497 1 d697150d497.htm 497 497
Table of Contents

Filed pursuant to Rule 497
Registration Statement No. 333-228720

 

PROSPECTUS SUPPLEMENT

(To Prospectus dated February 5, 2019)

 

LOGO

Up to $50,000,000

Common Stock

We operate as an externally managed, closed-end, non-diversified management investment company and have elected to be treated as a business development company (“BDC”) under the Investment Company Act of 1940, as amended (the “1940 Act”). For federal income tax purposes, we have elected to be treated as a regulated investment company (“RIC”) under Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”). Our investment objectives are to: (1) achieve and grow current income by investing in debt securities of established lower middle market companies that we believe will provide stable earnings and cash flow to pay expenses, make principal and interest payments on our outstanding indebtedness and make distributions to stockholders that grow over time; and (2) provide our stockholders with long-term capital appreciation in the value of our assets by investing in equity securities of established businesses that we believe can grow over time to permit us to sell our equity investments for capital gains.

We have entered into an equity distribution agreement (the “Sales Agreement”) with Jefferies LLC (“Jefferies”) relating to the sale of shares of our common stock, par value $0.001 per share, offered pursuant to this prospectus supplement and the accompanying prospectus. The Sales Agreement provides that we may offer and sell shares of our common stock having an aggregate offering price of up to $50,000,000 from time to time through Jefferies, as sales agent.

Sales of our common stock, if any, under this prospectus supplement and the accompanying prospectus may be made by transactions that are deemed to be part of an “at the market offering” as defined in Rule 415(a)(4) promulgated under the Securities Act of 1933, as amended (the “Securities Act”), at market prices prevailing at the time of sale, at prices related to prevailing market prices or at negotiated prices. Jefferies is not required to sell any specific amount, but will act as our sales agent using commercially reasonable efforts consistent with its normal trading and sales practices. There is no arrangement for funds to be received in any escrow, trust or similar arrangement.

Jefferies will be entitled to compensation at a commission rate of up to 2.0% of the gross sales price of the shares sold under the Sales Agreement. See “Plan of Distribution” beginning on page S-35 for additional information regarding the compensation to be paid to Jefferies. In connection with the sale of common shares on our behalf, Jefferies will be deemed to be an “underwriter” within the meaning of the Securities Act and the compensation of Jefferies will be deemed to be underwriting commissions or discounts. We have also agreed to provide indemnification and contribution to Jefferies with respect to certain liabilities, including civil liabilities under the Securities Act.

Our common stock is traded on Nasdaq under the symbol “GLAD.” On February 12, 2019, the last reported sale price of our common stock on Nasdaq was $8.77 per share. The net asset value (“NAV”) per share of our common stock on December 31, 2018 (the last date prior to the date of this prospectus supplement as of which we determined NAV) was $7.98. You are urged to obtain current market quotations of our common stock. The sales price per share of our common stock offered by this prospectus supplement and the accompanying prospectus, less Jefferies’s commission, will not be less than the NAV per share of our common stock at the time of such sale.

The securities in which we invest generally would be rated below investment grade if they were rated by rating agencies. Below investment grade securities, which are often referred to as “junk,” have predominantly speculative characteristics with respect to the issuer’s capacity to pay interest and repay principal. They may also be difficult to value and are illiquid.

Shares of closed-end investment companies, including BDCs, frequently trade at a discount to their NAV. If our shares trade at a discount to our NAV, it will likely increase the risk of loss for purchasers in this offering. Investing in shares of our common stock involves a high degree of risk. Before investing, you should read the material risks described in the “Risk Factors” section beginning on page S-11 of this prospectus supplement, beginning on page 13 of the accompanying prospectus and in any reports and information that we file from time to time with the Securities and Exchange Commission (the “SEC”), which are incorporated by reference into this prospectus supplement and the accompanying prospectus.

This prospectus supplement and the accompanying prospectus, including any documents incorporated by reference herein, contain important information you should know before investing in our common stock, including information about risks. Please read it before you invest and retain it for future reference. Additional information about us, including our annual, quarterly and current reports, has been filed with the SEC, and can be accessed at its website at www.sec.gov. This information is also available free of charge by calling us collect at (703) 287-5893 or on the investor relations section of our corporate website located at www.gladstonecapital.com. You may also call us collect at this number to request other information or to make a shareholder inquiry. See “Where You Can Find More Information” on page S-39 of this prospectus supplement. The SEC has not approved or disapproved of these securities or passed upon the adequacy of this prospectus supplement or the accompanying prospectus. Any representation to the contrary is a criminal offense.

Jefferies

The date of this prospectus supplement is February 13, 2019


Table of Contents

TABLE OF CONTENTS

 

 

 

     PAGE  

PROSPECTUS SUPPLEMENT

  

PROSPECTUS SUPPLEMENT SUMMARY

     S-2  

THE OFFERING

     S-6  

FEES AND EXPENSES

     S-8  

RISK FACTORS

     S-11  

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

     S-12  

USE OF PROCEEDS

     S-13  

PRICE RANGE OF COMMON STOCK AND DISTRIBUTIONS

     S-14  

COMMON SHARE PRICE DATA

     S-15  

CONSOLIDATED SELECTED FINANCIAL DATA

     S-16  

SELECTED QUARTERLY FINANCIAL DATA

     S-18  

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

     S-19  

PLAN OF DISTRIBUTION

     S-35  

CUSTODIAN, TRANSFER AGENT, DIVIDEND DISBURSING AGENT AND PAYING AGENT

     S-36  

LEGAL MATTERS

     S-37  

INCORPORATION OF CERTAIN INFORMATION BY REFERENCE

     S-38  

WHERE YOU CAN FIND MORE INFORMATION

     S-39  

INDEX TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

     S-F-1  

 

 

 

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     PAGE  

PROSPECTUS

  

PROSPECTUS SUMMARY

     1  

THE OFFERING

     5  

FEES AND EXPENSES

     8  

ADDITIONAL INFORMATION

     12  

INCORPORATION OF CERTAIN INFORMATION BY REFERENCE

     12  

RISK FACTORS

     13  

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

     40  

USE OF PROCEEDS

     41  

PRICE RANGE OF COMMON STOCK AND DISTRIBUTIONS

     41  

COMMON SHARE PRICE DATA

     42  

RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND MANDATORILY REDEEMABLE PREFERRED DISTRIBUTIONS

     43  

CONSOLIDATED SELECTED FINANCIAL DATA

     44  

SELECTED QUARTERLY DATA (UNAUDITED)

     46  

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

     47  

SENIOR SECURITIES

     74  

BUSINESS

     76  

PORTFOLIO COMPANIES

     93  

MANAGEMENT

     101  

CONTROL PERSONS AND PRINCIPAL STOCKHOLDERS

     117  

DIVIDEND REINVESTMENT PLAN

     120  

MATERIAL U.S. FEDERAL INCOME TAX CONSIDERATIONS

     122  

REGULATION AS A BUSINESS DEVELOPMENT COMPANY

     132  

DESCRIPTION OF OUR SECURITIES

     135  

CERTAIN PROVISIONS OF MARYLAND LAW AND OF OUR CHARTER AND BYLAWS

     142  

SHARE REPURCHASES

     146  

PLAN OF DISTRIBUTION

     147  

CUSTODIAN, TRANSFER AND DIVIDEND PAYING AGENT AND REGISTRAR

     149  

BROKERAGE ALLOCATION AND OTHER PRACTICES

     150  

PROXY VOTING POLICIES AND PROCEDURES

     151  

LEGAL MATTERS

     152  

EXPERTS

     152  

FINANCIAL STATEMENTS

     F-1  

 

 

 

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ABOUT THIS PROSPECTUS SUPPLEMENT

This document is presented in two parts. The first part is comprised of this prospectus supplement, which describes the specific terms of this common stock at the market offering and certain other matters relating to us. The second part, the accompanying prospectus, contains a description of our common stock and provides more general information, some of which does not apply to this offering, regarding securities that we may offer from time to time. To the extent that the information contained in or incorporated by reference into this prospectus supplement differs or varies from the information contained in or incorporated by reference into the accompanying prospectus, the information in or incorporated by reference into this prospectus supplement will supersede such information.

This prospectus supplement is part of a registration statement on Form N-2 (Registration No. 333-228720) that we have filed with the SEC relating to the securities offered hereby. This prospectus supplement does not contain all of the information that we have included in or incorporated by reference in the registration statement and the accompanying exhibits and schedules thereto in accordance with the rules and regulations of the SEC, and we refer you to such omitted information. It is important for you to read and consider all of the information contained in or incorporated by reference into this prospectus supplement and the accompanying prospectus before making your investment decision. See “Where You Can Find More Information” in this prospectus supplement.

The distribution of this prospectus supplement and the accompanying prospectus and this offering of the securities may be restricted by law in certain jurisdictions. This prospectus supplement and the accompanying prospectus are not an offer to sell or a solicitation of an offer to buy shares of our common stock in any jurisdiction where such offer or any sale would be unlawful. Persons who come into possession of this prospectus supplement and the accompanying prospectus should inform themselves of and observe any such restrictions.

You should rely only on the information contained in or incorporated by reference in this prospectus supplement and the accompanying prospectus in making an investment decision. We have not, and Jefferies has not, authorized any other person to provide you with information that is different or additional. If anyone provides you with different or additional information, you should not rely on it. We do not, and Jefferies and its affiliates do not, take any responsibility for, and can provide no assurances as to, the reliability of any information that others may provide to you. You should not assume that the information in or incorporated by reference in this prospectus supplement or the accompanying prospectus is accurate as of any date other than their respective dates, regardless of the time of delivery of this prospectus supplement, the accompanying prospectus or any sales of our common stock. Our business, financial condition, liquidity, results of operations, funds from operations and prospects may have changed since those dates. We will update these documents to reflect material changes only as required by law.

 

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PROSPECTUS SUPPLEMENT SUMMARY

The following summary highlights some of the information contained in or incorporated by reference into this prospectus supplement and the accompanying prospectus. It is not complete and may not contain all the information that you may want to consider. You should read the entire prospectus supplement and the accompanying prospectus carefully, including the sections entitled “Risk Factors” in this prospectus supplement and the accompanying prospectus, and the documents incorporated by reference herein and therein. Except where the context suggests otherwise, the terms “we,” “us,” “our,” the “Company” and “Gladstone Capital” refer to Gladstone Capital Corporation; “Adviser” refers to Gladstone Management Corporation; and “Administrator” refers to Gladstone Administration, LLC.

Gladstone Capital Corporation

We were incorporated under the Maryland General Corporation Law on May 30, 2001. We operate as an externally managed, closed-end, non-diversified management investment company and have elected to be treated as a BDC under the 1940 Act. In addition, for federal income tax purposes, we have elected to be treated as a RIC under the Code. To continue to qualify as a RIC for federal income tax purposes and obtain favorable RIC tax treatment, we must meet certain requirements, including certain minimum distribution requirements.

Our Investment Objectives and Strategy

We were established for the purpose of investing in debt and equity securities of established private businesses operating in the U.S. Our investment objectives are to: (1) achieve and grow current income by investing in debt securities of established lower middle market businesses that we believe will provide stable earnings and cash flow to pay expenses, make principal and interest payments on our outstanding indebtedness and make distributions to stockholders that grow over time; and (2) provide our stockholders with long-term capital appreciation in the value of our assets by investing in equity securities of established businesses that we believe can grow over time to permit us to sell our equity investments for capital gains. To achieve our investment objectives, our investment strategy is to invest in several categories of debt and equity securities, with each investment generally ranging from $8 million to $30 million, although investment size may vary, depending upon our total assets or available capital at the time of investment. We expect that our investment portfolio over time will consist of approximately 90.0% debt investments and 10.0% equity investments, at cost. As of December 31, 2018, our investment portfolio was made up of approximately 89.6% debt investments and 10.4% equity investments, at cost.

We focus on investing in lower middle market companies (which we generally define as companies with annual earnings before interest, taxes, depreciation and amortization of $3 million to $15 million) in the U.S. that meet certain criteria, including the following: the sustainability of the business’ free cash flow and its ability to grow it over time, adequate assets for loan collateral, experienced management teams with a significant ownership interest in the borrower, reasonable capitalization of the borrower, including an ample equity contribution or cushion based on prevailing enterprise valuation multiples and, to a lesser extent, the potential to realize appreciation and gain liquidity in our equity position, if any. We lend to borrowers that need funds for growth capital or to finance acquisitions or recapitalize or refinance their existing debt facilities. We seek to avoid investing in high-risk, early-stage enterprises. Our targeted portfolio companies are generally considered too small for the larger capital marketplace.

We invest by ourselves or jointly with other funds and/or management of the portfolio company, depending on the opportunity. In July 2012, the SEC granted us an exemptive order (the “Co-Investment Order”) that expanded our ability to co-invest, under certain circumstances, with certain of our affiliates, including Gladstone Investment Corporation, a BDC also managed by the Adviser, and any future business development company or closed-end management investment company that is advised (or sub-advised if it controls the fund) by the Adviser, or any combination of the foregoing, subject to the conditions in the Co-Investment Order. Since 2012, we have opportunistically made several co-investments with Gladstone Investment



 

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Corporation pursuant to the Co-Investment Order. We believe the Co-Investment Order has enhanced our ability to further our investment objectives and strategies. If we are participating in an investment with one or more co-investors, our investment is likely to be smaller than if we were investing alone.

In general, our investments in debt securities have a term of no more than seven years, accrue interest at variable rates (generally based on the one-month London Interbank Offered Rate (“LIBOR”)) and, to a lesser extent, at fixed rates. We seek debt instruments that pay interest monthly or, at a minimum, quarterly, may have a success fee or deferred interest provision and are primarily interest only, with all principal and any accrued but unpaid interest due at maturity. Generally, success fees accrue at a set rate and are contractually due upon a change of control of a portfolio company, typically from an exit or sale. Some debt securities have deferred interest whereby some portion of the interest payment is added to the principal balance so that the interest is paid, together with the principal, at maturity. This form of deferred interest is often called paid-in-kind (“PIK”) interest.

Typically, our equity investments consist of common stock, preferred stock, limited liability company interests, or warrants to purchase the foregoing. Often, these equity investments occur in connection with our original investment, recapitalizing a business, or refinancing existing debt.

During the three months ended December 31, 2018, we invested $49.9 million in six new portfolio companies and extended $9.4 million of investments to existing portfolio companies. In addition, during the three months ended December 31, 2018, we exited two portfolio companies through sales and early payoffs. We received a total of $8.9 million in combined net proceeds and principal repayments from the aforementioned portfolio company exits as well as existing portfolio companies during the three months ended December 31, 2018. This activity resulted in a net increase in our overall portfolio by four portfolio companies to 54 and a net increase of $23.9 million in our portfolio at cost since September 30, 2018. From our initial public offering in August 2001 through December 31, 2018, we have made 513 different loans to, or investments in, 233 companies for a total of approximately $1.8 billion, before giving effect to principal repayments on investments and divestitures. We expect that our investment portfolio will primarily include the following categories of investments in private companies operating in the U.S.:

 

   

First Lien Secured Debt Securities: We seek to invest a portion of our assets in first lien secured debt securities also known as senior loans, senior term loans, lines of credit and senior notes. Using its assets as collateral, the borrower typically uses first lien debt to cover a substantial portion of the funding needs of the business. These debt securities usually take the form of first priority liens on all, or substantially all, of the assets of the business. First lien debt securities may include investments sourced from the syndicated loan market.

 

   

Second Lien Secured Debt Securities: We seek to invest a portion of our assets in second lien secured debt securities, also known as subordinated loans, subordinated notes and mezzanine loans. These second lien secured debt securities rank junior to the borrowers’ first lien secured debt securities and may be secured by second priority liens on all or a portion of the assets of the business. Additionally, we may receive other yield enhancements in addition to or in lieu of success fees such as warrants to buy common and preferred stock or limited liability interests in connection with these second lien secured debt securities. Second lien debt securities may include investments sourced from the syndicated loan market.

