation Committee ratifies fair valuations and makes recommendations to the Audit Committee of the Board of Directors;

 

  (5)

The Audit Committee of the Board of Directors reviews valuation information provided by the Investment Management Division Valuation Committee, the Investment Adviser and the Independent Valuation Advisors. The Audit Committee then assesses such valuation recommendations; and

 

  (6)

The Board of Directors discusses the valuations and, within the meaning of the Investment Company Act, determines the fair value of the investments in good faith, based on the inputs of the Investment Adviser, the Independent Valuation Advisors and the Audit Committee.

 

19


Money Market Funds

Investments in money market funds are valued at net asset value (“NAV”) per share. See Note 3 “Significant Agreements and Related Party Transactions”.

Cash

Cash consists of deposits held at a custodian bank. As of September 30, 2018 and December 31, 2017, the Company held an aggregate cash balance of $4,648 and $11,606, respectively. Foreign currency of $340 (acquisition cost of $340) and $0 is included in cash as of September 30, 2018 and December 31, 2017, respectively.

Foreign Currency Translation

Amounts denominated in foreign currencies are translated into U.S. dollars on the following basis: (i) investments and other assets and liabilities denominated in foreign currencies are translated into U.S. dollars based upon currency exchange rates effective on the last business day of the period; and (ii) purchases and sales of investments, borrowings and repayments of such borrowings, income, and expenses denominated in foreign currencies are translated into U.S. dollars based upon currency exchange rates prevailing on the transaction dates.

The Company does not isolate the portion of the results of operations resulting from changes in foreign exchange rates on investments from fluctuations arising from changes in market prices of securities held. Such fluctuations are included within the net realized and unrealized gains or losses on investments. Fluctuations arising from the translation of non-investment assets and liabilities are included with the net change in unrealized gains (losses) on foreign currency translations on the Consolidated Statements of Operations.

Foreign security and currency translations may involve certain considerations and risks not typically associated with investing in U.S. companies and U.S. government securities. These risks include, but are not limited to, currency fluctuations and revaluations and future adverse political, social and economic developments, which could cause investments in foreign markets to be less liquid and prices more volatile than those of comparable U.S. companies or U.S. government securities.

Derivatives

Foreign currency forward contracts

The Company may enter into foreign currency forward contracts to reduce the Company’s exposure to foreign currency exchange rate fluctuations in the value of foreign currencies. In a foreign currency forward contract, the Company agrees to receive or deliver a fixed quantity of one currency for another, at a pre-determined price at a future date. Forward foreign currency contracts are marked-to-market at the applicable forward rate. Unrealized appreciation (depreciation) on foreign currency forward contracts are recorded on the Consolidated Statements of Assets and Liabilities by counterparty on a net basis, not taking into account collateral posted which is recorded separately, if applicable. Notional amounts and the gross fair value of foreign currency forward contract assets and liabilities are presented separately on the Consolidated Schedules of Investments. Purchases and sales of foreign currency forward contracts having the same notional value, settlement date and counterparty are generally settled net (which results in a net foreign currency position of zero with the counterparty) and any realized gains or losses are recognized on the settlement date.

The Company does not utilize hedge accounting and as such, the Company recognizes its derivatives at fair value with changes in the net unrealized appreciation (depreciation) on foreign currency forward contracts recorded on the Consolidated Statements of Operations.

Income Taxes

The Company recognizes tax positions in its consolidated financial statements only when it is more likely than not that the position will be sustained upon examination by the relevant taxing authority based on the technical merits of the position. A position that meets this standard is measured at the largest amount of benefit that will more likely than not be realized upon settlement. The Company reports any interest expense related to income tax matters in income tax expense, and any income tax penalties under expenses in the Consolidated Statements of Operations.

The Company’s tax positions have been reviewed based on applicable statutes of limitation for tax assessments, which may vary by jurisdiction, and based on such review, the Company has concluded that no additional provision for income tax is required in the consolidated financial statements. The Company is subject to potential examination by certain taxing authorities in various jurisdictions. The Company’s tax positions are subject to ongoing interpretation of laws and regulations by taxing authorities.

 

20


The Company has elected to be treated as a RIC commencing with its taxable year ended December 31, 2013. So long as the Company maintains its status as a RIC, it will generally not be subject to corporate-level U.S. federal income tax on any ordinary income or capital gains that it distributes at least annually to its stockholders as dividends. As a result, any U.S. federal income tax liability related to income earned and distributed by the Company represents obligations of the Company’s stockholders and will not be reflected in the consolidated financial statements of the Company.

To maintain its status as a RIC, the Company must meet specified source-of-income and asset diversification requirements and timely distribute to its stockholders for each taxable year at least 90% of its investment company taxable income (generally, its net ordinary income plus the excess of its realized net short-term capital gains over realized net long-term capital losses, determined without regard to the dividends paid deduction). In order for the Company not to be subject to U.S. federal excise taxes, it must distribute annually an amount at least equal to the sum of (i) 98% of its net ordinary income (taking into account certain deferrals and elections) for the calendar year, (ii) 98.2% of its capital gains in excess of capital losses for the one-year period ending on October 31 of the calendar year and (iii) any net ordinary income and capital gains in excess of capital losses for preceding years that were not distributed during such years. The Company, at its discretion, may carry forward taxable income in excess of calendar year dividends and pay a 4% nondeductible U.S. federal excise tax on this income. If the Company chooses to do so, this generally would increase expenses and reduce the amount available to be distributed to stockholders. The Company will accrue excise tax on estimated undistributed taxable income as required. For the three and nine months ended September 30, 2018, the Company accrued excise taxes of $428 and $1,017, respectively. As of September 30, 2018, $1,215 of accrued excise taxes remained payable. For the three and nine months ended September 30, 2017, the Company accrued excise taxes of $383 and $1,116, respectively.

Certain of the Company’s consolidated subsidiaries are subject to U.S. federal and state corporate-level income taxes. Income tax expense, if any, is included under the income category for which it applies in the Consolidated Statements of Operations. For the three and nine months ended September 30, 2018, the Company accrued provision for taxes on realized gains on investments of $0 and $446, respectively. For the three and nine months ended September 30, 2018, the Company accrued provision for taxes on unrealized gains on investments of $146 and $146, respectively. As of September 30, 2018, $592 of income taxes remained payable. For the three and nine months ended September 30, 2017, the Company did not accrue any income taxes.

Distributions

Distributions from net investment income and net realized capital gains are determined in accordance with U.S. federal income tax regulations, which may differ from those amounts determined in accordance with GAAP. The Company may pay distributions in excess of its taxable net investment income. This excess would be a tax-free return of capital in the period and reduce the stockholder’s tax basis in its shares. These book/tax differences are either temporary or permanent in nature. To the extent these differences are permanent they are charged or credited to paid-in capital in excess of par, accumulated undistributed net investment income or accumulated net realized gain (loss), as appropriate, in the period that the differences arise. Temporary and permanent differences are primarily attributable to differences in the tax treatment of certain loans and the tax characterization of income and non-deductible expenses. These differences are generally determined in conjunction with the preparation of the Company’s annual RIC tax return. Distributions to common stockholders are recorded on the ex-dividend date. The amount to be paid out as a distribution is determined by the Board of Directors each quarter and is generally based upon the earnings estimated by the Investment Adviser. The Company may pay distributions to its stockholders in a year in excess of its net ordinary income and capital gains for that year and, accordingly, a portion of such distributions may constitute a return of capital for U.S. federal income tax purposes. The Company intends to timely distribute to its stockholders substantially all of its annual taxable income for each year, except that the Company may retain certain net capital gains for reinvestment and, depending upon the level of the Company’s taxable income earned in a year, the Company may choose to carry forward taxable income for distribution in the following year and pay any applicable U.S. federal excise tax. The specific tax characteristics of the Company’s distributions will be reported to stockholders after the end of the calendar year. All distributions will be subject to available funds, and no assurance can be given that the Company will be able to declare such distributions in future periods.

The Company has adopted a dividend reinvestment plan that provides for reinvestment of all cash distributions declared by the Board of Directors unless a stockholder elects to “opt out” of the plan. As a result, if the Board of Directors declares a cash distribution, then the stockholders who have not “opted out” of the dividend reinvestment plan will have their cash distributions automatically reinvested in additional shares of common stock, rather than receiving the cash distribution. Stockholders who receive distributions in the form of shares of common stock will generally be subject to the same U.S. federal, state and local tax consequences as if they received cash distributions and, for this purpose, stockholders receiving distributions in the form of stock will generally be treated as receiving distributions equal to the fair market value of the stock received through the plan; however, since their cash distributions will be reinvested, those stockholders will not receive cash with which to pay any applicable taxes. Due to regulatory considerations, Group Inc. has opted out of the dividend reinvestment plan, and GS & Co. has opted out of the dividend reinvestment plan in respect of shares of the Company’s common stock acquired through its 10b5-1 plan.

Deferred Financing and Debt Issuance Costs

Deferred financing and debt issuance costs consist of fees and expenses paid in connection with the closing of and amendments to the Company’s senior secured revolving credit agreement (as amended, the “Revolving Credit Facility”) with SunTrust Bank, as administrative agent, and Bank of America, N.A., as syndication agent, and the offering of the Company’s 4.50% Convertible Notes due 2022 (the “Convertible Notes”). These costs are amortized using the straight-line method over the respective term of the Revolving Credit Facility and Convertible Notes. Deferred financing costs related to the Revolving Credit Facility are presented separately as an asset on the Company’s Consolidated Statements of Assets and Liabilities. Deferred debt issuance costs related to the Convertible Notes are presented net against the outstanding debt balance on the Consolidated Statements of Assets and Liabilities.

 

21


Deferred Offering Costs

The Company records expenses related to registration statement filings and applicable offering costs as deferred offering costs. To the extent such expenses relate to equity offerings, these expenses are charged as a reduction of paid-in-capital upon each such offering.

 

3.

SIGNIFICANT AGREEMENTS AND RELATED PARTY TRANSACTIONS

Investment Management Agreement

The Company has entered into an investment management agreement (as amended and restated as of June 15, 2018, the “Investment Management Agreement”) with the Investment Adviser, pursuant to which the Investment Adviser manages the Company’s investment program and related activities.

Management Fee

The Company pays the Investment Adviser a management fee (the “Management Fee”), accrued and payable quarterly in arrears. The Management Fee is calculated at (i) an annual rate of 1.50% (0.375% per quarter) (the “Original Rate”) through June 14, 2018 and (ii) an annual rate of 1.00% (0.25% per quarter) (the “New Rate”) thereafter, in each case, of the average value of the Company’s gross assets (excluding cash or cash equivalents but including assets purchased with borrowed amounts) at the end of each of the two most recently completed calendar quarters. The Management Fee for any partial quarter (including any quarter during which both the Original Rate and the New Rate were in effect) will be appropriately prorated based on the actual number of days elapsed relative to the total number of days in such calendar quarter.

For the three and nine months ended September 30, 2018, Management Fees amounted to $3,255 and $12,537, respectively. As of September 30, 2018, $3,255 remained payable. For the three and nine months ended September 30, 2017, Management Fees amounted to $4,369 and $13,181, respectively.

Incentive Fee

The incentive fee (the “Incentive Fee”) consists of two components that are determined independent of each other, with the result that one component may be payable even if the other is not. Effective as of January 1, 2015, the Incentive Fee is calculated as follows:

A portion of the Incentive Fee is based on income and a portion is based on capital gains, each as described below. The Investment Adviser is entitled to receive the Incentive Fee based on income if Ordinary Income (as defined below) exceeds a quarterly “hurdle rate” of 1.75%. For this purpose, the hurdle is computed by reference to the Company’s NAV and does not take into account changes in the market price of the Company’s common stock.

Beginning with the calendar quarter that commenced on January 1, 2015, the Incentive Fee based on income is determined and paid quarterly in arrears at the end of each calendar quarter by reference to the Company’s aggregate net investment income, as adjusted as described below, from the calendar quarter then ending and the eleven preceding calendar quarters (or if shorter, the number of quarters that have occurred since January 1, 2015) (such period the “Trailing Twelve Quarters”). The Incentive Fee based on capital gains is determined and paid annually in arrears at the end of each calendar year by reference to an “Annual Period,” which means the period beginning on January 1 of each calendar year and ending on December 31 of such calendar year or, in the case of the first and last year, the appropriate portion thereof.

The hurdle amount for the Incentive Fee based on income is determined on a quarterly basis and is equal to 1.75% multiplied by the Company’s NAV at the beginning of each applicable calendar quarter comprising the relevant Trailing Twelve Quarters. The hurdle amount is calculated after making appropriate adjustments for subscriptions (which includes all of the Company’s issuances of shares of its common stock, including issuances pursuant to its dividend reinvestment plan) and distributions that occurred during the relevant Trailing Twelve Quarters. The Incentive Fee for any partial period will be appropriately prorated.

i. Quarterly Incentive Fee Based on Income

For the portion of the Incentive Fee based on income, the Company pays the Investment Adviser a quarterly Incentive Fee based on the amount by which (A) aggregate net investment income (“Ordinary Income”) in respect of the relevant Trailing Twelve Quarters exceeds (B) the hurdle amount for such Trailing Twelve Quarters. The amount of the excess of (A) over (B) described in this paragraph for such Trailing Twelve Quarters is referred to as the “Excess Income Amount”. Ordinary Income is net of all fees and expenses, including the Management Fee but excluding any Incentive Fee.

 

22


The Incentive Fee based on income for each quarter is determined as follows:

 

   

No Incentive Fee based on income is payable to the Investment Adviser for any calendar quarter for which there is no Excess Income Amount;

 

   

100% of the Ordinary Income, if any, that exceeds the hurdle amount, but is less than or equal to an amount, referred to as the “Catch-up Amount,” determined as the sum of 2.1875% multiplied by the Company’s NAV at the beginning of each applicable calendar quarter comprising the relevant Trailing Twelve Quarters is included in the calculation of the Incentive Fee based on income; and

 

   

20% of the Ordinary Income that exceeds the Catch-up Amount is included in the calculation of the Incentive Fee based on income.

The amount of the Incentive Fee based on income that is paid to the Investment Adviser for a particular quarter equals the excess of the Incentive Fee so calculated minus the aggregate Incentive Fees based on income that were paid in respect of the first eleven calendar quarters (or the portion thereof) included in the relevant Trailing Twelve Quarters but not in excess of the Incentive Fee Cap (as described below).

The Incentive Fee based on income that is paid to the Investment Adviser for a particular quarter is subject to a cap (the “Incentive Fee Cap”). The Incentive Fee Cap for any quarter is an amount equal to (a) 20% of the Cumulative Net Return (as defined below) during the relevant Trailing Twelve Quarters minus (b) the aggregate Incentive Fees based on income that were paid in respect of the first eleven calendar quarters (or the portion thereof) included in the relevant Trailing Twelve Quarters.

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

 

23


“Net Capital Loss” in respect of a particular period means the difference, if positive, between (i) aggregate capital losses, whether realized or unrealized, in such period and (ii) aggregate capital gains, whether realized or unrealized, in such period.

ii. Annual Incentive Fee Based on Capital Gains.

The portion of the Incentive Fee based on capital gains is calculated on an annual basis. For each Annual Period, the Company pays the Investment Adviser an amount equal to (A) 20% of the difference, if positive, of the sum of the Company’s aggregate realized capital gains, if any, computed net of the Company’s aggregate realized capital losses, if any, and the Company’s aggregate unrealized capital depreciation, in each case from April 1, 2013 until the end of such Annual Period minus (B) the cumulative amount of Incentive Fees based on capital gains previously paid to the Investment Adviser from April 1, 2013. For the avoidance of doubt, unrealized capital appreciation is excluded from the calculation in clause (A) above.

The Company accrues, but does not pay, a portion of the Incentive Fee based on capital gains with respect to net unrealized appreciation. Under GAAP, the Company is required to accrue an Incentive Fee based on capital gains that includes net realized capital gains and losses and net unrealized capital appreciation and depreciation on investments held at the end of each period. In calculating the accrual for the Incentive Fee based on capital gains, the Company considers the cumulative aggregate unrealized capital appreciation in the calculation, since an Incentive Fee based on capital gains would be payable if such unrealized capital appreciation were realized, even though such unrealized capital appreciation is not permitted to be considered in calculating the fee payable under the Investment Management Agreement. This accrual is calculated using the aggregate cumulative realized capital gains and losses and aggregate cumulative unrealized capital appreciation or depreciation. If such amount is positive at the end of a period, then the Company records a capital gains incentive fee equal to 20% of such amount, minus the aggregate amount of actual Incentive Fees based on capital gains paid in all prior periods. If such amount is negative, then there is no accrual for such period. There can be no assurance that such unrealized capital appreciation will be realized in the future.

For the three and nine months ended September 30, 2018, the Company incurred Incentive Fees based on income of $4,962 and $13,988, respectively. As of September 30, 2018, $4,962 remained payable. For the three and nine months ended September 30, 2017, the Company incurred Incentive Fees based on income of $4,624 and $9,595, respectively. For the three and nine months ended September 30, 2018 and 2017, the Company did not accrue or pay any Incentive Fees based on capital gains.

Administration and Custodian Fees

The Company has entered into an administration agreement with State Street Bank and Trust Company (the “Administrator”) under which the Administrator provides various accounting and administrative services to the Company. The Company pays the Administrator fees for its services as it determines to be commercially reasonable in its sole discretion. The Company also reimburses the Administrator for all reasonable expenses. To the extent that the Administrator outsources any of its functions, the Administrator pays any compensation associated with such functions. The Administrator also serves as the Company’s custodian (the “Custodian”).

For the three and nine months ended September 30, 2018, the Company incurred expenses for services provided by the Administrator and the Custodian of $227 and $682, respectively. As of September 30, 2018, $151 remained payable. For the three and nine months ended September 30, 2017, the Company incurred expenses for services provided by the Administrator and the Custodian of $213 and $594, respectively.

Transfer Agent Fees

Effective May 2, 2016, the Company entered into a transfer agency and services agreement pursuant to which Computershare Trust Company, N.A. serves as the Company’s transfer agent (the “Transfer Agent”), dividend agent and registrar. From the IPO to May 1, 2016, State Street Bank and Trust Company served as the Transfer Agent and dividend agent. Prior to the IPO, GS & Co. was the Transfer Agent. For the three and nine months ended September 30, 2018, the Company incurred expenses for services provided by the Transfer Agent of $3 and $11, respectively. As of September 30, 2018, $1 remained payable. For the three and nine months ended September 30, 2017, the Company incurred expenses for services provided by the Transfer Agent of $6 and $14, respectively.

Common Stock Repurchase Plan

In February 2016, the Board of Directors authorized the Company to repurchase up to $25,000 of the Company’s common stock if the stock trades below the most recently announced NAV per share (including any updates, corrections or adjustments publicly announced by the Company to any previously announced NAV per share), from March 18, 2016 to March 18, 2017, subject to certain limitations. In February 2017, the Company’s Board of Directors renewed its authorization of the stock repurchase plan to extend the expiration to March 18, 2018 and, in February 2018, again renewed its authorization of the stock repurchase plan to extend the expiration to March 18, 2019.

 

24


In connection with this authorization, the Company entered into a 10b5-1 plan (the “Company 10b5-1 Plan”). The Company 10b5-1 Plan provides that purchases will be conducted on the open market on a programmatic basis in accordance with Rules 10b5-1 and 10b-18 under the Exchange Act and will otherwise be subject to applicable law, including Regulation M, which may prohibit purchases under certain circumstances. No purchases will be effected pursuant to the Company 10b5-1 Plan if such purchase would (i) cause the aggregate ownership of the Company’s outstanding common stock by Group Inc. and GS & Co. to equal or exceed 25.0% (due to the reduction in outstanding shares of stock as a result of such purchase) or (ii) cause the Company’s debt/equity ratio to exceed 0.75. The Company 10b5-1 Plan initially took effect on March 18, 2016 (with any purchases to commence after the opening of NYSE trading on March 21, 2016), was subsequently renewed and expired on March 18, 2018. The Company entered into an agreement to renew the Company 10b5-1 Plan on May 14, 2018, which was terminated on June 27, 2018 in connection with the Company’s offering of Convertible Notes. See Notes 6 “Debt”. On June 27, 2018, the Company entered into an agreement to renew the Company 10b5-1 Plan with any purchases pursuant to the agreement to commence on September 25, 2018. The Company 10b5-1 Plan is scheduled to expire on March 18, 2019. Further, no purchases will be effected during the applicable restricted period under Regulation M as a result of an offering of securities by the Company or for a period of 60 days after the expiration of any overallotment option included in any common equity offering.

The Company’s repurchase of its common stock under the Company 10b5-1 Plan or otherwise may result in the price of the Company’s common stock being higher than the price that otherwise might exist in the open market. For the three and nine months ended September 30, 2018, the Company did not repurchase any of its common stock pursuant to the Company 10b5-1 Plan or otherwise.

Affiliates

As of September 30, 2018 and December 31, 2017, Group Inc. owned 16.13% and 16.16%, respectively, of the outstanding shares of the Company’s common stock.

The Company’s investments in affiliates for the nine months ended September 30, 2018 were as follows:

 

    

Fair Value as of

December 31,

2017

   

Gross

Additions(3)

   

Gross

Reductions(4)

   

Net Realized

Gains/(Losses)

   

Change in

Unrealized

Gains/(Losses)

   

Fair Value as of

September 30,

2018

   

Dividend, Interest,

PIK and Other

Income

 
Controlled Affiliates              

Bolttech Mannings, Inc.

  $ 20,569     $ 4,154     $     $     $ (2,021   $ 22,702     $ 1,273  
Senior Credit Fund, LLC(1)     92,097                         491       92,588       8,000  
Total Controlled Affiliates   $ 112,666     $ 4,154     $     $     $ (1,530   $ 115,290     $ 9,273  
Non-Controlled Affiliates              
Goldman Sachs Financial Square Government Fund (2)   $ 11,539     $ 181,280     $ (192,815   $     $     $ 4     $ 37  
Accuity Delivery Systems, LLC           13,079                   306       13,385       309  
CB-HDT Holdings, Inc.     19,345       1,826                   2,820       23,991       428  
Collaborative Imaging Holdco, LLC           10,074                   92       10,166       468  
Conergy Asia Holdings, Ltd     4,832       664                   (4,432     1,064       41  
Elah Holdings, Inc.           2,234                         2,234        
Iracore International Holdings, Ltd     9,602                         (508     9,094       281  
Kawa Solar Holdings Limited     8,918       153       (664     9       (410     8,006       151  
NTS Communications, Inc.     51,538       6,235                   (93     57,680       6,281  
Prairie Provident Resources, Inc.     1,233                         (177     1,056        
Total Non-Controlled Affiliates   $ 107,007     $ 215,545     $ (193,479   $ 9     $ (2,402   $ 126,680     $ 7,996  
Total Affiliates   $ 219,673     $ 219,699     $ (193,479   $ 9     $ (3,932   $ 241,970     $ 17,269  

 

(1)  

Together with The Regents of the University of California (“Cal Regents”, and collectively with the Company, the “Members”), the Company invests through the Senior Credit Fund. Although the Company owns more than 25% of the voting securities of the Senior Credit Fund, the Company does not believe that it has control over the Senior Credit Fund (other than for purposes of the Investment Company Act). See Note 4 “Investments”.

(2)  

Fund advised by an affiliate of Goldman Sachs.

(3)  

Gross additions may include increases in the cost basis of investments resulting from new portfolio investments, PIK interest or dividends, the accretion of discounts, 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.

(4)  

Gross reductions may 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.

 

25


The Company’s investments in affiliates for the year ended December 31, 2017 were as follows:

 

     

Fair Value as of

December 31,

2016

    

Gross

Additions(3)

    

Gross

Reductions(4)

   

Net Realized

Gains/(Losses)

   

Change in

Unrealized

Gains/(Losses)

   

Fair Value as of

December 31,

2017

    

Dividend, Interest,

PIK and Other

Income

 
Controlled Affiliates                  
Bolttech Mannings, Inc.    $      $ 20,569      $     $     $     $ 20,569      $ 37  
Senior Credit Fund, LLC(1)      78,394        16,750                    (3,047     92,097        10,958  
Total Controlled Affiliates    $ 78,394      $ 37,319      $     $     $ (3,047   $ 112,666      $ 10,995  
Non-Controlled Affiliates                  

Goldman Sachs Financial Square Government

Fund(2)

   $ 1      $ 302,380      $ (290,842   $     $     $ 11,539      $ 27  
CB-HDT Holdings, Inc.      18,510        384                    451       19,345        384  
Conergy Asia Holdings, Ltd             5,700                    (868     4,832        1  
Iracore International Holdings, Ltd             10,392                    (790     9,602        253  
Kawa Solar Holdings Limited      15,917        4,161        (5,425     (2,492     (3,243     8,918        1,307  
NTS Communications, Inc.      47,498        7,093                    (3,053     51,538        7,139  
Prairie Provident Resources, Inc.      2,178                           (945     1,233         
Total Non-Controlled Affiliates    $ 84,104      $ 330,110      $ (296,267   $ (2,492   $ (8,448   $ 107,007      $ 9,111  
Total Affiliates    $ 162,498      $ 367,429      $ (296,267   $ (2,492   $ (11,495   $ 219,673      $ 20,106  

 

(1)  

Together with Cal Regents, the Company invests through the Senior Credit Fund. Although the Company owns more than 25% of the voting securities of the Senior Credit Fund, the Company does not believe that it has control over the Senior Credit Fund (other than for purposes of the Investment Company Act). See Note 4 “Investments”.

(2)  

Fund advised by an affiliate of Goldman Sachs.

(3)   

Gross additions may include increases in the cost basis of investments resulting from new portfolio investments, PIK interest or dividends, the accretion of discounts, 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.

(4)   

Gross reductions may 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.

Due to Affiliates

The Investment Adviser pays certain general and administrative expenses, including legal expenses, on behalf of the Company in the ordinary course of business. As of September 30, 2018 and December 31, 2017, there were $801 and $39, respectively, included within Accrued expenses and other liabilities paid by the Investment Adviser and its affiliates on behalf of the Company.

Co-investment Activity

In certain circumstances, negotiated co-investments by the Company and other funds managed by the Investment Adviser may be made only pursuant to an order from the SEC permitting the Company to do so. On January 4, 2017, the SEC granted GSAM, Goldman Sachs Private Middle Market Credit LLC (“GS PMMC”), Goldman Sachs Middle Market Lending Corp. (“GS MMLC”) and the Company exemptive relief (“Exemptive Relief”) that permits the Company to co-invest with GS PMMC, GS MMLC and certain other funds that may be managed by GSAM, including the GSAM Credit Alternatives Team, in the future, subject to certain terms and conditions in the Exemptive Relief. The GSAM Credit Alternatives Team is comprised of investment professionals dedicated to the Company’s investment strategy and other funds that share a similar investment strategy with the Company, who are responsible for identifying investment opportunities, conducting research and due diligence on prospective investments, negotiating and structuring the Company’s investments and monitoring and servicing the Company’s investments, together with investment professionals who are primarily focused on investment strategies in syndicated, liquid credit. Under the terms of the Exemptive Relief, a “required majority” (as defined in Section 57(o) of the Investment Company Act) of the Company’s independent directors must make certain conclusions in connection with a co-investment transaction, including that (1) the terms of the proposed transaction are reasonable and fair to the Company and the Company’s stockholders and do not involve overreaching in respect of the Company or its 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 then-current investment objectives and strategies of the Company. As a result of the Exemptive Relief, there could be significant overlap in the Company’s investment portfolio and the investment portfolios of GS PMMC, GS MMLC and/or other funds established by the GSAM Credit Alternatives Team that could avail themselves of the Exemptive Relief.

 

26


4.

INVESTMENTS

As of the dates indicated, the Company’s investments (excluding an investment in a money market fund managed by an affiliate of Group Inc. of $4 and $11,539, respectively) consisted of the following:

 

     September 30, 2018      December 31, 2017  
Investment Type    Cost      Fair Value      Cost      Fair Value  
1st Lien/Senior Secured Debt    $ 616,037      $ 609,812      $ 412,534      $ 407,073  
1st Lien/Last-Out Unitranche      137,714        132,083        279,031        273,965  
2nd Lien/Senior Secured Debt      439,290        438,397        443,391        444,603  
Unsecured Debt      6,389        6,389        3,900        3,900  
Preferred Stock      14,951        17,607        11,750        12,836  
Common Stock      35,650        21,444        32,717        23,839  
Investment Funds & Vehicles(1)      94,342        92,588        94,342        92,097  

Total Investments

   $ 1,344,373      $ 1,318,320      $ 1,277,665      $ 1,258,313  

 

(1)   

Includes equity investment in the Senior Credit Fund.

As of the dates indicated, the industry composition of the Company’s portfolio at fair value and net assets was as follows:

 

     September 30, 2018     December 31, 2017  
Industry    Fair Value     Net Assets     Fair Value     Net Assets  
Software      12.1     21.9     10.3     17.9
Health Care Providers & Services      10.1       18.3       7.5       13.0  
Investment Funds & Vehicles      7.0       12.7       7.3       12.7  
Distributors      6.7       12.1       5.1       8.9  
Diversified Telecommunication Services      6.0       10.9       5.9       10.3  
Media      5.7       10.3       3.3       5.7  
Chemicals      5.2       9.4       4.8       8.3  
Diversified Financial Services      5.0       9.1       3.1       5.4  
IT Services      4.3       7.8       4.5       7.8  
Electronic Equipment, Instruments & Components      4.2       7.6       4.4       7.7  
Internet Software & Services      4.1       7.4       3.8       6.5  
Health Care Equipment & Supplies      3.9       7.0       7.1       12.2  
Aerospace & Defense      3.1       5.6       2.9       5.1  
Machinery      2.3       4.1       2.6       4.6  
Specialty Retail      2.2       4.0       2.3       4.1  
Household Products      1.9       3.5       4.1       7.1  
Air Freight & Logistics      1.9       3.4       2.0       3.4  
Commercial Services & Supplies      1.7       3.1       1.6       2.8  
Internet Catalog & Retail      1.6       2.9       1.7       3.0  
Auto Components      1.5       2.7       1.6       2.7  
Road & Rail      1.4       2.5       1.1       1.9  
Professional Services      1.4       2.6       3.5       6.0  
Food Products      1.3       2.4       1.5       2.5  
Real Estate Management & Development      1.0       1.7       4.5       7.9  
Health Care Technology      1.0       1.7              
Leisure Equipment & Products      0.8       1.5       0.8       1.4  
Energy Equipment & Services      0.7       1.2       0.8       1.3  
Construction & Engineering      0.7       1.2       1.1       1.9  
Containers & Packaging      0.5       0.8       0.7       1.1  
Life Sciences Tools & Services      0.4       0.8              
Capital Markets      0.2       0.3              
Oil, Gas & Consumable Fuels      0.1       0.1       0.1       0.2  

Total

     100.0     180.6     100.0     173.4

As of the dates indicated, the geographic composition of the Company’s portfolio at fair value was as follows:

 

Geographic    September 30, 2018     December 31, 2017  
United States      97.7     98.8
Ireland      1.5        
Germany      0.6       0.7  
Singapore      0.1       0.4  
Canada      0.1       0.1  

Total

     100.0     100.0

 

27


Senior Credit Fund, LLC

The Senior Credit Fund, an unconsolidated Delaware limited liability company, was formed on May 7, 2014 and commenced operations on October 1, 2014. The Company invests together with Cal Regents through the Senior Credit Fund. The Senior Credit Fund’s principal purpose is to make investments, either directly or indirectly through its wholly owned subsidiary, Senior Credit Fund SPV I, LLC (“SPV I”), primarily in senior secured loans to middle-market companies. Each of the Company and Cal Regents are responsible for sourcing the Senior Credit Fund’s investments. Each of the Company and Cal Regents has a 50% economic ownership in the Senior Credit Fund and each has subscribed to fund $100,000. Except under certain circumstances, contributions to the Senior Credit Fund cannot be redeemed. The Senior Credit Fund is managed by a six member board of managers, on which the Company and Cal Regents have equal representation. Investment decisions generally must be unanimously approved by a quorum of the board of managers. On August 24, 2018, the Company and Cal Regents, as the Members of the Senior Credit Fund, entered into an amendment to the amended and restated limited liability company agreement of the Senior Credit Fund to extend the investment period to December 19, 2018.

On December 19, 2016, SPV I entered into an amended and restated credit facility (as amended, the “Asset Based Facility”), which consists of a revolving credit facility (the “SPV I Revolving Credit Facility”), a term loan facility (the “SPV I Term Loan Facility”) and a Class B loan facility (the “SPV I Class B Facility”), with various lenders. For the Asset Based Facility, Natixis, New York Branch (“Natixis”) serves as the facility agent, and State Street Bank and Trust Company serves as the collateral agent. The Asset Based Facility includes a maximum borrowing capacity of $400,000. The SPV I Revolving Credit Facility provided for borrowings in an aggregate amount up to $120,000 on a committed basis as of September 30, 2018. Borrowings under the SPV I Revolving Credit Facility bear interest at LIBOR plus 2.30%. As of September 30, 2018, the SPV I Term Loan Facility consisted of a $240,000 fully drawn term loan and the SPV I Class B Facility consisted of a $40,000 fully drawn Class B loan. Borrowings under the SPV I Term Loan Facility and SPV I Class B Facility bear interest at LIBOR plus 2.30% and LIBOR plus 3.50%, respectively. Any amounts borrowed under the Asset Based Facility will mature, and all accrued and unpaid interest will be due and payable, on December 19, 2025. As of September 30, 2018 and December 31, 2017, the SPV I’s outstanding borrowings under the Asset Based Facility were $320,000 and $294,000, respectively.

As of September 30, 2018 and December 31, 2017, the Company and Cal Regents had subscribed to fund and contributed the following to the Senior Credit Fund:

 

     September 30, 2018      December 31, 2017  
Member   

Subscribed

to fund

     Contributed     

Subscribed

to fund

     Contributed  
Company    $ 100,000      $ 94,342      $ 100,000      $ 94,342  
Cal Regents      100,000        94,342        100,000        94,342  

Total

   $ 200,000      $ 188,684      $ 200,000      $ 188,684  

As of September 30, 2018 and December 31, 2017, the Senior Credit Fund had total investments in senior secured debt at fair value of $487,967 and $467,071, respectively. As of September 30, 2018, the Senior Credit Fund had one investment on non-accrual status. As of December 31, 2017, the Senior Credit Fund had no investments on non-accrual status. As of September 30, 2018 and December 31, 2017, the Senior Credit Fund had an investment in a money market fund managed by an affiliate of Group Inc. with a total fair value of $5,930 and $5,840, respectively. In addition, as of September 30, 2018, the Senior Credit Fund had twelve portfolio companies with unfunded commitments totaling $24,723 and as of December 31, 2017, the Senior Credit Fund had eight portfolio companies with unfunded commitments totaling $17,138.

Below is a summary of the Senior Credit Fund’s portfolio, excluding an investment in a money market fund managed by an affiliate of Group Inc., followed by a listing of the individual loans in the Senior Credit Fund’s portfolio as of September 30, 2018 and December 31, 2017:

 

     As of  
     September 30, 2018      December 31, 2017  
Total senior secured debt(1)    $ 524,582      $ 496,582  
Weighted average current interest rate on senior secured debt(2)      7.5%        7.3%  
Number of borrowers in the Senior Credit Fund      35        34  
Largest loan to a single borrower(1)    $ 29,924      $ 29,041  

 

(1)  

At par amount, including fully unfunded commitments.

(2)  

Computed as (a) the annual stated interest rate on accruing senior secured debt, divided by (b) total senior secured debt at par amount, excluding fully unfunded commitments.

 

28


Senior Credit Fund Portfolio as of September 30, 2018

 

Portfolio
Company
  Industry   Interest
Rate (+)
 

Reference Rate and

Spread (+)

  Maturity     Par Amount     Cost     Fair Value  
1st Lien/Senior Secured Debt (+)

 

3SI Security Systems, Inc.   Commercial Services & Supplies   8.08%   L + 5.75%; 1.00% Floor     06/16/2023     $ 29,924     $ 29,593     $ 29,625  
A Place For Mom, Inc.   Diversified Consumer Services   5.99%   L + 3.75%; 1.00% Floor     08/10/2024       17,910       17,893       17,888  
AMCP Clean Acquisition Company, LLC   Commercial Services & Supplies   6.64%   L + 4.25%     06/16/2025       8,849       8,806       8,849  
AMCP Clean Acquisition Company, LLC(1) (2)   Commercial Services & Supplies     L + 4.25%     06/16/2025       2,129       (5      
Ansira Partners, Inc.   Media   7.99%   L + 5.75%; 1.00% Floor     12/20/2022       9,272       9,202       9,226  
Ansira Partners, Inc.(1)   Media   7.99%   L + 5.75%; 1.00% Floor     12/20/2022       566       136       138  
ASC Acquisition Holdings, LLC(3)   Distributors   9.85%   L + 7.50%; 1.00% Floor     12/15/2021       8,063       8,006       7,942  
ASC Acquisition Holdings,
LLC(1) (2) (3)
  Distributors     L + 7.50%; 1.00% Floor     12/15/2021       3,750       (38     (56
ATX Networks Corp.   Communications Equipment   9.39% (8.39% Cash and
1.00% PIK)
  L + 7.00% (Incl. 1.00% PIK); 1.00% Floor     06/11/2021       15,098       15,017       14,192  
ATX Networks Corp.   Communications Equipment   9.39% (8.39% Cash and
1.00% PIK)
  L + 7.00% (Incl. 1.00% PIK); 1.00% Floor     06/11/2021       952       934       894  
Badger Sportswear, Inc.   Textiles, Apparel & Luxury Goods   6.74%   L + 4.50%; 1.00% Floor     09/11/2023       14,699       14,588       14,405  
Barbri, Inc.   Media   6.35%   L + 4.25%; 1.00% Floor     12/01/2023       12,795       12,738       12,747  
CST Buyer Company   Diversified Consumer Services   7.24%   L + 5.00%; 1.00% Floor     03/01/2023       18,967       18,559       18,588  
CST Buyer Company(1) (2)   Diversified Consumer Services     L + 5.00%; 1.00% Floor     03/01/2023       1,800       (37     (36
DBRS Limited   Capital Markets   7.56%   L + 5.25%; 1.00% Floor     03/04/2022       11,580       11,516       11,594  
DiscoverOrg, LLC(3)   Software   6.75%   L + 4.50%; 1.00% Floor     08/25/2023       7,920       7,887       7,880  
Drilling Info Holdings, Inc.   Oil & Gas   6.54%   L + 4.25%     07/30/2025       15,830       15,752       15,751  
Drilling Info Holdings, Inc.(1) (2)   Oil & Gas     L + 4.25%     07/30/2025       2,670       (13     (13
FWR Holding Corporation   Hotels, Restaurants & Leisure   7.99%   L + 5.75%; 1.00% Floor     08/21/2023       9,012       8,820       8,809  
FWR Holding Corporation(1)   Hotels, Restaurants & Leisure   7.99%   L + 5.75%; 1.00% Floor     08/21/2023       2,930       1,077       1,072  
FWR Holding Corporation(1)   Hotels, Restaurants & Leisure   8.80%   L + 5.75%; 1.00% Floor     08/21/2023       1,175       710       708  
GH Holding Company   Real Estate Management & Development   6.74%   L + 4.50%     02/28/2023       14,925       14,858       14,850  
GI Revelation Acquisition LLC   Internet Software & Services   7.24%   L + 5.00%     04/16/2025       6,983       6,950       6,991  
GK Holdings, Inc.   IT Services   8.39%   L + 6.00%; 1.00% Floor     01/20/2021       17,325       17,272       15,953  
GlobalTranz Enterprises, Inc.   Road & Rail   6.49%   L + 4.25%     06/29/2025       17,646       17,560       17,558  
GlobalTranz Enterprises, Inc.(1) (2)   Road & Rail     L + 4.25%     06/29/2025       4,354             (22
Halo Branded Solutions, Inc.   Commercial Services & Supplies   6.74%   L + 4.50%; 1.00% Floor     06/30/2025       10,529       10,427       10,424  
Halo Branded Solutions, Inc.(1)   Commercial Services & Supplies   6.78%   L + 4.50%; 1.00% Floor     06/30/2025       4,434       4,077       4,076  
HC Group Holdings III, Inc.   Health Care Providers & Services   5.99%   L + 3.75%     04/07/2022       8,730       8,705       8,763  
Hygiena Borrower LLC(3)   Life Sciences Tools & Services   6.38%   L + 4.00%; 1.00% Floor     08/26/2022       17,807       17,660       17,451  
Hygiena Borrower LLC(1)(2)(3)   Life Sciences Tools & Services     L + 4.00%; 1.00% Floor     08/26/2022       288       (2     (6
Hygiena Borrower LLC(1)(2)(3)   Life Sciences Tools & Services     L + 4.00%; 1.00% Floor     08/26/2022       1,867       (21     (37
Jill Acquisition LLC   Textiles, Apparel & Luxury Goods   7.35%   L + 5.00%; 1.00% Floor     05/08/2022       13,879       13,809       13,636  
Lattice Semiconductor Corporation   Semiconductors & Semiconductor Equipment   6.37%   L + 4.25%; 1.00% Floor     03/10/2021       9,768       9,666       9,805  
Output Services Group, Inc.(4)   Diversified Consumer Services   6.49%   L + 4.25%; 1.00% Floor     03/27/2024       7,013       6,985       7,031  
Output Services Group, Inc.(1)   Diversified Consumer Services     L + 4.25%; 1.00% Floor     03/27/2024       1,026             3  

 

29


Senior Credit Fund Portfolio as of September 30, 2018 (Continued)

 

Portfolio Company   Industry   Interest
Rate (+)
  Reference Rate and
Spread (+)
  Maturity     Par
Amount
    Cost     Fair Value  
Pathway Partners Vet Management Company, LLC   Health Care Providers & Services   6.49%   L + 4.25%; 1.00% Floor     10/10/2024     $ 9,630     $ 9,587     $ 9,630  
Pathway Partners Vet Management Company, LLC   Health Care Providers & Services   6.49%   L + 4.25%; 1.00% Floor     10/10/2024       286       284       286  
Pharmalogic Holdings Corp.   Health Care Equipment & Supplies   6.24%   L + 4.00%     06/11/2023       6,559       6,543       6,542  
Pharmalogic Holdings Corp.(1) (2)   Health Care Equipment & Supplies     L + 4.00%     06/11/2023       3,537       (8     (9
Pharmalogic Holdings Corp.   Health Care Equipment & Supplies   6.24%   L + 4.00%     06/11/2023       1,883       1,879       1,878  
Professional Physical Therapy(5)   Health Care Providers & Services     L + 7.50% PIK; 1.00% Floor     12/16/2022       10,921       10,283       9,065  
RealD, Inc.   Media   9.74%   L + 7.50%; 1.00% Floor     03/22/2021       16,320       16,225       16,238  
Regulatory DataCorp, Inc.   Diversified Financial Services   6.74%   L + 4.50%; 1.00% Floor     09/21/2022       4,975       4,975       4,875  
SciQuest, Inc.   Internet Software & Services   6.24%   L + 4.00%; 1.00% Floor     12/28/2024       19,850       19,760       19,800  
SMS Systems Maintenance Services, Inc.   IT Services   7.24%   L + 5.00%; 1.00% Floor     10/30/2023       14,738       14,679       11,888  
Stackpath, LLC   Internet Software & Services   7.51%   L + 5.00%; 1.00% Floor     02/03/2023       16,788       16,657       16,620  
Tronair Parent Inc.   Air Freight & Logistics   7.56%   L + 4.75%; 1.00% Floor     09/08/2023       13,720       13,619       13,514  
U.S. Acute Care Solutions, LLC   Health Care Providers & Services   7.24%   L + 5.00%; 1.00% Floor     05/14/2021       12,757       12,674       12,662  
United Seating and Mobility, LLC   Health Care Equipment & Supplies   6.99%   L + 4.75%; 1.00% Floor     05/10/2019       14,813       14,768       14,738  
VRC Companies, LLC   Commercial Services & Supplies   8.74%   L + 6.50%; 1.00% Floor     03/31/2023       27,428       27,012       27,154  
VRC Companies, LLC(1)   Commercial Services & Supplies   8.74%   L + 6.50%; 1.00% Floor     03/31/2022       1,412       1,057       1,066  
           

 

 

   

 

 

 

Total 1st Lien/Senior Secured Debt

            479,081       472,626  
2nd Lien/Senior Secured Debt

 

DiscoverOrg, LLC(3)   Software   10.75%   L + 8.50%; 1.00% Floor     02/23/2024       10,500       10,365       10,421  
GK Holdings, Inc.   IT Services   12.64%   L + 10.25%; 1.00% Floor     01/20/2022       6,000       5,930       4,920  
           

 

 

   

 

 

 

Total 2nd Lien/Senior Secured Debt

            16,295       15,341  
           

 

 

   

 

 

 

Total Corporate Debt

            495,376       487,967  
           

 

 

   

 

 

 
     Yield     Shares     Cost     Fair Value  
Investments in Affiliated Money Market Fund

 

Goldman Sachs Financial Square Government Fund – Institutional Shares ^^^   1.98% (6)

 

    5,929,536     $ 5,930     $ 5,930  
           

 

 

   

 

 

 

Total Investments in Affiliated Money Market Fund

            5,930       5,930  
           

 

 

   

 

 

 

TOTAL INVESTMENTS

 

  $ 501,306     $ 493,897  
           

 

 

   

 

 

 

 

^^^   

While representing less than 5% of the portfolio company’s outstanding voting securities, the portfolio company is otherwise deemed to be an “affiliated person” of the Company under the Investment Company Act of 1940.

(+)   

The terms in the Schedule above disclose the actual interest rate for partially or fully funded debt in effect as of the reporting date. Variable rate loans bear interest at a rate that may be determined by reference to either LIBOR (“L”) or alternate base rate (commonly based on the Prime Rate (“P”)), at the borrower’s option, which reset periodically based on the terms of the credit agreement. L loans are typically indexed to 12 month, 6 month, 3 month, 2 month, 1 month or 1 week L rates. As of September 30, 2018, rates for the 12 month, 6 month, 3 month, 2 month, 1 month and 1 week L are 2.92%, 2.60%, 2.40%, 2.31%, 2.26% and 2.20%, respectively. As of September 30, 2018, P was 5.25%. For investments with multiple reference rates or alternate base rates, the interest rate shown is the weighted average interest rate in effect at September 30, 2018.

(1)   

Position or portion thereof is an unfunded loan commitment, and no interest is being earned on the unfunded portion. The unfunded loan commitment may be subject to a commitment termination date that may expire prior to the maturity date stated.

(2)   

The negative cost is the result of the capitalized discount being greater than the principal amount outstanding on the loan. The negative fair value is the result of the capitalized discount on the loan.

(3)   

The Company also holds a portion of the senior secured debt in this portfolio company.

(4)   

Position or portion thereof unsettled as of September 30, 2018.

(5)   

The investment is on non-accrual status as of September 30, 2018.

(6)   

The rate shown is the annualized seven-day yield as of September 30, 2018.

PIK – Payment-In-Kind

 

30


Senior Credit Fund Portfolio as of December 31, 2017

 

 

Portfolio Company    Industry    Interest (+)    Maturity  

Par

Amount

    Cost    

Fair

Value

 
1st Lien/Senior Secured Debt(+)               
3SI Security Systems, Inc.    Commercial Services & Supplies    7.87% (L + 6.25%; 1.00% Floor)    06/16/2023   $ 14,963     $ 14,754     $ 14,738  
A Place For Mom, Inc.    Diversified Consumer Services    5.69% (L + 4.00%; 1.00% Floor)    08/10/2024     3,990       3,971       3,985  
Ansira Partners, Inc.    Media    8.19% (L + 6.50%; 1.00% Floor)    12/20/2022     8,640       8,564       8,575  
Ansira Partners, Inc. (1)    Media    8.19% (L + 6.50%; 1.00% Floor)    12/20/2022     1,269       692       693  
ASC Acquisition Holdings, LLC (2)    Distributors    8.89% (L + 7.50%; 1.00% Floor)    12/15/2021     10,688       10,599       10,474  
ASC Acquisition Holdings, LLC (1) (2) (3)    Distributors    (L + 7.50%; 1.00% Floor)    12/15/2021     3,750       (37     (75
ATX Networks Corp.    Communications Equipment   

8.69% (L + 6.00%; 1.00% Floor)

(7.69% Cash and 1.00% PIK)

   06/11/2021     16,426       16,299       16,179  
Badger Sportswear, Inc.   

Textiles, Apparel & Luxury

Goods

   6.07% (L + 4.50%; 1.00% Floor)    09/11/2023     14,812       14,687       14,535  
Barbri, Inc.    Media    5.73% (L + 4.25%; 1.00% Floor)    12/01/2023     14,000       13,931       13,965  
Crowne Group, LLC    Auto Components    10.73% (L + 9.25%; 1.00% Floor)    05/26/2021     16,363       16,239       16,526  
CST Buyer Company    Diversified Consumer Services    7.75% (L + 6.25%; 1.00% Floor)    03/01/2023     19,658       19,176       19,265  
CST Buyer Company (1) (3)    Diversified Consumer Services    (L + 6.25%; 1.00% Floor)    03/01/2023     1,800       (43     (36
DBRS Limited    Capital Markets    6.73% (L + 5.25%; 1.00% Floor)    03/04/2022     11,670       11,593       11,670  
DiscoverOrg, LLC (2)    Software    6.07% (L + 4.50%; 1.00% Floor)    08/25/2023     7,980       7,942       7,900  
FWR Holding Corporation    Hotels, Restaurants & Leisure    7.66% (L + 6.00%; 1.00% Floor)    08/21/2023     9,080       8,863       8,853  
FWR Holding Corporation(1)    Hotels, Restaurants & Leisure    7.60% (L + 6.00%; 1.00% Floor)    08/21/2023     2,936       400       396  
FWR Holding Corporation (1)    Hotels, Restaurants & Leisure    7.57% (L + 6.00%; 1.00% Floor)    08/21/2023     1,175       119       118  
GK Holdings, Inc.    IT Services    7.69% (L + 6.00%; 1.00% Floor)    01/20/2021     17,460       17,392       13,628  
HC Group Holdings III, Inc.    Health Care Providers & Services    6.57% (L + 5.00%; 1.00% Floor)    04/07/2022     8,798       8,768       8,875  
Help/Systems, LLC    Software    6.19% (L + 4.50%; 1.00% Floor)    10/08/2021     17,721       17,300       17,765  
Hygiena Borrower LLC    Life Sciences Tools & Services    6.44% (L + 4.75%; 1.00% Floor)    08/26/2022     15,880       15,741       15,562  
Hygiena Borrower LLC (1) (3)    Life Sciences Tools & Services    (L + 4.75%; 1.00% Floor)    08/26/2022     1,667       (21     (33
Jill Acquisition LLC   

Textiles, Apparel & Luxury

Goods

   6.38% (L + 5.00%; 1.00% Floor)    05/08/2022     13,997       13,914       13,183  
Lattice Semiconductor Corporation    Semiconductors & Semiconductor Equipment    5.65% (L + 4.25%; 1.00% Floor)    03/10/2021     10,745       10,608       10,852  
Liquidnet Holdings, Inc.    Capital Markets    5.82% (L + 4.25%; 1.00% Floor)    07/15/2024     9,750       9,658       9,774  
MB Aerospace Holdings Inc.    Aerospace & Defense    7.13% (L + 5.50%; 1.00% Floor)    12/15/2022     15,689       15,568       15,649  
Netsmart Technologies, Inc.    Health Care Technology    6.19% (L + 4.50%; 1.00% Floor)    04/19/2023     18,747       18,696       18,935  
Pathway Partners Vet Management Company, LLC(2)    Health Care Providers & Services    5.82% (L + 4.25%; 1.00% Floor)    10/10/2024     6,963       6,929       6,963  
Pathway Partners Vet Management Company, LLC(1)(2)    Health Care Providers & Services    5.82% (L + 4.25%; 1.00% Floor)    10/10/2024     3,020       277       291  
Pomeroy Group LLC    IT Services    7.51% (L + 6.00%; 1.00% Floor)    11/30/2021     15,759       15,390       15,404  
Professional Physical Therapy    Health Care Providers & Services    9.50% (P + 5.00%)    12/16/2022     10,395       10,306       10,187  
Radiology Partners Holdings, LLC    Health Care Providers & Services    7.59% (L + 5.75%; 1.00% Floor)    12/04/2023     7,710       7,634       7,710  
Radiology Partners Holdings, LLC (1)    Health Care Providers & Services    7.59% (L + 5.75%; 1.00% Floor)    12/04/2023     2,290       1,389       1,412  
RealD, Inc.    Media    8.98% (L + 7.50%; 1.00% Floor)    03/22/2021     16,639       16,516       16,431  
SciQuest, Inc.(4)    Internet Software & Services    5.56% (L + 4.00%; 1.00% Floor)    12/28/2024     20,000       19,900       19,900  
Smarte Carte, Inc.    Air Freight & Logistics    7.20% (L + 5.50%; 1.00% Floor)    08/30/2021     10,558       10,477       10,479  
SMS Systems Maintenance Services, Inc.    IT Services    6.57% (L + 5.00%; 1.00% Floor)    10/30/2023     14,850       14,784       12,474  
Stackpath, LLC    Internet Software & Services    6.38% (L + 5.00%; 1.00% Floor)    02/03/2023     16,915       16,765       16,746  
Tronair Parent Inc.    Air Freight & Logistics    6.16% (L + 4.75%; 1.00% Floor)    09/08/2023     13,825       13,710       13,652  
U.S. Acute Care Solutions, LLC    Health Care Providers & Services    6.69% (L + 5.00%; 1.00% Floor)    05/14/2021     12,870       12,765       12,741  
VRC Companies, LLC    Commercial Services & Supplies    8.12% (L + 6.50%; 1.00% Floor)    03/31/2023     19,906       19,501       19,657  
VRC Companies, LLC    Commercial Services & Supplies    7.85% (L + 6.50%; 1.00% Floor)    03/31/2023     3,523       3,452       3,480  
VRC Companies, LLC (1)    Commercial Services & Supplies    7.97% (L + 6.50%; 1.00% Floor)    03/31/2023     4,200       2,179       2,177  
VRC Companies, LLC (1)    Commercial Services & Supplies    10.00% (P + 5.50%)    03/31/2022     1,412       1,102       1,112  
            

 

 

   

 

 

 

Total 1st Lien/Senior Secured Debt

            448,449       442,767  
1st Lien/First-Out Unitranche               
Infogix, Inc.    Software    6.69% (L + 5.00%; 1.00% Floor)    12/31/2021     9,593       9,524       9,569  
            

 

 

   

 

 

 

Total 1st Lien/First-Out Unitranche

            9,524       9,569  

 

31


Portfolio Company    Industry    Interest (+)    Maturity     

Par

Amount

     Cost     

Fair

Value

 
2nd Lien/Senior Secured Debt                  
DiscoverOrg, LLC(2)    Software    10.07% (L + 8.50%; 1.00% Floor)      02/23/2024      $ 10,500      $ 10,350      $ 10,395  
GK Holdings, Inc.    IT Services    11.94% (L + 10.25%; 1.00% Floor)      01/20/2022        6,000        5,918        4,340  
              

 

 

    

 

 

 

Total 2nd Lien/Senior Secured Debt

              16,268        14,735  
           

 

 

    

 

 

 

Total Corporate Debt

              474,241        467,071  
           

 

 

    

 

 

 
            Yield            Shares      Cost     

Fair

Value

 
Investments in Affiliated Money Market Fund               
Goldman Sachs Financial Square Government Fund – Institutional Shares    1.21%(5)         5,839,827      $ 5,840      $ 5,840  
           

 

 

    

 

 

 

Total Investments in Affiliated Money Market Fund

              5,840        5,840  
           

 

 

    

 

 

 

TOTAL INVESTMENTS

            $ 480,081      $ 472,911  
           

 

 

    

 

 

 

 

(+)  

The schedule above discloses the actual interest rate for partially or fully funded debt in effect as of the reporting date. Variable rate loans bear interest at a rate that may be determined by reference to either LIBOR (“L”) or alternate base rate (commonly based on the Prime Rate (“P”)), at the borrower’s option, which reset periodically based on the terms of the credit agreement. L loans are typically indexed to 12 month, 6 month, 3 month, 2 month, 1 month or 1 week L rates. As of December 31, 2017, rates for the 12 month, 6 month, 3 month, 2 month, 1 month and 1 week L are 2.11%, 1.84%, 1.69%, 1.62%, 1.56% and 1.48%, respectively. As of December 31, 2017, P was 4.50%. For investments with multiple reference rates or alternate base rates, the interest rate shown is the weighted average interest rate in effect at December 31, 2017.