 

   

Preferred and Common Equity/Equivalents: In some cases we will purchase equity securities which consist of preferred and common equity or limited liability company interests, or warrants or options to acquire such securities, and are in combination with our debt investment in a business. Additionally, we may receive equity investments derived from restructurings on some of our existing debt investments. In some cases, we will own a significant portion of the equity and in other cases we may have voting control of the businesses in which we invest.

Under the 1940 Act, we may not acquire any asset other than assets of the type listed in Section 55(a) of the 1940 Act, which are referred to as “qualifying assets” and generally include each of the investment types



 

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listed above, unless, at the time the acquisition is made, qualifying assets represent at least 70.0% of our total assets. See “Regulation as a Business Development Company—Qualifying Assets” in the accompanying prospectus for a discussion of the types of qualifying assets in which we are permitted to invest pursuant to Section 55(a) of the 1940 Act.

Because the majority of the loans in our portfolio consist of term debt in private companies that typically cannot or will not expend the resources to have their debt securities rated by a credit rating agency, we expect that most, if not all, of the debt securities we acquire will be unrated. Investors should assume that these loans would be rated below what is today considered “investment grade” quality. Investments rated below investment grade are often referred to as high yield securities or junk bonds and may be considered higher risk, as compared to investment-grade debt instruments. In addition, many of the debt securities we hold typically do not amortize prior to maturity. See “Business—Investment Process” included in the accompanying prospectus for additional information on our investment practices.

Our Investment Adviser and Administrator

We are externally managed by the Adviser, an affiliate of ours, under an investment advisory and management agreement (the “Advisory Agreement”) and the Administrator, another of our affiliates, provides administrative services to us pursuant to a contractual agreement (the “Administration Agreement”). Each of the Adviser and Administrator are privately-held companies that are indirectly owned and controlled by David Gladstone, our chairman and chief executive officer. Mr. Gladstone and Terry Lee Brubaker, our vice chairman and chief operating officer, also serve on the board of directors of the Adviser, the board of managers of the Administrator, and serve as executive officers of the Adviser and the Administrator. The Administrator employs, among others, our chief financial officer and treasurer, chief valuation officer, chief compliance officer, general counsel and secretary (who also serves as the president, general counsel and secretary of the Administrator) and their respective staffs. The Adviser and Administrator have extensive experience in our lines of business and also provide investment advisory and administrative services, respectively, to our affiliates, including: Gladstone Commercial Corporation, a publicly-traded real estate investment trust; Gladstone Investment Corporation, a publicly-traded BDC and RIC; and Gladstone Land Corporation, a publicly-traded real estate investment trust. In the future, the Adviser and Administrator may provide investment advisory and administrative services, respectively, to other funds and companies, both public and private.

The Adviser was organized as a corporation under the laws of the State of Delaware on July 2, 2002, and is an SEC registered investment adviser under the Investment Advisers Act of 1940, as amended. The Administrator was organized as a limited liability company under the laws of the State of Delaware on March 18, 2005. The Adviser and Administrator are headquartered in McLean, Virginia, a suburb of Washington, D.C. The Adviser also has offices in other states.

Recent Developments

Distributions to Stockholders

In January 2019, our Board of Directors declared the following monthly distributions to common stockholders and monthly dividends to preferred stockholders:

 

 

 

RECORD DATE

  

PAYMENT DATE

   DISTRIBUTION PER
COMMON SHARE
     DIVIDEND PER SHARE
OF SERIES 2024 TERM
PREFERRED STOCK
 

January 18, 2019

   January 31, 2019    $ 0.07      $ 0.125  

February 20, 2019

   February 28, 2019      0.07        0.125  

March 20, 2019

   March 29, 2019      0.07        0.125  
     

 

 

    

 

 

 
   Total for the Quarter:    $ 0.21      $ 0.375  
     

 

 

    

 

 

 

 

 



 

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Termination of Cantor Sales Agreement

On February 13, 2019, we terminated our equity distribution agreement with Cantor Fitzgerald & Co., as sales agent, under which we had the ability to issue and sell, from time to time, through Cantor Fitzgerald & Co., up to an aggregate offering price of $50.0 million shares of our common stock in an “at the market” offering.



 

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THE OFFERING

 

Common Stock Offered

Shares with an aggregate offering price of up to $50,000,000.

 

Common Stock Outstanding as of February 13, 2019


28,504,745 shares.

 

Plan of Distribution

“At the market” offering that may be made from time to time through Jefferies, as sales agent, using commercially reasonable efforts consistent with its normal trading and sales practices. See “Plan of Distribution” beginning on page S-35 of this prospectus supplement.

 

  On February 13, 2019, we established the at the market program to which this prospectus supplement relates and entered into an equity distribution agreement with Jefferies.

 

Use of Proceeds

If we sell shares of our common stock with an aggregate offering price of $50.0 million, we anticipate that our net proceeds, after deducting Jefferies’ maximum commissions and estimated offering expenses payable by us, will be approximately $48.8 million. We intend to use the net proceeds from this offering to repay outstanding indebtedness under the Fifth Amended and Restated Credit Agreement, as further amended (the “Credit Facility”), with KeyBank National Association (“KeyBank”), as administrative agent, lead arranger and a lender, to fund new investment opportunities and for other general corporate purposes. See “Use of Proceeds” on page S-13 of this prospectus supplement.

 

Nasdaq Symbol

“GLAD”

 

Distributions on Common Stock

We have paid monthly distributions to the holders of our common stock since October 2003 (and prior to that quarterly distributions since January 2002) and generally intend to continue to do so. The amount of monthly distributions on our common stock is generally determined by our Board of Directors on a quarterly basis and is based on management’s estimate of the fiscal year’s taxable income. See “Price Range of Common Stock and Distributions” beginning on page S-14 of this prospectus supplement. Because our distributions to common stockholders are based on estimates of taxable income that may differ from actual results, future distributions payable to our common stockholders may also include, and past distributions have included, a return of capital. Such return of capital distributions may increase an investor’s tax liability for capital gains upon the sale of our shares by reducing the investor’s tax basis for such shares. See “Risk Factors—Risks Related to an Investment in Our Securities—Distributions to our stockholders have included and may in the future include a return of capital” in the accompanying prospectus. Certain additional amounts may be deemed as distributed to common stockholders for income tax purposes and may also constitute a return of capital.


 

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Tax Matters

See “Material U.S. Federal Income Tax Considerations” beginning on page 116 of the accompanying prospectus for a discussion of material U.S. federal income tax considerations applicable to an investment in shares of our common stock.

 

Risk Factors

Investing in shares of our common stock involves substantial risks. Please carefully read and consider the information described under “Risk Factors” beginning on page S-11 of this prospectus supplement, beginning on page 13 of the accompanying prospectus and in the other documents incorporated by reference into this prospectus supplement and the accompanying prospectus before making an investment decision.


 

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FEES AND EXPENSES

The following table is intended to assist you in understanding the costs and expenses that an investor in this offering will bear directly or indirectly. We caution you that some of the percentages indicated in the table below are estimates and may vary. Except where the context suggests otherwise, whenever this prospectus supplement contains a reference to fees or expenses paid by “us” or “Gladstone Capital,” or that “we” will pay fees or expenses, stockholders will indirectly bear such fees or expenses as investors in Gladstone Capital. The following percentages for annual expenses are annualized and have been calculated based on actual expenses incurred in the quarter ended December 31, 2018 and average net assets attributable to common stockholders for the quarter ended December 31, 2018.

 

 

 

Stockholder Transaction Expenses:

  

Sales load or other commission (as a percentage of offering price) (1)

     2.00%  

Offering expenses (as a percentage of offering price) (2)

     0.32%  

Dividend reinvestment plan expenses (per sales transaction fee) (3)

   Up to $ 25.00 Transaction fee  

Total stockholder transaction expenses (as a percentage of offering price)

     2.32%  

Annual expenses (as a percentage of net assets attributable to common stock) (4):

  

Base management fee (5)

     3.12%  

Loan Servicing fee (6)

     2.16%  

Incentive fees (20% of realized capital gains and 20% of pre-incentive fee net investment income) (7)

     2.32%  

Interest payments on borrowed funds (8)

     3.64%  

Dividend expense on mandatorily redeemable preferred stock (9)

     1.44%  

Other expenses (10)

     1.60%  

Total annual expenses (10)(11)

     14.28%  

 

 

(1)   Represents the maximum commission with respect to the shares of common stock being sold in this offering. Jefferies will be entitled to compensation of up to 2.0% of the gross proceeds of the sale of any shares of our common stock under the Sales Agreement, with the exact amount of such compensation to be mutually agreed upon by us and Jefferies from time to time. There is no guarantee that there will be any sales of our common stock pursuant to this prospectus supplement and the accompanying prospectus.
(2)   The percentage reflects estimated offering expenses of approximately $160,000 and assumes we sell all $50.0 million of common stock under the Sales Agreement.
(3)   The expenses of the dividend reinvestment plan, if any, are included in stock record expenses, a component of “other expenses.” If a participant elects by written notice to the plan agent prior to termination of his or her account to have the plan agent sell part or all of the shares held by the plan agent in the participant’s account and remit the proceeds to the participant, the plan agent is authorized to deduct a transaction fee, plus per share brokerage commissions, from the proceeds. The participants in the dividend reinvestment plan will bear a pro rata share of brokerage commissions incurred with respect to open market purchases, if any. See “Dividend Reinvestment Plan” in the accompanying prospectus for information on the dividend reinvestment plan.
(4)   The percentages presented in this table are gross of credits to any fees.
(5)   In accordance with our Advisory Agreement, our annual base management fee is 1.75% (0.4375% quarterly) of our average gross assets, which are defined as total assets of Gladstone Capital, including investments made with proceeds of borrowings, less any uninvested cash or cash equivalents resulting from borrowings, and adjusted appropriately for any share issuances or repurchases. In accordance with the requirements of the SEC, the table above shows Gladstone Capital’s management fee as a percentage of average net assets attributable to common shareholders. For purposes of the table, the gross base management fee has been converted to 3.12% of the average net assets as of December 31, 2018 by dividing the total dollar amount of the management fee by our average net assets. The base management fee for the quarter ended December 31, 2018 before application of any credits was $1.8 million.

From time to time, the Adviser has non-contractually, unconditionally and irrevocably agreed to reduce the 1.75% base management fee on syndicated loan participations to 0.5%, to the extent that proceeds resulting from borrowings were used to purchase such syndicated loan participations. For the quarter ended December 31, 2018, this credit to the base management fee was $0.1 million.

Under the Advisory Agreement, the Adviser has provided and continues to provide managerial assistance to our portfolio companies. It may also provide services other than managerial assistance to our portfolio companies and receive fees therefor. Such services may include: (i) assistance obtaining, sourcing or structuring credit facilities, long term loans or additional equity from unaffiliated third parties; (ii) negotiating important contractual financial relationships; (iii) consulting services regarding restructuring of the portfolio company and financial modeling as it relates to raising additional debt and equity capital from unaffiliated third parties; and (iv) primary role in interviewing, vetting and negotiating employment contracts with candidates in connection with adding and retaining key portfolio company management team members. Generally, at the end of each quarter, 100.0% of these fees are non-contractually, irrevocably and unconditionally credited against the base management fee that we would otherwise be required to

 

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pay to the Adviser; however, a small percentage of certain of such fees, primarily for valuation of the portfolio company, is retained by the Adviser in the form of reimbursement at cost for certain tasks completed by personnel of the Adviser. For the quarter ended December 31, 2018, the base management fee credit was $0.6 million. See Management—Certain Transactions—Investment Advisory and Management Agreement” in the accompanying prospectus.

 

(6)    The Adviser services, administers and collects on the loans held by Gladstone Business Loan, LLC (“Business Loan”), in return for which the Adviser receives a 1.5% annual loan servicing fee payable monthly by Business Loan based on the monthly aggregate balance of loans held by Business Loan in accordance with the Credit Facility. For the three months ended December 31, 2018, the total loan servicing fee was $1.3 million. The entire loan servicing fee paid to the Adviser by Business Loan is generally non-contractually, unconditionally and irrevocably credited against the base management fee otherwise payable to the Adviser since Business Loan is a consolidated subsidiary of the Company, and overall, the base management fee (including any loan servicing fee) cannot exceed 1.75% of total assets (as reduced by cash and cash equivalents pledged to creditors) during any given fiscal year pursuant to the Advisory Agreement. See “Management—Certain Transactions—Investment Advisory and Management Agreement” in the accompanying prospectus and footnote 7 below.
(7)    In accordance with our Advisory Agreement, the incentive fee consists of two parts: an income-based fee and a capital gains-based fee. The income-based fee is payable quarterly in arrears, and equals 20.0% of the excess, if any, of our pre-incentive fee net investment income that exceeds a 1.75% quarterly (7.0% annualized) hurdle rate of our net assets, subject to a “catch-up” provision measured as of the end of each calendar quarter. The “catch-up” provision requires us to pay 100.0% of our pre-incentive fee net investment income with respect to that portion of such income, if any, that exceeds the hurdle rate but is less than 125.0% of the quarterly hurdle rate (or 2.1875%) in any calendar quarter (8.75% annualized). The catch-up provision is meant to provide the Adviser with 20.0% of our pre-incentive fee net investment income as if a hurdle rate did not apply when our pre-incentive fee net investment income exceeds 125.0% of the quarterly hurdle rate in any calendar quarter (8.75% annualized). The income-based incentive fee is computed and paid on income that may include interest that is accrued but not yet received in cash. Our pre-incentive fee net investment income used to calculate this part of the income-based incentive fee is also included in the amount of our gross assets used to calculate the 1.75% base management fee (see footnote 5 above). The capital gains-based incentive fee equals 20.0% of our net realized capital gains since our inception, if any, computed net of all realized capital losses and unrealized capital depreciation since our inception, less any prior payments, and is payable at the end of each fiscal year. We have not recorded any capital gains-based incentive fee from our inception through December 31, 2018. The income-based incentive fee for the quarter ended December 31, 2018 before application of any credits was $1.4 million.

From time to time, the Adviser has non-contractually, irrevocably and unconditionally agreed to waive a portion of the incentive fees, to the extent net investment income did not cover 100.0% of the distributions to common stockholders during the period. For the quarter ended December 31, 2018, the incentive fee credit was $0.5 million. There can be no guarantee that the Adviser will continue to credit any portion of the fees under the Advisory Agreement in the future

Examples of how the incentive fee would be calculated are as follows:

 

   

Assuming pre-incentive fee net investment income of 0.55%, there would be no income-based incentive fee because such income would not exceed the hurdle rate of 1.75%.

 

   

Assuming pre-incentive fee net investment income of 2.00%, the income-based incentive fee would be as follows:

= 100.0% × (2.00% – 1.75%)

= 0.25%

 

   

Assuming pre-incentive fee net investment income of 2.30%, the income-based incentive fee would be as follows:

= (100.0% × (“catch-up”: 2.1875% – 1.75%)) + (20.0% × (2.30% – 2.1875%))

= (100.0% × 0.4375%) + (20.0% × 0.1125%)

= 0.4375% + 0.0225%

= 0.46%

 

   

Assuming net realized capital gains of 6% and realized capital losses and unrealized capital depreciation of 1%, the capital gains-based incentive fee would be as follows:

= 20.0% × (6.0% – 1.0%)

= 20.0% × 5.0%

= 1.0%

For a more detailed discussion of the calculation of the two-part incentive fee, see “Management—Certain Transactions—Investment Advisory and Management Agreement” in the accompanying prospectus.