(1)  

Position or portion thereof is an unfunded loan commitment, and no interest is being earned on the unfunded portion. The unfunded loan commitment may be subject to a commitment termination date that may expire prior to the maturity date stated.

(2)  

The Company also holds a portion of the 2nd lien/senior secured debt in this portfolio company.

(3)  

The negative cost is the result of the capitalized discount being greater than the principal amount outstanding on the loan. The negative fair value is the result of the capitalized discount on the loan.

(4)  

Position or portion thereof unsettled as of December 31, 2017.

(5)  

The rate shown is the annualized seven-day yield as of December 31, 2017.

 

32


Below is selected balance sheet information for the Senior Credit Fund as of September 30, 2018 and December 31, 2017:

 

     As of
September 30, 2018
     As of
December 31, 2017
 
Selected Balance Sheet Information      
Total investments, at fair value    $ 493,897      $ 472,911  
Cash and other assets      19,829        31,826  
Total assets    $ 513,726      $ 504,737  
Debt (1)    $ 317,761      $ 291,515  
Other liabilities      10,789        29,028  
Total liabilities    $ 328,550      $ 320,543  
Members’ equity      185,176        184,194  
Total liabilities and members’ equity    $ 513,726      $ 504,737  

 

(1) 

Net of deferred financing costs for the SPV I Term Loan Facility, which were in the amount of $2,239 and $2,485 as of September 30, 2018 and December 31, 2017, respectively.

Below is selected statements of operations information for the Senior Credit Fund for the three and nine months ended September 30, 2018 and 2017:

 

     For the
Three Months Ended
September 30,
    For the
Nine Months Ended
September 30,
 
     2018      2017     2018     2017  
Selected Statements of Operations Information:          
Total investment income    $ 10,299      $ 9,535     $ 29,469     $ 28,140  
Expenses          
Interest and other debt expense      4,112        3,482       11,362       10,132  
Excess loan origination and structuring fees             350             1,096  
Professional fees      126        176       538       485  
Administration and custodian fees      100        103       295       299  
Other expenses      24        36       53       88  
Total expenses    $ 4,362      $ 4,147     $ 12,248     $ 12,100  
Total net income      5,937        5,388       17,221       16,040  
Net realized gain (loss) on investments             29             106  
Net change in unrealized appreciation (depreciation) on investments      558        (135     (239     (1,706
Net increase (decrease) in members’ equity    $ 6,495      $ 5,282     $ 16,982     $ 14,440  

Loan Origination and Structuring Fees

If the loan origination and structuring fees earned by the Senior Credit Fund (including directly or indirectly through SPV I or another vehicle) during a period exceed the Senior Credit Fund’s expenses (excluding interest and other debt expenses), such excess is paid as a fee to the Member(s) responsible for the origination of the loans pro rata in accordance with the total loan origination and structuring fees earned by the Senior Credit Fund with respect to the loans originated by such Member. The loan origination and structuring fee is accrued quarterly and included in other income from controlled affiliated investments on the Consolidated Statements of Operations and paid annually. For the three and nine months ended September 30, 2018, the Company did not accrue income based on loan origination and structuring fees. For the three and nine months ended September 30, 2017, the Company accrued income based on loan origination and structuring fees of $350 and $1,096, respectively.

 

33


5.

FAIR VALUE MEASUREMENT

The fair value of a financial instrument is the amount that would be received to sell an asset or would be paid to transfer a liability in an orderly transaction between market participants at the measurement date (i.e., the exit price).

The fair value hierarchy under ASC 820 prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The levels used for classifying investments are not necessarily an indication of the risk associated with investing in these securities. The three levels of the fair value hierarchy are as follows:

Basis of Fair Value Measurement

Level 1 – Inputs to the valuation methodology are quoted prices available in active markets for identical instruments as of the reporting date. The types of financial instruments included in Level 1 include unrestricted securities, including equities and derivatives, listed in active markets.

Level 2 – Inputs to the valuation methodology are other than quoted prices in active markets, which are either directly or indirectly observable as of the reporting date. The types of financial instruments in this category include less liquid and restricted securities listed in active markets, securities traded in other than active markets, government and agency securities and certain over-the-counter derivatives where the fair value is based on observable inputs.

Level 3 – Inputs to the valuation methodology are unobservable and significant to overall fair value measurement. The inputs into the determination of fair value require significant management judgment or estimation. Financial instruments that are included in this category include investments in privately held entities and certain over-the-counter derivatives where the fair value is based on unobservable inputs.

A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Note 2 “Significant Accounting Policies” should be read in conjunction with the information outlined below.

The table below presents the valuation techniques and the nature of significant inputs generally used in determining the fair value of Level 2 Instruments.

 

Level 2 Instruments    Valuation Techniques and Significant Inputs
Equity and Fixed Income   

The types of instruments that trade in markets that are not considered to be active but are valued based on quoted market prices, broker or dealer quotations or alternative pricing sources with reasonable levels of price transparency include commercial paper, most government agency obligations, most corporate debt securities, certain mortgage-backed securities, certain bank loans, less liquid publicly listed equities, certain state and municipal obligations, certain money market instruments and certain loan commitments.

 

Valuations of Level 2 Equity and Fixed Income instruments can be verified to quoted prices, broker or dealer quotations or alternative pricing sources with reasonable levels of price transparency. Consideration is given to the nature of the quotations (e.g. indicative or firm) and the relationship of recent market activity to the prices provided from alternative pricing sources.

Derivative Contracts   

OTC derivatives (both centrally cleared and bilateral) are valued using market transactions and other market evidence whenever possible, including market-based inputs to models, calibration to market-clearing transactions, broker or dealer quotations, or other alternative pricing sources with reasonable levels of price transparency. Where models are used, the selection of a particular model to value an OTC derivative depends upon the contractual terms of, and specific risks inherent in, the instrument, as well as the availability of pricing information in the market. The Company generally uses similar models to value similar instruments. Valuation models require a variety of inputs, including contractual terms, market prices, yield curves, credit curves, measures of volatility, voluntary and involuntary prepayment rates, loss severity rates and correlations of such inputs. For OTC derivatives that trade in liquid markets, model inputs can generally be verified and model selection does not involve significant management judgment. OTC derivatives are classified within Level 2 of the fair value hierarchy when significant inputs are corroborated by market evidence.

The table below presents the valuation techniques and the nature of significant inputs generally used in determining the fair value of Level 3 Instruments.

 

34


Level 3 Instruments    Valuation Techniques and Significant Inputs

Bank Loans, Corporate Debt, and Other Debt

Obligations

  

Valuations are generally based on discounted cash flow techniques, for which the significant inputs are the amount and timing of expected future cash flows, market yields and recovery assumptions. The significant inputs are generally determined based on relative value analyses, which incorporate comparisons both to credit default swaps that reference the same underlying credit risk and to other debt instruments for the same issuer for which observable prices or broker quotes are available. Other valuation methodologies are used as appropriate including market comparables, transactions in similar instruments and recovery/liquidation analysis.

Equity   

Recent third-party investments or pending transactions are considered to be the best evidence for any change in fair value. When these are not available, the following valuation methodologies are used, as appropriate and available:

•  Transactions in similar instruments;

•  Discounted cash flow techniques;

•  Third party appraisals; and

•  Industry multiples and public comparables.

Evidence includes recent or pending reorganizations (for example, merger proposals, tender offers and debt restructurings) and significant changes in financial metrics, including:

•  Current financial performance as compared to projected performance;

•  Capitalization rates and multiples; and

•  Market yields implied by transactions of similar or related assets.

The tables below present the ranges of significant unobservable inputs used to value the Company’s Level 3 assets and liabilities as of September 30, 2018 and December 31, 2017. These ranges represent the significant unobservable inputs that were used in the valuation of each type of instrument, but they do not represent a range of values for any one instrument. For example, the lowest yield in 1st Lien/Senior Secured Debt is appropriate for valuing that specific debt investment, but may not be appropriate for valuing any other debt investments in this asset class. Accordingly, the ranges of inputs presented below do not represent uncertainty in, or possible ranges of, fair value measurements of the Company’s Level 3 assets and liabilities.

 

35


Level 3 Instruments  

Level 3 Assets as of

September 30, 2018(1)

 

Significant Unobservable

Inputs by Valuation

Techniques(2)

 

Range(3) of Significant

Unobservable

Inputs (Weighted Average(4))

as of

September 30, 2018

Bank Loans, Corporate Debt, and Other Debt Obligations   1st Lien/Senior Secured   Discounted cash flows:    
  $431,956  

•  Discount Rate

  9.1% – 23.4% (12.4%)
    Collateral analysis:    
       

•  Recovery Rate

  93.5%
    1st Lien/Last-Out Unitranche   Discounted cash flows:    
    $132,083  

•  Discount Rate

  9.7% -–16.4% (13.2%)
      Collateral analysis:    
     

•  Recovery Rate

  90.0% – 100.0% (98.9%)
      Comparable multiples:    
       

•  EV/EBITDA(5)

  7.8x
    2nd Lien/Senior Secured   Discounted cash flows:    
    $338,961  

•  Discount Rate

  10.4% – 18.9% (12.8%)
    Unsecured Debt   Discounted cash flows:    
    $6,389  

•  Discount Rate

  12.0%
      Collateral analysis:    
       

•  Recovery Rate

  100.0%
Equity   Preferred Stock   Comparable multiples:    
    $17,607  

•  EV/EBITDA(5)

  6.8x – 11.4x (7.7x)
    Common Stock   Discounted cash flows:    
    $18,154  

•  Discount Rate

  13.8% – 16.3% (14.1%)
      Comparable multiples:    
     

•  EV/Revenue

  0.5x – 1.0x (0.7x)
      Comparable multiples:    
       

•  EV/EBITDA(5)

  3.6x – 15.0x (6.2x)

 

(1)  

Included within Level 3 Assets of $1,178,678 is an amount of $233,528 for which the Investment Adviser did not develop the unobservable inputs (examples include single source broker quotations, third party pricing, and prior transactions).

(2)   

The fair value of any one instrument may be determined using multiple valuation techniques. For example, market comparable and discounted cash flows may be used together to determine fair value. Therefore, the Level 3 balance encompasses both of these techniques.

(3)   

The range for an asset category consisting of a single investment represents the relevant market data considered in determining the fair value of the investment.

(4)   

Weighted average for an asset category consisting of multiple investments is calculated by weighting the significant unobservable input by the relative fair value of the investment. Weighted average for an asset category consisting of a single investment represents the significant unobservable input used in the fair value of the investment.

(5)   

Enterprise value of portfolio company as a multiple of earnings before interest, taxes, depreciation and amortization (“EBITDA”).

 

Level 3 Instruments  

Level 3 Assets as of

December 31, 2017(1)

 

Significant Unobservable

Inputs by Valuation

Techniques(2)

 

Range(3) of Significant

Unobservable

Inputs (Weighted Average(4))

as of

December 31, 2017

Bank Loans, Corporate Debt, and

Other Debt Obligations

  1st Lien/Senior Secured Debt   Discounted cash flows:    
  $331,896  

•  Discount Rate

  9.4% – 17.3% (12.3%)
    Collateral analysis:    
       

•  Recovery Rate

  91.8%
    1st Lien/Last-Out Unitranche   Discounted cash flows:    
    $268,074  

•  Discount Rate

  10.5% – 15.3% (11.8%)
       
      Comparable multiples:    
     

•  EV/Revenue

  0.4x – 0.9x (0.6x)
       
      Comparable multiples:    
       

•  EV/EBITDA(5)

  7.0x – 7.0x (7.0x)
    2nd Lien/Senior Secured Debt   Discounted cash flows:    
    $321,986  

•  Discount Rate

  9.9% – 15.6% (11.6%)
    Unsecured Debt   Discounted cash flows:    
  $3,500  

•  Discount Rate

  4.3% – 5.7% (12.0%)
Equity   Preferred Stock   Comparable multiples:    
    $12,836  

•  EV/EBITDA(5)

  5.1x – 16.6x (6.5x)

 

36


Level 3 Instruments  

Level 3 Assets as of

December 31, 2017(1)

 

Significant Unobservable

Inputs by Valuation

Techniques(2)

 

Range(3) of Significant

Unobservable

Inputs (Weighted Average(4))

as of

December 31, 2017

    Common Stock   Collateral analysis:    
    $22,606  

•  Recovery Rate

  100.0%
       
      Comparable multiples:    
     

•  EV/Revenue

  0.6x – 2.7x (0.9x)
       
      Comparable multiples:    
     

•  EV/EBITDA(5)

  5.8x – 15.3x (7.0x)
       
      Collateral analysis:    
       

•  Recovery Rate

  81.9%

 

(1)   

Included within Level 3 Assets of $1,075,695 is an amount of $114,797 for which the Investment Adviser did not develop the unobservable inputs (examples include single source broker quotations, third party pricing, and prior transactions).

(2)   

The fair value of any one instrument may be determined using multiple valuation techniques. For example, market comparable and discounted cash flows may be used together to determine fair value. Therefore, the Level 3 balance encompasses both of these techniques.

(3)   

The range for an asset category consisting of a single investment represents the relevant market data considered in determining the fair value of the investment.

(4)   

Weighted average for an asset category consisting of multiple investments is calculated by weighting the significant unobservable input by the relative fair value of the investment. Weighted average for an asset category consisting of a single investment represents the significant unobservable input used in the fair value of the investment.

(5)   

Enterprise value of portfolio company as a multiple of EBITDA.

As noted above, the income and market approaches were used in the determination of fair value of certain Level 3 assets as of September 30, 2018 and December 31, 2017. The significant unobservable inputs used in the income approach are the discount rate or market yield used to discount the estimated future cash flows expected to be received from the underlying investment, which include both future principal and interest payments. An increase in the discount rate or market yield would result in a decrease in the fair value. Included in the consideration and selection of discount rates is risk of default, rating of the investment, call provisions and comparable company investments. The significant unobservable inputs used in the market approach are based on market comparable transactions and market multiples of publicly traded comparable companies. Increases or decreases in market comparable transactions or market multiples would result in an increase or decrease, respectively, in the fair value.

The following is a summary of the Company’s assets and liabilities categorized within the fair value hierarchy as of September 30, 2018:

 

Investments – Assets    Level 1      Level 2      Level 3      Total  
1st Lien/Senior Secured Debt    $      $ 19,150      $ 590,662      $ 609,812  
1st Lien/Last-Out Unitranche                    132,083        132,083  
2nd Lien/Senior Secured Debt             26,848        411,549        438,397  
Unsecured Debt                    6,389        6,389  
Preferred Stock                    17,607        17,607  
Common Stock             1,056        20,388        21,444  
Affiliated Money Market Fund      4                      4  
Subtotal    $ 4      $ 47,054      $ 1,178,678      $ 1,225,736  
Investments measured at NAV(1)                                 92,588  
Total                               $ 1,318,324  

 

(1)   

Includes equity investment in the Senior Credit Fund.

 

Derivatives    Level 1      Level 2      Level 3      Total  
Foreign currency forward contracts (asset)(1)    $      $ 2      $      $ 2  
Total    $      $ 2      $      $ 2  

 

(1)  

Amounts disclosed represent the unrealized appreciation on the foreign currency forward contracts.

The following is a summary of the Company’s assets categorized within the fair value hierarchy as of December 31, 2017:

 

Assets    Level 1      Level 2      Level 3      Total  
1st Lien/Senior Secured Debt    $      $ 19,600      $ 387,473      $ 407,073  
1st Lien/Last-Out Unitranche                    273,965        273,965  
2nd Lien/Senior Secured Debt             69,688        374,915        444,603  
Unsecured Debt                    3,900        3,900  
Preferred Stock                    12,836        12,836  
Common Stock             1,233        22,606        23,839  
Affiliated Money Market Fund      11,539                      11,539  
Subtotal    $ 11,539      $ 90,521      $ 1,075,695      $ 1,177,755  
Investments measured at NAV(1)                                 92,097  
Total assets                               $ 1,269,852  

 

(1)   

Includes equity investment in the Senior Credit Fund.

 

37


The Company did not hold any derivative instruments as of December 31, 2017.

The following is a reconciliation of Level 3 assets for the nine months ended September 30, 2018:

 

Level 3  

Beginning

Balance

as of

January 1,

2018

    Purchases(1)    

Net

Realized

Gain (Loss)

   

Net Change in

Unrealized

Appreciation

(Depreciation)(2)

   

Sales and

Settlements(1)

   

Net

Amortization

of Premium/

Discount

   

Transfers

In

   

Transfers

Out

   

Ending

Balance

as of

September 30,

2018

 
1st Lien/Senior Secured Debt   $ 387,473     $ 219,622     $ 4     $ (314   $ (17,959   $ 1,836     $     $     $ 590,662  
1st Lien/Last-Out Unitranche     273,965       26,224             (565     (170,254     2,713                   132,083  
2nd Lien/Senior Secured Debt     374,915       90,064             (1,041     (72,990     2,056       18,545             411,549  
Unsecured Debt     3,900       2,489                                           6,389  
Preferred Stock     12,836       3,200             1,571                               17,607  
Common Stock     22,606       3,533       1,550       (5,151     (2,150                       20,388  
Total assets   $ 1,075,695     $ 345,132     $ 1,554     $ (5,500   $ (263,353   $ 6,605     $ 18,545     $     $ 1,178,678  

 

(1)  

Purchases may include PIK and securities received in corporate actions and restructurings. Sales and Settlements may include securities delivered in corporate actions and restructuring of investments.

(2)   

Change in unrealized appreciation (depreciation) relating to assets still held at September 30, 2018 totaled $(5,367) consisting of the following: 1st Lien/Senior Secured Debt $(314), 1st Lien/Last-Out Unitranche $(475) 2nd Lien/Senior Secured Debt $(998), Unsecured Debt $0, Preferred Stock $1,571 and Common Stock $(5,151).

The following is a reconciliation of Level 3 assets for the nine months ended September 30, 2017:

 

Level 3  

Beginning

Balance

as of

January 1,

2017

    Purchases(1)    

Net

Realized

Gain (Loss)

   

Net Change in

Unrealized

Appreciation

(Depreciation)(2)

   

Sales and

Settlements(1)

   

Net

Amortization

of Premium/

Discount

   

Transfers

In

   

Transfers

Out

   

Ending

Balance

as of

September 30,

2017

 
1st Lien/Senior Secured Debt   $ 379,181     $ 109,367     $ (16,900   $ 9,714     $ (149,519   $ 3,784     $     $     $ 335,627  
1st Lien/Last-Out Unitranche     310,254       44,550             (10,265     (72,425     2,295                   274,409  
2nd Lien/Senior Secured Debt     269,018       290,608       (23,565     14,295       (221,699     1,910                   330,567  
Unsecured Debt     3,115       185                                           3,300  
Preferred Stock     11,833       628             (46                             12,415  
Common Stock     4,312       14,493             (1,574                             17,231  
Total assets   $ 977,713     $ 459,831     $ (40,465   $ 12,124     $ (443,643   $ 7,989     $     $     $ 973,549  

 

(1)  

Purchases may include securities received in corporate actions and PIK. Sales and Settlements may include securities delivered in corporate actions.

(2)  

Change in unrealized appreciation (depreciation) relating to assets still held at September 30, 2017 totaled $1,499 consisting of the following: 1st Lien/Senior Secured Debt $12,588, 1st Lien/Last-Out Unitranche $(10,173), 2nd Lien/Senior Secured Debt $704, Unsecured Debt $0, Preferred Stock $(46) and Common Stock $(1,574).

Transfers between levels of the fair value hierarchy are reported at the beginning of the reporting period in which they occur. For the nine months ended September 30, 2018, transfers from Level 2 to Level 3 were primarily due to decreased price transparency. For the nine months ended September 30, 2017, there were no transfers between levels.

Debt Not Carried at Fair Value

The fair value of the Revolving Credit Facility, which would be categorized as Level 3 within the fair value hierarchy as of September 30, 2018 and December 31, 2017, approximates its carrying value. The fair value of the Company’s Convertible Notes, which would be categorized as Level 2 within the fair value hierarchy, as of September 30, 2018 and December 31, 2017 was $157,310 and $119,959, respectively, based on broker quotes received by the Company.

 

6.

DEBT

On June 15, 2018, the Company’s stockholders approved the application of the reduced asset coverage requirements in Section 61(a)(2) of the Investment Company Act to the Company. As a result of this approval, the Company is now permitted to borrow amounts such that its asset coverage ratio, as defined in the Investment Company Act, is at least 150% after such borrowing (if certain requirements are met), rather than 200%, as previously required. As of September 30, 2018 and December 31, 2017, the Company’s asset coverage ratio based on the aggregate amount outstanding of senior securities was 225% and 233%, respectively.

 

38


The Company’s outstanding debt as of September 30, 2018 and December 31, 2017 was as follows:

 

     As of  
     September 30, 2018      December 31, 2017  
     

Aggregate

Borrowing

Amount

Committed

    

Outstanding

Borrowing

    

Amount

Available

    

Carrying

Value

    

Aggregate

Borrowing

Amount

Committed

    

Outstanding

Borrowing

    

Amount

Available

    

Carrying

Value

 
Revolving Credit Facility(1)(2)    $ 695,000      $ 423,936      $ 271,064      $ 423,936      $ 620,000      $ 431,250      $ 188,750      $ 431,250  
Convertible Notes(3)      155,000        155,000               149,356        115,000        115,000               111,276  
Total Debt    $ 850,000      $ 578,936      $ 271,064      $ 573,292      $ 735,000      $ 546,250      $ 188,750      $ 542,526  

 

(1)   

Provides, under certain circumstances, a total borrowing capacity of $1,000,000.

(2)   

The Company may borrow amounts in U.S. dollar or certain other permitted currencies. As of September 30, 2018, the Company had outstanding borrowings denominated in Euros (EUR) of EUR 33,750. As of December 31, 2017, all outstanding borrowings were in USD.

(3)   

The carrying value of the Company’s Convertible Notes is presented net of unamortized debt issuance costs of $4,085 and OID net of accretion of $1,559 as of September 30, 2018, and net of unamortized debt issuance costs of $3,133 and OID net of accretion of $591 as of December 31, 2017.

The combined weighted average interest rate of the aggregate borrowings outstanding for the nine months ended September 30, 2018 and the year ended December 31, 2017 was 4.03% and 3.47%, respectively.

Revolving Credit Facility

On September 19, 2013, the Company entered into a Revolving Credit Facility with various lenders. SunTrust Bank serves as administrative agent and Bank of America, N.A. serves as syndication agent under the Revolving Credit Facility. The Company has amended and restated the Revolving Credit Facility on October 3, 2014, November 3, 2015, December 16, 2016, February 21, 2018, and September 17, 2018.

The aggregate committed borrowing amount under the Revolving Credit Facility is $695,000. The Revolving Credit Facility includes an uncommitted accordion feature that allows the Company, under certain circumstances, to increase the borrowing capacity of the Revolving Credit Facility up to $1,000,000.

Borrowings denominated in USD, including amounts drawn in respect of letters of credit, bear interest (at the Company’s election) of either (i) LIBOR plus a margin of either 1.75% or 2.00%, subject to borrowing base conditions or (ii) an alternative base rate, which is the higher of the Prime Rate, Federal Funds Rate plus 0.50% or overnight LIBOR plus 1.00%, plus either 0.75% or 1.00%, subject to borrowing base conditions. Borrowings denominated in EUR bear interest (at the company’s election) of EUR LIBOR plus a margin of either 1.75% or 2.00%, subject to borrowing base conditions. The Company may elect either the LIBOR, EUR LIBOR, or an alternative base rate at the time of borrowing, and borrowings may be converted from one rate to another at any time, subject to certain conditions. Interest is payable quarterly in arrears. The Company pays a fee of 0.375% per annum on committed but undrawn amounts under the Revolving Credit Facility, payable quarterly in arrears. Any amounts borrowed under the Revolving Credit Facility will mature, and all accrued and unpaid interest will be due and payable, on February 21, 2023.

The Revolving Credit Facility may be guaranteed by certain of the Company’s domestic subsidiaries, including any that are formed or acquired by the Company in the future (collectively, the “Guarantors”). The Senior Credit Fund is not a Guarantor of the Revolving Credit Facility. Proceeds from borrowings may be used for general corporate purposes, including the funding of portfolio investments.

The Company’s obligations to the lenders under the Revolving Credit Facility are secured by a first priority security interest in substantially all of the Company’s portfolio of investments and cash, with certain exceptions. The Revolving Credit Facility contains certain covenants, including: (i) maintaining a minimum stockholder’s equity of $500,000 plus 25% of net proceeds of the sale of equity interests after February 21, 2018, (ii) maintaining a minimum asset coverage ratio of at least 150%, (iii) maintaining a minimum asset coverage ratio of 200% with respect to the consolidated assets (with certain limitations on the contribution of equity in financing subsidiaries as specified therein) of the Company and its subsidiary guarantors to the secured debt of the Company and its subsidiary guarantors, (iv) maintaining a minimum Company net worth of at least $350,000, (v) maintaining a minimum liquidity test of at least 10% of the covered debt amount during any period when the adjusted covered debt balance is greater than 90% of the adjusted borrowing base, as defined in the Revolving Credit Facility, and (vi) complying with restrictions on industry concentrations in the Company’s investment portfolio. The Company is in compliance with these covenants.

Costs of $11,678 were incurred in connection with obtaining and amending the Revolving Credit Facility, which have been recorded as deferred financing costs on the Consolidated Statements of Assets and Liabilities and are being amortized over the life of the Revolving Credit Facility using the straight-line method. As of September 30, 2018 and December 31, 2017, deferred financing costs were $5,773 and $4,847, respectively.

 

39


The summary information of the Revolving Credit Facility for the three and nine months ended September 30, 2018 and 2017 is as follows:

 

     

Three Months

Ended

September 30, 2018

   

Three Months

Ended

September 30, 2017

   

Nine Months

Ended

September 30, 2018

   

Nine Months

Ended

September 30, 2017

 
Borrowing interest expense    $ 3,578     $ 2,746     $ 11,307     $ 7,997  
Facility fees      379       313       878       780  
Amortization of financing costs      337       311       982       923  
Total    $ 4,294     $ 3,370     $ 13,167     $ 9,700  
Weighted average interest rate      4.04     3.30     3.88     3.06
Average outstanding balance    $ 351,357     $ 330,265     $ 389,819     $ 349,395  

Convertible Notes

On October 3, 2016, the Company closed an offering of $115,000 aggregate principal amount of unsecured Convertible Notes, which includes $15,000 aggregate principal amount issued pursuant to the initial purchasers’ exercise in full of an over-allotment option (the “Initial Convertible Notes”). The sale of the Initial Convertible Notes generated net proceeds of approximately $110,900. The Company used the net proceeds of the offering to pay down debt under the Revolving Credit Facility.

On July 2, 2018, the Company closed an additional offering of $40,000 aggregate principal amount of Convertible Notes (the “Additional Convertible Notes” and together with Initial Convertible Notes, the “Convertible Notes”). The Additional Convertible Notes have identical terms, are fungible with and are part of the Initial Convertible Notes. The sale of the Additional Convertible Notes generated net proceeds of approximately $38,569. The Company used the net proceeds of the offering to pay down debt under the Revolving Credit Facility.