 

(8)    Includes amortization of deferred financing costs. As of December 31, 2018, we had $102.2 million in borrowings outstanding under our Credit Facility.
(9)    Includes amortization of deferred financing costs related to our Series 2024 Term Preferred Stock, as well as amounts paid to preferred stockholders during the three months ended December 31, 2018. See “Description of Our Securities—Preferred Stock—Series 2024 Term Preferred Stock” in the accompanying prospectus for additional information.
(10)    Includes our overhead expenses, including payments under the Administration Agreement based on our projected allocable portion of overhead and other expenses estimated to be incurred by the Administrator in performing its obligations under the Administration Agreement for the current fiscal year. See “Management—Certain Transactions—Administrator Compensation” in the accompanying prospectus.

 

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(11)    Total annualized gross expenses, based on actual amounts incurred for the quarter ended December 31, 2018, would be $33.4 million. After all non-contractual, unconditional and irrevocable credits described in footnote 5, footnote 6 and footnote 7 above are applied to the base management fee, the loan servicing fee, and the incentive fee, total annualized expenses after fee credits, based on actual amounts incurred for the quarter ended December 31, 2018, would be $23.7 million or 10.12% as a percentage of net assets.

Examples

The following examples demonstrate the projected dollar amount of total cumulative expenses that would be incurred over various periods with respect to a hypothetical investment in our common stock. In calculating the following expense amounts, we have assumed that our gross annual operating expenses would remain at the levels set forth in the table above and are gross of any credits to any fees. The examples below and the expenses in the table above should not be considered a representation of our future expenses, and actual expenses (including the cost of debt, incentive fees, if any, and other expenses) may be greater or less than those shown. While the example assumes, as required by the SEC, a 5.00% annual return, our performance will vary and may result in a return greater or less than 5.00%.

 

 

 

     1 YEAR      3 YEARS      5 YEARS      10 YEARS  

You would pay the following expenses on a $1,000 investment:

           

assuming a 5% annual return consisting entirely of ordinary income (1)(2)

   $ 135      $ 373      $ 571      $ 936  

assuming a 5% annual return consisting entirely of capital gains (2)(3)

   $ 144      $ 393      $ 597      $ 961  

 

 

(1)    For purposes of this example, we have assumed that the entire amount of the assumed 5.0% annual return would constitute ordinary income as we have not historically realized positive capital gains (computed net of all realized capital losses) on our investments. Because the assumed 5.0% annual return is significantly below the hurdle rate of 7.0% (annualized) that we must achieve under the investment advisory and management agreement to trigger the payment of an income-based incentive fee, we have assumed, for purposes of this example, that no income-based incentive fee would be payable if we realized a 5.0% annual return on our investments.
(2)    While the example assumes reinvestment of all dividends and distributions at NAV, participants in our dividend reinvestment plan will receive a number of shares of our common stock, determined by dividing the total dollar amount of the distribution payable to a participant by the average cost of shares of our common stock purchased in the open market in the period beginning on or before the payment date of the distribution and ending when the plan agent has expended for such purchases all of the cash that would have been otherwise payable to participants. See “Dividend Reinvestment Plan” in the accompanying prospectus for additional information regarding our dividend reinvestment plan.
(3)    For purposes of this example, we have assumed that the entire amount of the assumed 5.0% annual return would constitute capital gains and that no accumulated capital losses or unrealized depreciation would have to be overcome first before a capital gains based incentive fee is payable.

 

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RISK FACTORS

You should carefully consider the risks described below and all other information contained in or incorporated by reference into this prospectus supplement and the accompanying prospectus before making a decision to purchase shares of our common stock. The risks and uncertainties described below, in the “Risk Factors” section of the accompanying prospectus and in the other documents incorporated by reference into this prospectus supplement and the accompanying prospectus are not the only risks we face. Additional risks and uncertainties not presently known to us, or not presently deemed material by us, may also impair our operations and performance.

If any of the following risks actually occur, our business, financial condition or results of operations could be materially adversely affected. If that happens, the trading price or NAV of our common stock could decline, and you may lose all or part of your investment. We believe the risk factors described below are the principal risk factors associated with an investment in our common stock as well as those factors generally associated with an investment company with investment objectives, investment policies, capital structure or trading markets similar to ours.

Our management will have broad discretion in the use of the net proceeds from this offering and may allocate the net proceeds from this offering in ways that you and other stockholders may not approve.

Our management will have broad discretion in the use of the net proceeds, including for any of the purposes described in the section entitled “Use of Proceeds,” and you will not have the opportunity as part of your investment decision to assess whether the net proceeds are being used in ways with which you may not agree or may not otherwise be considered appropriate. Because of the number and variability of factors that will determine our use of the net proceeds from this offering, their ultimate use may vary substantially from their currently intended use. The failure of our management to use these funds effectively could harm our business. Pending their use, we may invest the net proceeds from this offering in short-term, investment-grade, interest-bearing securities. These investments may not yield a favorable return to our stockholders.

We may be unable to invest a significant portion of the net proceeds of this offering on acceptable terms.

Delays in investing the net proceeds raised in an offering or from exiting an investment, prepayment of an investment or other capital source may cause our performance to be worse than that of other fully invested BDCs or other lenders or investors pursuing comparable investment strategies. We cannot assure you that we will be able to identify any investments that meet our investment objective or that any investment that we make will produce a positive return. We may be unable to invest the net proceeds from any offering, from exiting an investment, prepayment of an investment or other capital source on acceptable terms within the time period that we anticipate or at all, which could harm our financial condition and operating results.

 

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

All statements contained in or incorporated by reference into this prospectus supplement or the accompanying prospectus, other than historical facts, may constitute “forward-looking statements.” These statements may relate to, among other things, future events or our future operating results, our business prospects and the prospects of our portfolio companies, actual and potential conflicts of interest with our Adviser and its affiliates, the use of borrowed money to finance our investments, the adequacy of our financing sources and working capital, and our ability to co-invest, among other factors. In some cases, you can identify forward-looking statements by terminology such as “estimate,” “may,” “might,” “believe,” “will,” “provided,” “anticipate,” “future,” “could,” “growth,” “plan,” “project,” “intend,” “expect,” “should,” “would,” “if,” “seek,” “possible,” “potential,” “likely” or the negative or other variations of such terms or comparable terminology. These forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by such forward-looking statements. Such factors include:

 

   

the recurrence of adverse changes in the economy and the capital markets;

 

   

risks associated with negotiation and consummation of pending and future transactions;

 

   

the loss of one or more of our executive officers, in particular David Gladstone, Robert L. Marcotte or Terry Lee Brubaker;

 

   

changes in our investment objectives and strategy;

 

   

availability, terms (including the possibility of interest rate volatility) and deployment of capital;

 

   

changes in our industry, interest rates, exchange rates, regulation or the general economy;

 

   

our business prospects and the prospects of our portfolio companies;

 

   

the degree and nature of our competition;

 

   

changes in governmental regulations, tax rates and similar matters;

 

   

our ability to exit an investment in a timely manner;

 

   

our ability to maintain our qualification as a RIC and as a BDC; and

 

   

those factors described in the “Risk Factors” section of this prospectus supplement and the accompanying prospectus and in the other documents incorporated by reference into this prospectus supplement and the accompanying prospectus.

We caution readers not to place undue reliance on any such forward-looking statement, which speak only as of the date made. Actual results could differ materially from those anticipated in our forward-looking statements and future results could differ materially from our historical performance. Except as required by law, we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, after the date of this prospectus supplement or the accompanying prospectus. Although we undertake no obligation to revise or update any forward-looking statements, whether as a result of new information, future events, or otherwise, you are advised to consult any additional disclosures that we may make directly to you or through reports we have filed, or in the future may file with the SEC, including subsequent annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K. The forward-looking statements contained or incorporated by reference in this prospectus supplement and the accompanying prospectus are excluded from the safe harbor protection provided by the Private Securities Litigation Reform Act of 1995 and Section 27A of the Securities Act.

 

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USE OF PROCEEDS

Sales of our common stock, if any, under this prospectus supplement and the accompanying prospectus may by transactions that are deemed to be part of an “at the market offering” as defined in Rule 415(a)(4) under the Securities Act, including sales made directly on or through Nasdaq, or any other existing trading market for our common stock, at market prices prevailing at the time of sale, at prices related to prevailing market prices or at other negotiated prices. There is no guarantee that there will be any sales of our common stock pursuant to this prospectus supplement and the accompanying prospectus. Actual sales, if any, of our common stock under this prospectus supplement and the accompanying prospectus may be less than as set forth in this paragraph depending on, among other things, the market price of our common stock at the time of any such sale. As a result, the actual net proceeds we receive may be more or less than the amount of net proceeds estimated in this prospectus supplement. However, assuming the sale of the $50.0 million of common stock offered under this prospectus supplement and the accompanying prospectus, we anticipate that our net proceeds from this offering will be approximately $48.8 million, after deducting the maximum sales commission payable to Jefferies and our estimated offering expenses of $160,000.

We intend to use the net proceeds from this offering to repay a portion of the amount outstanding under the Credit Facility, to fund new investment opportunities and for other general corporate purposes. As of the date of this prospectus supplement, we had $82.6 million outstanding under the Credit Facility, which matures on April 15, 2022 and bears interest at a rate of 30-day LIBOR plus 2.85% per annum. We intend to re-borrow under our Credit Facility to make investments in portfolio companies in accordance with our investment objectives depending on the availability of appropriate investment opportunities consistent with our investment objectives and market conditions.

Pending such uses, we may invest a portion of the net proceeds of this offering in short-term investments, such as cash and cash equivalents, which we expect will earn yields substantially lower than the interest income that we anticipate receiving in respect of investments in accordance with our investment objectives.

 

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PRICE RANGE OF COMMON STOCK AND DISTRIBUTIONS

We currently intend to distribute in the form of cash dividends, for each taxable year, a minimum of 90.0% of our annual ordinary income plus the excess of net short-term capital gains over net long-term capital losses, if any, to our stockholders in the form of monthly dividends. We intend to retain some or all of our realized capital gains first to the extent we have available capital loss carryforwards and second, through treating the retained amount as a deemed distribution for tax purposes. We report the estimated tax characterization of each dividend when declared while the actual tax characterization of dividends for each calendar year are reported to each stockholder on IRS Form 1099-DIV. There is no assurance that we will achieve investment results or maintain a tax status that will permit any specified level of cash distributions or year-to-year increases in cash distributions. At the option of a holder of record of common stock, all cash distributions paid with respect to our common stock can be reinvested automatically under our dividend reinvestment plan in additional whole and fractional shares of our common stock. A stockholder whose shares are held in the name of a broker or other nominee should contact the broker or nominee regarding participation in a dividend reinvestment plan. See “Risk Factors—Risks Related to Our Regulation and Structure—We will be subject to corporate-level tax if we are unable to satisfy Code requirements for RIC qualification;” “Dividend Reinvestment Plan;” and “Material U.S. Federal Income Tax Considerations” in the accompanying prospectus.

Our shares of common stock and mandatorily redeemable preferred stock are traded on the Nasdaq under the trading symbols “GLAD” and “GLADN,” respectively, and our 6.125% Notes due 2023 (the “2023 Notes”) trade on Nasdaq under the trading symbol “GLADD.” There can be no assurance that any premium to NAV will be attained or maintained. As of January 14, 2019, there were 38 stockholders of record, meaning individuals or entities that we carry in our records as the registered holder (although not necessarily the beneficial owner) of our common stock.

The following table sets forth the range of high and low intraday sale prices of our common stock as reported on the Nasdaq and the distributions declared by us for the last two completed fiscal years and the current fiscal year through February 12, 2019.

 

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COMMON SHARE PRICE DATA

 

 

 

           SALES PRICE      DECLARED
COMMON
DISTRIBUTIONS
     PREMIUM
(DISCOUNT) OF
HIGH TO
NAV (2)
    PREMIUM
(DISCOUNT) OF
LOW TO
NAV (2)
 
     NAV(1)     HIGH      LOW  

Fiscal Year ended September 30, 2017

               

First Quarter

   $ 8.36     $ 9.62      $ 7.33      $ 0.21        15.1     (12.3 )% 

Second Quarter

     8.33       9.92        8.67        0.21        19.1       4.1  

Third Quarter

     8.38       10.12        9.15        0.21        20.8       9.2  

Fourth Quarter

     8.40       9.95        8.98        0.21        18.5       6.9  

Fiscal Year ended September 30, 2018

               

First Quarter

     8.48       9.92        8.95        0.21        17.0       5.5  

Second Quarter

     8.62       9.50        7.80        0.21        10.2       (9.5

Third Quarter

     8.86       9.29        8.57        0.21        4.9       (3.3

Fourth Quarter

     8.32       9.87        9.02        0.21        18.6       8.4  

Fiscal Year ending September 30, 2019

               

First Quarter

     7.98       9.65        6.41        0.21        20.9       (19.7

Second Quarter (through February 12, 2019)

              8.97        7.21        0.21                     

 

 

(1)    NAV per share is determined as of the last day in the relevant quarter and therefore may not reflect the NAV per share on the date of the high and low intraday sale prices. The NAV per share shown are based on outstanding shares at the end of each period.
(2)    The (discounts) premiums to NAV per share set forth in these columns represent the high or low, as applicable, intraday sale price per share for the relevant quarter minus the NAV per share as of the end of such quarter, and therefore may not reflect the (discount) premium to NAV per share on the date of the high and low intraday sale prices.
*   Not yet available, as the NAV per share as of the end of this quarter has not yet been determined.

The following are our outstanding classes of securities as of December 31, 2018.

 

 

 

(1)TITLE OF CLASS

   (2)AMOUNT
AUTHORIZED
     (3)AMOUNT HELD
BY US OR FOR
OUR
ACCOUNT
     (4)AMOUNT
OUTSTANDING
EXCLUSIVE OF
AMOUNT SHOWN
UNDER COLUMN(3)
 

Common Stock

     44,560,000 shares               28,504,745 shares  

6.00% Series 2024 Term Preferred Stock

     5,440,000 shares               2,070,000 shares  

6.125% Notes due 2023

   $ 57,500,000         $ 57,500,000  

 

 

 

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CONSOLIDATED SELECTED FINANCIAL DATA

The following consolidated selected financial data for the fiscal years ended September 30, 2018, 2017, 2016, 2015 and 2014 are derived from our audited consolidated financial statements. The consolidated selected financial data for the three months ended December 31, 2018 and 2017 are derived from our unaudited consolidated financial statements included in this prospectus supplement. The other data included in the second table below is also unaudited. The data should be read in conjunction with our Consolidated Financial Statements and notes thereto and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere in this prospectus supplement and the accompanying prospectus.

 

 

 

 

    THREE MONTHS ENDED
DECEMBER 31,
    YEAR ENDED SEPTEMBER 30,  
(dollar amounts in thousands,
except per share data)
  2018     2017     2018     2017     2016     2015     2014  

Statement of Operations Data:

             

Total Investment Income

  $ 11,909     $ 10,859     $ 45,581     $ 39,233     $ 39,112     $ 38,058     $ 36,585  

Total Expenses, Net of Credits from Adviser

    5,923       5,282       22,493       17,800       19,625       20,358       18,217  

Net Investment Income

    5,986       5,577       23,088       21,433       19,487       17,700       18,368  

Net Realized and Unrealized (Loss) Gain on Investments, Borrowings and Other

    (9,694     1,583       (4,440     (4,253     (8,120     (9,216     (7,135

Net Increase (Decrease) in Net Assets Resulting from Operations

    (3,708     7,160       18,648       17,180       11,367       8,484       11,233  

Per Share Data:

             

Net Investment Income per Common Share—Basic and Diluted (A)

  $ 0.21     $ 0.21     $ 0.85     $ 0.84     $ 0.84     $ 0.84     $ 0.87  

Net Increase (Decrease) in Net Assets Resulting from Operations per Common Share—Basic and Diluted (A)

    (0.13     0.27       0.69       0.67       0.49       0.40       0.53  

Distributions Declared Per Common Share (B)

    0.21       0.21       0.84       0.84       0.84       0.84       0.84  

Statement of Assets and Liabilities Data:

             

Total Assets

  $ 438,424     $ 409,722     $ 399,508     $ 365,860     $ 337,178     $ 382,482     $ 301,429  

Net Assets

    227,426       225,717       237,092       219,650       201,207       191,444       199,660  

Net Asset Value Per Common Share

    7.98       8.48       8.32       8.40       8.62       9.06       9.81  

Common Shares Outstanding

    28,504,745       26,632,182       28,501,980       26,160,684       23,344,422       21,131,622       21,000,160  

Weighted Common Shares Outstanding—Basic and Diluted

    28,504,715       26,522,788       27,104,077       25,495,117       23,200,642       21,066,844       21,000,160  

Senior Securities Data:

             

Borrowings under Credit Facility, at cost (C)

  $ 102,200     $ 130,500     $ 110,000     $ 93,000     $ 71,300     $ 127,300     $ 36,700  

Mandatorily redeemable preferred stock (C)(D)

    51,750       51,750       51,750       51,750       61,000       61,000       61,000  

Notes payable, at cost

    57,500                                      

 

 

(A)    Per share data is based on the weighted average common stock outstanding for both basic and diluted.

 

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(B)    The tax character of distributions is determined on an annual basis in accordance with accounting principles generally accepted in the U.S. (“GAAP”). For further information on the estimated character of our distributions to common stockholders, please refer to Note 9—Distributions to Common Stockholders included elsewhere in the accompanying prospectus.
(C)    See “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for more information regarding our level of indebtedness.
(D)    Represents the aggregate liquidation preference of our mandatorily redeemable preferred stock.

 

 

 

     THREE MONTHS ENDED
DECEMBER 31,
    YEAR ENDED SEPTEMBER 30,  
         2018             2017         2018     2017     2016     2015     2014  

Other Unaudited Data:

              

Number of Portfolio Companies at Period End

     54       51       50       47       45       48       45  

Average Size of Portfolio Company Investment at Cost

   $ 8,359     $ 8,826     $ 8,549     $ 8,754     $ 8,484     $ 8,547     $ 7,762  

Principal Amount of New Investments

     49,865       56,336       67,936       99,241       79,401       102,299       81,731  

Proceeds from Loan Repayments and Investments Sold and Exits (E)

     8,855       19,843       67,944       83,444       121,144       40,273       72,560  

Weighted Average Yield on Investments, excluding loans on non-accrual status (F)

     13.3     11.96     11.08     11.57     11.08     10.93     11.47

Weighted Average Yield on Investments, including loans on non-accrual status (G)

     13.3       10.94       10.72       10.61       10.27       9.84       9.99  

Total Return(H)

     (21.28     (0.91     9.53       27.90       11.68       2.40       9.62  

 

 

(E)    Includes non-cash reductions in cost basis.
(F)    Weighted average yield on investments, excluding loans on non-accrual status, equals interest income on investments divided by the weighted average interest-bearing principal balance throughout the fiscal year.
(G)    Weighted average yield on investments, including loans on non-accrual status, equals interest income on investments divided by the weighted average total principal balance throughout the fiscal year.
(H)    Total return equals the change in the ending market value of our common stock from the beginning of the fiscal year, taking into account dividends reinvested in accordance with the terms of the dividend reinvestment plan. Total return does not take into account distributions that may be characterized as a return of capital. For further information on the estimated character of our distributions to common stockholders, refer to Note 9—Distributions to Common Stockholders elsewhere in the accompanying prospectus.

 

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SELECTED QUARTERLY FINANCIAL DATA

(UNAUDITED)

The following tables set forth certain quarterly financial information for each of the eight quarters in the two years ended September 30, 2018 and the first quarter of the fiscal year ending September 30, 2019. The information was derived from our unaudited consolidated financial statements. Results for any quarter are not necessarily indicative of results for the full fiscal year or for any future quarter.

 

 

 

     QUARTER ENDED  
(dollar amounts in thousands, except per share data)    DECEMBER 31,
2018
 

Total investment income

   $ 11,909  

Net investment income

     5,986  

Net decrease in net assets resulting from operations

     (3,708

Net decrease in net assets resulting from operations per weighted average common share (basic and diluted)

   $ (0.13

 

 

 

 

 

     QUARTER ENDED  
     DECEMBER 31,
2017
     MARCH 31,
2018
     JUNE 30,
2018
     SEPTEMBER 30,
2018
 

Total investment income

   $ 10,859      $ 11,086      $ 12,379      $ 11,257  

Net investment income

     5,577        5,613        5,996        5,902  

Net increase (decrease) in net assets resulting from operations

     7,160        9,304        12,093        (9,909

Net increase (decrease) in net assets resulting from operations per weighted average common share (basic and diluted)

   $ 0.27      $ 0.35      $ 0.45      $ (0.35

 

 

 

 

 

     QUARTER ENDED  
     DECEMBER 31,
2016
     MARCH 31,
2017
     JUNE 30,
2017
     SEPTEMBER 30,
2017
 

Total investment income

   $ 9,974      $ 8,793      $ 9,632      $ 10,834  

Net investment income

     5,207        5,359        5,379        5,488  

Net increase in net assets resulting from operations

     916        4,656        6,163        5,445  

Net increase in net assets resulting from operations per weighted average common share (basic and diluted)

   $ 0.04      $ 0.18      $ 0.24      $ 0.21  

 

 

 

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

The following analysis of our financial condition and results of operations should be read in conjunction with our Consolidated Financial Statements and the notes thereto contained elsewhere in this prospectus supplement and the accompanying prospectus. Historical financial condition and results of operations and percentage relationships among any amounts in the financial statements are not necessarily indicative of financial condition or results of operations for any future periods. Except per share amounts or unless otherwise indicated, dollar amounts in the tables included herein are in thousands.

OVERVIEW

General

We were incorporated under the Maryland General Corporation Law on May 30, 2001. We operate as an externally managed, closed-end, non-diversified management investment company, and have elected to be treated as a BDC under the 1940 Act. In addition, for federal income tax purposes we have elected to be treated as a RIC under the Code. To continue to qualify as a RIC for federal income tax purposes and obtain favorable RIC tax treatment, we must meet certain requirements, including certain minimum distribution requirements.

We were established for the purpose of investing in debt and equity securities of established private businesses operating in the U.S. Our investment objectives are to: (1) achieve and grow current income by investing in debt securities of established lower middle market businesses that we believe will provide stable earnings and cash flow to pay expenses, make principal and interest payments on our outstanding indebtedness and make distributions to stockholders that grow over time; and (2) provide our stockholders with long-term capital appreciation in the value of our assets by investing in equity securities of established businesses that we believe can grow over time to permit us to sell our equity investments for capital gains. To achieve our investment objectives, our investment strategy is to invest in several categories of debt and equity securities, with each investment generally ranging from $8 million to $30 million, although investment size may vary, depending upon our total assets or available capital at the time of investment. We expect that our investment portfolio over time will consist of approximately 90.0% debt investments and 10.0% equity investments, at cost. As of December 31, 2018, our investment portfolio was made up of approximately 89.6% debt investments and 10.4% equity investments, at cost.

We focus on investing in lower middle market companies (which we generally define as companies with annual earnings before interest, taxes, depreciation and amortization of $3 million to $15 million) in the U.S. that meet certain criteria, including the following: the sustainability of the business’ free cash flow and its ability to grow it over time, adequate assets for loan collateral, experienced management teams with a significant ownership interest in the borrower, reasonable capitalization of the borrower, including an ample equity contribution or cushion based on prevailing enterprise valuation multiples and, to a lesser extent, the potential to realize appreciation and gain liquidity in our equity position, if any. We lend to borrowers that need funds for growth capital or to finance acquisitions or recapitalize or refinance their existing debt facilities. We seek to avoid investing in high-risk, early-stage enterprises. Our targeted portfolio companies are generally considered too small for the larger capital marketplace.

We invest by ourselves or jointly with other funds and/or management of the portfolio company, depending on the opportunity. In July 2012, the SEC granted us the Co-investment Order that expanded our ability to co-invest, under certain circumstances, with certain of our affiliates, including Gladstone Investment Corporation, a BDC also managed by the Adviser, and any future business development company or closed-end management investment company that is advised (or sub-advised if it controls the fund) by the Adviser, or any combination of the foregoing, subject to the conditions in the Co-Investment Order. Since 2012, we have opportunistically made several co-investments with Gladstone Investment Corporation pursuant to the Co-Investment Order. We believe the Co-Investment Order has enhanced our ability to further our investment objectives and strategies. If we are participating in an investment with one or more co-investors, our investment is likely to be smaller than if we were investing alone.

We are externally managed by the Adviser, an investment adviser registered with the SEC and an affiliate of ours, pursuant to the Advisory Agreement. The Adviser manages our investment activities. We have also entered into the

 

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Administration Agreement with the Administrator, an affiliate of ours and the Adviser, whereby we pay separately for administrative services.

Additionally, Gladstone Securities, LLC, a privately-held broker-dealer registered with the Financial Industry Regulatory Authority and insured by the Securities Investor Protection Corporation, which is 100% indirectly owned and controlled by Mr. Gladstone, our chairman and chief executive officer, has provided other services, such as investment banking and due diligence services, to certain of our portfolio companies, for which Gladstone Securities receives a fee.

Business

Portfolio and Investment Activity

In general, our investments in debt securities have a term of no more than seven years, accrue interest at variable rates (generally based on the one-month LIBOR) and, to a lesser extent, at fixed rates. We seek debt instruments that pay interest monthly or, at a minimum, quarterly, may have a success fee or deferred interest provision and are primarily interest only, with all principal and any accrued but unpaid interest due at maturity. Generally, success fees accrue at a set rate and are contractually due upon a change of control of a portfolio company, typically from an exit or sale. Some debt securities have deferred interest whereby some portion of the interest payment is added to the principal balance so that the interest is paid, together with the principal, at maturity. This form of deferred interest is often called PIK interest.

Typically, our equity investments consist of common stock, preferred stock, limited liability company interests, or warrants to purchase the foregoing. Often, these equity investments occur in connection with our original investment, recapitalizing a business, or refinancing existing debt.

During the three months ended December 31, 2018, we invested $49.9 million in six new portfolio companies and extended $9.4 million of investments to existing portfolio companies. In addition, during the three months ended December 31, 2018, we exited two portfolio companies through sales and early payoffs. We received a total of $8.9 million in combined net proceeds and principal repayments from the aforementioned portfolio company exits as well as existing portfolio companies during the three months ended December 31, 2018. This activity resulted in a net increase in our overall portfolio by four portfolio companies to 54 and a net increase of $23.9 million in our portfolio at cost since September 30, 2018. From our initial public offering in August 2001 through December 31, 2018, we have made 513 different loans to, or investments in, 233 companies for a total of approximately $1.8 billion, before giving effect to principal repayments on investments and divestitures.

During the three months ended December 31, 2018, the following significant transactions occurred:

 

   

In October 2018, TWS Acquisition Corporation paid off at par for net proceeds of $2.0 million.

 

   

In October, November and December 2018, we invested a total of $3.7 million in 8th Avenue Food & Provisions, Inc. through secured second lien debt.

 

   

In November 2018, we invested $16.7 million in Antenna Research Associates, Inc. through a combination of secured first lien debt and equity.

 

   

In November 2018, we invested $2.0 million in GOBP Holdings, Inc. through secured second lien debt.

 

   

In November 2018, Red Ventures, LLC paid off at par for net proceeds of $3.1 million.

 

   

In December 2018, we invested $20.0 million in R2i Holdings, LLC through secured first lien debt.

 

   

In December 2018, we invested $6.5 million in DKI Ventures, LLC through secured first lien debt.

 

   

In December 2018, our investment in Francis Drilling Fluids, Ltd (“FDF”) was restructured upon emergence from Chapter 11 bankruptcy protection. As part of the restructure, our existing $27.0 million debt investment in FDF was converted to $1.35 million of preferred equity and common equity units in a new entity, FES Resources Holdings, LLC (“FES Resources”). We also invested an additional $5.0 million in FES Resources through a combination of preferred equity and common equity units. In conjunction with the restructure, we recorded a net realized loss of $26.9 million associated with our investment in FDF.

 

   

In December 2018, we invested $1.0 million in CPM Holdings, Inc. through secured second lien debt.

 

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Capital Raising

We have been able to meet our capital needs through extensions of and increases to the Credit Facility and by accessing the capital markets in the form of public equity offerings of common and preferred stock and public debt offerings. We have successfully extended the Credit Facility’s revolving period multiple times, most recently to January 2021, and currently have a total commitment amount of $190.0 million. In September 2017, we issued 2.1 million shares of our 6.00% Series 2024 Term Preferred Stock, par value $0.001 per share (“Series 2024 Term Preferred Stock”), at a public offering price of $25 per share, for gross proceeds of $51.8 million. Additionally, during the three months ended December 31, 2018, we sold 2,765 shares of our common stock under our at the market (“ATM”) program at a weighted-average price of $9.60 per share and raised $28 thousand of gross proceeds. During the year ended September 30, 2018, we sold 2,341,296 shares of our common stock under our ATM program at a weighted-average price of $9.39 per share and raised $22.0 million of gross proceeds. Most recently, in November 2018, we completed a public debt offering of $57.5 million aggregate principal amount of the 2023 Notes. Refer to “Liquidity and Capital Resources—Revolving Credit Facility” for further discussion of the Credit Facility, “Liquidity and Capital Resources—Notes Payable” for further discussion of our public debt, and “Liquidity and Capital Resources—Equity” for further discussion of our common stock and mandatorily redeemable preferred stock.

Although we were able to access the capital markets historically and in recent years, we believe uncertain market conditions could affect the trading price of our capital stock and thus may inhibit our ability to finance new investments through the issuance of equity. When our common stock trades below NAV per common share, as it has often done in previous years, our ability to issue equity is constrained by provisions of the 1940 Act, which generally prohibits the issuance and sale of our common stock below NAV per common share without first obtaining approval from our stockholders and our independent directors, other than through sales to our then-existing stockholders pursuant to a rights offering.

On December 31, 2018, the closing market price of our common stock was $7.30, an 8.5% discount to our December 31, 2018 NAV per share of $7.98.

Regulatory Compliance

Our ability to seek external debt financing, to the extent that it is available under current market conditions, is further subject to the asset coverage limitations of the 1940 Act, which require us to have an asset coverage (as defined in Sections 18 and 61 of the 1940 Act) of at least 200% (currently) or 150% (effective April 10, 2019) on our “senior securities representing indebtedness” and our “senior securities that are stock.”

On April 10, 2018, our Board of Directors, including a “required majority” (as such term is defined in Section 57(o) of the 1940 Act) thereof, approved the modified asset coverage requirements set forth in Section 61(a)(2) of the 1940 Act, as amended by the Small Business Credit Availability Act. As a result, the Company’s asset coverage requirements for senior securities will be changed from 200% to 150%, effective one year after the date of the Board of Directors’ approval; or April 10, 2019. Under the current 200% asset coverage standard, we may borrow debt or issue senior securities in the amount of $1.00 for every $1.00 of equity in the Company. Starting from April 10, 2019, under the 150% asset coverage standard, we may borrow debt or issue senior securities in the amount of $2.00 for every $1.00 of equity in the Company. Notwithstanding the modified asset coverage requirement under the 1940 Act described above, we are separately subject to a minimum asset coverage requirement of 200% with respect to certain provisions of our Credit Facility and our Series 2024 Term Preferred Stock.

As of December 31, 2018, our asset coverage on our “senior securities representing indebtedness” was 270.8% and our asset coverage on our “senior securities that are stock” was 204.8%.