The Convertible Notes were issued pursuant to an indenture between the Company and Wells Fargo Bank, National Association, as Trustee. Wells Fargo Bank, National Association and/or its affiliates provide bank lending and distribution services to certain Goldman Sachs funds. The Convertible Notes bear interest at a rate of 4.50% per year, payable semi-annually in arrears on April 1 and October 1 of each year, commencing on April 1, 2017. The Convertible Notes will mature on April 1, 2022, unless repurchased or converted in accordance with their terms prior to such date. In certain circumstances, the Convertible Notes will be convertible into cash, shares of the Company’s common stock or a combination of cash and shares of the Company’s common stock, based on an initial conversion rate of 40.8397 shares of the Company’s common stock per one thousand dollars principal amount of Convertible Notes, which is equivalent to an initial conversion price of approximately $24.49 per share of common stock, subject to customary anti-dilution adjustments and the other terms of the indenture governing the Convertible Notes. The conversion price is approximately 10.0% above the $22.26 per share closing price of the Company’s common stock on September 27, 2016 and 16.7% above the $20.99 per share closing price of our common stock on June 26, 2018. The Company will not have the right to redeem the Convertible Notes prior to maturity.

Holders may convert their notes at their option at any time prior to the close of business on the business day immediately preceding October 1, 2021 only under the following circumstances: (1) during any calendar quarter, if the last reported sale price of the Company’s common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the conversion price on each applicable trading day; (2) during the five business day period after any five consecutive trading day period (the “measurement period”) in which the trading price per one thousand dollars principal amount of notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price of the Company’s common stock and the conversion rate on each such trading day; or (3) upon the occurrence of specified corporate events. On or after October 1, 2021, until the close of business on the scheduled trading day immediately preceding the maturity date, holders may convert their notes at any time, regardless of the occurrence or nonoccurrence of any of the foregoing circumstances.

The Convertible Notes are accounted for in accordance with ASC Topic 470-20, Debt with Conversion and Other Options. Upon conversion of any of the Convertible Notes, the Company intends to pay the outstanding principal amount in cash and, to the extent that the conversion value exceeds the principal amount, has the option to pay the excess amount in cash or shares of the Company’s common stock (or a combination of cash and shares), subject to the requirements of the indenture governing the Convertible Notes. The Company has determined that the embedded conversion options in the Convertible Notes are not required to be separately accounted for as derivatives under ASC Topic 815, Derivatives and Hedging. At the time of issuance the values of the debt and equity components of the Initial Convertible Notes and Additional Convertible Notes were approximately 99.4% and 0.6%, and 97.9% and 2.1%, respectively.

The OID equal to the equity component of the Convertible Notes was recorded in “paid-in capital in excess of par” in the accompanying Consolidated Statements of Assets and Liabilities. The Company records interest expense comprised of both stated interest and amortization of the OID. At the time of issuance, the equity components of the Initial Convertible Notes and the

 

40


Additional Convertible Notes were $743 and $836, respectively. Additionally, the issuance costs associated with the Convertible Notes were allocated to the debt and equity components in proportion to the allocation of the values at the time of issuance and accounted for as debt issuance costs and equity issuance costs, respectively.

As of September 30, 2018 and December 31, 2017, the components of the carrying value of the Convertible Notes were as follows:

 

     

September 30,

2018

   

December 31,

2017

 
Principal amount of debt    $ 155,000     $ 115,000  
OID, net of accretion      1,559       591  
Unamortized debt issuance costs      4,085       3,133  
Carrying value    $ 149,356     $ 111,276  
Stated interest rate      4.50     4.50
Effective interest rate (stated interest rate plus accretion of OID)      4.75     4.60

For the three and nine months ended September 30, 2018 and 2017, the components of interest and other debt expenses related to the Convertible Notes were as follows:

 

     

Three Months

Ended

September 30, 2018

    

Three Months

Ended

September 30, 2017

    

Nine Months

Ended

September 30, 2018

    

Nine Months

Ended

September 30, 2017

 
Borrowing interest expense    $ 1,739      $ 1,294      $ 4,326      $ 3,881  
Accretion of OID      101        31        164        92  
Amortization of debt issuance costs      299        189        671        562  
Total    $ 2,139      $ 1,514      $ 5,161      $ 4,535  

 

7.

DERIVATIVES

The Company enters into foreign currency forward contracts from time to time to help mitigate the impact that an adverse change in foreign exchange rates would have on the value of the Company’s investments denominated in foreign currencies.

In order to better define its contractual rights and to secure rights that will help the Company mitigate its counterparty risk, the Company may enter into an International Swaps and Derivatives Association, Inc. Master Agreement (“ISDA Master Agreement”) or a similar agreement with its derivative counterparties. An ISDA Master Agreement is a bilateral agreement between the Company and a counterparty that governs OTC derivatives, including foreign currency forward contracts, and typically contains, among other things, collateral posting terms and netting provisions in the event of a default and/or termination event. The provisions of the ISDA Master Agreement typically permit a single net payment in the event of a default (close-out netting) or similar event, including the bankruptcy or insolvency of the counterparty.

For financial reporting purposes, cash collateral that has been pledged to cover obligations of the Company and cash collateral received from the counterparty, if any, is included in the Consolidated Statement of Assets and Liabilities as due to/due from broker. The Company minimizes counterparty credit risk by only entering into agreements with counterparties that they believe to be of good standing and by monitoring the financial stability of those counterparties.

For the period from August 8, 2018 to September 30, 2018, the Company’s average USD notional exposure to foreign currency forward contracts was $2,434. The Company did not hold any derivative instruments prior to August 8, 2018.

The following table sets forth the Company’s net exposure to foreign currency forward contracts that are subject to ISDA Master Agreements or similar agreements as of September 30, 2018.

 

Counterparty  

Gross Amount of
Assets on the
Consolidated
Statements of
Assets and Liabilities

   

Gross Amount of

(Liabilities) on the

Consolidated

Statements of

Assets and Liabilities

   

Net Amount of Assets or
(Liabilities) Presented on
the Consolidated

Statements of

Assets and Liabilities

    Collateral (Received)
Pledged (1)
     Net Amounts (2)  
Bank of America, N.A.   $ 2     $     $ 2     $      $ 2  
Total   $ 2     $     $ 2     $      $ 2  
(1)   

Amount excludes excess cash collateral paid.

(2)   

Net amount represents the net amount due (to) from counterparty in the event of a default based on the contractual setoff rights under the agreement. Net amount excludes any over-collateralized amounts.

 

41


The Company did not hold any derivative instruments as of December 31, 2017.

The effect of transactions in derivative instruments to the Consolidated Statements of Operations during the three and nine months ended September 30, 2018 was as follows:

 

     For the three
months ended

September 30, 2018
     For the nine
months ended
September 30,
2018
 
Net change in unrealized appreciation (depreciation) on foreign currency forward contracts    $ 2      $ 2  
Total net realized and unrealized gains (losses) on foreign currency forward contracts    $ 2      $ 2  

The Company did not hold any derivative instruments during the three and nine months ended September 30, 2017.

 

8.

COMMITMENTS AND CONTINGENCIES

Commitments

The Company may enter into commitments to fund investments. As of September 30, 2018, the Company believed that it had adequate financial resources to satisfy its unfunded commitments. The Company had the following unfunded commitments by investment types as of the dates indicated:

 

     September 30, 2018     December 31, 2017  
      Commitment
Expiration
Date (1)
     Unfunded
Commitment
     Fair
Value(2)(3)
    Commitment
Expiration
Date (1)
     Unfunded
Commitment
    

Fair

Value(2)(3)

 
1st Lien/Senior Secured Debt                 
Picture Head Midco LLC      03/31/2019      $ 2,540      $ (51          $      $  
Continuum Managed Services LLC      06/08/2019        1,800        (36     06/08/2019        1,800        (45
Legacy Buyer Corp.      10/24/2019        2,500              10/24/2019        2,500        (37
Businessolver.com, Inc.      05/15/2020        1,553        (31                    
SPay, Inc.      06/15/2020        5,663        (114                    
Hygiena Borrower LLC      06/29/2020        566        (12                    
Diligent Corporation      08/03/2020        247        (4                    
Gastro Health Holdco, LLC      09/04/2020        5,062        (64                    
Elemica, Inc.      07/07/2021        6,000        (90     07/07/2021        6,000        (105
Associations, Inc.      07/30/2021        1,891        (24                    
Netvoyage Corporation      03/24/2022        654        (8     03/24/2022        654        (11
Continuum Managed Services LLC      06/08/2022        2,220        (44     06/08/2022        2,220        (56
Xactly Corporation      07/29/2022        1,697        (21     07/29/2022        1,697        (34
Hygiena Borrower LLC      08/26/2022        380        (8                    
Lithium Technologies, Inc.      10/03/2022        2,659        (21     10/03/2022        1,544        (35
Lithium Technologies, Inc.      10/03/2022        17,464        89                      
Datto, Inc.      12/07/2022        2,406        (42     12/07/2022        2,406        (48
Businessolver.com, Inc.      05/15/2023        1,569        (31                    
Integral Ad Science, Inc.      07/19/2023        1,815        (36                    
Picture Head Midco LLC      08/31/2023        2,515        (25                    
Gastro Health Holdco, LLC      09/04/2023        2,000        (40                    
Empirix, Inc.      09/25/2023        1,300        (23                    
SPay, Inc.      06/17/2024        304        (6                    
Associations, Inc.      07/30/2024        587        (7                    
Fenergo Finance 3 Limited(3)      09/05/2024        1,742        (33                    
Fenergo Finance 3 Limited      09/05/2024        1,182        (21                    
iCIMS, Inc.      09/12/2024        1,868        (37                    
Total 1st Lien/Senior Secured Debt               70,184        (740              18,821        (371
1st Lien/Last-Out Unitranche                 
Bolttech Mannings, Inc.                          12/21/2018        1,500         
Total 1st Lien/Last-Out Unitranche                                     1,500         
2nd Lien/Senior Secured Debt                 
Pathway Partners Vet Management Company, LLC      05/26/2020      $ 252      $ (3          $      $  
Hygiena Borrower LLC      06/29/2020        577        (12                    
Genesis Acquisition Co.      07/31/2020        1,777        (23                    
Pathway Partners Vet Management Company, LLC                          10/10/2019        6,111        (61
ICP Industrial, Inc.                          11/04/2019        3,800        (95
Total 2nd Lien/Senior Secured Debt               2,606        (38              9,911        (156
Total             $ 72,790      $ (778            $ 30,232      $ (527

 

(1)   

Commitments are generally subject to borrowers meeting certain criteria such as compliance with covenants and certain operational metrics. These amounts may remain outstanding until the commitment period of an applicable loan expires, which may be shorter than its maturity.

 

42


(2)   

A negative fair value was reflected as investments, at fair value in the Consolidated Statements of Assets and Liabilities. The negative fair value is the result of the capitalized discount on the loan.

(3)   

Unfunded commitments denominated in currencies other than USD have been converted to U.S. dollars using the applicable foreign currency exchange rate as of September 30, 2018.

Contingencies

In the normal course of business, the Company enters into contracts that provide a variety of general indemnifications. Any exposure to the Company under these arrangements could involve future claims that may be made against the Company. Currently, no such claims exist or are expected to arise and, accordingly, the Company has not accrued any liability in connection with such indemnifications.

 

43


9.

NET ASSETS

Equity Issuances

On May 24, 2017, the Company completed a follow-on offering under its shelf registration statement, issuing 3,250,000 shares of its common stock at a public offering price of $22.50 per share. Net of offering and underwriting costs, the Company received cash proceeds of $69,648.

On May 26, 2017, the Company sold an additional 487,500 shares of its common stock pursuant to the underwriters’ exercise of the option to purchase additional shares the Company granted in connection with the aforementioned offering. Net of underwriting costs, the Company received additional cash proceeds of $10,640.

There were no sales of the Company’s common stock during the nine months ended September 30, 2018.

Distributions

The following table reflects the distributions declared on shares of the Company’s common stock during the nine months ended September 30, 2018:

 

Date Declared   Record Date   Payment Date   Amount Per Share
February 21, 2018   March 30, 2018   April 16, 2018   $0.45
May 1, 2018   June 29, 2018   July 16, 2018   $0.45
July 31, 2018   September 28, 2018   October 15, 2018   $0.45

The following table reflects the distributions declared on shares of the Company’s common stock during the nine months ended September 30, 2017:

 

Date Declared   Record Date   Payment Date   Amount Per Share
February 22, 2017   March 31, 2017   April 17, 2017   $0.45
May 1, 2017   June 30, 2017   July 17, 2017   $0.45
August 1, 2017   September 29, 2017   October 16, 2017   $0.45

Dividend Reinvestment Plan

Concurrent with the IPO, the Company adopted a dividend reinvestment plan that provides for reinvestment of all cash distributions declared by the Board of Directors, unless a stockholder elects to “opt out” of the plan. As a result, if the Board of Directors declares a cash distribution, then the stockholders who have not “opted out” of the dividend reinvestment plan will have their cash distributions automatically reinvested in additional shares of common stock, rather than receiving the cash distribution.

The following table summarizes shares distributed pursuant to the dividend reinvestment plan during the nine months ended September 30, 2018 to stockholders who had not opted out of the dividend reinvestment plan:

 

Date Declared   Record Date   Payment Date   Shares
October 31, 2017   December 29, 2017   January 16, 2018   23,824
February 21, 2018   March 30, 2018   April 16, 2018   20,916
May 1, 2018   June 29, 2018   July 16, 2018   20,644

The following table summarizes shares distributed pursuant to the dividend reinvestment plan during the nine months ended September 30, 2017 to stockholders who had not opted out of the dividend reinvestment plan:

 

Date Declared   Record Date   Payment Date   Shares
November 1, 2016   December 31, 2016   January 17, 2017   11,124
February 22, 2017   March 31, 2017   April 17, 2017   11,202
May 1, 2017   June 30, 2017   July 17, 2017   18,417

 

10.

EARNINGS PER SHARE

The following information sets forth the computation of basic and diluted earnings per share for the three and nine months ended September 30, 2018 and 2017:

 

     

Three Months

Ended

September 30, 2018

    

Three Months

Ended

September 30, 2017

    

Nine Months

Ended

September 30, 2018

    

Nine Months

Ended

September 30, 2017

 
Numerator for basic and diluted earnings per share - increase in net assets resulting from operations    $ 19,019      $ 18,112      $ 54,937      $ 37,262  
Denominator for basic and diluted earnings per share - weighted average shares outstanding      40,192,683        40,106,702        40,171,874        38,130,304  
Basic and diluted earnings per share    $ 0.47      $ 0.45      $ 1.37      $ 0.98  

 

44


For the purpose of calculating diluted earnings per common share, the average closing price of the Company’s common stock for the three and nine months ended September 30, 2018 was less than the conversion price for the Convertible Notes outstanding as of September 30, 2018. Therefore, for the three and nine months ended September 30, 2018, diluted earnings per share equals basic earnings per share because the underlying shares for the intrinsic value of the embedded options in the Convertible Notes were not dilutive. For the three and nine months ended September 30, 2017, diluted earnings per share equals basic earnings per share because the underlying shares for the intrinsic value of the embedded options in the Convertible Notes were not dilutive.

 

11.

FINANCIAL HIGHLIGHTS

Below is the schedule of financial highlights of the Company for the nine months ended September 30, 2018 and 2017:

 

     For the Nine Months
Ended
September 30, 2018
  For the Nine Months
Ended
September 30, 2017
Per Share Data:(1)     
NAV, beginning of period    $ 18.09     $ 18.31  
Net investment income (loss)      1.51       1.60  
Net realized and unrealized gains (losses)      (0.13     (0.65
Income tax provision, realized and unrealized gain      (0.01      
  

 

 

 

 

 

 

 

Net increase (decrease) in net assets resulting from operations      1.37       0.95  
  

 

 

 

 

 

 

 

Issuance of common stock, net of underwriting and offering costs            0.32  
Equity component of convertible notes      0.02        
Distributions declared from net investment income(2)      (1.35     (1.35
  

 

 

 

 

 

 

 

Total increase (decrease) in net assets      0.04       (0.08
  

 

 

 

 

 

 

 

NAV, end of period      18.13     $ 18.23  
  

 

 

 

 

 

 

 

Market price, end of period    $ 22.18     $ 22.82  
Shares outstanding, end of period      40,196,049       40,109,905  
Weighted average shares outstanding      40,171,874       38,130,304  
Total return based on NAV(3)      7.35     5.74
Total return based on market value(4)      7.11     3.04
Ratio/Supplemental Data (all amounts in thousands except ratios):     
Net assets, end of period      728,640     $ 731,159  
Ratio of net expenses to average net assets(5)      9.19     7.98
Ratio of expenses (without incentive fees and interest and other debt expenses) to average net assets(5)      3.25     3.40
Ratio of interest and other debt expenses to average net assets(6)      3.37     2.74
Ratio of incentive fees to average net assets(6)      2.57     1.84
Ratio of total expenses to average net assets(5)      9.19     7.98
Ratio of net investment income (loss) to average net assets(5)(7)      11.18     11.69
Average debt outstanding      518,152     $ 464,395  
Average debt per share(8)      12.90     $ 12.18  
Portfolio turnover      23     41

 

(1)  

The per share data was derived by using the weighted average shares outstanding during the applicable period.

 

45


(2)  

The per share data for distributions declared reflects the actual amount of distributions declared per share for the applicable period.

(3)  

Total return based on NAV is calculated as the change in NAV per share during the respective periods, assuming dividends and distributions, if any, are reinvested in accordance with the Company’s dividend reinvestment plan.

(4)  

Total return based on market value is calculated as the change in market value per share during the respective periods, assuming dividends and distributions, if any, are reinvested in accordance with the Company’s dividend reinvestment plan.

(5)  

Annualized except for certain operating expenses.

(6)  

Annualized.

(7)  

For the nine months ended September 30, 2018 and 2017, annualized except for certain components of other income.

(8)  

Average debt per share is calculated as average debt outstanding divided by the weighted average shares outstanding during the applicable period.

 

12.

SUBSEQUENT EVENTS

Subsequent events after the Consolidated Statements of Assets and Liabilities date have been evaluated through the date the unaudited consolidated financial statements were issued. Other than the items discussed below, the Company has concluded that there is no impact requiring adjustment or disclosure in the consolidated financial statements.

On October 30, 2018, the Board of Directors declared a quarterly distribution of $0.45 per share payable on January 15, 2019 to stockholders of record as of December 31, 2018.

 

46


ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and other parts of this report contain forward-looking information that involves risks and uncertainties. References to “we,” “us,” “our,” and the “Company,” mean Goldman Sachs BDC, Inc. or Goldman Sachs BDC, Inc. together with its consolidated subsidiaries, as the context may require. The terms “GSAM,” our “Adviser” or our “Investment Adviser” refer to Goldman Sachs Asset Management, L.P., a Delaware limited partnership. The term “Group Inc.” refers to The Goldman Sachs Group, Inc. “GS & Co.” refers to Goldman Sachs & Co. LLC and its predecessors. The term “Goldman Sachs” refers to Group Inc., together with GS & Co., GSAM and its other subsidiaries and affiliates. The discussion and analysis contained in this section refers to our financial condition, results of operations and cash flows. The information contained in this section should be read in conjunction with the consolidated financial statements and notes thereto appearing elsewhere in this report. Please see “Cautionary Statement Regarding Forward-Looking Statements” for a discussion of the uncertainties, risks and assumptions associated with this discussion and analysis. Our actual results could differ materially from those anticipated by such forward-looking information due to factors discussed under “Cautionary Statement Regarding Forward-Looking Statements” appearing elsewhere in this report.

OVERVIEW

We are a specialty finance company focused on lending to middle-market companies. We are a closed-end management investment company that has elected to be regulated as a business development company (“BDC”) under the Investment Company Act of 1940, as amended (the “Investment Company Act”). In addition, we have elected to be treated, and expect to qualify annually, as a regulated investment company (“RIC”) under Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”), commencing with our taxable year ended December 31, 2013. From our formation in 2012 through September 30, 2018, we originated more than $2.94 billion in aggregate principal amount of debt and equity investments prior to any subsequent exits and repayments. We seek to generate current income and, to a lesser extent, capital appreciation primarily through direct originations of secured debt, including first lien, unitranche, including last-out portions of such loans, and second lien debt, and unsecured debt, including mezzanine debt, as well as through select equity investments.

“Unitranche” loans are first lien loans that may extend deeper in a company’s capital structure than traditional first lien debt and may provide for a waterfall of cash flow priority between different lenders in the unitranche loan. In a number of instances, we may find another lender to provide the “first-out” portion of such loan and retain the “last-out” portion of such loan, in which case, the “first-out” portion of the loan would generally receive priority with respect to payment of principal, interest and any other amounts due thereunder over the “last-out” portion that we would continue to hold. In exchange for the greater risk of loss, the “last-out” portion generally earns a higher interest rate than the “first-out” portion. We use the term “mezzanine” to refer to debt that ranks senior only to a borrower’s equity securities and ranks junior in right of payment to all of such borrower’s other indebtedness. We may make multiple investments in the same portfolio company.

We invest primarily in U.S. middle-market companies, which we believe are underserved by traditional providers of capital such as banks and the public debt markets. In this report, we generally use the term “middle market companies” to refer to companies with between $5 million and $125 million of annual earnings before interest expense, income tax expense, depreciation and amortization (“EBITDA”) excluding certain one-time, and non-recurring items that are outside the operations of these companies. However, we may from time to time invest in larger or smaller companies. We generate revenues primarily through receipt of interest income from the investments we hold. In addition, we may generate income from various loan origination and other fees, dividends on direct equity investments and capital gains on the sales of investments. Fees received from portfolio companies (directors’ fees, consulting fees, administrative fees, tax advisory fees and other similar compensation) are paid to us, unless, to the extent required by applicable law or exemptive relief therefrom, we only receive our allocable portion of such fees when invested in the same portfolio company as another client account managed by our Investment Adviser (including Goldman Sachs Private Middle Market Credit LLC (“GS PMMC”) and Goldman Sachs Middle Market Lending Corp. (“GS MMLC”), collectively with other client accounts managed by our Investment Adviser, the “Accounts”). The companies in which we invest use our capital for a variety of purposes, including to support organic growth, fund acquisitions, make capital investments or refinance indebtedness.

Our origination strategy focuses on leading the negotiation and structuring of the loans or securities in which we invest and holding the investments in our portfolio to maturity. In many cases, we are the sole investor in the loan or security in our portfolio. Where there are multiple investors, we generally seek to control or obtain significant influence over the rights of investors in the loan or security. We generally seek to make investments that have maturities between three and ten years and range in size between $10 million and $75 million, although we may make larger or smaller investments on occasion. In addition, part of our strategy involves a joint venture with the Regents of the University of California (“Cal Regents”, and collectively with us, the “Members”) through the Senior Credit Fund, LLC (the “Senior Credit Fund”). The Senior Credit Fund’s principal purpose is to make investments, either directly or indirectly through its wholly owned subsidiary, Senior Credit Fund SPV I, LLC (“SPV I”), primarily in senior secured loans to middle-market companies.

For a discussion of the competitive landscape we face, please see “Item 1A. Risk Factors – Risks Relating to Our Business and Structure – We operate in a highly competitive market for investment opportunities” and “Item 1. Business – Competitive Advantages” in our annual report on Form 10-K for the year ended December 31, 2017.

 

47


KEY COMPONENTS OF OPERATIONS

Investments

Our level of investment activity can and does vary substantially from period to period depending on many factors, including the amount of debt and equity capital available to middle-market companies, the level of merger and acquisition activity for such companies, the general economic environment, the amount of capital we have available to us and the competitive environment for the type of investments we make.

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

Revenues

We generate revenues in the form of interest income on debt investments and, to a lesser extent, capital gains and distributions, if any, on equity securities that we may acquire in portfolio companies. Some of our investments may provide for deferred interest payments or payment-in-kind (“PIK”) income. The principal amount of the debt investments and any accrued but unpaid interest generally becomes due at the maturity date.

We generate revenues primarily through receipt of interest income from the investments we hold. In addition, we may generate revenue in the form of commitment, origination, structuring, syndication or diligence fees, fees for providing managerial assistance and consulting fees. Portfolio company fees (directors’ fees, consulting fees, administrative fees, tax advisory fees and other similar compensation) will be paid to us, unless, to the extent required by applicable law or exemptive relief, if any, therefrom, we receive our allocable portion of such fees when invested in the same portfolio company as other Accounts, which other Accounts could receive their allocable portion of such fee. We do not expect to receive material fees as it is not our principal investment strategy. We record contractual prepayment premiums on loans and debt securities as interest income.

Dividend income on preferred equity investments is recorded on an accrual basis to the extent that such amounts are payable by the portfolio company and are expected to be collected. Dividend income on common equity investments is recorded on the record date for private portfolio companies and on the ex-dividend date for publicly traded portfolio companies. Interest and dividend income are presented net of withholding tax, if any.

Expenses

Our primary operating expenses include the payment of the Management Fee and the Incentive Fee to the Investment Adviser, legal and professional fees, interest and other debt expenses and other operating and overhead related expenses. The Management Fee and Incentive Fee compensate our Investment Adviser for its work in identifying, evaluating, negotiating, closing and monitoring our investments. We bear all other costs and expenses of our operations and transactions in accordance with our investment management agreement (as amended and restated as of June 15, 2018, the “Investment Management Agreement”) and administration agreement (“Administration Agreement”), including those relating to:

 

   

our operational and organizational expenses;

 

   

fees and expenses, including travel expenses, incurred by our Investment Adviser or payable to third parties related to our investments, including, among others, professional fees (including the fees and expenses of consultants and experts) and fees and expenses from evaluating, monitoring, researching and performing due diligence on investments and prospective investments;

 

   

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

 

   

fees and expenses incurred by us in connection with membership in investment company organizations;

 

   

brokers’ commissions;

 

   

the expenses of and fees for registering or qualifying our shares for sale and of maintaining our registration and registering us as a broker or a dealer;

 

   

fees and expenses associated with calculating our net asset value (“NAV”) (including the costs and expenses of any independent valuation firm);

 

   

legal, auditing or accounting expenses;

 

   

taxes or governmental fees;

 

   

the fees and expenses of our administrator, transfer agent or sub-transfer agent;

 

48


   

the cost of preparing stock certificates or any other expenses, including clerical expenses of issue, redemption or repurchase of our shares;

 

   

the fees and expenses of our directors who are not affiliated with our Investment Adviser;

 

   

the cost of preparing and distributing reports, proxy statements and notices to our stockholders, the SEC and other regulatory authorities;

 

   

costs of holding stockholder meetings;

 

   

listing fees;

 

   

the fees or disbursements of custodians of our assets, including expenses incurred in the performance of any obligations enumerated by our certificate of incorporation or bylaws insofar as they govern agreements with any such custodian;

 

   

insurance premiums; and

 

   

costs incurred in connection with any claim, litigation, arbitration, mediation, government investigation or dispute in connection with our business and the amount of any judgment or settlement paid in connection therewith, or the enforcement of our rights against any person and indemnification or contribution expenses payable by us to any person and other extraordinary expenses not incurred in the ordinary course of our business.

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

Leverage

Our senior secured revolving credit agreement (as amended, the “Revolving Credit Facility”) with SunTrust Bank, as administrative agent, and Bank of America, N.A., as syndication agent, and our 4.50% Convertible Notes due 2022 (the “Convertible Notes”) allow us to borrow money and lever our investment portfolio, subject to the limitations of the Investment Company Act, with the objective of increasing our yield. This is known as “leverage” and could increase or decrease returns to our stockholders. The use of leverage involves significant risks. On June 15, 2018, our stockholders approved the application of the reduced asset coverage requirements in Section 61(a)(2) of the Investment Company Act to us. As a result of this approval, we are now permitted to borrow amounts such that our asset coverage ratio, as defined in the Investment Company Act, is at least 150% after such borrowing (if certain requirements are met), rather than 200%, as previously required. As of September 30, 2018 and December 31, 2017, our asset coverage ratio based on the aggregate amount outstanding of our senior securities was 225% and 233%, respectively.

Certain trading practices and investments, such as reverse repurchase agreements, may be considered borrowings or involve leverage and thus may be subject to Investment Company Act restrictions. In accordance with applicable SEC staff guidance and interpretations, when we engage in such transactions, instead of maintaining an asset coverage ratio of at least 150% (if certain requirements are met), we may segregate or earmark liquid assets, or enter into an offsetting position, in an amount at least equal to our exposure, on a mark-to-market basis, to such transactions (as calculated pursuant to requirements of the SEC). Short-term credits necessary for the settlement of securities transactions and arrangements with respect to securities lending will not be considered borrowings for these purposes. Practices and investments that may involve leverage but are not considered borrowings are not subject to the Investment Company Act’s asset coverage requirement, and we will not otherwise segregate or earmark liquid assets or enter into offsetting positions for such transactions. The amount of leverage that we employ will depend on our Investment Adviser’s and our Board of Directors’ assessment of market conditions and other factors at the time of any proposed borrowing.

PORTFOLIO AND INVESTMENT ACTIVITY

As of September 30, 2018 and December 31, 2017, our portfolio (excluding our investment in a money market fund managed by an affiliate of Group, Inc. of $0.00 million and $11.54 million, respectively) consisted of the following:

 

     As of  
     September 30, 2018     December 31, 2017  
     Amortized
Cost
     Fair
Value
     Percentage
of Total
Portfolio at
Fair Value
    Amortized
Cost
     Fair
Value
     Percentage
of Total
Portfolio at
Fair Value
 
     (in millions)            (in millions)         
First Lien/Senior Secured Debt    $ 616.04      $ 609.81        46.3   $ 412.53      $ 407.07        32.4
First Lien/Last-Out Unitranche      137.71        132.08        10.0       279.03        273.96        21.8  
Second Lien/Senior Secured Debt      439.29        438.40        33.3       443.39        444.60        35.3  
Unsecured Debt      6.39        6.39        0.5       3.90        3.90        0.3  
Preferred Stock      14.95        17.61        1.3       11.75        12.84        1.0  
Common Stock      35.65        21.44        1.6       32.72        23.84        1.9  
Investment Funds & Vehicles      94.34        92.59        7.0       94.34        92.10        7.3  
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

    

 

 

 

Total Investments

   $ 1,344.37      $ 1,318.32        100.0   $ 1,277.66      $ 1,258.31        100.0
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

    

 

 

 

 

49


As of September 30, 2018 and December 31, 2017, the weighted average yield by asset type of our total portfolio (excluding our investment in a money market fund managed by an affiliate of Group Inc.), at amortized cost and fair value, was as follows:

 

     As of  
     September 30, 2018      December 31, 2017  
     Amortized
Cost
     Fair
Value
     Amortized
Cost
     Fair
Value
 
Weighted Average Yield(1)            
First Lien/Senior Secured Debt(2)      10.4%        10.7%        10.9%        11.8%  
First Lien/Last-Out Unitranche(2) (3)      12.7        18.6        11.7        13.1  
Second Lien/Senior Secured Debt(2)      12.0        12.0        10.5        10.5  
Unsecured Debt(2)      11.6        11.6        11.8        11.8  
Preferred Stock(4)      -        -                
Common Stock(4)      -        -                
Investment Funds & Vehicles(5)      11.2        11.4        12.0        11.9  
Total Portfolio      10.8%        11.7%        10.6%        11.3%  

 

(1)   

The weighted average yield of our portfolio does not represent the total return to our stockholders.

 

(2)   

Computed based on (a) the annual actual interest rate or yield earned plus amortization of fees and discounts on the performing debt and other income producing investments as of the reporting date, divided by (b) the total investments (including investments on non-accrual and non-income producing investments) at amortized cost or fair value, respectively.

 

(3)   

The calculation includes incremental yield earned on the “last-out” portion of the unitranche loan investments.

 

(4)   

Computed based on (a) the stated coupon rate, if any, for each income-producing investment, divided by (b) the total investments (including investments on non-accrual and non-income producing investments) at amortized cost or fair value, respectively.

 

(5)   

Computed based on (a) the net investment income earned from the Senior Credit Fund for the respective trailing twelve months ended on the measurement date, which may include dividend income and loan origination and structuring fees, divided by (b) our average member’s equity at cost and fair value, adjusted for equity contributions.

As of September 30, 2018 the total portfolio weighted average yield measured at amortized cost and fair value was 10.8% and 11.7% respectively, which increased from 10.6% and 11.3%, respectively, at December 31, 2017. Within First Lien/Senior Secured Debt, the decrease in weighted average yield at amortized cost and fair value was primarily driven by portfolio composition, borrower refinancing and one investment placed on non-accrual status, partially offset by the increase in LIBOR on our variable rate secured debt investments. Within First Lien/Last-Out Unitranche, the increase in weighted average yield at amortized cost and fair value was primarily driven by repayments and borrower refinancing. Within Second Lien/Senior Secured Debt, the increase in weighted average yield at amortized cost and fair value was primarily driven by a higher yielding investment and the increase in LIBOR on our variable rate secured debt investments.

The following table presents certain selected information regarding our investment portfolio (excluding our investment in a money market fund managed by an affiliate of Group Inc.) as of September 30, 2018 and December 31, 2017:

 

     As of  
     September 30, 2018      December 31, 2017  
Number of portfolio companies(1)      66        56  
Percentage of performing debt bearing a floating rate(2)      96.4%        96.4%  
Percentage of performing debt bearing a fixed rate(2)(3)      3.6%        3.6%  
Weighted average yield on debt and income producing investments, at amortized cost(4)      11.3%        11.0%  
Weighted average yield on debt and income producing investments, at fair value(4)      12.1%        11.6%  
Weighted average leverage (net debt/EBITDA)(5)      5.3x        5.3x  
Weighted average interest coverage(5)      2.2x        2.3x  
Median EBITDA(5)    $  36.50 million      $  40.06 million  

 

(1)   

Includes the Senior Credit Fund as a single portfolio company. For details on the portfolio companies held within the Senior Credit Fund, refer to “Senior Credit Fund, LLC – Selected Financial Data.”

 

(2)   

Measured on a fair value basis. Excludes investments, if any, placed on non-accrual.

 

(3)   

Includes income producing preferred stock investments.

 

(4)   

Computed based on (a) the annual actual interest rate or yield earned plus amortization of fees and discounts on the performing debt and other income producing investments as of the reporting date, divided by (b) the total performing debt and other income producing investments (excluding investments on non-accrual).

(5)   

For a particular portfolio company, we calculate the level of contractual indebtedness net of cash (“net debt”) owed by the portfolio company and compare that amount to measures of cash flow available to service the net debt. To calculate net debt, we include debt that is both senior and pari passu to the tranche of debt owned by us but exclude debt that is legally and contractually subordinated in ranking to the debt owned by us. We believe this calculation method assists in describing the risk of our portfolio investments, as it takes into consideration contractual rights of repayment of the tranche of debt owned by us relative to other senior and junior creditors of a portfolio company. We typically calculate cash flow available for debt service at a portfolio company by taking EBITDA for the trailing twelve month period. Weighted average net debt to EBITDA is weighted based on the fair value of our debt investments, including our exposure to underlying debt investments in the Senior Credit Fund and excluding investments where net debt to EBITDA may not be the appropriate measure of credit risk, such as cash collateralized loans and investments that are underwritten and covenanted based on recurring revenue.

 

    

For a particular portfolio company, we also calculate the level of contractual interest expense owed by the portfolio company, and compare that amount to EBITDA (“interest coverage ratio”). We believe this calculation method assists in describing the risk of our portfolio investments, as it takes into consideration contractual interest obligations of the portfolio company. Weighted average interest coverage is weighted based on the fair value of our performing debt investments, including our exposure to underlying debt investments in the Senior Credit Fund and excluding investments where interest coverage may not be the appropriate measure of credit risk, such as cash collateralized loans and investments that are underwritten and covenanted based on recurring revenue.

 

50


    

Median EBITDA is based on our debt investments, including our exposure to underlying debt investments in the Senior Credit Fund and excluding investments where net debt to EBITDA may not be the appropriate measure of credit risk, such as cash collateralized loans and investments that are underwritten and covenanted based on recurring revenue.

 

    

Portfolio company statistics are derived from the most recently available financial statements of each portfolio company as of the reported end date. Statistics of the portfolio companies have not been independently verified by us and may reflect a normalized or adjusted amount. As of September 30, 2018 and December 31, 2017, investments where net debt to EBITDA may not be the appropriate measure of credit risk represented 15.5% and 11.3%, respectively, of total debt investments, including our investment in the Senior Credit Fund, at fair value. Portfolio company statistics are derived from the most recently available financial statements of each portfolio company as of the respective reported end date. Portfolio company statistics have not been independently verified by us and may reflect a normalized or adjusted amount.

Floating rates are primarily London InterBank Offered Rate (“LIBOR”) plus a spread.

Our Investment Adviser monitors our portfolio companies on an ongoing basis. It monitors the financial trends of each portfolio company to determine if it is meeting its respective business plan and to assess the appropriate course of action for each company. Our Investment Adviser has several methods of evaluating and monitoring the performance and fair value of our investments, which may include the following:

 

   

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

 

   

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

 

   

comparisons to our other portfolio companies in the industry, if any;

 

   

attendance at and participation in board meetings or presentations by portfolio companies; and

 

   

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

As part of the monitoring process, our Investment Adviser also employs an investment rating system to categorize our investments. In addition to various risk management and monitoring tools, our Investment Adviser grades the credit risk of all investments on a scale of 1 to 4 no less frequently than quarterly. This system is intended primarily to reflect the underlying risk of a portfolio investment relative to our initial cost basis in respect of such portfolio investment (e.g., at the time of origination or 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. The grading system is as follows:

 

   

investments with a grade of 1 involve the least amount of risk to our initial cost basis. The trends and risk factors for this investment since origination or acquisition are generally favorable, which may include the performance of the portfolio company or a potential exit;

 

   

investments with a grade of 2 involve a level of risk to our initial cost basis that is similar to the risk to our initial cost basis at the time of origination or acquisition. This portfolio company is generally performing as expected and the risk factors to our ability to ultimately recoup the cost of our investment are neutral to favorable. All investments or acquired investments in new portfolio companies are initially assessed a grade of 2;

 

   

investments with a grade of 3 indicate that the risk to our ability to recoup the initial cost basis of such investment has increased materially since origination or acquisition, including as a result of factors such as declining performance and non-compliance with debt covenants; however, payments are generally not more than 120 days past due; and

 

   

investments with a grade of 4 indicate that the risk to our ability to recoup the initial cost basis of such investment has substantially increased since origination or acquisition, and the portfolio company likely has materially declining performance. For debt investments with an investment grade of 4, most or all of the debt covenants are out of compliance and payments are substantially delinquent. For investments graded 4, it is anticipated that we will not recoup our initial cost basis and may realize a substantial loss of our initial cost basis upon exit.

 

51


Our Investment Adviser grades the investments in our portfolio at least quarterly and it is possible that the grade of a portfolio investment may be reduced or increased over time. For investments graded 3 or 4, our Investment Adviser enhances its level of scrutiny over the monitoring of such portfolio company. The following table shows the composition of our portfolio (excluding our investment in a money market fund managed by an affiliate of Group Inc.) on the 1 to 4 grading scale as of September 30, 2018 and December 31, 2017:

 

     As of  
     September 30, 2018     December 31, 2017  

Investment

Performance Rating

   Fair Value      Percentage
of Total
Portfolio
at Fair
Value
    Fair Value      Percentage
of Total
Portfolio
at Fair
Value
 
    

(in

millions)

          

(in

millions)

        
Grade 1    $ 29.90        2.3   $ 31.28        2.5
Grade 2      1,180.67        89.5       1,135.48        90.2  
Grade 3      99.74        7.6       91.55        7.3  
Grade 4      8.01        0.6               
  

 

 

    

 

 

   

 

 

    

 

 

 

Total Investments

   $ 1,318.32        100.0   $ 1,258.31        100.0
  

 

 

    

 

 

   

 

 

    

 

 

 

The decrease in investments with a grade 1 investment performance rating as of September 30, 2018 compared to December 31, 2017 was driven by the repayment of an investment with a fair value of $31.28 million as of December 31, 2017, partially offset by an investment with a fair value of $29.90 million being upgraded due to a potential exit. The increase in investments with a grade 3 investment performance rating as of September 30, 2018 compared to December 31, 2017 was driven by investments with an aggregate fair value of $9.02 million being downgraded due to declining financial performance. The increase in investments with a grade 4 investment performance rating as of September 30, 2018 compared to December 31, 2017 was driven by an investment with a fair value of $8.01 million being placed on non-accrual status.

The following table shows the amortized cost of our performing and non-accrual investments (excluding our investment in a money market fund managed by an affiliate of Group Inc.) as of September 30, 2018 and December 31, 2017:

 

     As of  
     September 30, 2018     December 31, 2017  
     Amortized
Cost
     Percentage
of Total
Portfolio
at
Amortized
Cost
    Amortized
Cost
     Percentage
of Total
Portfolio
at
Amortized
Cost
 
    

(in

millions)

          

(in

millions)

        
Performing    $ 1,335.11        99.3   $ 1,276.88        99.9
Non-accrual      9.26        0.7       0.78        0.1  
  

 

 

    

 

 

   

 

 

    

 

 

 

Total Investments

   $ 1,344.37        100.0   $ 1,277.66        100.0
  

 

 

    

 

 

   

 

 

    

 

 

 

Investments are placed on non-accrual status when it is probable that principal, interest or dividends will not be collected according to the contractual terms. Accrued interest or dividends generally are reversed when an investment is placed on non-accrual status. Interest or dividend payments received on non-accrual investments may be recognized as income or applied to principal depending upon management’s judgment. Non-accrual investments are restored to accrual status when past due principal and interest or dividends are paid and, in management’s judgment, principal and interest or dividend payments are likely to remain current. We may make exceptions to this treatment if the loan has sufficient collateral value and is in the process of collection.

 

52


The following table shows our investment activity for the three months ended September 30, 2018 and 2017 by investment type:

 

     For the Three Months Ended  
     September 30,
2018
    September 30,
2017
 
     (in millions)  
New investment commitments at cost:     
Gross originations    $ 205.61     $ 254.42  
Less: Syndications(1)             
  

 

 

   

 

 

 
Net amount of new investments committed at cost:    $ 205.61     $ 254.42  
Amount of investments committed at cost(2):     
First Lien/Senior Secured Debt    $ 182.30     $ 43.02  
First Lien/Last-Out Unitranche            11.60  
Second Lien/Senior Secured Debt      22.75       199.20  
Unsecured Debt      0.56        
Preferred Stock            0.60  
Common Stock             
Investment Funds & Vehicles             
  

 

 

   

 

 

 

Total

   $ 205.61     $ 254.42  
  

 

 

   

 

 

 
Proceeds from investments sold or repaid(14):     
First Lien/Senior Secured Debt    $ 7.88     $ 46.53  
First Lien/Last-Out Unitranche      57.30       45.49  
Second Lien/Senior Secured Debt      46.50       98.41  
Unsecured Debt             
Preferred Stock             
Common Stock             
Investment Funds & Vehicles             
  

 

 

   

 

 

 

Total

   $ 111.68     $ 190.43  
  

 

 

   

 

 

 

Net increase (decrease) in portfolio

   $ 93.93     $ 63.99  
  

 

 

   

 

 

 
Number of new portfolio companies with new investment commitments(3)      7       8  
Total new investment commitment amount in new portfolio companies(3)    $ 152.56     $ 128.22  
Average new investment commitment amount in new portfolio companies(3)    $ 21.79     $ 16.03  
Number of existing portfolio companies with new investment commitments(3)      8       3  
Total new investment commitment amount in existing portfolio companies(3)    $ 53.06     $ 126.21  
Weighted average remaining term for new investment commitments (in years)(3)(4)      5.5       6.3  
Percentage of new debt investment commitments at floating interest rates(3) (15)      99.7     100.0
Percentage of new debt investment commitments at fixed interest rates(3)(5) (15)      0.3    
Weighted average yield on new debt and income producing investment commitments (2) (3)      9.6 %(6)      10.1 %(10) 
Weighted average yield on new investment commitments (2) (3)      9.6 %(7)      10.0 %(11) 
Weighted average yield on debt and income producing investments sold or paid down(14)      11.3 %(8)      10.7 %(12) 
Weighted average yield on investments sold or paid down(14)      11.2 %(9)      10.7 %(13) 

 

(1)   

Only includes syndications that occurred at the initial close of the investment.

(2)   

Net of capitalized fees, expenses and original issue discount (“OID”).

(3)   

May include positions originated during the period but not held at the reporting date.

(4)   

Calculated as of the end of the relevant period and the maturity date of the individual investments.

(5)   

May include preferred stock investments.

(6)  

Computed based on (a) the annual actual interest rate on new debt and income producing investment commitments as of the reporting date, divided by (b) the total new debt and income producing investment commitments. The calculation includes incremental yield earned on the “last-out” portion of the unitranche loan investments and excludes investments that are non-accrual.

(7)  

Computed based on (a) the annual actual interest rate on new investment commitments as of the reporting date, divided by (b) the total new investment commitments (including investments on non-accrual and non-income producing investments). The calculation includes incremental yield earned on the “last-out” portion of the unitranche loan investments.

(8)  

Computed based on (a) the annual actual interest rate on debt and income producing investments sold or paid down, divided by (b) the total debt and income producing investments sold or paid down. The calculation includes incremental yield earned on the “last-out” portion of the unitranche loan investments and excludes prepayment premiums earned on exited investments and investments that are on non-accrual.

(9)  

Computed based on (a) the annual actual interest rate on investments sold or paid down, divided by (b) the total investments sold or paid down (including investments on non-accrual and non-income producing investments). The calculation includes incremental yield earned on the “last-out” portion of the unitranche loan investments and excludes prepayment premiums earned on exited investments.

(10)  

Computed based on (a) the annual stated interest rate on new debt and income producing investment commitments, divided by (b) the total new debt and income producing investment commitments. The calculation includes incremental yield earned on the “last-out” portion of the unitranche loan investments and excludes investments that are non-accrual. For investments that are subject to a LIBOR floor, the calculation assumes the greater of the applicable LIBOR floor or 3 month LIBOR as of the respective period end date. The actual interest rate may vary.

(11)  

Computed based on (a) the annual stated interest rate on new investment commitments, divided by (b) the total new investment commitments (including investments on non-accrual and non-income producing investments). The calculation includes incremental yield earned on the “last-out” portion of the unitranche loan investments. For investments that are subject to a LIBOR floor, the calculation assumes the greater of the applicable LIBOR floor or 3 month LIBOR as of the respective period end date. The actual interest rate may vary.

(12)  

Computed based on (a) the annual stated interest rate on debt and income producing investments sold or paid down, divided by (b) the total debt and income producing investments sold or paid down. The calculation includes incremental yield earned on the “last-out” portion of the unitranche loan investments and excludes prepayment premiums earned on exited investments and investments that are non-accrual. For investments that are subject to a LIBOR floor, the calculation assumes the greater of the applicable LIBOR floor or 3 month LIBOR as of the respective period end date. The actual interest rate may vary.

(13)  

Computed based on (a) the annual stated interest rate on investments sold or paid down, divided by (b) the total investments sold or paid down (including investments on non-accrual and non-income producing investments). The calculation includes incremental yield earned on the “last-out” portion of the unitranche loan investments and excludes prepayment premiums earned on exited investments. For investments that are subject to a LIBOR floor, the calculation assumes the greater of the applicable LIBOR floor or 3 month LIBOR as of the respective period end date. The actual interest rate may vary.

(14)   

Excludes unfunded commitments that may have expired or otherwise been terminated without receipt of cash proceeds or other consideration.

(15)   

Computed based on amount of investments committed at cost.

 

53


RESULTS OF OPERATIONS

Our operating results for the three and nine months ended September 30, 2018 and 2017 were as follows:

 

     For the Three Months Ended     For the Nine Months Ended  
     September 30,
2018
    September 30,
2017
    September 30,
2018
    September 30,
2017
 
     ($ in millions)  
Total investment income    $ 37.98     $ 34.41     $ 110.76     $ 102.62  
Net expenses      (15.99     (15.08     (49.28     (40.51
  

 

 

   

 

 

   

 

 

   

 

 

 

Net investment income (loss) before taxes

     21.99       19.33       61.48       62.11  
Income tax expense, including excise tax      (0.43     (0.38     (1.02     (1.12
  

 

 

   

 

 

   

 

 

   

 

 

 

Net investment income (loss) after taxes

     21.56       18.95       60.46       60.99  
Net realized gain (loss) on investments            (2.36     1.78       (40.63
Net realized gain (loss) on foreign currency transactions      (0.18           (0.18      

Net unrealized appreciation (depreciation) on investments

     (2.39     1.52       (6.70     16.90  
Net unrealized appreciation (depreciation) on foreign currency forward contracts and translations      0.17             0.17        
Income tax provision, realized gain                  (0.45      
Income tax provision, unrealized gain      (0.14           (0.14      
  

 

 

   

 

 

   

 

 

   

 

 

 

Net increase in net assets resulting from operations

   $ 19.02     $ 18.11     $ 54.94     $ 37.26  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net increase in net assets resulting from operations can vary from period to period as a result of various factors, including acquisitions, the level of new investment commitments, the recognition of realized gains and losses and changes in unrealized appreciation and depreciation on the investment portfolio. As a result, comparisons may not be meaningful.

Investment Income

 

     For the Three Months Ended      For the Nine Months Ended  
     September 30,
2018
     September 30,
2017
     September 30,
2018
     September 30,
2017
 
     ($ in millions)  
Interest    $ 31.20      $ 28.56      $ 93.28      $ 86.86  
Dividend income      3.09        2.35        8.10        7.27  
Payment-in-kind      3.17        1.89        7.87        5.29  
Other income      0.52        1.61        1.51        3.20  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total investment income

   $ 37.98      $ 34.41      $ 110.76      $ 102.62  
  

 

 

    

 

 

    

 

 

    

 

 

 

Interest

Interest from investments, which includes prepayment premiums and accelerated accretion of upfront loan origination fees and unamortized discounts, increased from $28.56 million for the three months ended September 30, 2017 to $31.20 million for the three months ended September 30, 2018. The increase is primarily driven by the increase in LIBOR on our variable rate secured debt investments and the increase in total investments. Included in interest for the three months ended September 30, 2018 and 2017 is $0.55 million and $0.73 million, respectively, in prepayment premiums, $1.37 million and $0.70 million, respectively, in accelerated accretion of upfront loan origination fees and unamortized discounts, and $0.43 million and $0.00 million, respectively, for exit fees on investments.

Interest from investments, which includes prepayment premiums and accelerated accretion of upfront loan origination fees and unamortized discounts, increased from $86.86 million for the nine months ended September 30, 2017 to $93.28 million for the nine months ended September 30, 2018. The increase is primarily driven by the increase in LIBOR on our variable rate secured debt investments and the increase in total investments. Included in interest for the nine months ended September 30, 2018 and 2017 is $2.41 million and $2.54 million, respectively, in prepayment premiums, $2.71 million and $4.36 million, respectively, in accelerated accretion of upfront loan origination fees and unamortized discounts, and $0.43 million and $0.00 million, respectively, for exit fees on investments.

Dividend income

Dividend income increased from $2.35 million for the three months ended September 30, 2017 to $3.09 million for the three months ended September 30, 2018. The increase is primarily driven by the increase in dividend income earned from the Senior Credit Fund.

Dividend income increased from $7.27 million for the nine months ended September 30, 2017 to $8.10 million for the nine months ended September 30, 2018. The increase is primarily driven by the increase in dividend income earned from the Senior Credit Fund.

 

54


Payment-in-kind

Payment-in-kind income from investments increased from $1.89 million for the three months ended September 30, 2017 to $3.17 million for the three months ended September 30, 2018 primarily as a result of an increase in the number of investments earning PIK income for the three months ended September 30, 2018.

Payment-in-kind income from investments increased from $5.29 million for the nine months ended September 30, 2017 to $7.87 million for the nine months ended September 30, 2018 primarily as a result of an increase in the number of investments earning PIK income for the nine months ended September 30, 2018.

Other income

Other income decreased from $1.61 million for the three months ended September 30, 2017 to $0.52 million for the three months ended September 30, 2018 primarily as a result of the decrease in syndication income and loan origination fee income earned from the Senior Credit Fund.

Other income decreased from $3.20 million for the nine months ended September 30, 2017 to $1.51 million for the nine months ended September 30, 2018 primarily as a result of the decrease in loan origination fee income earned from the Senior Credit Fund and syndication income.

Expenses

 

     For the Three Months Ended      For the Nine Months Ended  
     September 30,
2018
     September 30,
2017
     September 30,
2018
     September 30,
2017
 
     ($ in millions)  
Interest and other debt expenses    $ 6.43      $ 4.88      $ 18.33      $ 14.24  
Management fees      3.26        4.37        12.54        13.18  
Incentive fees      4.96        4.62        13.99        9.60  
Professional fees      0.58        0.51        2.31        1.44  
Administration, custodian and transfer agent fees      0.23        0.22        0.69        0.61  
Directors’ fees      0.12        0.18        0.33        0.52  
Other expenses      0.41        0.30        1.09        0.92  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total Expenses

   $ 15.99      $ 15.08      $ 49.28      $ 40.51  
  

 

 

    

 

 

    

 

 

    

 

 

 

Interest and other debt expenses

Interest and other debt expenses increased from $4.88 million for the three months ended September 30, 2017 to $6.43 million for the three months ended September 30, 2018 primarily due to the increase in weighted average interest rate for the Revolving Credit Facility from 3.30% to 4.04% and the increase in average daily borrowings under the Revolving Credit Facility from $330.27 million to $351.36 million. In addition, costs associated with the Convertible Notes increased from $1.51 million for the three months ended September 30, 2017 to $2.14 million for the three months ended September 30, 2018 due to the incremental issuance of $40.00 million aggregate principal amount of Convertible Notes on July 2, 2018.

Interest and other debt expenses increased from $14.24 million for the nine months ended September 30, 2017 to $18.33 million for the nine months ended September 30, 2018 primarily due to the increase in weighted average interest rate for the Revolving Credit Facility from 3.06% to 3.88% and the increase in average daily borrowings under the Revolving Credit Facility from $349.40 million to $389.82 million. In addition, costs associated with the Convertible Notes increased from $4.53 million for the nine months ended September 30, 2017 to $5.16 million for the nine months ended September 30, 2018 due to the incremental issuance of $40.00 million aggregate principal amount of Convertible Notes on July 2, 2018.

Management Fees and Incentive Fees

Management Fees decreased from $4.37 million for the three months ended September 30, 2017 to $3.26 million for the three months ended September 30, 2018 primarily as a result of the reduction in the Management Fee from an annual rate of 1.50% to an annual rate of 1.00% effective on June 15, 2018. Incentive Fees for the three months ended September 30, 2018 remained relatively consistent as compared to the three months ended September 30, 2017.

Management Fees decreased from $13.18 million for the nine months ended September 30, 2017 to $12.54 million for the nine months ended September 30, 2018 primarily as a result of the reduction in the Management Fee from an annual rate of 1.50% to an annual rate of 1.00% effective on June 15, 2018, partially offset by an increase in gross assets, excluding cash or cash equivalents. Incentive Fees increased from $9.60 million for the nine months ended September 30, 2017 to $13.99 million for the nine months ended September 30, 2018 as a result of an increase in the Incentive Fee Cap, which was primarily due to a decrease in net capital losses on our investments.

 

55


Professional fees and other general and administrative expenses

Professional fees and other general and administrative expenses for the three months ended September 30, 2018 remained relatively consistent as compared to the three months ended September 30, 2017.

Professional fees and other general administrative expenses increased from $3.49 million for the nine months ended September 30, 2017 to $4.42 million for the nine months ended September 30, 2018 primarily due to an increase in legal fees.

Net Realized Gains (Losses) and Net Change in Unrealized Appreciation (Depreciation) on Investments

The realized gains and losses on fully exited and partially exited portfolio companies for the three and nine months ended September 30, 2018 and 2017 consisted of the following:

 

     For the Three Months Ended     For the Nine Months Ended  
     September 30,
2018
     September 30,
2017
    September 30,
2018
    September 30,
2017
 
     ($ in millions)  
Global Tel*Link Corporation    $      $     $ 0.24     $  
Iracore International Holdings, Inc.                         (14.40
Discover Org             0.14             0.14  
P2 Upstream Acquisition Co.                   (0.02     (0.17
Kawa Solar Holdings Limited             (2.49     0.01       (2.49
myON, LLC                   1.55        
Washington Inventory Service                         (23.71
Other, net             (0.01            
  

 

 

    

 

 

   

 

 

   

 

 

 

Net realized gain (loss)

   $      $ (2.36   $ 1.78     $ (40.63
  

 

 

    

 

 

   

 

 

   

 

 

 

In connection with the proceeds received from the exit of our equity investment in myON, LLC, we recorded an income tax provision on realized gains of $0.45 million for the nine months ended September 30, 2018.