Recent Developments

Portfolio and Investment Activity

In January 2019, our investment in Merlin International, Inc. paid off, which resulted in success fee income of $0.6 million and a prepayment fee of $0.3 million. In connection with the payoff, we received net cash proceeds of $20.9 million, including the repayment of our debt investment of $20.0 million at par.

 

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Distributions and Dividends

In January 2019, our Board of Directors declared the following monthly distributions to common stockholders and monthly dividends to preferred stockholders:

 

 

 

RECORD DATE

  

PAYMENT DATE

   DISTRIBUTION
PER COMMON
SHARE
     DIVIDEND PER
SHARE OF SERIES
2024 TERM
PREFERRED STOCK
 

January 18, 2019

   January 31, 2019    $ 0.07      $ 0.125  

February 20, 2019

   February 28, 2019      0.07        0.125  

March 20, 2019

   March 29, 2019      0.07        0.125  
     

 

 

    

 

 

 
   Total for the Quarter:      $0.21        $0.375  
     

 

 

    

 

 

 

 

 

RESULTS OF OPERATIONS

Comparison of the Three Months Ended December 31, 2018, to the Three Months Ended December 31, 2017

 

 

 

     THREE MONTHS ENDED DECEMBER 31,  
     2018     2017     $ CHANGE     % CHANGE  

INVESTMENT INCOME

        

Interest income

   $ 11,687     $ 10,670     $ 1,017       9.5

Other income

     222       189       33       17.5  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total investment income

     11,909       10,859       1,050       9.7  
  

 

 

   

 

 

   

 

 

   

 

 

 

EXPENSES

        

Base management fee

     1,828       1,676       152       9.1  

Loan servicing fee

     1,262       1,186       76       6.4  

Incentive fee

     1,360       1,373       (13     (0.9

Administration fee

     345       272       73       26.8  

Interest expense on borrowings and notes payable

     1,898       1,231       667       54.2  

Dividend expense on mandatorily redeemable preferred stock

     776       776              

Amortization of deferred financing fees

     300       248       52       21.0  

Other expenses

     590       547       43       7.9  
  

 

 

   

 

 

   

 

 

   

 

 

 

Expenses, before credits from Adviser

     8,359       7,309       1,050       14.4  

Credit to base management fee—loan servicing fee

     (1,262     (1,186     (76     6.4  

Credits to fees from Adviser—other

     (1,174     (841     (333     39.6  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total expenses, net of credits

     5,923       5,282       641       12.1  
  

 

 

   

 

 

   

 

 

   

 

 

 

NET INVESTMENT INCOME

     5,986       5,577       409       7.3  
  

 

 

   

 

 

   

 

 

   

 

 

 

NET REALIZED AND UNREALIZED (LOSS) GAIN

        

Net realized (loss) gain on investments and other

     (26,863     441       (27,304     NM  

Net unrealized appreciation (depreciation) of investments

     17,169       1,360       15,809       NM  

Net unrealized appreciation of other

           (218     218       NM  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net (loss) gain from investments and other

     (9,694     1,583       (11,277     NM  
  

 

 

   

 

 

   

 

 

   

 

 

 

NET (DECREASE) INCREASE IN NET ASSETS RESULTING FROM OPERATIONS

   $ (3,708   $ 7,160     $ (10,868     NM  
  

 

 

   

 

 

   

 

 

   

 

 

 

 

 

NM = Not Meaningful

 

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Investment Income

Interest income increased by 9.5% for the three months ended December 31, 2018, as compared to the prior year. The increase was due primarily to an increase in the weighted average yield on our interest bearing portfolio and an increase in the weighted average principal balance of our interest bearing portfolio. The weighted average yield on our interest-bearing investments is based on the current stated interest rate on interest-bearing investments, which increased to 12.3% for the three months ended December 31, 2018, compared to 12.0% for the three months ended December 31, 2017, inclusive of any allowances on interest receivables made during those periods. The weighted average principal balance of our interest-bearing investment portfolio for the three months ended December 31, 2018, was $375.5 million, compared to $353.4 million for the three months ended December 31, 2017, an increase of $22.1 million, or 6.3%.

As of December 31, 2018, there were no investments on non-accrual status. As of December 31, 2017, two portfolio companies, Sunshine Media Holdings and Alloy Die Casting Co. were on non-accrual status, with an aggregate debt cost basis of approximately $27.9 million, or 6.8% of the cost basis of all debt investments in our portfolio.

Other income increased by 17.5% during the three months ended December 31, 2018, as compared to the prior year period due to an increase in dividend income and success fees received period over period.

As of December 31, 2018 and September 30, 2018, no single investment represented greater than 10% of the total investment portfolio at fair value. Investment income, generally consisting of interest, dividends, success fees, and prepayment fees can fluctuate upon repayment or sale of an investment and in any given period can be highly concentrated among several investments. For the three months ended December 31, 2018 and 2017, no individual investment produced investment income that exceeded 10% of total investment income.

Expenses

Expenses, net of any non-contractual, unconditional and irrevocable credits to fees from the Adviser, increased $0.6 million, or 12.1%, for the three months ended December 31, 2018 as compared to the prior year period. This increase was primarily due to a $0.7 million increase in interest expense on borrowings, partially offset by a $0.2 million decrease in our net base management and incentive fees to the Adviser.

Interest expense increased by 54.2% during the three months ended December 31, 2018, as compared to the prior year period, due primarily to the issuance of $57.5 million aggregate principal amount of the 2023 Notes in November 2018. We incurred $0.5 million in interest expense related to the notes issuance during the quarter ended December 31, 2018 versus no such amounts in the prior year period. The weighted average balance outstanding on our Credit Facility decreased slightly during the three months ended December 31, 2018 compared to the prior year period with the issuance of the 2023 Notes; however, this decrease was largely offset by borrowings in December 2018 to fund new investments. The weighted average balance outstanding on our Credit Facility during the three months ended December 31, 2018 was $88.9 million, as compared to $98.2 million in the prior year period, a decrease of 9.5%. The effective interest rate on our Credit Facility, including unused commitment fees incurred but excluding the impact of deferred financing costs, was 6.1% during the three months ended December 31, 2018, compared to 5.0% during the prior year period. The increase in the effective interest rate was driven by an increase in LIBOR as compared to the prior year period and an increase in unused commitment fees paid in the current year period, offset by a decrease in the marginal interest rate on our Credit Facility effective March 9, 2018.

The net base management fee earned by the Adviser increased by $0.3 million, or 30.5%, during the three months ended December 31, 2018, as compared to the prior year period, resulting from an increase in average total assets subject to the base management fee and a decrease in credits from the Adviser year over year.

The income-based incentive fee decreased slightly for the three months ended December 31, 2018, as compared to the prior year period, due to lower pre-incentive fee net investment income, partially offset by an increase in net assets, which drives the hurdle, over the respective periods. Our Board of Directors accepted non-contractual, unconditional and irrevocable credits from the Adviser of $0.5 million and $0.1 million, to reduce the income-based incentive fee to the extent net investment income did not cover 100.0% of our distributions to common stockholders during the three months ended December 31, 2018 and 2017, respectively.

 

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The base management, loan servicing and incentive fees, and associated non-contractual, unconditional and irrevocable credits, are computed quarterly, as described under “Transactions with the Adviser” in Note 4—Related Party Transactions of the Notes to Consolidated Financial Statements and are summarized in the following table:

 

 

 

     THREE MONTHS ENDED
DECEMBER 31,
 
     2018      2017  

Average total assets subject to base management fee (A)

   $ 417,829      $ 383,086  

Multiplied by prorated annual base management fee of 1.75%

     0.4375      0.4375
  

 

 

    

 

 

 

Base management fee (B)

   $ 1,828      $ 1,676  

Portfolio company fee credit

     (544      (664

Senior syndicated loan fee credit

     (83      (92
  

 

 

    

 

 

 

Net Base Management Fee

   $ 1,201      $ 920  
  

 

 

    

 

 

 

Loan servicing fee (B)

     1,262        1,186  

Credit to base management fee—loan servicing fee (B)

     (1,262      (1,186
  

 

 

    

 

 

 

Net Loan Servicing Fee

   $      $  
  

 

 

    

 

 

 

Incentive fee (B)

     1,360        1,373  

Incentive fee credit

     (547      (85
  

 

 

    

 

 

 

Net Incentive Fee

   $ 813      $ 1,288  
  

 

 

    

 

 

 

Portfolio company fee credit

     (544      (664

Senior syndicated loan fee credit

     (83      (92

Incentive fee credit

     (547      (85
  

 

 

    

 

 

 

Credits to Fees From Adviser—other (B)

   $ (1,174    $ (841
  

 

 

    

 

 

 

 

 

(A)    Average total assets subject to the base management fee is defined as total assets, including investments made with proceeds of borrowings, less any uninvested cash or cash equivalents resulting from borrowings, valued at the end of the applicable quarters within the respective periods and adjusted appropriately for any share issuances or repurchases during the periods.
(B)   Reflected, on a gross basis, as a line item on our Consolidated Statements of Operations.

Net Realized and Unrealized Gain (Loss)

Net Realized Gain (Loss) on Investments

For the three months ended December 31, 2018, we recorded a net realized loss on investments of $26.9 million, which resulted primarily from the restructuring of our investment in FDF.

For the three months ended December 31, 2017, we recorded a net realized gain on investments of $0.6 million, which resulted primarily from the sale of our investment in Flight Fit N Fun LLC in October 2017 for a $0.6 million realized gain.

 

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Net Unrealized Appreciation (Depreciation) of Investments

During the three months ended December 31, 2018, we recorded net unrealized appreciation of investments in the aggregate amount of $17.2 million. The net realized gain (loss) and unrealized appreciation (depreciation) across our investments for the three months ended December 31, 2018, were as follows:

 

 

 

     THREE MONTHS ENDED DECEMBER 31, 2018  

PORTFOLIO COMPANY

   REALIZED GAIN
(LOSS)
    UNREALIZED
APPRECIATION
(DEPRECIATION)
    REVERSAL OF
UNREALIZED
(APPRECIATION)

DEPRECIATION
    NET
GAIN (LOSS)
 

Lignetics, Inc.

   $     $ 1,663     $     $ 1,663  

Alloy Die Casting, Co.

           1,118             1,118  

GFRC Holdings, LLC

           574             574  

Precision International, LLC

           517             517  

The Mochi Ice Cream Company

           377             377  

Targus Cayman HoldCo, Ltd.

           307             307  

Gray Matter Systems, LLC

           (153           (153

Vision Government Solutions, Inc.

           (184           (184

WadeCo Specialties, Inc.

           (236           (236

Belnick, Inc.

           (250           (250

Meridian Rack & Pinion, Inc.

           (269           (269

Travel Sentry, Inc.

           (290           (290

Funko Acquisition Holdings, LLC

           (299           (299

NetFortris Corp.

           (322           (322

EL Academies, Inc.

           (466           (466

Arc Drilling Holdings LLC

           (478           (478

IA Tech, LLC

           (600           (600

Merlin International, Inc.

           (600           (600

Impact! Chemical Technologies, Inc.

           (619           (619

LWO Acquisitions Company LLC

           (848           (848

Edge Adhesives Holdings, Inc.

           (2,053           (2,053

Francis Drilling Fluids, Ltd.

     (26,850           20,379       (6,471

Other, net (<$250)

     (13     20       (119     (112
  

 

 

   

 

 

   

 

 

   

 

 

 

Total:

   $ (26,863   $ (3,092   $ 20,261     $ (9,694
  

 

 

   

 

 

   

 

 

   

 

 

 

 

 

The primary driver of net unrealized appreciation of $17.2 million for the three months ended December 31, 2018 was the reversal of previously recorded unrealized depreciation upon the restructure of FDF partially offset by the decline in the financial and operational performance of certain of our other portfolio companies, including most notably, Edge Adhesives Holdings, Inc. of $2.1 million.

 

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During the three months ended December 31, 2017, we recorded net unrealized appreciation of investments in the aggregate amount of $1.4 million. The net realized gain (loss) and unrealized appreciation (depreciation) across our investments for the three months ended December 31, 2017, were as follows:

 

 

 

     THREE MONTHS ENDED DECEMBER 31, 2017  

PORTFOLIO COMPANY

   REALIZED GAIN
(LOSS)
    UNREALIZED
APPRECIATION
(DEPRECIATION)
    REVERSAL OF
UNREALIZED
(APPRECIATION)

DEPRECIATION
    NET
GAIN (LOSS)
 

Francis Drilling Fluids, Ltd.

   $     $ 2,429     $     $ 2,429  

LWO Acquisitions Company LLC

           1,012             1,012  

Edge Adhesives Holdings, Inc.

           482             482  

NetFortris Corp.

           430             430  

WadeCo Specialties, Inc.

           227             227  

United Flexible, Inc.

           186             186  

Vision Government Solutions, Inc.

           178             178  

Canopy Safety Brands, LLC

           147             147  

TapRoot Partners, Inc.

           110             110  

Alloy Die Casting, Co.

           86             86  

Flight Fit N Fun LLC

     582             (725     (143

Lignetics, Inc.

           (206           (206

Defiance Integrated Technologies, Inc.

           (212           (212

Targus Cayman HoldCo, Ltd.

           (249           (249

Vacation Rental Pros

           (252           (252

Meridian Rack & Pinion, Inc.

           (303           (303

Sunshine Media Holdings

           (318           (318

L Discovery

           (555           (555

New Trident Holdcorp, Inc.

           (1,221           (1,221

Other, net (<$250)

     (8     201       (87     106  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total:

   $ 574     $ 2,172     $ (812   $ 1,934  
  

 

 

   

 

 

   

 

 

   

 

 

 

 

 

The primary driver of net unrealized appreciation for the three months ended December 31, 2017 was improvement in the financial and operational performance of certain portfolio companies, most notably FDF of $2.4 million and LWO Acquisitions Company LLC of $1.0 million. This appreciation was partially offset by the decline in the financial and operational performance of New Trident Holdcorp, Inc. of $1.2 million.

Net Unrealized (Appreciation) Depreciation of Other

During the three months ended December 31, 2017, we recorded $0.2 million of unrealized appreciation related to a change in the fair value of our Credit Facility. No such amounts were recorded during the three months ended December 31, 2018.

LIQUIDITY AND CAPITAL RESOURCES

Operating Activities

Our cash flows from operating activities are primarily generated from the interest payments on debt securities that we receive from our portfolio companies, as well as net proceeds received through repayments or sales of our investments. We utilize this cash primarily to fund new investments, make interest payments on our Credit Facility and notes payable, make distributions to our stockholders, pay management and administrative fees to the Adviser and Administrator, and for other operating expenses. Net cash used in operating activities for the three months ended December 31, 2018 was $43.4 million as compared to $36.9 million for the three months ended December 31, 2017. The increase in net cash used in operating activities was primarily driven by a decrease in principal repayments on investments period over period. Principal repayments from sales were $8.9 million during

 

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the three months ended December 31, 2018 compared to $18.6 million during the three months ended December 31, 2017.

As of December 31, 2018, we had loans to, syndicated participations in or equity investments in 54 companies, with an aggregate cost basis of approximately $451.4 million. As of December 31, 2017, we had loans to, syndicated participations in or equity investments in 51 private companies, with an aggregate cost basis of approximately $450.1 million.