For the nine months ended September 30, 2017, net realized losses were primarily driven by two portfolio companies. Effective April 13, 2017, we entered into an exchange agreement with Iracore International Holdings, Inc. whereby the first lien debt held by us was exchanged for non-income producing common equity. As a result, $13.62 million of unrealized depreciation was reversed, and we realized a loss of $14.40 million. In addition, effective June 6, 2017, we fully exited Washington Inventory Service. As a result, $15.03 million of unrealized depreciation was reversed, and we realized a loss of $23.71 million.

Any changes in fair value are recorded as a change in unrealized appreciation (depreciation) on investments. For further details on the valuation process, refer to “Critical Accounting Policies – Valuation of Portfolio Investments.” Net change in unrealized appreciation (depreciation) on investments for the three and nine months ended September 30, 2018 and 2017 were as follows:

 

     For the Three Months Ended     For the Nine Months Ended  
     September 30,
2018
    September 30,
2017
    September 30,
2018
    September 30,
2017
 
     ($ in millions)  
Change in unrealized appreciation    $ 3.21     $ 6.41     $ 7.25     $ 38.84  
Change in unrealized depreciation      (5.60     (4.89     (13.95     (21.94
  

 

 

   

 

 

   

 

 

   

 

 

 

Net change in unrealized appreciation (depreciation) on investments

   $ (2.39   $ 1.52     $ (6.70   $ 16.90  
  

 

 

   

 

 

   

 

 

   

 

 

 

The change in unrealized appreciation (depreciation) on investments for the three and nine months ended September 30, 2018 and 2017 consisted of the following:

 

     For the Three Months Ended     For the Nine Months Ended  
     September 30,
2018
    September 30,
2017
    September 30,
2018
    September 30,
2017
 
     ($ in millions)  
Portfolio Company:         
Artesyn Embedded Technologies, Inc.    $ (0.05   $ 0.75     $ (0.45   $ 1.78  
ASC Acquisition Holdings, LLC      (0.05     (0.02     (0.42     (0.07
Avenue Stores, LLC      (0.04     (0.04     (0.58     (0.11
Bolttech Mannings, Inc.      (0.73     (0.85     (2.02     (6.86
CB-HDT Holdings, Inc.      0.71       0.81       2.82       1.25  
Conergy Asia Holdings, Ltd.            (1.23     (4.43     (1.23
Continuum Managed Services LLC – Class B      0.15             0.38        

 

56


     For the Three Months Ended     For the Nine Months Ended  
     September 30,
2018
    September 30,
2017
    September 30,
2018
    September 30,
2017
 
     ($ in millions)  
Country Fresh Holdings, LLC      (0.20     (0.01     (0.39      
Data Driven Delivery Systems, LLC                        (2.01
DiscoverOrg, LLC      (0.04     0.38       0.05       0.52  
Dispensing Dynamics International                        0.84  
DiversiTech Corporation                        (0.38
Global Tel*Link Corporation            (0.04     (0.19     0.68  
Heligear Acquisition Co.      (0.19     (0.11     (0.62     (0.20
Highwinds Capital, Inc.                        (1.05
Infinity Sales Group      0.46       0.32       0.67       0.51  
Integrated Practice Solutions, Inc.                        (0.54
Iracore International Holdings, Inc.      (0.51           (0.51     13.62  
Kawa Solar Holdings Limited      0.16       2.81       (0.41     (2.65
Legacy Buyer Corp.      (0.03     (0.02     0.30       0.39  
MedPlast Holdings, Inc.      (0.79     (0.01     0.18       0.04  
Mervin Manufacturing, Inc.      0.10       (0.01     0.24       0.36  
NTS Communications, Inc.      (0.90     (0.56     (0.09     (3.48
P2 Upstream Acquisition Co.      0.02       (0.03     0.12       0.65  
Perfect Commerce, LLC            (0.94           (0.87
Prairie Provident Resources, Inc.      0.11       (0.27     (0.18     (1.05
Reddy Ice Corporation            (0.06           0.97  
Securus Technologies Holdings, Inc.            (0.02           0.65  
Senior Credit Fund, LLC      0.25       0.29       0.49       (0.03
United Road Services, Inc.            0.33             0.45  
US Med Acquisition, Inc.      (0.02     (0.32     (0.59     (0.98
Vexos, Inc.      0.33       0.17       0.62       0.31  
Washington Inventory Service                        15.03  
Yasso, Inc.      (0.17     (0.08     (0.35     (0.10
Zep Inc.      (0.67     0.29       (0.99     0.29  
Other, net(3)      (0.29     (0.01     (0.35     0.17  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total

   $ (2.39   $ 1.52     $ (6.70   $ 16.90  
  

 

 

   

 

 

   

 

 

   

 

 

 

 

(3)   

For the three and nine months ended September 30, 2018, other, net includes gross unrealized appreciation of $0.92 million and $1.38 million, respectively, and gross unrealized depreciation of $(1.21) million and $(1.73) million, respectively. For the three and nine months ended September 30, 2017, other, net includes gross unrealized appreciation of $0.26 million and $0.50 million, respectively, and gross unrealized depreciation of $(0.27) million and $(0.33) million, respectively.

Net change in unrealized appreciation (depreciation) in our investments for the three and nine months ended September 30, 2018 was primarily driven by the unrealized depreciation in Conergy Asia Holdings, Ltd. due to its capital condition.

Net change in unrealized appreciation (depreciation) in our investments for the nine months ended September 30, 2017 was primarily driven by the reversal of unrealized depreciation in connection with the exchange agreement with Iracore International Holdings, Inc. and the exit of Washington Inventory Service, each as described above, and unrealized depreciation in Bolttech Mannings, Inc., due to continued pressure on the company’s margins and financial underperformance.

SENIOR CREDIT FUND, LLC

Overview

The Senior Credit Fund, an unconsolidated Delaware limited liability company, was formed on May 7, 2014 and commenced operations on October 1, 2014. We invest together with Cal Regents through the Senior Credit Fund. The Senior Credit Fund’s principal purpose is to make investments, either directly or indirectly through SPV I, primarily in senior secured loans to middle-market companies. Each of us and Cal Regents has a 50% economic ownership in the Senior Credit Fund and each has subscribed to fund $100.00 million. Except under certain circumstances, contributions to the Senior Credit Fund cannot be redeemed. The Senior Credit Fund is managed by a six member board of managers, on which we and Cal Regents have equal representation. Investment decisions generally must be unanimously approved by a quorum of the board of managers. Establishing a quorum for the Senior Credit Fund’s board of managers requires at least four members to be present at a meeting, including at least two of our representatives and two of Cal Regents’ representatives. If there are five members present at a meeting, all three representatives of Cal Regents must be present to constitute a quorum. On August 24, 2018, we and Cal Regents, as the Members of the Senior Credit Fund, entered into an amendment to the amended and restated limited liability company agreement of the Senior Credit Fund to extend the investment period to December 19, 2018.

 

57


We and Cal Regents are each responsible for sourcing the Senior Credit Fund’s investments. If the loan origination and structuring fees earned by the Senior Credit Fund (including directly or indirectly through SPV I or another vehicle) during a period exceed the Senior Credit Fund’s expenses (excluding interest and other debt expenses), such excess is paid as a fee to the Member(s) responsible for the origination of the loans pro rata in accordance with the total loan origination and structuring fees earned by the Senior Credit Fund with respect to the loans originated by such Member.

Selected Financial Data

As of September 30, 2018 and December 31, 2017, we and Cal Regents had subscribed to fund and contributed the following in the Senior Credit Fund:

 

     September 30, 2018      December 31, 2017  
     Subscribed to
fund
     Contributed      Subscribed to
fund
     Contributed  
     (in millions)      (in millions)  
Company    $ 100.00      $ 94.34      $ 100.00      $ 94.34  
Cal Regents      100.00        94.34        100.00        94.34  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 200.00      $ 188.68      $ 200.00      $ 188.68  
  

 

 

    

 

 

    

 

 

    

 

 

 

As of September 30, 2018 and December 31, 2017, the Senior Credit Fund had total investments in senior secured debt at fair value of $487.97 million and $467.07 million, respectively. As of September 30, 2018, the Senior Credit Fund had one investment on non-accrual status. As of December 31, 2017, the Senior Credit Fund had no investments on non-accrual status. As of September 30, 2018 and December 31, 2017, the Senior Credit Fund had an investment in a money market fund managed by an affiliate of Group Inc. with a total fair value of $5.93 million and $5.84 million, respectively. In addition, the Senior Credit Fund had twelve portfolio companies with unfunded commitments totaling $24.72 million as of September 30, 2018 and eight portfolio companies with unfunded commitments totaling $17.14 million as of December 31, 2017.

Below is a summary of the Senior Credit Fund’s portfolio (excluding an investment in a money market fund managed by an affiliate of Group Inc.) followed by a listing of the individual loans in the Senior Credit Fund’s portfolio as of September 30, 2018 and December 31, 2017:

 

     As of  
     September 30,
2018
     December 31,
2017
 
Number of portfolio companies      35        34  
Total senior secured debt(1)    $  524.58 million      $  496.58 million  
Largest loan to a single borrower(1)    $ 29.92 million      $ 29.04 million  
Weighted average current interest rate on senior secured debt(2)      7.5%        7.3%  
Percentage of performing debt bearing a floating rate(3)      100.0%        100.0%  
Percentage of performing debt bearing a fixed rate(3)      –%        –%  
Weighted average leverage (net debt/EBITDA)(4)      4.8x        4.5x  
Weighted average interest coverage(4)      2.5x        2.7x  
Median EBITDA(4)    $ 50.55 million      $ 45.53 million  

 

  (1)   

At par amount, including fully unfunded commitments.

  (2)   

Computed as (a) the annual stated interest rate on accruing senior secured debt divided by (b) total senior secured debt at par amount, excluding fully unfunded commitments.

  (3)   

Measured on a fair value basis.

  (4)   

For a particular portfolio company of the Senior Credit Fund, we calculate the level of contractual indebtedness net of cash (“net debt”) owed by the portfolio company, and compare that amount to measures of cash flow available to service the net debt. To calculate net debt, we include debt that is both senior and pari passu to the tranche of debt owned by the Senior Credit Fund, but exclude debt that is legally and contractually subordinated in ranking to the debt owned by the Senior Credit Fund. We believe this calculation method assists in describing the risk of the Senior Credit Fund’s portfolio investments, as it takes into consideration contractual rights of repayment of the tranche of debt owned by the Senior Credit Fund relative to other senior and junior creditors of a portfolio company. We typically calculate cash flow available for debt service at a portfolio company by taking EBITDA for the trailing twelve month period.

 

      

For a particular portfolio company of the Senior Credit Fund, we also calculate the level of contractual interest expense owed by the portfolio company, and compare that amount to EBITDA (“interest coverage ratio”). We believe this calculation method assists in describing the risk of the Senior Credit Fund’s portfolio investments, as it takes into consideration contractual interest obligations of the portfolio company.

 

      

Median EBITDA is based on the Senior Credit Fund’s debt investments.

 

      

Portfolio company statistics are derived from the most recently available financial statements of each portfolio company of the Senior Credit Fund as of the respective reported end date. Statistics of the Senior Credit Fund’s portfolio companies have not been independently verified by us and may reflect a normalized or adjusted amount.

 

58


Senior Credit Fund Portfolio as of September 30, 2018

 

 

Portfolio Company   Industry  

Interest

Rate (+)

 

Reference Rate and

Spread (+)

  Maturity    

Par

Amount

    Cost    

Fair

Value

 
                     

(in millions)

       
1st Lien/Senior Secured Debt (+)

 

3SI Security Systems, Inc.   Commercial Services & Supplies   8.08%   L + 5.75%; 1.00% Floor     06/16/2023     $ 29.92     $ 29.59     $ 29.63  
A Place For Mom, Inc.   Diversified Consumer Services   5.99%   L + 3.75%; 1.00% Floor     08/10/2024       17.91       17.89       17.89  
AMCP Clean Acquisition Company, LLC   Commercial Services & Supplies   6.64%   L + 4.25%     06/16/2025       8.85       8.81       8.85  
AMCP Clean Acquisition Company, LLC(1) (2)   Commercial Services & Supplies     L + 4.25%     06/16/2025       2.13       (0.01      
Ansira Partners, Inc.   Media   7.99%   L + 5.75%; 1.00% Floor     12/20/2022       9.27       9.20       9.23  
Ansira Partners, Inc.(1)   Media   7.99%   L + 5.75%; 1.00% Floor     12/20/2022       0.57       0.14       0.14  
ASC Acquisition Holdings, LLC(3)   Distributors   9.85%   L + 7.50%; 1.00% Floor     12/15/2021       8.06       8.01       7.94  
ASC Acquisition Holdings, LLC(1) (2) (3)   Distributors     L + 7.50%; 1.00% Floor     12/15/2021       3.75       (0.04     (0.06
ATX Networks Corp.   Communications Equipment   9.39% (8.39% Cash and
1.00% PIK)
  L + 7.00% (Incl. 1.00% PIK); 1.00% Floor     06/11/2021       0.95       0.93       0.89  
ATX Networks Corp.   Communications Equipment   9.39% (8.39% Cash and
1.00% PIK)
  L + 7.00% (Incl. 1.00% PIK); 1.00% Floor     06/11/2021       15.10       15.02       14.19  
Badger Sportswear, Inc.   Textiles, Apparel & Luxury Goods   6.74%   L + 4.50%; 1.00% Floor     09/11/2023       14.70       14.59       14.41  
Barbri, Inc.   Media   6.35%   L + 4.25%; 1.00% Floor     12/01/2023       12.79       12.74       12.75  
CST Buyer Company   Diversified Consumer Services   7.24%   L + 5.00%; 1.00% Floor     03/01/2023       18.97       18.56       18.59  
CST Buyer
Company(1) (2)
  Diversified Consumer Services     L + 5.00%; 1.00% Floor     03/01/2023       1.80       (0.04     (0.04
DBRS Limited   Capital Markets   7.56%   L + 5.25%; 1.00% Floor     03/04/2022       11.58       11.52       11.59  
DiscoverOrg, LLC(3)   Software   6.75%   L + 4.50%; 1.00% Floor     08/25/2023       7.92       7.89       7.88  
Drilling Info Holdings, Inc.   Oil & Gas   6.54%   L + 4.25%     07/30/2025       15.83       15.75       15.75  
Drilling Info Holdings, Inc.(1) (2)   Oil & Gas     L + 4.25%     07/30/2025       2.67       (0.01     (0.01
FWR Holding Corporation   Hotels, Restaurants & Leisure   7.99%   L + 5.75%; 1.00% Floor     08/21/2023       9.01       8.82       8.81  
FWR Holding Corporation(1)   Hotels, Restaurants & Leisure   7.99%   L + 5.75%; 1.00% Floor     08/21/2023       1.17       0.71       0.71  
FWR Holding Corporation(1)   Hotels, Restaurants & Leisure   8.80%   L + 5.75%; 1.00% Floor     08/21/2023       2.93       1.08       1.07  
GH Holding Company   Real Estate Management & Development   6.74%   L + 4.50%     02/28/2023       14.92       14.86       14.85  
GI Revelation Acquisition LLC   Internet Software & Services   7.24%   L + 5.00%     04/16/2025       6.98       6.95       6.99  
GK Holdings, Inc.   IT Services   8.39%   L + 6.00%; 1.00% Floor     01/20/2021       17.33       17.27       15.95  
GlobalTranz Enterprises, Inc.   Road & Rail   6.49%   L + 4.25%     06/29/2025       17.65       17.56       17.56  
GlobalTranz Enterprises, Inc.(1) (2)   Road & Rail     L + 4.25%     06/29/2025       4.35             (0.02
Halo Branded Solutions, Inc.   Commercial Services & Supplies   6.74%   L + 4.50%; 1.00% Floor     06/30/2025       10.53       10.43       10.42  
Halo Branded Solutions, Inc.(1)   Commercial Services & Supplies   6.78%   L + 4.50%; 1.00% Floor     06/30/2025       4.43       4.08       4.08  
HC Group Holdings III, Inc.   Health Care Providers & Services   5.99%   L + 3.75%     04/07/2022       8.73       8.70       8.76  
Hygiena Borrower
LLC(3)
  Life Sciences Tools & Services   6.38%   L + 4.00%; 1.00% Floor     08/26/2022       17.81       17.66       17.45  
Hygiena Borrower
LLC(1) (2)(3)
  Life Sciences Tools & Services     L + 4.00%; 1.00% Floor     08/26/2022       1.87       (0.02     (0.04
Hygiena Borrower
LLC(1) (2)(3)
  Life Sciences Tools & Services     L + 4.00%; 1.00% Floor     08/26/2022       0.29       (0.00     (0.01
Jill Acquisition LLC   Textiles, Apparel & Luxury Goods   7.35%   L + 5.00%; 1.00% Floor     05/08/2022       13.88       13.81       13.64  
Lattice Semiconductor Corporation   Semiconductors & Semiconductor Equipment   6.37%   L + 4.25%; 1.00% Floor     03/10/2021       9.77       9.67       9.81  
Output Services Group, Inc.(4)   Diversified Consumer Services   6.49%   L + 4.25%; 1.00% Floor     03/27/2024       7.01       6.98       7.03  
Output Services Group, Inc.(1)   Diversified Consumer Services     L + 4.25%; 1.00% Floor     03/27/2024       1.03             0.00  
Pathway Partners Vet Management Company, LLC   Health Care Providers & Services   6.49%   L + 4.25%; 1.00% Floor     10/10/2024       9.63       9.59       9.63  

 

59


Senior Credit Fund Portfolio as of September 30, 2018 (Continued)

 

 

Portfolio Company   Industry  

Interest

Rate (+)

 

Reference Rate and

Spread (+)

  Maturity    

Par

Amount

    Cost    

Fair

Value

 
                     

(in millions)

       
Pathway Partners Vet Management Company, LLC   Health Care Providers & Services   6.49%   L + 4.25%; 1.00% Floor     10/10/2024     $ 0.29     $ 0.28     $ 0.29  
Pharmalogic Holdings Corp.   Health Care Equipment & Supplies   6.24%   L + 4.00%     06/11/2023       1.88       1.88       1.88  
Pharmalogic Holdings Corp.(1) (2)   Health Care Equipment & Supplies     L + 4.00%     06/11/2023       3.54       (0.01     (0.01
Pharmalogic Holdings Corp.   Health Care Equipment & Supplies   6.24%   L + 4.00%     06/11/2023       6.56       6.54       6.54  
Professional Physical Therapy(5)   Health Care Providers & Services     L + 7.50% PIK; 1.00% Floor     12/16/2022       10.92       10.28       9.07  
RealD, Inc.   Media   9.74%   L + 7.50%; 1.00% Floor     03/22/2021       16.32       16.22       16.24  
Regulatory DataCorp, Inc.   Diversified Financial Services   6.74%   L + 4.50%; 1.00% Floor     09/21/2022       4.97       4.97       4.87  
SciQuest, Inc.   Internet Software & Services   6.24%   L + 4.00%; 1.00% Floor     12/28/2024       19.85       19.76       19.80  
SMS Systems Maintenance Services, Inc.   IT Services   7.24%   L + 5.00%; 1.00% Floor     10/30/2023       14.74       14.68       11.89  
Stackpath, LLC   Internet Software & Services   7.51%   L + 5.00%; 1.00% Floor     02/03/2023       16.79       16.66       16.62  
Tronair Parent Inc.   Air Freight & Logistics   7.56%   L + 4.75%; 1.00% Floor     09/08/2023       13.72       13.62       13.51  
U.S. Acute Care Solutions, LLC   Health Care Providers & Services   7.24%   L + 5.00%; 1.00% Floor     05/14/2021       12.76       12.67       12.66  
United Seating and Mobility, LLC   Health Care Equipment & Supplies   6.99%   L + 4.75%; 1.00% Floor     05/10/2019       14.81       14.77       14.74  
VRC Companies, LLC   Commercial Services & Supplies   8.74%   L + 6.50%; 1.00% Floor     03/31/2023       27.43       27.01       27.15  
VRC Companies, LLC(1)   Commercial Services & Supplies   8.74%   L + 6.50%; 1.00% Floor     03/31/2022       1.41       1.06       1.07  
           

 

 

   

 

 

 

Total 1st Lien/Senior Secured Debt

            479.08       472.63  
2nd Lien/Senior Secured Debt

 

DiscoverOrg, LLC(3)   Software   10.75%   L + 8.50%; 1.00% Floor     02/23/2024       10.50       10.37       10.42  
GK Holdings, Inc.   IT Services   12.64%   L + 10.25%; 1.00% Floor     01/20/2022       6.00       5.93       4.92  
           

 

 

   

 

 

 

Total 2nd Lien/Senior Secured Debt

            16.30       15.34  
           

 

 

   

 

 

 

Total Corporate Debt

            495.38       487.97  
           

 

 

   

 

 

 

 

^^^   

While representing less than 5% of the portfolio company’s outstanding voting securities, the portfolio company is otherwise deemed to be an “affiliated person” of the Company under the Investment Company Act of 1940.

(+)   

The terms in the Schedule above disclose the actual interest rate for partially or fully funded debt in effect as of the reporting date. Variable rate loans bear interest at a rate that may be determined by reference to either LIBOR (“L”) or alternate base rate (commonly based on the Prime Rate (“P”)), at the borrower’s option, which reset periodically based on the terms of the credit agreement. L loans are typically indexed to 12 month, 6 month, 3 month, 2 month, 1 month or 1 week L rates. As of September 30, 2018, rates for the 12 month, 6 month, 3 month, 2 month, 1 month and 1 week L are 2.92%, 2.60%, 2.40%, 2.31%, 2.26% and 2.20%, respectively. As of September 30, 2018, P was 5.25%. For investments with multiple reference rates or alternate base rates, the interest rate shown is the weighted average interest rate in effect at September 30, 2018.

(1)   

Position or portion thereof is an unfunded loan commitment, and no interest is being earned on the unfunded portion. The unfunded loan commitment may be subject to a commitment termination date that may expire prior to the maturity date stated.

(2)   

The negative cost is the result of the capitalized discount being greater than the principal amount outstanding on the loan. The negative fair value is the result of the capitalized discount on the loan.

(3)   

The Company also holds a portion of the senior secured debt in this portfolio company.

(4)   

Position or portion thereof unsettled as of September 30, 2018.

(5)   

The investment is on non-accrual status as of September 30, 2018.

(6)   

The rate shown is the annualized seven-day yield as of September 30, 2018.

PIK – Payment-in-kind

 

60


Senior Credit Fund Portfolio as of December 31, 2017

 

 

Portfolio Company    Industry    Interest (+)    Maturity   Par
Amount
    Cost     Fair
Value
 
                   (in millions)  
1st Lien/Senior Secured Debt               
3SI Security Systems, Inc.    Commercial Services & Supplies    7.87% (L + 6.25%; 1.00% Floor)    06/16/2023   $ 14.96     $ 14.75     $ 14.74  
A Place For Mom, Inc.    Diversified Consumer Services    5.69% (L + 4.00%; 1.00% Floor)    08/10/2024     3.99       3.97       3.99  
Ansira Partners, Inc.    Media    8.19% (L + 6.50%; 1.00% Floor)    12/20/2022     8.64       8.56       8.57  
Ansira Partners, Inc.(1)    Media    8.19% (L + 6.50%; 1.00% Floor)    12/20/2022     1.27       0.69       0.69  
ASC Acquisition Holdings, LLC (2)    Distributors    8.89% (L + 7.50%; 1.00% Floor)    12/15/2021     10.69       10.60       10.47  
ASC Acquisition Holdings, LLC(1)(2)(3)    Distributors    (L + 7.50%; 1.00% Floor)    12/15/2021     3.75       (0.04     (0.08
ATX Networks Corp.    Communications Equipment   

8.69% (L + 6.00%; 1.00% Floor)

(7.69% Cash and 1.00% PIK)

   06/11/2021     16.42       16.30       16.18  
Badger Sportswear, Inc.    Textiles, Apparel & Luxury Goods    6.07% (L + 4.50%; 1.00% Floor)    09/11/2023     14.81       14.69       14.54  
Barbri, Inc.    Media    5.73% (L + 4.25%; 1.00% Floor)    12/01/2023     14.00       13.93       13.97  
Crowne Group, LLC    Auto Components    10.73% (L + 9.25%; 1.00% Floor)    05/26/2021     16.36       16.24       16.53  
CST Buyer Company    Diversified Consumer Services    7.75% (L + 6.25%; 1.00% Floor)    03/01/2023     19.66       19.18       19.27  
CST Buyer Company(1)(3)    Diversified Consumer Services    (L + 6.25%; 1.00% Floor)    03/01/2023     1.80       (0.04     (0.04
DBRS Limited    Capital Markets    6.73% (L + 5.25%; 1.00% Floor)    03/04/2022     11.67       11.59       11.67  
DiscoverOrg, LLC(2)    Software    6.07% (L + 4.50%; 1.00% Floor)    08/25/2023     7.98       7.94       7.90  
FWR Holding Corporation    Hotels, Restaurants & Leisure    7.66% (L + 6.00%; 1.00% Floor)    08/21/2023     9.08       8.86       8.85  
FWR Holding Corporation(1)    Hotels, Restaurants & Leisure    7.57% (L + 6.00%; 1.00% Floor)    08/21/2023     1.18       0.12       0.12  
FWR Holding Corporation(1)    Hotels, Restaurants & Leisure    7.60% (L + 6.00%; 1.00% Floor)    08/21/2023     2.93       0.40       0.40  
GK Holdings, Inc.    IT Services    7.69% (L + 6.00%; 1.00% Floor)    01/20/2021     17.46       17.39       13.63  
HC Group Holdings III, Inc.    Health Care Providers & Services    6.57% (L + 5.00%; 1.00% Floor)    04/07/2022     8.80       8.77       8.87  
Help/Systems, LLC    Software    6.19% (L + 4.50%; 1.00% Floor)    10/08/2021     17.72       17.30       17.77  
Hygiena Borrower LLC    Life Sciences Tools & Services    6.44% (L + 4.75%; 1.00% Floor)    08/26/2022     15.88       15.74       15.56  
Hygiena Borrower LLC(1)(3)    Life Sciences Tools & Services    (L + 4.75%; 1.00% Floor)    08/26/2022     1.67       (0.02     (0.03
Jill Acquisition LLC    Textiles, Apparel & Luxury Goods    6.38% (L + 5.00%; 1.00% Floor)    05/08/2022     14.00       13.91       13.18  
Lattice Semiconductor Corporation    Semiconductors & Semiconductor Equipment    5.65% (L + 4.25%; 1.00% Floor)    03/10/2021     10.75       10.61       10.85  
Liquidnet Holdings, Inc.    Capital Markets    5.82% (L + 4.25%; 1.00% Floor)    07/15/2024     9.75       9.66       9.77  
MB Aerospace Holdings Inc.    Aerospace & Defense    7.13% (L + 5.50%; 1.00% Floor)    12/15/2022     15.69       15.57       15.65  
Netsmart Technologies, Inc.    Health Care Technology    6.19% (L + 4.50%; 1.00% Floor)    04/19/2023     18.75       18.70       18.94  
Pathway Partners Vet Management Company, LLC(2)    Health Care Providers & Services    5.82% (L + 4.25%; 1.00% Floor)    10/10/2024     6.96       6.93       6.96  
Pathway Partners Vet Management Company, LLC(1)(2)    Health Care Providers & Services    5.82% (L + 4.25%; 1.00% Floor)    10/10/2024     3.02       0.28       0.29  
Pomeroy Group LLC    IT Services    7.51% (L + 6.00%; 1.00% Floor)    11/30/2021     15.76       15.39       15.40  
Professional Physical Therapy    Health Care Providers & Services    9.50% (P + 5.00%)    12/16/2022     10.40       10.31       10.19  
Radiology Partners Holdings, LLC    Health Care Providers & Services    7.59% (L + 5.75%; 1.00% Floor)    12/04/2023     7.71       7.63       7.71  
Radiology Partners Holdings, LLC (1)    Health Care Providers & Services    7.59% (L + 5.75%; 1.00% Floor)    12/04/2023     2.29       1.39       1.41  
RealD, Inc.    Media    8.98% (L + 7.50%; 1.00% Floor)    03/22/2021     16.64       16.52       16.43  
SciQuest, Inc.(4)    Internet Software & Services    5.56% (L + 4.00%; 1.00% Floor)    12/28/2024     20.00       19.90       19.90  
Smarte Carte, Inc.    Air Freight & Logistics    7.20% (L + 5.50%; 1.00% Floor)    08/30/2021     10.56       10.48       10.48  
SMS Systems Maintenance Services, Inc.    IT Services    6.57% (L + 5.00%; 1.00% Floor)    10/30/2023     14.85       14.78       12.47  
Stackpath, LLC    Internet Software & Services    6.38% (L + 5.00%; 1.00% Floor)    02/03/2023     16.91       16.77       16.75  
Tronair Parent Inc.    Air Freight & Logistics    6.16% (L + 4.75%; 1.00% Floor)    09/08/2023     13.82       13.71       13.65  
U.S. Acute Care Solutions, LLC    Health Care Providers & Services    6.69% (L + 5.00%; 1.00% Floor)    05/14/2021     12.87       12.76       12.74  

 

61


Senior Credit Fund Portfolio as of December 31, 2017 (Continued)

 

 

Portfolio Company    Industry    Interest (+)    Maturity  

Par

Amount

    Cost    

Fair

Value

 

VRC Companies, LLC

   Commercial Services & Supplies    8.12% (L + 6.50%; 1.00% Floor)    03/31/2023   $ 19.91     $ 19.50     $ 19.66  

VRC Companies, LLC

   Commercial Services & Supplies    7.85% (L + 6.50%; 1.00% Floor)    03/31/2023     3.52       3.45       3.48  

VRC Companies, LLC (1)

   Commercial Services & Supplies    7.97% (L + 6.50%; 1.00% Floor)    03/31/2023     4.20       2.18       2.18  

VRC Companies, LLC (1)

   Commercial Services & Supplies    10.00% (P + 5.50%)    03/31/2022     1.41       1.10       1.11  
            

 

 

   

 

 

 

Total 1st Lien/Senior Secured Debt

            448.45       442.77  
1st Lien/First-Out Unitranche               
Infogix, Inc.    Software    6.69% (L + 5.00%; 1.00% Floor)    12/31/2021     9.59       9.52       9.57  
            

 

 

   

 

 

 

Total 1st Lien/First-Out Unitranche

         9.52       9.57  
2nd Lien/Senior Secured Debt               
DiscoverOrg, LLC (2)    Software    10.07% (L + 8.50%; 1.00% Floor)    02/23/2024     10.50       10.35       10.39  
GK Holdings, Inc.    IT Services    11.94% (L + 10.25%; 1.00% Floor)    01/20/2022     6.00       5.92       4.34  
            

 

 

   

 

 

 

Total 2nd Lien/Senior Secured Debt

         16.27       14.73  
            

 

 

   

 

 

 

Total Corporate Debt

          $ 474.24     $ 467.07  
            

 

 

   

 

 

 

 

(+)  

The schedule above discloses the actual interest rate for partially or fully funded debt in effect as of the reporting date. Variable rate loans bear interest at a rate that may be determined by reference to either LIBOR (“L”) or alternate base rate (commonly based on the Prime Rate (“P”)), at the borrower’s option, which reset periodically based on the terms of the credit agreement. L loans are typically indexed to 12 month, 6 month, 3 month, 2 month, 1 month or 1 week L rates. As of December 31, 2017, rates for the 12 month, 6 month, 3 month, 2 month, 1 month and 1 week L are 2.11%, 1.84%, 1.69%, 1.62%, 1.56% and 1.48%, respectively. As of December 31, 2017, P was 4.50%. For investments with multiple reference rates or alternate base rates, the interest rate shown is the weighted average interest rate in effect at December 31, 2017.