The following table summarizes our total portfolio investment activity during the three months ended December 31, 2018 and 2017:

 

 

 

     THREE MONTHS ENDED
DECEMBER 31,
 
     2018     2017  

Beginning investment portfolio, at fair value

   $ 390,046     $ 352,373  

New investments

     49,865       56,336  

Disbursements to existing portfolio companies

     9,363       602  

Scheduled principal repayments on investments

     (1,640     (2,529

Unscheduled principal repayments on investments

     (7,228     (16,040

Net proceeds from sale of investments

     13       (1,274

Net unrealized (depreciation) appreciation of investments

     (3,092     2,172  

Reversal of prior period depreciation (appreciation) of investments on realization

     20,261       (812

Net realized (loss) gain on investments or other

     (26,863     574  

Increase in investments due to PIK(A)

     314       983  

Net change in premiums, discounts and amortization

     108       45  
  

 

 

   

 

 

 

Investment Portfolio, at Fair Value

   $ 431,147     $ 392,430  
  

 

 

   

 

 

 

 

 

(A)   PIK interest is a non-cash source of income and is calculated at the contractual rate stated in a loan agreement and added to the principal balance of a loan.

The following table summarizes the contractual principal repayment and maturity of our investment portfolio by fiscal year, assuming no voluntary prepayments, as of December 31, 2018:

 

 

 

        AMOUNT  

For the remaining nine months ending September 30:

  2019   $ 30,851  

For the fiscal years ending September 30:

  2020     54,131  
  2021     69,066  
  2022     56,235  
  2023     116,837  
  Thereafter     78,064  
   

 

 

 
 

Total contractual repayments

  $ 405,184  
  Adjustments to cost basis of debt investments     (570
  Investments in equity securities     46,785  
   

 

 

 
 

Investments held as of December 31, 2018 at Cost:

  $ 451,399  
   

 

 

 

 

 

Financing Activities

Net cash provided by financing activities for the three months ended December 31, 2018 was $41.8 million, which consisted primarily of $57.5 million in gross proceeds from the issuance of long term debt, partially offset by $7.8 million in net repayments on our Credit Facility and $6.0 million in distributions to common stockholders.

 

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Net cash provided by financing activities for the three months ended December 31, 2017 was $36.4 million, which consisted primarily of $37.5 million in net borrowings on our Credit Facility and $5.6 million in distributions to common stockholders, partially offset by $4.5 million in proceeds from the issuance of common stock, net of underwriting costs.

Distributions and Dividends to Stockholders

Common Stock Distributions

To qualify to be taxed as a RIC and thus avoid corporate level federal income tax on the income we distribute to our stockholders, we are required, among other requirements, to distribute to our stockholders on an annual basis at least 90.0% of our taxable ordinary income plus the excess of our net short-term capital gains over net long-term capital losses (“Investment Company Taxable Income”), determined without regard to the dividends paid deduction. Additionally, our Credit Facility has a covenant that generally restricts the amount of distributions to stockholders that we can pay out to be no greater than our aggregate net investment income, net capital gains and amounts elected to have been paid during the prior year in accordance with Section 855(a) of the Code. In accordance with these requirements, we paid monthly cash distributions of $0.07 per common share for each month during the three months ended December 31, 2018 and 2017, which totaled an aggregate of $6.0 million and $5.6 million, respectively. In January 2019, our Board of Directors declared a monthly distribution of $0.07 per common share for each of January, February, and March 2019. Our Board of Directors declared these distributions to our stockholders based on our estimates of our Investment Company Taxable Income for the fiscal year ending September 30, 2019.

For the year ended September 30, 2018, our current and accumulated earnings and profits (after taking into account mandatorily redeemable preferred stock dividends) exceeded distributions declared and paid, and, in accordance with Section 855(a) of the Code, we elected to treat $0.3 million of the first common distributions paid in fiscal year 2019 as having been paid in the prior year.

The characterization of the common stockholder distributions declared and paid for the fiscal year ending September 30, 2019 will be determined at fiscal year-end based upon our Investment Company Taxable Income for the full fiscal year and distributions paid during the full fiscal year. Such a characterization made on a quarterly basis may not be representative of the actual full fiscal year characterization.

Preferred Stock Dividends

Our Board of Directors declared and we paid monthly cash dividends of $0.125 per share of our Series 2024 Term Preferred Stock for each of the three months ended December 31, 2018. In January 2019, our Board of Directors declared monthly cash dividends of $0.125 per share to holders of our Series 2024 Term Preferred Stock for each of January, February, and March 2019. In accordance with GAAP, we treat these monthly dividends as an operating expense. For federal income tax purposes, the dividends paid by us to preferred stockholders generally constitute ordinary income to the extent of our current and accumulated earnings and profits.

Dividend Reinvestment Plan

Our common stockholders who hold their shares through our transfer agent, Computershare, Inc. (“Computershare”), have the option to participate in a dividend reinvestment plan offered by Computershare, as the plan agent. This is an “opt in” dividend reinvestment plan, meaning that common stockholders may elect to have their cash distributions automatically reinvested in additional shares of our common stock. Common stockholders who do not make such election will receive their distributions in cash. Common stockholders who receive distributions in the form of stock will be subject to the same federal, state and local tax consequences as stockholders who elect to receive their distributions in cash. The common stockholder generally will have an adjusted basis in the additional common shares purchased through the plan equal to the dollar amount that would have been received if the common stockholder had received the dividend or distribution in cash. The additional shares will have a new holding period commencing on the day following the date on which the shares are credited to the common stockholder’s account. Computershare purchases shares in the open market in connection with the obligations under the plan. The Computershare dividend reinvestment plan is not open to holders of our preferred stock.

 

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Equity

Registration Statement

Our registration statement permits us to issue, through one or more transactions, up to an aggregate of $300.0 million in securities, consisting of common stock, preferred stock, subscription rights, debt securities and warrants to purchase common stock, preferred stock or debt securities. As of December 31, 2018, we had the ability to issue up to $300.0 million in securities under the registration statement.

Common Stock

In February 2015, we entered into an equity distribution agreement (the “Cantor Agreement”) with Cantor Fitzgerald & Co. under which we had the ability to issue and sell, from time to time, up to an aggregate offering price of $50.0 million shares of our common stock under our program. During the three months ended December 31, 2018, we sold 2,765 shares of our common stock under the Cantor Agreement, at a weighted-average price of $9.60 per share and raised $28 thousand of gross proceeds. Due to rounding, net proceeds, after deducting commissions and offering costs borne by us, were also approximately $28 thousand. During the three months ended December 31, 2017, we sold 471,498 shares of our common stock under the Cantor Agreement at a weighted-average price of $9.69 per share and raised $4.6 million of gross proceeds. Net proceeds, after deducting commissions and offering costs borne by us, were approximately $4.5 million.

We anticipate issuing equity securities to obtain additional capital in the future. However, we cannot determine the timing or terms of any future equity issuances or whether we will be able to issue equity on terms favorable to us, or at all. To the extent that our common stock trades at a market price below our NAV per share, we will generally be precluded from raising equity capital through public offerings of our common stock, other than pursuant to stockholder and independent director approval or a rights offering to existing common stockholders.

On December 31, 2018, the closing market price of our common stock was $7.30, an 8.5% discount to our December 31, 2018 NAV per share of $7.98.

Term Preferred Stock

In September 2017, we completed a public offering of approximately 2.1 million shares of our Series 2024 Term Preferred Stock at a public offering price of $25.00 per share. Gross proceeds totaled $51.8 million and net proceeds, after deducting underwriting discounts, commissions and offering expenses borne by us, were approximately $49.8 million. We incurred approximately $1.9 million in total underwriting discounts and offering costs related to the issuance of the Series 2024 Term Preferred Stock, which have been recorded as discounts to the liquidation value on our Consolidated Statements of Assets and Liabilities and are being amortized over the period from issuance through September 30, 2024, the mandatory redemption date. The offering proceeds plus borrowings under our Credit Facility were used to voluntarily redeem all 2.4 million outstanding shares of our then existing 6.75% Series 2021 Term Preferred Stock, par value $0.001 per share. In connection with the voluntary redemption of our Series 2021 Term Preferred Stock, we incurred a loss on extinguishment of debt of $1.3 million, which has been reflected in Realized loss on other in our Consolidated Statement of Operations and which is primarily comprised of the unamortized deferred issuance costs at the time of redemption.

The shares of our Series 2024 Term Preferred Stock are traded under the ticker symbol “GLADN” on the Nasdaq. Our Series 2024 Term Preferred Stock is not convertible into our common stock or any other security and provides for a fixed dividend equal to 6.00% per year, payable monthly (which equates in total to approximately $3.1 million per year). We are required to redeem all of the outstanding Series 2024 Term Preferred Stock on September 30, 2024 for cash at a redemption price equal to $25.00 per share plus an amount equal to all unpaid dividends and distributions per share accumulated to (but excluding) the date of redemption (the “Redemption Price”). We may additionally be required to mandatorily redeem some or all of the shares of our Series 2024 Term Preferred Stock early, at the Redemption Price, in the event of the following: (1) upon the occurrence of certain events that would constitute a change in control, or (2) if we fail to maintain an asset coverage of at least 200% on our “senior securities that are stock” (which is currently only our Series 2024 Term Preferred Stock) and the failure remains for a period of 30 days following the filing date of our next quarterly or annual report filed with the SEC. The asset coverage on our “senior securities that are stock” as of December 31, 2018 was 204.8%, calculated in accordance with Sections 18 and 61 of the 1940 Act.

 

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We may also voluntarily redeem all or a portion of the Series 2024 Term Preferred Stock at our option at the Redemption Price at any time after September 30, 2019. If we fail to redeem our Series 2024 Term Preferred Stock pursuant to the mandatory redemption required on September 30, 2024, or in any other circumstance in which we are required to mandatorily redeem our Series 2024 Term Preferred Stock, then the fixed dividend rate will increase by 4.0% for so long as such failure continues. As of December 31, 2018, we have not redeemed, nor have we been required to redeem, any shares of our outstanding Series 2024 Term Preferred Stock.

Revolving Credit Facility

On March 9, 2018, we, through Business Loan, entered into Amendment No. 4 to our Credit Facility with KeyBank, which increased the commitment amount from $170.0 million to $190.0 million, extended the revolving period end date by approximately two years to January 15, 2021, decreased the marginal interest rate added to 30-day LIBOR from 3.25% to 2.85% per annum, and changed the unused commitment fee from 0.50% of the total unused commitment amount to 0.50% when the average unused commitment amount for the reporting period is less than or equal to 50%, 0.75% when the average unused commitment amount for the reporting period is greater than 50% but less than or equal to 65%, and 1.00% when the average unused commitment amount for the reporting period is greater than 65%. If our Credit Facility is not renewed or extended by January 15, 2021, all principal and interest will be due and payable on April 15, 2022 (15 months after the revolving period end date). Subject to certain terms and conditions, our Credit Facility may be expanded up to a total of $265.0 million through additional commitments of new or existing lenders. We incurred fees of approximately $1.2 million in connection with this amendment, which are being amortized through our Credit Facility’s revolving period end date of January 15, 2021.

Interest is payable monthly during the term of our Credit Facility. Available borrowings are subject to various constraints imposed under our Credit Facility, based on the aggregate loan balance pledged by Business Loan, which varies as loans are added and repaid, regardless of whether such repayments are prepayments or made as contractually required. Our Credit Facility also requires that any interest or principal payments on pledged loans be remitted directly by the borrower into a lockbox account with KeyBank and with The Bank of New York Mellon Trust Company, N.A. as custodian. KeyBank, which also serves as the trustee of the account, generally remits the collected funds to us once a month.

Our Credit Facility contains covenants that require Business Loan to maintain its status as a separate legal entity, prohibit certain significant corporate transactions (such as mergers, consolidations, liquidations or dissolutions), and restrict material changes to our credit and collection policies without the lenders’ consents. Our Credit Facility generally limits distributions to our stockholders on a fiscal year basis to the sum of our net investment income, net capital gains and amounts elected to have been paid during the prior year in accordance with Section 855(a) of the Code. Business Loan is also subject to certain limitations on the type of loan investments it can apply as collateral towards the borrowing base to receive additional borrowing availability under our Credit Facility, including restrictions on geographic concentrations, sector concentrations, loan size, payment frequency and status, average life, portfolio company leverage and lien property. Our Credit Facility further requires Business Loan to comply with other financial and operational covenants, which obligate Business Loan to, among other things, maintain certain financial ratios, including asset and interest coverage and a minimum number of 25 obligors required in the borrowing base.

Additionally, we are subject to a performance guaranty that requires us to maintain (i) a minimum net worth (defined in our Credit Facility to include our mandatorily redeemable preferred stock) of $205.0 million plus 50% of all equity and subordinated debt raised after May 1, 2015 less 50% of any equity and subordinated debt retired or redeemed after May 1, 2015, which equates to $261.5 million as of December 31, 2018, (ii) asset coverage with respect to “senior securities representing indebtedness” of at least 200%, in accordance with Sections 18 and 61 of the 1940 Act and (iii) our status as a BDC under the 1940 Act and as a RIC under the Code.

As of December 31, 2018, and as defined in the performance guaranty of our Credit Facility, we had a net worth of $331.8 million, asset coverage on our “senior securities representing indebtedness” of 270.8% and an active status as a BDC and RIC. In addition, we had 35 obligors in our Credit Facility’s borrowing base as of December 31, 2018. As of December 31, 2018, we were in compliance with all of our Credit Facility covenants. Refer to Note 5—Borrowings of the notes to our Consolidated Financial Statements included elsewhere this prospectus supplement for additional information regarding our Credit Facility.

 

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Notes Payable

In November 2018, we completed a public debt offering of $57.5 million aggregate principal amount of the 2023 Notes, inclusive of the overallotment, for net proceeds of $55.4 million after deducting underwriting discounts, commissions and offering expenses borne by us. We incurred approximately $2.1 million in total underwriting discounts and offering costs related to the issuance of the 2023 Notes, which have been recorded as discounts to the principal amount on our Consolidated Statements of Assets and Liabilities and are being amortized from issuance through November 1, 2023, the maturity date. The offering proceeds were used to pay down borrowings under our Credit Facility.

The 2023 Notes are traded under the ticker symbol “GLADD” on the Nasdaq. The 2023 Notes will mature on November 1, 2023, and may be redeemed in whole or in part at any time or from time to time at the Company’s option on or after November 1, 2020. The 2023 Notes bear interest at a rate of 6.125% per year payable quarterly on February 1, May 1, August 1, and November 1 of each year, commencing February 1, 2019 (which equates to approximately $3.5 million per year). The 2023 Notes are recorded at the principal amount, less discounts, on our Consolidated Statements of Assets and Liabilities as of December 31, 2018 and September 30, 2018.

The indenture relating to the 2023 Notes contains certain covenants, including (i) an inability to incur additional debt or issue additional debt or preferred securities unless the Company’s asset coverage meets the threshold specified in the 1940 Act after such borrowing, (ii) an inability to declare any dividend or distribution unless the Company’s asset coverage meets the threshold specified in the 1940 Act at the time of such declaration, and (iii) if, at any time, we are not subject to the reporting requirements of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), we will provide the holders of the Notes and the trustee with audited annual consolidated financial statements and unaudited interim consolidated financial statements.

Off-Balance Sheet Arrangements

We generally recognize success fee income when the payment has been received. As of December 31, 2018 and September 30, 2018, we had off-balance sheet success fee receivables on our accruing debt investments of $5.7 million and $5.1 million (or approximately $0.20 per common share and $0.18 per common share), respectively, that would be owed to us, generally upon a change of control of the portfolio companies. Consistent with GAAP, we generally have not recognized our success fee receivables and related income in our Consolidated Financial Statements until earned. Due to the contingent nature of our success fees, there are no guarantees that we will be able to collect all of these success fees or know the timing of such collections.

Contractual Obligations

We have lines of credit, delayed draw term loans, and an uncalled capital commitment with certain of our portfolio companies that have not been fully drawn. Since these commitments have expiration dates and we expect many will never be fully drawn, the total commitment amounts do not necessarily represent future cash requirements. We estimate the fair value of the combined unused lines of credit, the unused delayed draw term loans and the uncalled capital commitment as of December 31, 2018 and September 30, 2018 to be immaterial.

 

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The following table shows our contractual obligations as of December 31, 2018, at cost:

 

 

 

     PAYMENTS DUE BY PERIOD  

CONTRACTUAL OBLIGATIONS (A)

   LESS
THAN

1 YEAR
     1-3
YEARS
     3-5 YEARS      MORE
THAN 5
YEARS
     TOTAL  

Credit Facility (B)

   $      $      $ 102,200      $      $ 102,200  

Mandatorily Redeemable Preferred Stock

                          51,750        51,750  

Notes Payable

                   57,500               57,500  

Interest expense on debt obligations (C)

     12,644        25,287        14,422        2,329      54,681  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 12,644      $ 25,287      $ 174,122      $ 54,079      $ 266,131  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

 

(A)    Excludes our unused line of credit commitments, an unused delayed draw term loan and uncalled capital commitments to our portfolio companies in an aggregate amount of $19.9 million, at cost, as of December 31, 2018.
(B)    Principal balance of borrowings outstanding under our Credit Facility, based on the maturity date following the current contractual revolver period end date.
(C)    Includes estimated interest payments on our Credit Facility and 2023 Notes and dividend obligations on our Series 2024 Term Preferred Stock. The amount of interest expense calculated for purposes of this table was based upon rates and balances as of December 31, 2018. Dividend payments on our Series 2024 Term Preferred Stock assume quarterly dividend declarations and monthly dividend distributions through the date of mandatory redemption.

Critical Accounting Policies

The preparation of financial statements and related disclosures in conformity with GAAP requires management to make estimates and assumptions that affect the reported consolidated amounts of assets and liabilities, including disclosure of contingent assets and liabilities at the date of the financial statements, and revenues and expenses during the period reported. Actual results could differ materially from those estimates under different assumptions or conditions. We have identified our investment valuation policy (which has been approved by our Board of Directors) as our most critical accounting policy, which is described in Note 2—Summary of Significant Accounting Policies in the Notes to Consolidated Financial Statements included elsewhere in this prospectus supplement. Additionally, refer to Note 3—Investments in the Notes to Consolidated Financial Statements included elsewhere in this prospectus supplement for additional information regarding fair value measurements and our application of Financial Accounting Standards Board Accounting Standards Codification Topic 820, “Fair Value Measurements and Disclosures.” We have also identified our revenue recognition policy as a critical accounting policy, which is described in Note 2—Summary of Significant Accounting Policies in the accompanying Notes to Consolidated Financial Statements included elsewhere in this prospectus supplement.

Investment Valuation

Credit Monitoring and Risk Rating

The Adviser monitors a wide variety of key credit statistics that provide information regarding our portfolio companies to help us assess credit quality and portfolio performance and, in some instances, used as inputs in our valuation techniques. Generally, we, through the Adviser, participate in periodic board meetings of our portfolio companies in which we hold board seats and also require them to provide annual audited and monthly unaudited financial statements. Using these statements or comparable information and board discussions, the Adviser calculates and evaluates certain credit statistics.

The Adviser risk rates all of our investments in debt securities. The Adviser does not risk rate our equity securities. For syndicated loans that have been rated by an SEC registered Nationally Recognized Statistical Rating Organization (“NRSRO”), the Adviser generally uses the average of two corporate level NRSRO’s risk ratings for such security. For all other debt securities, the Adviser uses a proprietary risk rating system. While the Adviser seeks to mirror the NRSRO systems, we cannot provide any assurance that the Adviser’s risk rating system will provide the same risk rating as an NRSRO would for these securities. The Adviser’s risk rating system is used to estimate the probability of default on debt securities and the expected loss if there is a default. The Adviser’s risk rating system uses a scale of 0 to >10, with >10 being the lowest probability of default. It is the Adviser’s understanding that most debt securities of medium-sized companies do not exceed the grade of BBB on an NRSRO scale, so there

 

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would be no debt securities in the middle market that would meet the definition of AAA, AA or A. Therefore, the Adviser’s scale begins with the designation >10 as the best risk rating which may be equivalent to a BBB from an NRSRO; however, no assurance can be given that a >10 on the Adviser’s scale is equal to a BBB or Baa2 on an NRSRO scale. The Adviser’s risk rating system covers both qualitative and quantitative aspects of the business and the securities we hold.

The following table reflects risk ratings for all proprietary loans in our portfolio as of December 31, 2018 and September 30, 2018, representing approximately 91.8% and 92.3%, respectively, of the principal balance of all debt investments in our portfolio at the end of each period:

 

 

 

RATING

   AS OF
DECEMBER 31,
2018
     AS OF
SEPTEMBER 30,
2018
 

Highest

     10.0        10.0  

Average

     7.1        6.7  

Weighted Average

     7.2        6.8  

Lowest

     1.0        0.0  

 

 

The following table reflects the risk ratings for all syndicated loans in our portfolio that were rated by an NRSRO as of December 31, 2018 and September 30, 2018, representing approximately 6.3% and 5.7%, respectively, of the principal balance of all debt investments in our portfolio at the end of each period:

 

 

 

RATING

   AS OF
DECEMBER 31,
2018
     AS OF
SEPTEMBER 30,
2018
 

Highest

     5.0        6.0  

Average

     3.9        3.7  

Weighted Average

     3.7        4.0  

Lowest

     1.0        1.0  

 

 

The following table reflects the risk ratings for all syndicated loans in our portfolio that were not rated by an NRSRO as of December 31, 2018 and September 30, 2018, representing approximately 1.9% and 2.0%, respectively, of the principal balance of all debt investments in our portfolio at the end of each period:

 

 

 

RATING

   AS OF
DECEMBER 31,
2018
     AS OF
SEPTEMBER 30,
2018
 

Highest

     5.0        5.0  

Average

     4.0        4.3  

Weighted Average

     4.2        4.7  

Lowest

     3.0        3.0  

 

 

Tax Status

We intend to continue to maintain our qualification as a RIC under Subchapter M of the Code for federal income tax purposes. As a RIC, we generally are not subject to federal income tax on the portion of our taxable income and gains distributed to our stockholders. To maintain our qualification as a RIC, we must maintain our status as a BDC and meet certain source-of-income and asset diversification requirements. In addition, in order to qualify to be taxed as a RIC, we must distribute to stockholders at least 90% of our Investment Company Taxable Income, determined without regard to the dividends paid deduction. Our policy generally is to make distributions to our stockholders in an amount up to 100% of our Investment Company Taxable Income. We may retain some or all of our net long-term capital gains, if any, and designate them as deemed distributions, or distribute such gains to stockholders in cash.

 

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In order to avoid a 4% federal excise tax on undistributed amounts of income, we must distribute to stockholders, during each calendar year, an amount at least equal to the sum of: (1) 98% of our ordinary income for the calendar year, (2) 98.2% of our capital gain net income (both long-term and short-term) for the one-year period ending on October 31 of the calendar year, and (3) any income realized, but not distributed, in the preceding year (to the extent that income tax was not imposed on such amounts) less certain over-distributions in prior years. Under the RIC Modernization Act, we are permitted to carryforward any capital losses that we may incur for an unlimited period, and such capital loss carryforwards will retain their character as either short-term or long-term capital losses.

Recent Accounting Pronouncements

Refer to Note 2—Summary of Significant Accounting Policies in the notes to our accompanying Consolidated Financial Statements included elsewhere this prospectus supplement for a description and our application of recent accounting pronouncements.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market risk includes risks that arise from changes in interest rates, foreign currency exchange rates, commodity prices, equity prices and other market changes that affect market sensitive instruments. The prices of securities held by us may decline in response to certain events, including those directly involving the companies whose securities are owned by us; conditions affecting the general economy; overall market changes; local, regional or global political, social or economic instability; and interest rate fluctuations.

The primary risk we believe we are exposed to is interest rate risk. Because we borrow money to make investments, our net investment income is dependent upon the difference between the rate at which we borrow funds and the rate at which we invest those funds. As a result, there can be no assurance that a significant change in market interest rates will not have a material adverse effect on our net investment income. We use a combination of debt and equity capital to finance our investing activities. We may use interest rate risk management techniques from time to time to limit our exposure to interest rate fluctuations. Such techniques may include various interest rate hedging activities to the extent permitted by the 1940 Act.

All of our variable-rate debt investments have rates generally associated with either the current LIBOR or prime rate. As of December 31, 2018, our portfolio of debt investments on a principal basis consisted of the following:

 

 

 

Variable rates

     91.0

Fixed rates

     9.0  
  

 

 

 

Total:

     100.0
  

 

 

 

 

 

There have been no material changes in the quantitative and qualitative market risk disclosures for the three months ended December 31, 2018 from that disclosed in “Management’s Discussion and Analysis of Financial condition and Results of Operations—Quantitative and Qualitative Disclosures About Market Risk” in the accompanying prospectus.

 

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PLAN OF DISTRIBUTION

We have entered into the Sales Agreement with Jefferies under which we may issue and sell shares of our common stock from time to time up to an aggregate offering price of $50.0 million through Jefferies. Sales of our common stock, if any, under this prospectus supplement may be made by any method that is deemed an “at the market offering” as defined in Rule 415(a)(4) under the Securities Act, including sales made directly on or through Nasdaq, or any other existing trading market for our common stock, at market prices prevailing at the time of sale, at prices related to prevailing market prices or at negotiated prices.

When requested by us, Jefferies will offer the shares of common stock subject to the terms and conditions of the Sales Agreement, which may be on a daily basis for periods of time, or as we may otherwise agree with Jefferies. We will designate the maximum amount of shares of common stock to be sold through Jefferies when we request Jefferies to do so. Jefferies has agreed, subject to the terms and conditions of the Sales Agreement, to use its commercially reasonable efforts to execute our orders to sell, as our sales agent and on our behalf, shares of our common stock submitted to Jefferies from time to time by us, consistent with its normal sales and trading practices. We may instruct Jefferies not to place shares of common stock at or below a price designated by us. We or Jefferies may suspend the offering of shares of common stock under the Sales Agreement upon proper notice to the other party.

If we and Jefferies so agree, Jefferies may act as principal in connection with the placement of the securities offered hereby.

We will pay Jefferies a commission of up to 2.0% of the gross proceeds of any shares sold through it pursuant to this prospectus supplement. The estimated offering expenses payable by us, in addition to such commission and reimbursement of expenses, are approximately $160,000, which includes legal, accounting and printing costs and various other fees associated with registering the shares of common stock and the fees and expenses (including reasonable legal fees and disbursements) incident to securing any required review by the Financial Industry Regulatory Authority, Inc. of the terms of the sale of our common stock in this offering in an amount not to exceed $7,500. The remaining sale proceeds, after deducting any other transaction fees, will equal our net proceeds from the sale of such shares.

Jefferies will provide written confirmation to us before the open on Nasdaq on the day following each day on which shares of common stock are sold under the Sales Agreement. Each confirmation will include the number of shares sold on that day, the aggregate gross proceeds of such sales, the proceeds to us and compensation payable to Jefferies. Settlement for sales of common stock will occur, unless otherwise agreed, on the second business day (that is also a trading day) following the date on which such sales were made.

In connection with the sale of our common stock on our behalf, Jefferies will be deemed to be an “underwriter” within the meaning of the Securities Act, and the compensation of Jefferies will be deemed to be underwriting commissions or discounts. We have agreed to indemnify Jefferies against certain liabilities, including liabilities under the Securities Act. We have also agreed to contribute to payments Jefferies may be required to make in respect of such liabilities.

The offering of shares of common stock pursuant to the Sales Agreement will terminate upon the earlier of (i) the sale of all shares of common stock subject to the Sales Agreement and this prospectus supplement and (ii) the termination of the Sales Agreement according to its terms by either Jefferies or us.

Jefferies and its affiliates may in the future provide various investment banking, commercial banking, financial advisory and other services to us and our affiliates and may in the future receive customary fees. In the course of its business, Jefferies may actively trade our securities for its own account or for the accounts of customers, and, accordingly, Jefferies may at any time hold long or short positions in such securities.

The principal business address of Jefferies is 520 Madison Avenue, New York, New York 10022.

 

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CUSTODIAN, TRANSFER AGENT, DIVIDEND DISBURSING AGENT AND PAYING AGENT

The custodian of our assets is The Bank of New York Mellon Corp. The custodian’s address is: 500 Ross Street, Suite 935, Pittsburgh, Pennsylvania 15262. Our assets are held under bank custodianship in compliance with the 1940 Act. Securities held through our wholly owned subsidiary, Gladstone Business Loan, are held under a custodian agreement with The Bank of New York Mellon Corp., which acts as collateral custodian pursuant to the Credit Facility with KeyBank and certain other parties. The address of the collateral custodian is 500 Ross Street, Suite 935, Pittsburgh, Pennsylvania 15262. Computershare acts as our transfer and dividend paying agent and registrar. The principal business address of Computershare is 250 Royall Street, Canton, Massachusetts 02021, telephone number 781-575-2000. Computershare also maintains an internet website at www.computershare.com.

 

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LEGAL MATTERS

Certain legal matters will be passed upon for us by Proskauer Rose LLP, Washington, D.C. Certain matters of Maryland law, including the validity of the common stock to be issued in connection with this offering, will be passed upon for us by Venable LLP, Baltimore, Maryland. Jefferies LLC is being represented in connection with this offering by Cooley LLP, New York, New York. Proskauer Rose LLP and Cooley LLP may rely as to certain matters of Maryland law upon the opinion of Venable LLP.

 

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INCORPORATION OF CERTAIN INFORMATION BY REFERENCE

Commencing March 24, 2019, we will be allowed to “incorporate by reference” the information that we file with the SEC, which means that we can disclose important information to you by referring you to those documents. The information incorporated by reference into this prospectus supplement and the accompanying prospectus is considered to comprise a part of this prospectus supplement and the accompanying prospectus from the date we file that document. Any reports filed by us with the SEC on or after March 24, 2019 and prior to the completion of this offering will automatically update and, where applicable, supersede any information contained in this prospectus supplement and the accompanying prospectus.

We incorporate by reference into this prospectus supplement additional documents that we may file with the SEC under Section 13(a), 13(c), 14 or 15(d) of the Exchange Act, from March 24, 2019 until all of the securities offered by this prospectus supplement have been sold or the offering of these securities is otherwise terminated; provided, however, that information “furnished” under Item 2.02 or Item 7.01 of Form 8-K or other information “furnished” to the SEC which is not deemed filed is not incorporated by reference in this prospectus supplement or the accompanying prospectus. Information that we file with the SEC subsequent to March 23, 2019 will automatically update and may supersede information in this prospectus supplement, the accompanying prospectus and information previously filed with the SEC.

You may request a copy of these filings (other than exhibits, unless the exhibits are specifically incorporated by reference into these documents) at no cost by writing or calling Investor Relations at the following address and telephone number:

Investor Relations

Gladstone Capital Corporation

1521 Westbranch Drive, Suite 100

McLean, Virginia 22102

1-866-366-5745

 

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WHERE YOU CAN FIND MORE INFORMATION

We also file reports, proxy statements and other information with the SEC under the Exchange Act. Copies of such reports and amendments to those reports, if any, filed or furnished pursuant to the Exchange Act are available free of charge through our website at www.GladstoneCapital.com as soon as reasonably practicable after such materials are electronically filed with or furnished to the SEC. Information on our website should not be considered part of this prospectus supplement. A request for any of these reports may also be submitted to us by sending a written request addressed to Investor Relations, Gladstone Capital Corporation, 1521 Westbranch Drive, Suite 100, McLean, VA 22102, or by calling our toll-free investor relations line at 1-866-366-5745. The SEC also maintains a website that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC at www.sec.gov.