(1)  

Position or portion thereof is an unfunded loan commitment, and no interest is being earned on the unfunded portion. The unfunded loan commitment may be subject to a commitment termination date that may expire prior to the maturity date stated.

(2)  

We also hold a portion of the 2nd lien/senior secured debt in this portfolio company.

(3)  

The negative cost is the result of the capitalized discount being greater than the principal amount outstanding on the loan. The negative fair value is the result of the capitalized discount on the loan.

(4)  

Position or portion thereof unsettled as of December 31, 2017.

 

62


Below is certain summarized balance sheet information for the Senior Credit Fund as of September 30, 2018 and December 31, 2017:

 

     As of  
     September 30,
2018
     December 31,
2017
 
     (in millions)  
Selected Balance Sheet Information   
Total investments, at fair value    $ 493.90      $ 472.91  
Cash and other assets      19.83        31.83  
  

 

 

    

 

 

 

Total assets

   $ 513.73      $ 504.74  
  

 

 

    

 

 

 
Debt(1)    $ 317.76      $ 291.52  
Other liabilities      10.79        29.03  
  

 

 

    

 

 

 

Total liabilities

   $ 328.55      $ 320.55  
  

 

 

    

 

 

 
Members’ equity    $ 185.18      $ 184.19  
  

 

 

    

 

 

 

Total liabilities and members’ equity

   $ 513.73      $ 504.74  
  

 

 

    

 

 

 

 

(1)  

Net of deferred financing costs for the SPV I Term Loan Facility (as defined below) as of September 30, 2018 and December 31, 2017, which were in the amount of $2.24 million and $2.49 million, respectively.

Below is certain summarized Statement of Operations information for the Senior Credit Fund for the three and nine months ended September 30, 2018 and 2017:

 

     For the Three Months Ended     For the Nine Months Ended  
     September 30,
2018
     September 30,
2017
    September 30,
2018
    September 30,
2017
 
     (in millions)  
Selected Statement of Operations Information:          
Total investment income    $ 10.30      $ 9.54     $ 29.47     $ 28.14  
Expenses          
Interest and other debt expenses      4.11        3.48       11.36       10.13  
Excess loan origination and structuring fees             0.35             1.10  
Professional fees      0.13        0.18       0.54       0.48  
Administration and custodian fees      0.10        0.10       0.30       0.30  
Other expenses      0.02        0.04       0.05       0.09  
  

 

 

    

 

 

   

 

 

   

 

 

 

Total expenses

     4.36        4.15       12.25       12.10  
  

 

 

    

 

 

   

 

 

   

 

 

 

Net investment income (loss)

     5.94        5.39       17.22       16.04  
Net realized gain (loss) on investments             0.03             0.11  
Net change in unrealized appreciation (depreciation) on investments      0.56        (0.14     (0.24     (1.71
  

 

 

    

 

 

   

 

 

   

 

 

 

Net increase (decrease) in members’ equity

   $ 6.50      $ 5.28     $ 16.98     $ 14.44  
  

 

 

    

 

 

   

 

 

   

 

 

 

Debt

On December 19, 2016, SPV I entered into an amended and restated credit facility (as amended, the “Asset Based Facility”), which consists of a revolving credit facility (the “SPV I Revolving Credit Facility”), a term loan facility (the “SPV I Term Loan Facility”) and a Class B loan facility (the “SPV I Class B Facility”), with various lenders. For the Asset Based Facility, Natixis, New York Branch (“Natixis”) serves as the facility agent, and State Street Bank and Trust Company serves as the collateral agent. The Asset Based Facility includes a maximum borrowing capacity of $400.00 million. The SPV I Revolving Credit Facility provided for borrowings in an aggregate amount up to $120.00 million on a committed basis as of September 30, 2018. Borrowings under the SPV I Revolving Credit Facility bear interest at LIBOR plus 2.30%. As of September 30, 2018, the SPV I Term Loan Facility consisted of a $240.00 million fully drawn term loan and the SPV I Class B Facility consisted of a $40.00 million fully drawn Class B loan. Borrowings under the SPV I Term Loan Facility and SPV I Class B Facility bear interest at LIBOR plus 2.30% and LIBOR plus 3.50%, respectively. Any amounts borrowed under the Asset Based Facility will mature, and all accrued and unpaid interest will be due and payable, on December 19, 2025.

 

63


As of September 30, 2018 and December 31, 2017, the SPV I’s outstanding borrowings under the Asset Based Facility were $320.00 million and $294.00 million, respectively. The summary information of the Asset Based Facility for the three and nine months ended September 30, 2018 and 2017 is as follows:

 

     Three Months Ended     Nine Months Ended  
      September 30,
2018
    September 30,
2017
    September 30,
2018
    September 30,
2017
 
     ($ in millions)  
Borrowing interest expense    $ 3.69     $ 3.09     $ 10.04     $ 9.05  
Facility fees      0.23       0.20       0.75       0.51  
Amortization of financing costs      0.19       0.19       0.57       0.57  
Total    $ 4.11     $ 3.48     $ 11.36     $ 10.13  
Weighted average interest rate      4.9     3.8     4.6     3.6
Average outstanding balance    $ 301.21     $ 324.66     $ 291.51     $ 334.16  

FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES

The primary use of existing funds and any funds raised in the future is expected to be for our investments in portfolio companies, cash distributions to our stockholders or for other general corporate purposes, including paying for operating expenses or debt service to the extent we borrow or issue senior securities.

We expect to generate cash primarily from the net proceeds of any future offerings of securities, future borrowings and cash flows from operations. To the extent we determine that additional capital would allow us to take advantage of additional investment opportunities, if the market for debt financing presents attractively priced debt financing opportunities, or if our Board of Directors otherwise determines that leveraging our portfolio would be in our best interest and the best interests of our stockholders, we may enter into credit facilities in addition to our existing credit facilities as discussed below, or issue other senior securities. We would expect any such credit facilities may be secured by certain of our assets and may contain advance rates based upon pledged collateral. The pricing and other terms of any such facilities would depend upon market conditions when we enter into any such facilities as well as the performance of our business, among other factors. As a BDC, with certain limited exceptions, we are only permitted to borrow amounts such that our asset coverage ratio, as defined in the Investment Company Act, is at least 150% after such borrowing (if certain requirements are met). See “–Key Components of Operations – Leverage.” As of September 30, 2018 and December 31, 2017, our asset coverage ratio based on the aggregate amount outstanding of our senior securities was 225% and 233%, respectively. We may also refinance or repay any of our indebtedness at any time based on our financial condition and market conditions.

As of September 30, 2018, we had cash of approximately $4.65 million, a decrease of $6.96 million from December 31, 2017. Cash provided by operating activities for the nine months ended September 30, 2018 was approximately $16.50 million, primarily driven by an increase in net assets resulting from operations of $54.94 million, proceeds from sales and principal repayments of $268.62 million, net proceeds from investment in affiliated money market of $11.54 million, and proceeds from other operating activities of $1.25, offset by purchases of investments of $319.85 million. Cash used for financing activities for the nine months ended September 30, 2018 was approximately $23.46 million, primarily driven by repayments on debt of $314.75 million, distributions paid of $52.90 million and other financing activities of $3.25 million, offset by borrowings on debt of $347.44 million.

As of September 30, 2017, we had cash of approximately $11.97 million, an increase of $7.40 million from December 31, 2016. Cash provided by operating activities for the nine months ended September 30, 2017 was approximately $31.51 million, primarily driven by an increase in net assets resulting from operations of $37.26 million, proceeds from sales and principal repayments of $472.44 million and proceeds from other operating activities of $16.42 million, offset by purchases of investments of $494.61 million. Cash used by financing activities for the nine months ended September 30, 2017 was approximately $24.11 million, primarily driven by repayments on debt of $460.35 million, distributions paid of $49.83 million and other financing activities of $0.85 million, partially offset by borrowings on debt of $405.35 million and proceeds from the issuance of common stock (net of underwriting and offering costs) of $81.57 million.

To the extent permissible under the risk retention rules and applicable provisions of the Investment Company Act, we may raise capital by securitizing certain of our investments, including through the formation of one or more CLOs or asset based facilities, while retaining all or most of the exposure to the performance of these investments. This would involve contributing a pool of assets to a special purpose entity, and selling debt interests in such entity on a non-recourse or limited-recourse basis to purchasers. We may also pursue other forms of debt financing, including potentially from the Small Business Administration through a future small business investment company subsidiary (subject to regulatory approvals).

Equity Issuances

There were no sales of our common stock during the nine months ended September 30, 2018.

 

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On May 24, 2017, we completed a follow-on offering under our shelf registration statement, issuing 3,250,000 shares of our common stock at a public offering price of $22.50 per share. Net of offering and underwriting costs, we received cash proceeds of $69.65 million.

On May 26, 2017, we sold an additional 487,500 shares of our common stock pursuant to the underwriters’ exercise of the option to purchase additional shares we granted in connection with the aforementioned offering. Net of underwriting costs, we received additional cash proceeds of $10.64 million.

Common Stock Repurchase Plan

In February 2016, our Board of Directors authorized us to repurchase up to $25.00 million of our common stock if the stock trades below the most recently announced NAV per share (including any updates, corrections or adjustments publicly announced by us to any previously announced NAV per share), from March 18, 2016 to March 18, 2017, subject to certain limitations. In February 2017, our Board of Directors renewed its authorization of the stock repurchase plan to extend the expiration to March 18, 2018 and, in February 2018, again renewed its authorization of the stock repurchase plan to extend the expiration to March 18, 2019.

In connection with this authorization, we entered into a 10b5-1 plan (the “Company 10b5-1 Plan”). The Company 10b5-1 Plan provides that purchases will be conducted on the open market on a programmatic basis in accordance with Rules 10b5-1 and 10b-18 under the Exchange Act and will otherwise be subject to applicable law, including Regulation M, which may prohibit purchases under certain circumstances. No purchases will be effected pursuant to the Company 10b5-1 Plan if such purchase would (i) cause the aggregate ownership of our outstanding stock by Group Inc. and GS & Co. to equal or exceed 25.0% (due to the reduction in outstanding shares of stock as a result of purchase) or (ii) cause our debt/equity ratio to exceed 0.75. The Company 10b5-1 Plan initially took effect on March 18, 2016 (with any purchases to commence after the opening of NYSE trading on March 21, 2016), was subsequently renewed and expired on March 18, 2018. We entered into an agreement to renew the Company 10b5-1 Plan on May 14, 2018, which was terminated on June 27, 2018 in connection with our offering of Convertible Notes described below in “—Convertible Notes.” On June 27, 2018, we entered into an agreement to renew the Company 10b5-1 Plan with any purchases pursuant to the agreement to commence on September 25, 2018. The Company 10b5-1 Plan is scheduled to expire on March 18, 2019. Further, no purchases will be effected during the applicable restricted period under Regulation M as a result of an offering of securities by us or for a period of 60 days after the expiration of any overallotment option included in any common equity offering.

Repurchases of our common stock under the Company 10b5-1 Plan or otherwise may result in the price of our common stock being higher than the price that otherwise might exist in the open market. For the three and nine months ended September 30, 2018 and 2017, we did not repurchase any of our common stock pursuant to the Company 10b5-1 Plan or otherwise.

Dividend Reinvestment Plan

Concurrent with the IPO, we adopted a dividend reinvestment plan that provides for reinvestment of all cash distributions declared by the Board of Directors unless a stockholder elects to “opt out” of the plan. As a result, if the Board of Directors declares a cash distribution, then the stockholders who have not “opted out” of the dividend reinvestment plan will have their cash distributions automatically reinvested in additional shares of common stock, rather than receiving the cash distribution. Due to regulatory considerations, Group Inc. has opted out of the dividend reinvestment plan, and GS & Co. has opted out of the dividend reinvestment plan in respect of any shares of our common stock acquired through the GS 10b5-1 Plan.

The following table summarizes shares distributed pursuant to the dividend reinvestment plan during the nine months ended September 30, 2018 to stockholders who had not opted out of the dividend reinvestment plan.

 

Date Declared

   Record Date    Payment Date    Shares  
October 31, 2017    December 29, 2017    January 16, 2018      23,824  
February 21, 2018    March 30, 2018    April 16, 2018      20,916  
May 1, 2018    June 29, 2018    July 16, 2018      20,644  

The following table summarizes shares distributed pursuant to the dividend reinvestment plan during the nine months ended September 30, 2017 to stockholders who had not opted out of the dividend reinvestment plan.

 

Date Declared

   Record Date    Payment Date    Shares  
November 1, 2016    December 31, 2016    January 17, 2017      11,124  
February 22, 2017    March 31, 2017    April 17, 2017      11,202  
May 1, 2017    June 30, 2017    July 17, 2017      18,417  

Contractual Obligations

We have entered into certain contracts under which we have future commitments. Payments under the Investment Management Agreement, pursuant to which GSAM has agreed to serve as our Investment Adviser, are equal to (1) a percentage of value of our average gross assets and (2) a two-part Incentive Fee. Under the Administration Agreement, pursuant to which State Street Bank and Trust Company has agreed to furnish us with the administrative services necessary to conduct our day-to-day operations, we pay our administrator such fees as may be agreed between us and our administrator that we determine are commercially reasonable in our sole discretion. Either party or the stockholders, by a vote of a majority of our outstanding voting securities, may terminate the Investment Management Agreement without penalty on at least 60 days’ written notice to the other party. Either party may terminate the Administration Agreement without penalty upon at least 30 days’ written notice to the other party.

 

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The following table shows our contractual obligations as of September 30, 2018:

 

     Payments Due by Period (in millions)  
     Total      Less Than
1 Year
     1 – 3 Years      3 – 5 Years      More Than
5 Years
 
Revolving Credit Facility    $ 423.94      $      $      $ 423.94      $  
Convertible Notes    $ 155.00      $      $      $ 155.00      $  

Revolving Credit Facility

On September 19, 2013, we entered into the Revolving Credit Facility with various lenders. SunTrust Bank serves as administrative agent and Bank of America N.A. serves as syndication agent. We amended and restated the Revolving Credit Facility on October 3, 2014, November 3, 2015, December 16, 2016, February 21, 2018, and September 17, 2018.

The aggregate committed borrowing amount under the Revolving Credit Facility is $695.00 million. The Revolving Credit Facility includes an uncommitted accordion feature that allows us, under certain circumstances, to increase the borrowing capacity of the Revolving Credit Facility up to $1,000.00 million.

Borrowings denominated in USD, including amounts drawn in respect of letters of credit, bear interest (at our election) of either (i) LIBOR plus a margin of either 1.75% or 2.00%, subject to borrowing base conditions or (ii) an alternative base rate, which is the higher of the Prime Rate, Federal Funds Rate plus 0.50% or overnight LIBOR plus 1.00%, plus either 0.75% or 1.00%, subject to borrowing base conditions. Borrowings denominated in EUR bear interest (at our election) or EUR LIBOR plus a margin of either 1.75% or 2.00%, subject to borrowing base conditions. We may elect either the LIBOR, EUR LIBOR, or an alternative base rate at the time of borrowing, and borrowings may be converted from one rate to another at any time, subject to certain conditions. Interest is payable quarterly in arrears. We pay a fee of 0.375% per annum on committed but undrawn amounts under the Revolving Credit Facility, payable quarterly in arrears. Any amounts borrowed under the Revolving Credit Facility will mature, and all accrued and unpaid interest will be due and payable, on February 21, 2023.

The Revolving Credit Facility may be guaranteed by certain of our domestic subsidiaries, including any that are formed or acquired by us in the future (collectively, the “Guarantors”). The Senior Credit Fund is not a Guarantor of the Revolving Credit Facility. Proceeds from borrowings may be used for general corporate purposes, including the funding of portfolio investments.

Our obligations to the lenders under the Revolving Credit Facility are secured by a first priority security interest in substantially all of our portfolio of investments and cash, with certain exceptions. The Revolving Credit Facility contains certain covenants, including: (i) maintaining a minimum shareholder’s equity of $500.00 million plus 25% of net proceeds of the sale of equity interests after February 21, 2018, (ii) maintaining a minimum asset coverage ratio of at least 150%, (iii) maintaining a minimum asset coverage ratio of 200% with respect to consolidated assets (with certain limitations on the contribution of equity in financing subsidiaries as specified therein) of us and our subsidiary guarantors to the secured debt of us and our subsidiary guarantors, (iv) maintaining a minimum Company net worth of at least $350.00 million, (v) maintaining a minimum liquidity test of at least 10% of the covered debt amount during any period when the adjusted covered debt balance is greater than 90% of the adjusted borrowing base, as defined in the Revolving Credit Facility, and (vi) complying with restrictions on industry concentrations in our investment portfolio. We are in compliance with these covenants.

The Revolving Credit Facility also includes customary representations and warranties, conditions precedent to funding of draws and events of default.

Convertible Notes

On October 3, 2016, we closed an offering of $115.00 million aggregate principal amount of unsecured Convertible Notes, which included $15.00 million aggregate principal amount issued pursuant to the initial purchasers’ exercise in full of an over-allotment option (the “Initial Convertible Notes”). The sale of the Initial Convertible Notes generated net proceeds of approximately $110.90 million. We used the net proceeds of the offering to pay down debt under the Revolving Credit Facility.

On July 2, 2018, we closed an offering of $40.00 million aggregate additional principal amount (the “Additional Convertible Notes” and, together with the Initial Convertible Notes, the “Convertible Notes”). The Additional Convertible Notes have identical terms, are fungible and are part of the Initial Convertible Notes. The sale of the Additional Convertible Notes generated net proceeds of approximately $38.57 million. We used the net proceeds of the offering to pay down debt under the Revolving Credit Facility.

The Convertible Notes were issued pursuant to an indenture between us and Wells Fargo Bank, National Association, as Trustee. Wells Fargo Bank, National Association and/or its affiliates provide bank lending and distribution services to certain Goldman Sachs funds. The Convertible Notes bear interest at a rate of 4.50% per year, payable semi-annually in arrears on April 1 and October 1 of each year, commencing on April 1, 2017. The Convertible Notes will mature on April 1, 2022, unless repurchased or converted in accordance with their terms prior to such date. In certain circumstances, the Convertible Notes will be convertible into cash, shares of our common stock or a combination of cash and shares of our common stock, based on an initial conversion rate of 40.8397 shares of our common stock per $1,000 principal amount of Convertible Notes, which is equivalent to an initial conversion price of approximately $24.49 per share of common stock, subject to customary anti-dilution adjustments and the other terms of the indenture governing the Convertible Notes. The conversion price is approximately 10.0% above the $22.26 per share closing price of our common stock on September 27, 2016 and 16.7% above the $20.99 per share closing price of our common stock on June 26, 2018. We will not have the right to redeem the Convertible Notes prior to maturity.

 

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Holders may convert their notes at their option at any time prior to the close of business on the business day immediately preceding October 1, 2021 only under the following circumstances: (1) during any calendar quarter, if the last reported sale price of our common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the conversion price on each applicable trading day; (2) during the five business day period after any five consecutive trading day period (the “measurement period”) in which the trading price per $1,000 principal amount of notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price of our common stock and the conversion rate on each such trading day; or (3) upon the occurrence of specified corporate events. On or after October 1, 2021, until the close of business on the scheduled trading day immediately preceding the maturity date, holders may convert their notes at any time, regardless of the occurrence or nonoccurrence of any of the foregoing circumstances.

The Convertible Notes are accounted for in accordance with Accounting Standards Codification (“ASC”) Topic 470-20, Debt with Conversion and Other Options. Upon conversion of any of the Convertible Notes, we intend to pay the outstanding principal amount in cash and, to the extent that the conversion value exceeds the principal amount, we have the option to pay the excess amount in cash or shares of our common stock (or a combination of cash and shares), subject to the requirements of the indenture governing the Convertible Notes. We have determined that the embedded conversion options in the Convertible Notes are not required to be separately accounted for as derivatives under ASC 815, Derivatives and Hedging. At the time of issuance the values of the debt and equity components of the Initial Convertible Notes and Additional Convertible Notes were approximately 99.4% and 0.6%, and 97.9% and 2.1%, respectively.

The OID equal to the equity component of the Convertible Notes was recorded in “paid-in capital in excess of par” in the accompanying Consolidated Statements of Assets and Liabilities. We record interest expense comprised of both stated interest and amortization of the OID. At the time of issuance, the equity component of the Initial Convertible Notes and the Additional Convertible Notes were $0.74 million and $0.84 million, respectively. Additionally, the issuance costs associated with the Convertible Notes were allocated to the debt and equity components in proportion to the allocation of the values at the time of issuance and accounted for as debt issuance costs and equity issuance costs, respectively.

HEDGING

Subject to applicable provisions of the Investment Company Act and applicable Commodity Futures Trading Commission (“CFTC”) regulations, we may enter into hedging transactions in a manner consistent with SEC guidance. To the extent that any of our loans are denominated in a currency other than U.S. dollars, we may enter into currency hedging contracts to reduce our exposure to fluctuations in currency exchange rates. We may also enter into interest rate hedging agreements. Such hedging activities, which will be subject to compliance with applicable legal requirements, may include the use of futures, options, swaps and forward contracts. Costs incurred in entering into such contracts or in settling them, if any, will be borne by us. The Investment Adviser has claimed no-action relief from CFTC registration and regulation as a commodity pool operator pursuant to a CFTC staff no-action letter (the “BDC CFTC No-Action Letter”) with respect to our operations, with the result that we will be limited in our ability to use futures contracts or options on futures contracts or engage in swap transactions. Specifically, the BDC CFTC No-Action Letter imposes strict limitations on using such derivatives other than for hedging purposes, whereby the use of derivatives not used solely for hedging purposes is generally limited to situations where (i) the aggregate initial margin and premiums required to establish such positions does not exceed five percent of the liquidation value of our portfolio, after taking into account unrealized profits and unrealized losses on any such contracts it has entered into; or (ii) the aggregate net notional value of such derivatives does not exceed 100% of the liquidation value of our portfolio. Moreover, we anticipate entering into transactions involving such derivatives to a very limited extent solely for hedging purposes or otherwise within the limitations of the BDC CFTC No-Action Letter.

 

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OFF-BALANCE SHEET ARRANGEMENTS

We may become a party to financial instruments with off-balance sheet risk in the normal course of our business to fund investments and to meet the financial needs of our portfolio companies. These instruments may include commitments to extend credit and involve, to varying degrees, elements of liquidity and credit risk in excess of the amount recognized in the balance sheet. As of September 30, 2018, we believed that we had adequate financial resources to satisfy our unfunded commitments. As of September 30, 2018 and December 31, 2017, our unfunded commitments to provide funds to portfolio companies were as follows:

 

     As of  
     September 30,
2018
     December 31,
2017
 
     (in millions)  
Unfunded Commitments   

First Lien/Senior Secured Debt

   $ 70.18      $ 18.82  

First Lien/Last-Out Unitranche

            1.50  

Second Lien/Senior Secured Debt

     2.61        9.91  
  

 

 

    

 

 

 

Total

   $ 72.79      $ 30.23  
  

 

 

    

 

 

 

RECENT DEVELOPMENTS

On October 30, 2018, our Board of Directors declared a quarterly distribution of $0.45 per share payable on January 15, 2019 to stockholders of record as of December 31, 2018.

CRITICAL ACCOUNTING POLICIES

Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). The preparation of these consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. Changes in the economic environment, financial markets and any other parameters used in determining such estimates could cause actual results to differ materially. In addition to the discussion below, our critical accounting policies are further described in the notes to the consolidated financial statements.

Valuation of Portfolio Investments

As a BDC, we conduct the valuation of our assets, pursuant to which our NAV is determined, consistent with GAAP and the Investment Company Act. Our Board of Directors, with the assistance of our Audit Committee, determines the fair value of our assets within the meaning of the Investment Company Act, on at least a quarterly basis, in accordance with the terms of Financial Accounting Standards Board ASC Topic 820, Fair Value Measurement and Disclosures (“ASC 820”).

ASC 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value is a market-based measurement, not an entity-specific measurement. For some assets and liabilities, observable market transactions or market information might be available. For other assets and liabilities, observable market transactions and market information might not be available. However, the objective of a fair value measurement in both cases is the same – to estimate the price when an orderly transaction to sell the asset or transfer the liability would take place between market participants at the measurement date under current market conditions (that is, an exit price at the measurement date from the perspective of a market participant that holds the asset or owes the liability).

ASC 820 establishes a hierarchal disclosure framework which ranks the observability of inputs used in measuring financial instruments at fair value. The observability of inputs is impacted by a number of factors, including the type of financial instruments and their specific characteristics. Financial instruments with readily available quoted prices, or for which fair value can be measured from quoted prices in active markets, generally will have a higher degree of market price observability and a lesser degree of judgment applied in determining fair value. The levels used for classifying investments are not necessarily an indication of the risk associated with investing in these securities.

 

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The three-level hierarchy for fair value measurement is defined as follows:

Level 1 – inputs to the valuation methodology are quoted prices available in active markets for identical instruments as of the reporting date. The types of financial instruments included in Level 1 include unrestricted securities, including equities and derivatives, listed in active markets.

Level 2 – inputs to the valuation methodology are other than quoted prices in active markets, which are either directly or indirectly observable as of the reporting date. The type of financial instruments in this category includes less liquid and restricted securities listed in active markets, securities traded in other than active markets, government and agency securities, and certain over-the-counter derivatives where the fair value is based on observable inputs.

Level 3 – inputs to the valuation methodology are unobservable and significant to overall fair value measurement. The inputs into the determination of fair value require significant management judgment or estimation. Financial instruments that are included in this category include investments in privately held entities and certain over-the-counter derivatives where the fair value is based on unobservable inputs.

In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the determination of which category within the fair value hierarchy is appropriate for any given financial instrument is based on the lowest level of input that is significant to the fair value measurement. Our assessment of the significance of a particular input to the fair value measurement requires judgment and considers factors specific to the financial instrument.

Currently, the majority of our investments fall within Level 3 of the fair value hierarchy. We do not expect that there will be readily available market values for most of the investments which are in our portfolio, and we value such investments at fair value as determined in good faith by or under the direction of our Board of Directors using a documented valuation policy, described below, and a consistently applied valuation process. The factors that may be taken into account in pricing our investments at fair value include, as relevant, the nature and realizable value of any collateral, the portfolio company’s ability to make payments and its earnings and discounted cash flow, and the markets in which the portfolio company does business, comparison to publicly traded securities and other relevant factors. Available current market data are considered such as applicable market yields and multiples of publicly traded securities, comparison of financial ratios of peer companies, and changes in the interest rate environment and the credit markets that may affect the price at which similar investments would trade in their principal market, and other relevant factors. When an external event such as a purchase transaction, public offering or subsequent equity sale occurs, we consider the pricing indicated by the external event to corroborate or revise our valuation.

With respect to investments for which market quotations are not readily available, or for which market quotations are deemed not reflective of the fair value, the valuation procedures adopted by our Board of Directors contemplates a multi-step valuation process each quarter, as described below:

 

  (1)

Our quarterly valuation process begins with each portfolio company or investment being initially valued by the investment professionals of our Investment Adviser responsible for the portfolio investment;

 

  (2)

Our Board of Directors also engages independent valuation firms (the “Independent Valuation Advisors”) to provide independent valuations of the investments for which market quotations are not readily available, or are readily available but deemed not reflective of the fair value of an investment. The Independent Valuation Advisors independently value such investments using quantitative and qualitative information provided by the investment professionals of the Investment Adviser as well as any market quotations obtained from independent pricing services, brokers, dealers or market dealers. The Independent Valuation Advisors also provide analyses to support their valuation methodology and calculations. The Independent Valuation Advisors provide an opinion on a final range of values on such investments to our Board of Directors or the Audit Committee. The Independent Valuation Advisors define fair value in accordance with ASC 820 and utilize valuation approaches including the market approach, the income approach or both. A portion of the portfolio is reviewed on a quarterly basis, and all investments in the portfolio for which market quotations are not readily available, or are readily available, but deemed not reflective of the fair value of an investment, are reviewed at least annually by an Independent Valuation Advisor;

 

  (3)

The Independent Valuation Advisors’ preliminary valuations are reviewed by our Investment Adviser and the Valuation Oversight Group (“VOG”), a team that is part of the Controllers Department within the Finance Division of Goldman Sachs. The Independent Valuation Advisors’ ranges are compared to our Investment Adviser’s valuations to ensure our Investment Adviser’s valuations are reasonable. VOG presents the valuations to the Private Investment Valuation and Side Pocket Sub-Committee of the Investment Management Division Valuation Committee, which is comprised of representatives from GSAM who are independent of the investment making decision process;

 

  (4)

The Investment Management Division Valuation Committee ratifies fair valuations and makes recommendations to the Audit Committee of the Board of Directors;

 

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  (5)

The Audit Committee of our Board of Directors reviews valuation information provided by the Investment Management Division Valuation Committee, our Investment Adviser and the Independent Valuation Advisors. The Audit Committee then assesses such valuation recommendations; and

 

  (6)

Our Board of Directors discusses the valuations and, within the meaning of the Investment Company Act, determines the fair value of our investments in good faith, based on the input of our Investment Adviser, the Independent Valuation Advisors and the Audit Committee.

Investment Transactions and Related Investment Income

We record our investment transactions on a trade date basis. Realized gains and losses are based on the specific identification method. Dividend income on common equity investments is recorded on the record date for private portfolio companies or on the ex-dividend date for publicly traded portfolio companies. Interest income and dividend income are presented net of withholding tax, if any. Accretion of discounts and amortization of premiums, which are included in interest income and expense, are recorded over the life of the underlying instrument using the effective interest method.

Fair value generally is based on quoted market prices, broker or dealer quotations, or alternative price sources. In the absence of quoted market prices, broker or dealer quotations, or alternative price sources, investments in securities are measured at fair value as determined by our Investment Adviser and/or by one or more independent third parties.

Due to the inherent uncertainties of valuation, certain estimated fair values may differ significantly from the values that would have been realized had a ready market for these investments existed, and these differences could be material. For additional information, see Note 2 “Significant Accounting Policies” to our consolidated financial statements included in this report.

Non-Accrual Status

Investments are placed on non-accrual status when it is probable that principal, interest or dividends will not be collected according to the contractual terms. Accrued interest or dividends generally are reversed when an investment is placed on non-accrual status. Interest or dividend payments received on non-accrual investments may be recognized as income or applied to principal depending upon management’s judgment. Non-accrual investments are restored to accrual status when past due principal and interest or dividends are paid and, in management’s judgment, principal and interest or dividend payments are likely to remain current. We may make exceptions to this treatment if the investment has sufficient collateral value and is in the process of collection. As of September 30, 2018, we had two investments on non-accrual status, which represented 0.7% and 0.6% of the total investments (excluding an investment in a money market fund managed by an affiliate of Group Inc. of $0.00 million) at amortized cost and at fair value, respectively. As of December 31, 2017, we had one investment on non-accrual status, which represented 0.1% and 0.0% of the total investments (excluding an investment in a money market fund managed by an affiliate of Group Inc. of $11.54 million) at amortized cost and at fair value, respectively.

Distribution Policy

We intend to pay quarterly distributions to our stockholders out of assets legally available for distribution. Future quarterly distributions, if any, will be determined by our Board of Directors. All distributions will be subject to lawfully available funds therefor, and no assurance can be given that we will be able to declare distributions in future periods.

We have elected to be treated, and expect to qualify annually, as a RIC under Subchapter M of the Code, commencing with our taxable year ended December 31, 2013. To obtain and maintain RIC status, we must, among other things, timely distribute to our stockholders at least 90% of our investment company taxable income for each taxable year. We intend to timely distribute to our stockholders substantially all of our annual taxable income for each year, except that we may retain certain net capital gains for reinvestment and, depending upon the level of taxable income earned in a year, we may choose to carry forward taxable income for distribution in the following year and pay any applicable U.S. federal excise tax. The distributions we pay to our stockholders in a year may exceed our net ordinary income and capital gains for that year and, accordingly, a portion of such distributions may constitute a return of capital for U.S. federal income tax purposes. The specific tax characteristics of our distributions will be reported to stockholders after the end of the calendar year. Stockholders should read carefully any written disclosure regarding a distribution from us and should not assume that the source of any distribution is our net ordinary income or capital gains.

We have adopted an “opt out” dividend reinvestment plan for our common stockholders. As a result, if our Board of Directors declares a cash distribution, each stockholder that has not “opted out” of our dividend reinvestment plan will have its distribution automatically reinvested in additional shares of our common stock rather than receiving the cash distribution. Stockholders who receive distributions in the form of shares of common stock will generally be subject to the same U.S. federal, state and local tax consequences as if they received cash distributions; however, since their cash distributions will be reinvested, those stockholders will not receive cash with which to pay any applicable taxes. Due to regulatory considerations, Group Inc. has opted out of the dividend reinvestment plan, and GS & Co. has opted out of the dividend reinvestment plan in respect of any shares of our common stock acquired through the GS 10b5-1 Plan.

 

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Federal Income Taxes

As a RIC, we generally will not pay corporate-level U.S. federal income taxes on any net ordinary income or capital gains that we timely distribute to our stockholders as dividends. To maintain our RIC status, we must meet specified source-of-income and asset diversification requirements and timely distribute to our stockholders at least 90% of our investment company taxable income for each year. Depending upon the level of taxable income earned in a year, we may choose to carry forward taxable income for distribution in the following year and pay any applicable U.S. federal excise tax. We generally will be required to pay such U.S. federal excise tax if our distributions during a calendar year do not exceed the sum of (1) 98% of our net ordinary income (taking into account certain deferrals and elections) for the calendar year, (2) 98.2% of our capital gains in excess of capital losses for the one-year period ending on October 31 of the calendar year and (3) any net ordinary income and capital gains in excess of capital losses for preceding years that were not distributed during such years.

Because federal income tax regulations differ from GAAP, distributions in accordance with tax regulations may differ from net investment income and realized gains recognized for financial reporting purposes. Differences may be permanent or temporary. Permanent differences are reclassified among capital accounts in the consolidated financial statements to reflect their tax character. Temporary differences arise when certain items of income, expense, gain or loss are recognized at some time in the future. Differences in classification may also result from the treatment of short-term gains as ordinary income for tax purposes.

 

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are subject to financial market risks, most significantly changes in interest rates. Interest rate sensitivity refers to the change in our earnings that may result from changes in the level of interest rates. Because we expect to fund a portion of our investments with borrowings, our net investment income is expected to be affected by the difference between the rate at which we invest and the rate at which we borrow. As a result, we can offer no assurance that a significant change in market interest rates will not have a material adverse effect on our net investment income.

As of September 30, 2018 and December 31, 2017, on a fair value basis, approximately 3.6% and 3.6%, respectively, of our performing debt investments bore interest at a fixed rate (including income producing preferred stock investments), and approximately 96.4% and 96.4%, respectively, of our performing debt investments bore interest at a floating rate. Our borrowings under the Revolving Credit Facility bear interest at a floating rate and the Convertible Notes bear interest at a fixed rate.

We regularly measure our exposure to interest rate risk. We assess interest rate risk and manage our interest rate exposure on an ongoing basis by comparing our interest rate sensitive assets to our interest rate sensitive liabilities.

Based on our September 30, 2018 balance sheet, the following table shows the annual impact on net income of base rate changes in interest rates (considering interest rate floors for variable rate instruments) assuming no changes in our investment and borrowing structure:

 

As of September 30, 2018

Basis Point Change

   Interest
Income
     Interest
Expense
     Net
Income
 
(in millions)         
Up 300 basis points    $ 30.98      $ (12.81    $ 18.17  
Up 200 basis points      20.65        (8.54      12.11  
Up 100 basis points      10.33        (4.27      6.06  
Up 75 basis points      7.74        (3.20      4.54  
Up 50 basis points      5.16        (2.13      3.03  
Up 25 basis points      2.58        (1.07      1.51  
Down 25 basis points      (2.58      1.07        (1.51
Down 50 basis points      (5.16      2.13        (3.03
Down 75 basis points      (7.74      3.20        (4.54
Down 100 basis points      (10.33      4.27        (6.06
Down 200 basis points      (13.92      8.54        (5.38
Down 300 basis points      (14.16      9.65        (4.51

We may, in the future, hedge against interest rate fluctuations by using standard hedging instruments such as futures, options and forward contracts subject to the requirements of the Investment Company Act, applicable CFTC regulations and in a manner consistent with SEC guidance. 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.

 

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ITEM 4.

CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures. As of the end of the period covered by this report, our management carried out an evaluation, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act). Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were effective as of September 30, 2018. In designing and evaluating our disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives, and management necessarily applies its judgment in evaluating the benefits of possible controls and procedures relative to their costs.

Changes in Internal Control over Financial Reporting. There have been no changes in our internal control over financial reporting that occurred during our most recently completed fiscal quarter ended September 30, 2018 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II – OTHER INFORMATION

Item 1. Legal Proceedings.

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

Item 1A. Risk Factors.

An investment in our securities involves a high degree of risk. Except as set forth below, there have been no material changes to the risk factors previously reported under Item 1A: “Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2017, which was filed with the SEC on February 22, 2018. Additional risks and uncertainties not currently known to the Company or that it currently deems to be immaterial may materially affect its business, financial condition and/or operating results.

Regulations governing our operation as a BDC affect our ability to, and the way in which we, raise additional capital. These constraints may hinder our Investment Adviser’s ability to take advantage of attractive investment opportunities and to achieve our investment objective.

Regulations governing our operation as a BDC affect our ability to raise additional capital, and the ways in which we can do so. Raising additional capital may expose us to risks, including the typical risks associated with leverage, and may result in dilution to our current stockholders. The Investment Company Act limits our ability to borrow amounts or issue debt securities or preferred stock, which we refer to collectively as “senior securities,” to amounts such that our asset coverage ratio, as defined under the Investment Company Act, equals at least 150% immediately after such borrowing or issuance if certain requirements are met (except in connection with certain trading practices or investments), rather than 200%, as previously required and as described below. Consequently, if the value of our assets declines, we may be required to sell a portion of our investments and, depending on the nature of our leverage, repay a portion of our indebtedness at a time when this may be disadvantageous to us and, as a result, our stockholders. The Small Business Credit Availability Act modified the applicable provisions of the Investment Company Act to reduce the required asset coverage ratio applicable to BDCs to 150%, subject to certain approval and disclosure requirements. Under the legislation, BDCs are able to increase their leverage capacity if stockholders approve a proposal to do so. At our 2018 annual meeting of stockholders held on June 15, 2018, our stockholders approved the proposal to apply the modified asset coverage requirements in Section 61(a)(2) of the Investment Company Act to us. As a result of this approval, (1) we are now required to maintain asset coverage for our senior securities of 150% rather than 200% and (2) we and GSAM have reduced the Management Fee from 1.50% (0.375% per quarter) to 1.00% (0.25% per quarter) on the average value of our gross assets, excluding cash and cash equivalents, but including assets purchased with borrowed amounts, at the end of the two most recently completed calendar quarters. Considerations and risks related to increased leverage include: (a) the potential for magnified gains and losses on amounts invested, (b) increased debt service costs, (c) the potential for increased Incentive Fees for GSAM and (d) fewer proceeds remaining for distributions for stockholders in the case of a liquidation event. On September 17, 2018, we entered into an amendment to the Revolving Credit Facility to, among other things, reduce the existing minimum asset coverage ratio covenant from 200% to 150%.

We are generally not able to issue and sell our common stock at a price per share below NAV per share. We may, however, sell our common stock, or warrants, options or rights to acquire our common stock, at a price below the then-current NAV per share of our common stock (i) with the consent of a majority of our common stockholders (and a majority of our common stockholders who are not affiliates of ours) and (ii) if, among other things, a majority of our Independent Directors and a majority of our directors who have no financial interest in the transaction determine that a sale is in the best interests of us and our stockholders. If our common stock trades at a discount to NAV, this restriction could adversely affect our ability to raise capital.

 

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We borrow money, which may magnify the potential for gain or loss and may increase the risk of investing in us.

As part of our business strategy, we may borrow from and issue senior debt securities to banks, insurance companies and other lenders or investors. Holders of these senior securities will have fixed-dollar claims on our assets that are superior to the claims of our common stockholders. If the value of our assets decreases, leveraging would cause NAV to decline more sharply than it otherwise would have if we did not employ leverage. Similarly, any decrease in our income would cause net income to decline more sharply than it would have had we not borrowed. Such a decline could negatively affect our ability to make distributions to our common stockholders. In addition, we would have to service any additional debt that we incur, including interest expense on debt and dividends on preferred stock that we may issue, as well as the fees and costs related to the entry into or amendments to debt facilities. These expenses (which may be higher than the expenses on our current borrowings due to the rising interest rate environment) would decrease net investment income, and our ability to pay such expenses will depend largely on our financial performance and will be subject to prevailing economic conditions and competitive pressures. Moreover, leverage will increase the Management Fee payable to our Investment Adviser, which is based on our gross assets, including those assets acquired through the use of leverage but excluding cash and cash equivalents. Additionally, we will be able to incur additional leverage if we are able to obtain exemptive relief from the SEC to exclude the debt of any small business investment company (“SBIC”) subsidiary we may form in the future from the leverage requirements otherwise applicable to BDCs. We have not yet applied to the Small Business Administration (the “SBA”) for approval to form a SBIC and have not yet applied for exemptive relief from the SEC. We can offer no assurances as to whether or when we will be able to form a SBIC subsidiary or obtain such exemptive relief.

In addition to having fixed-dollar claims on our assets that are superior to the claims of our common stockholders, any obligations to the lenders will be secured by a first priority security interest in our portfolio of investments and cash. In the case of a liquidation event, those lenders would receive proceeds to the extent of their security interest before any distributions are made to our stockholders. Furthermore, our Revolving Credit Facility imposes, and any credit agreement or other debt financing agreement into which we may enter may impose, financial and operating covenants that restrict our investment activities (including restrictions on industry concentrations), remedies on default and similar matters. In connection with borrowings, our lenders may also require us to pledge assets.

Lastly, we may be unable to obtain our desired leverage, which would, in turn, affect your return on investment.

At our 2018 annual meeting of stockholders held on June 15, 2018, our stockholders approved the proposal to apply the modified asset coverage requirements in Section 61(a)(2) of the Investment Company Act to us. As a result of this approval, (1) we are now required to maintain asset coverage for our senior securities of 150% (if certain requirements are met) rather than 200% and (2) we and GSAM have reduced the Management Fee from 1.50% (0.375% per quarter) to 1.00% (0.25% per quarter) on the average value of our gross assets, excluding cash and cash equivalents, but including assets purchased with borrowed amounts, at the end of the two most recently completed calendar quarters. In addition, on September 17, 2018, we amended the Revolving Credit Facility to, among other things, reduce the existing minimum asset coverage ratio financial covenant from 200% to 150%.

The following table illustrates the effect of leverage on returns from an investment in our common stock assuming that we employ (1) our actual asset coverage ratio as of September 30, 2018 and (2) a hypothetical asset coverage ratio of 150%, each at various annual returns on our portfolio as of September 30, 2018, net of expenses. The calculations in the table below are hypothetical, and actual returns may be higher or lower than those appearing in the table below.

 

Assumed Return on our Portfolio (Net of Expenses)      (10.00 )%      (5.00 )%      0.00     5.00     10.00
Corresponding return to common stockholder assuming actual asset coverage as of September 30, 2018 (225%) (1)      (21.64 )%      (12.42 )%      (3.20 )%      6.02     15.23
Corresponding return to common stockholder assuming 150% asset coverage (2)      (38.55 )%      (23.30 )%      (8.06 )%      7.18     22.43

 

(1)  

Based on (i) $1,343.20 million in total assets including debt issuance costs as of September 30, 2018, (ii) $578.94 million in outstanding indebtedness as of September 30, 2018, (iii) $728.64 million in net assets as of September 30, 2018, and (iv) an annualized average interest rate on our indebtedness, as of September 30, 2018, excluding fees (such as fees on undrawn amounts and amortization of financing costs) of 4.03%.

(2)  

Based on (i) $2,221.55 million in total assets including debt issuance costs on a pro forma basis as of September 30, 2018, after giving effect of a hypothetical asset coverage ratio of 150%, (ii) $1,457.28 million in outstanding indebtedness on a pro forma basis as of September 30, 2018, after giving effect of a hypothetical asset coverage ratio of 150%, (iii) $728.64 million in net assets as of September 30, 2018, and (iv) an annualized average interest rate on our indebtedness, as of September 30, 2018, excluding fees (such as fees on undrawn amounts and amortization of financing costs) of 4.03%.

Changes in laws or regulations governing our operations or the operations of our portfolio companies, changes in the interpretation thereof or newly enacted laws or regulations, or any failure by us or our portfolio companies to comply with these laws or regulations, could require changes to certain of our or our portfolio companies’ business practices, negatively impact our or our portfolio companies’ operations, cash flows or financial condition, impose additional costs on us or our portfolio companies or otherwise adversely affect our business or the business of our portfolio companies.

We and our portfolio companies are subject to regulation at the local, state, federal and, in some cases, foreign levels. These laws and regulations, as well as their interpretation, are likely to change from time to time, and new laws and regulations may be enacted. Accordingly, any change in these laws or regulations, changes in their interpretation, or newly enacted laws or regulations, or any failure by us or our portfolio companies to comply with these laws or regulations, could require changes to certain of our or our portfolio companies’ business practices, negatively impact our or our portfolio companies’ operations, cash flows or financial condition, impose additional costs on us or our portfolio companies or otherwise adversely affect our business or the business of our portfolio companies. In addition to the legal, tax and regulatory changes that are expected to occur, there may be unanticipated changes and uncertainty regarding any such changes. The legal, tax and regulatory environment for BDCs, investment advisers and the instruments that they utilize (including derivative instruments) is continuously evolving. In addition, there is significant uncertainty regarding certain legislation and the regulations that have been adopted and future regulations that will need to be adopted pursuant to such legislation) and, consequently, the full impact that such legislation will ultimately have on us and the markets in which we trade and invest is not fully known. Such uncertainty and any resulting confusion may itself be detrimental to the efficient functioning of the markets and the success of certain investment strategies.

 

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On July 21, 2010, President Obama signed into law the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”), which impacts many aspects of the financial services industry. Many of the provisions of the Dodd-Frank Act have been implemented, while others will still require final rulemaking by regulatory authorities. While the full impact of the Dodd-Frank Act on us and our portfolio companies may not be known for an extended period of time, the Dodd-Frank Act, including current rules and regulations and proposed rules implementing its provisions and the interpretation of those rules, along with other legislative and regulatory proposals directed at the financial services industry that are proposed or pending in the U.S. Congress, may negatively impact the operations, cash flows or financial condition of us and our portfolio companies, impose additional costs on us and our portfolio companies, intensify the regulatory supervision of us and our portfolio companies or otherwise adversely affect our business or the business of our portfolio companies.

Over the last several years, there also has been an increase in regulatory attention to the extension of credit outside of the traditional banking sector, raising the possibility that some portion of the non-bank financial sector will be subject to new regulation. While it cannot be known at this time whether any regulation will be implemented or what form it will take, increased regulation of non-bank credit extension could negatively impact our operations, cash flows or financial condition, impose additional costs on us, intensify the regulatory supervision of us or otherwise adversely affect our business.

On March 23, 2018, President Trump signed into law the Small Business Credit Availability Act, which modified the applicable provisions of the Investment Company Act to reduce the required asset coverage ratio applicable to BDCs from 200% to 150%, subject to certain approval and disclosure requirements (including either stockholder approval or approval of both a majority of the directors who have no financial interest in the matter and a majority of the directors who are not “interested persons,” as defined in the Investment Company Act, of the BDC). On May 1, 2018, our Board of Directors approved the submission to stockholders of a proposal to approve the application of the modified asset coverage requirements at the Company’s 2018 annual meeting of stockholders. On June 15, 2018, our stockholders approved the application of the modified asset coverage requirements in Section 61(a)(2) of the Investment Company Act to us. See “—Regulations governing our operation as a BDC affect our ability to, and the way in which we, raise additional capital. These constraints may hinder our Investment Adviser’s ability to take advantage of attractive investment opportunities and to achieve our investment objective”.

Our Investment Adviser will be paid the Management Fee even if the value of your investment declines and our Investment Adviser’s Incentive Fee may create incentives for it to make certain kinds of investments.

The Management Fee is payable even in the event the value of your investment declines. The Management Fee is calculated as a percentage of the average value of our gross assets including borrowed funds (excluding cash or cash equivalents) at the end of the prior two completed calendar quarters. Accordingly, the Management Fee is payable regardless of whether the value of our gross assets and/or your investment has decreased during the then-current quarter and creates an incentive for the Investment Adviser to incur leverage.

In addition, the Incentive Fee payable by us to our Investment Adviser may create an incentive for our Investment Adviser to make investments on our behalf that are risky or more speculative than would be the case in the absence of such a compensation arrangement and also to incur leverage, which will tend to enhance returns where our portfolio has positive returns. Our Investment Adviser receives the Incentive Fee based, in part, upon capital gains realized on our investments. As a result, our Investment Adviser may have an incentive to invest more in companies whose securities are likely to yield capital gains, as compared to income-producing securities. Such a practice could result in our investing in more speculative securities than would otherwise be the case, which could result in higher investment losses, particularly during cyclical economic downturns.

The Incentive Fee payable by us to our Investment Adviser also may create an incentive for our Investment Adviser to invest on our behalf in instruments that have a deferred interest feature. Under these investments, we accrue the interest over the life of the investment but do not receive the cash income from the investment until the end of the term. Our net investment income used to calculate the income portion of our Incentive Fee, however, includes accrued interest. Thus, a portion of this Incentive Fee is based on income that we have not yet received in cash. This risk could be increased because our Investment Adviser is not obligated to reimburse us for any Incentive Fees received even if we subsequently incur losses or never receive in cash the accrued income (including accrued income with respect to OID, PIK interest and zero coupon securities).

 

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If we increase leverage as permitted pursuant to the modified asset coverage requirements approved by our stockholders on June 15, 2018, aggregate fees payable to our Investment Adviser may increase depending on the amount of additional leverage incurred, irrespective of the return on the incremental assets. In addition, as additional leverage would magnify positive returns, if any, on our portfolio, as noted above, our net investment income may exceed the quarterly hurdle rate for the Incentive Fee on income payable to our Investment Adviser at a lower average return on our portfolio. Thus, if we incur additional leverage, our Investment Adviser may receive additional Incentive Fees without any corresponding increase (and potentially with a decrease) in our performance.

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

None.

Item 3. Defaults Upon Senior Securities.

Not applicable.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

Not applicable.

Item 6. Exhibits.

The exhibits filed as part of this Quarterly Report on Form 10-Q are set forth on the Index to Exhibits, which is incorporated herein by reference.

 

 

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INDEX TO EXHIBITS

 

EXHIBIT
No

  

DESCRIPTION OF EXHIBITS

3.1   

Certificate of Incorporation (incorporated by reference to Exhibit (a) to pre-effective Amendment No. 7 to the Company’s Registration Statement on Form N-2 (file no. 333-187642), filed on March 3, 2015).

3.2   

Bylaws (incorporated by reference to Exhibit (b) to pre-effective Amendment No. 7 to the Company’s Registration Statement on Form N-2 (file no. 333-187642), filed on March 3, 2015).

10.1   

Fifth Amendment to Senior Secured Revolving Credit Agreement, dated as of September 17, 2018, among the Company, as Borrower, the Lenders party thereto and SunTrust Bank, as Administrative Agent and as Collateral Agent (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K (file no. 814-00998), filed on September 17, 2018).

10.2   

Sixth Amendment to Senior Credit Fund, LLC Limited Liability Company Agreement, dated as of August 24, 2018, between Goldman Sachs BDC, Inc. and Regents of the University of California (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K (file no. 814-00998), filed on August 24, 2018).

31.1   

Certification of Chief Executive Officer pursuant to Securities Exchange Act Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2   

Certification of Chief Financial Officer pursuant to Securities Exchange Act Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1   

Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section  1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

 

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SIGNATURES

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

 

      GOLDMAN SACHS BDC, INC.
Date: November 1, 2018       /s/ Brendan McGovern
     

Brendan McGovern

Chief Executive Officer and President

(Principal Executive Officer)

Date: November 1, 2018       /s/ Jonathan Lamm
     

Jonathan Lamm

Chief Financial Officer and Treasurer

(Principal Financial Officer)

 

 

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