This prospectus supplement and the accompanying prospectus do not contain all of the information in our registration statement, including amendments, exhibits and schedules. Statements in this prospectus supplement and in the accompanying prospectus about the contents of any contract or other document are not necessarily complete and, in each instance, reference is made to the copy of the contract or other document filed as an exhibit to the registration statement, each such statement being qualified in all respects by this reference.

Additional information about the Company may be found in our registration statement on Form N-2 (including the related amendments, exhibits and schedules thereto) filed with the SEC. The SEC maintains a web site (http://www.sec.gov) that contains our registration statement, other documents incorporated by reference in the registration statement and other information that we have filed electronically with the SEC, including proxy statements and reports filed under the Exchange Act.

 

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GLADSTONE CAPITAL CORPORATION

Consolidated Statements of Assets and Liabilities

(Dollar amounts in thousands, except per share amounts)

(Unaudited)

 

 

 

     DECEMBER 31,
2018
    SEPTEMBER 30,
2018
 

ASSETS

    

Investments, at fair value:

    

Non-Control/Non-Affiliate investments (Cost of $387,068 and $359,304, respectively)

   $ 373,038     $ 325,567  

Affiliate investments (Cost of $34,671 and $54,667, respectively)

     33,064       48,856  

Control investments (Cost of $29,660 and $13,496 respectively)

     25,045       15,623  

Cash and cash equivalents

     271       1,971  

Restricted cash and cash equivalents

     127       33  

Interest receivable, net

     2,880       2,601  

Due from administrative agent

     2,137       2,807  

Deferred financing costs, net

     1,195       1,363  

Other assets, net

     667       687  
  

 

 

   

 

 

 

TOTAL ASSETS

   $ 438,424     $ 399,508  
  

 

 

   

 

 

 

LIABILITIES

    

Borrowings, at fair value (Cost of $102,200 and $110,000, respectively)

   $ 102,200     $ 110,000  

Notes payable, net (Cost of $57,500 as of December 31, 2018)

     55,433        

Mandatorily redeemable preferred stock, $0.001 par value per share, $25 liquidation preference per share; 5,440,000 and 5,440,000 shares authorized, respectively, and 2,070,000 and 2,070,000 shares issued and outstanding, respectively, net

     50,146       50,077  

Accounts payable and accrued expenses

     553       290  

Interest payable

     864       330  

Fees due to Adviser (A)

     1,048       1,084  

Fee due to Administrator (A)

     345       317  

Other liabilities

     409       318  
  

 

 

   

 

 

 

TOTAL LIABILITIES

   $ 210,998     $ 162,416  
  

 

 

   

 

 

 

Commitments and contingencies (B)

    

NET ASSETS

    

Common stock, $0.001 par value per share, 44,560,000 and 44,560,000 shares authorized, respectively, and 28,504,745 and 28,501,980 shares issued and outstanding, respectively

   $ 29     $ 29  

Capital in excess of par value

     343,033       343,076  

Cumulative net unrealized depreciation of investments

     (20,252     (37,421

Cumulative net unrealized depreciation of other

            

Overdistributed net investment income

     (180     (219

Accumulated net realized losses

     (95,204     (68,373
  

 

 

   

 

 

 

Total distributable loss

     (115,636     (106,013
  

 

 

   

 

 

 

TOTAL NET ASSETS

   $ 227,426     $ 237,092  
  

 

 

   

 

 

 

NET ASSET VALUE PER COMMON SHARE

   $ 7.98     $ 8.32  
  

 

 

   

 

 

 

 

 

(A)    Refer to Note 4—Related Party Transactions in the accompanying Notes to Consolidated Financial Statements for additional information.
(B)    Refer to Note 10—Commitments and Contingencies in the accompanying Notes to Consolidated Financial Statements for additional information.

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS.

 

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GLADSTONE CAPITAL CORPORATION

Consolidated Statements of Operations

(Dollar amounts in thousands, except per share amounts)

(Unaudited)

 

 

 

     THREE MONTHS ENDED
DECEMBER 31,
 
     2018     2017  

INVESTMENT INCOME

    

Interest income

    

Non-Control/Non-Affiliate investments

   $ 9,572     $ 7,684  

Affiliate investments

     1,175       1,111  

Control investments

     512       687  

Cash and cash equivalents

     16       12  
  

 

 

   

 

 

 

Total interest income (excluding PIK interest income)

     11,275       9,494  

PIK interest income

    

Non-Control/Non-Affiliate investments

     337       1,106  

Affiliate investments

     49       70  

Control investments

     26        
  

 

 

   

 

 

 

Total PIK interest income

     412       1,176  

Total interest income

     11,687       10,670  

Other income

     222       189  
  

 

 

   

 

 

 

Total investment income

     11,909       10,859  
  

 

 

   

 

 

 

EXPENSES

    

Base management fee (A)

     1,828       1,676  

Loan servicing fee (A)

     1,262       1,186  

Incentive fee (A)

     1,360       1,373  

Administration fee (A)

     345       272  

Interest expense on borrowings and notes payable

     1,898       1,231  

Dividends on mandatorily redeemable preferred stock

     776       776  

Amortization of deferred financing costs and discounts

     300       248  

Professional fees

     267       255  

Other general and administrative expenses

     323       292  
  

 

 

   

 

 

 

Expenses before credits from Adviser

     8,359       7,309  

Credit to base management fee—loan servicing fee (A)

     (1,262     (1,186

Credit to fees from Adviser—other (A)

     (1,174     (841
  

 

 

   

 

 

 

Total expenses, net of credits

     5,923       5,282  
  

 

 

   

 

 

 

NET INVESTMENT INCOME

     5,986       5,577  
  

 

 

   

 

 

 

NET REALIZED AND UNREALIZED (LOSS) GAIN

    

Net realized (loss) gain:

    

Non-Control/Non-Affiliate investments

     (26,856     602  

Affiliate investments

     2        

Control investments

     (9     (28

Other

           (133
  

 

 

   

 

 

 

Total net realized (loss) gain

     (26,863     441  

Net unrealized appreciation (depreciation):

    

Non-Control/Non-Affiliate investments

     19,707       908  

Affiliate investments

     4,204       1,040  

Control investments

     (6,742     (588

Other

           (218
  

 

 

   

 

 

 

Total net unrealized appreciation

     17,169       1,142  
  

 

 

   

 

 

 

Net realized and unrealized (loss) gain

     (9,694     1,583  
  

 

 

   

 

 

 

NET (DECREASE) INCREASE IN NET ASSETS RESULTING FROM OPERATIONS

   $ (3,708   $ 7,160  
  

 

 

   

 

 

 

BASIC AND DILUTED PER COMMON SHARE:

    

Net investment income

   $ 0.21     $ 0.21  
  

 

 

   

 

 

 

Net (decrease) increase in net assets resulting from operations

   $ (0.13   $ 0.27  
  

 

 

   

 

 

 

WEIGHTED AVERAGE SHARES OF COMMON STOCK OUTSTANDING: Basic and Diluted

     28,504,715       26,522,788  

 

 

(A)    Refer to Note 4—Related Party Transactions in the accompanying Notes to Consolidated Financial Statements for additional information.

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS.

 

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GLADSTONE CAPITAL CORPORATION

Consolidated Statements of Changes in Net Assets

(In thousands)

(Unaudited)

 

 

 

     THREE MONTHS ENDED
DECEMBER 31,
 
     2018     2017  

OPERATIONS

    

Net investment income

   $ 5,986     $ 5,577  

Net realized (loss) gain on investments

     (26,863     574  

Realized loss on other

           (133

Net unrealized appreciation of investments

     17,169       1,360  

Net unrealized appreciation of other

           (218
  

 

 

   

 

 

 

Net (decrease) increase in net assets resulting from operations

     (3,708     7,160  
  

 

 

   

 

 

 

DISTRIBUTIONS

    

Distributions to common stockholders from net investment income

     (5,986     (5,577
  

 

 

   

 

 

 

Net decrease in net assets from distributions

     (5,986     (5,577
  

 

 

   

 

 

 

CAPITAL TRANSACTIONS

    

Issuance of common stock

     28       4,567  

Discounts, commissions and offering costs for issuance of common stock

           (83
  

 

 

   

 

 

 

Net increase in net assets resulting from capital transactions

     28       4,484  
  

 

 

   

 

 

 

NET (DECREASE) INCREASE IN NET ASSETS

     (9,666     6,067  

NET ASSETS, BEGINNING OF PERIOD

     237,092       219,650  
  

 

 

   

 

 

 

NET ASSETS, END OF PERIOD

   $ 227,426     $ 225,717  
  

 

 

   

 

 

 

 

 

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS.

 

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GLADSTONE CAPITAL CORPORATION

Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

 

 

 

     THREE MONTHS ENDED
DECEMBER 31,
 
     2018     2017  

CASH FLOWS FROM OPERATING ACTIVITIES

    

Net (decrease) increase in net assets resulting from operations

   $ (3,708   $ 7,160  

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

    

Purchase of investments

     (59,228     (56,938

Principal repayments on investments

     8,868       18,569  

Net proceeds from sale of investments

     (13     1,274  

Increase in investments due to paid-in-kind interest

     (314     (983

Net change in premiums, discounts and amortization

     (108     (45

Net realized loss (gain) on investments

     26,863       (574

Net unrealized appreciation of investments

     (17,169     (1,360

Net unrealized appreciation of other

           218  

Changes in assets and liabilities:

    

Amortization of deferred financing fees

     300       248  

Increase in interest receivable, net

     (279     (468

Decrease (increase) in funds due from administrative agent

     670       (4,332

Decrease in other assets, net

     20       256  

Increase (decrease) in accounts payable and accrued expenses

     74       (11

Increase in interest payable

     534       66  

Decrease in fees due to Adviser (A)

     (36     (1

Increase in fee due to Administrator (A)

     28       28  

Increase (decrease) in other liabilities

     91       (26
  

 

 

   

 

 

 

Net cash used in operating activities

     (43,407     (36,919
  

 

 

   

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES

    

Proceeds from line of credit

     59,000       61,100  

Repayments on line of credit

     (66,800     (23,600

Proceeds from issuance of long term debt

     57,500        

Deferred financing fees

     (1,941     (42

Proceeds from issuance of common stock

     28       4,567  

Discounts, commissions and offering costs for issuance of common stock

           (68

Distributions paid to common stockholders

     (5,986     (5,577
  

 

 

   

 

 

 

Net cash provided by financing activities

     41,801       36,380  
  

 

 

   

 

 

 

NET DECREASE IN CASH, CASH EQUIVALENTS, RESTRICTED CASH, AND RESTRICTED CASH EQUIVALENTS

     (1,606     (539

CASH, CASH EQUIVALENTS, RESTRICTED CASH, AND RESTRICTED CASH EQUIVALENTS, BEGINNING OF PERIOD

     2,004       5,270  
  

 

 

   

 

 

 

CASH, CASH EQUIVALENTS, RESTRICTED CASH, AND RESTRICTED CASH EQUIVALENTS, END OF PERIOD

   $ 398     $ 4,731  
  

 

 

   

 

 

 

CASH PAID FOR INTEREST

   $ 1,364     $ 1,165  
  

 

 

   

 

 

 

 

 

(A)   Refer to Note 4—Related Party Transactions in the accompanying Notes to Consolidated Financial Statements for additional information.

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS.

 

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GLADSTONE CAPITAL CORPORATION

Consolidated Schedule of Investments

December 31, 2018

(Dollar amounts in thousands)

(Unaudited)

 

 

 

COMPANY AND INVESTMENT (A)(B)(W)(Y)

   PRINCIPAL/
SHARES/
UNITS (J)(X)
     COST      FAIR
VALUE
 

NON-CONTROL/NON-AFFILIATE INVESTMENTS(M)—164.1%

        

Secured First Lien Debt—92.9%

        

Aerospace and Defense—5.5%

        

Antenna Research Associates, Inc.—Line of Credit, $2,500 available (L + 8.3%, 10.8% Cash, Due 11/2021) (C)(I)

   $      $      $  
     

 

 

    

 

 

 

Antenna Research Associates, Inc—Term Debt (L + 10.0%, 12.5% Cash, 4.0% PIK, Due 11/2023) (C)(I)

     12,421        12,421        12,421  
     

 

 

    

 

 

 
        12,421        12,421  

Automobile—1.2%

        

Meridian Rack & Pinion, Inc. (S)—Term Debt (L + 11.5%, 14.0% Cash, Due 6/2019) (C)

     4,140        4,140        2,836  

Beverage, Food, and Tobacco—2.6%

        

Triple H Food Processors, LLC—Line of Credit, $750 available
(L + 6.8%, 9.3% Cash, Due 8/2020) (C)

                    

Triple H Food Processors, LLC—Term Debt (L + 8.3%, 10.8% Cash, Due 8/2020) (C)

     5,800        5,800        5,851  
     

 

 

    

 

 

 
        5,800        5,851  

Buildings and Real Estate—0.9%

        

GFRC 360, LLC—Line of Credit, $0 available (L + 8.0%, 10.5% Cash, Due 9/2018) (C)(Z)(BB)

     1,150        1,150        1,136  

GFRC 360, LLC—Term Debt (L + 8.0%, 10.5% Cash,
Due 9/2018) (C)(Z)(BB)

     1,000        1,000        988  
     

 

 

    

 

 

 
        2,150        2,124  

Diversified/Conglomerate Service—33.1%

        

DKI Ventures, LLC—Line of Credit, $2,500 available
(L + 8.3%, 10.8% Cash, Due 12/2021) (C)(I)

                    

DKI Ventures, LLC—Delayed Draw Term Loan, $5,000 available
(L + 8.3%, 10.8% Cash, Due 12/2023) (C)(I)

                    

DKI Ventures, LLC—Term Debt (L + 8.3%, 10.8% Cash, Due
12/2023) (C)(I)

     6,500        6,500        6,500  

IA Tech, LLC—Term Debt (L + 11.0%, 13.5% Cash,
Due 6/2023) (C)

     30,000        30,000        30,300  

R2i Holdings, LLC—Line of Credit, $2,000 available (L + 8.0%, 10.5% Cash, Due 12/2021) (C)(I)

                    

R2i Holdings, LLC—Term Debt (L + 8.0%, 10.5% Cash,
Due 12/2023) (C)(I)

     20,000        20,000        20,000  

Travel Sentry, Inc.—Term Debt (L + 8.0%, 10.5% Cash,
Due 12/2021) (C)(U)

     7,805        7,805        7,746  

 

 

 

 

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GLADSTONE CAPITAL CORPORATION

Consolidated Schedule of Investments

December 31, 2018

(Dollar amounts in thousands)

(Unaudited)

 

 

 

COMPANY AND INVESTMENT (A)(B)(W)(Y)

   PRINCIPAL/
SHARES/
UNITS (J)(X)
     COST      FAIR
VALUE
 

Vision Government Solutions, Inc.—Line of Credit, $0 available
(L + 8.8%, 11.3% Cash, Due 6/2021) (C)

     1,450        1,447        1,283  

Vision Government Solutions, Inc.—Delayed Draw Term Loan, $900 available (10.0% Cash, Due 6/2021) (C)(F)

     1,600        1,596        1,424  

Vision Government Solutions, Inc.—Term Debt (L + 8.8%, 11.3% Cash, Due 6/2021) (C)

     9,000        8,980        7,965  
     

 

 

    

 

 

 
        76,328        75,218  

Healthcare, education, and childcare—9.6%

        

EL Academies, Inc.—Line of Credit, $2,000 available (L + 9.5%, 12.0% Cash, Due 8/2020) (C)

                    

EL Academies, Inc.—Delayed Draw Term Loan, $0 available
(L + 9.5%, 12.0% Cash, Due 8/2022) (C)

     9,840        9,840        9,791  

EL Academies, Inc.—Term Debt (L + 9.5%, 12.0% Cash,
Due 8/2022) (C)

     12,000        12,000        11,940  
     

 

 

    

 

 

 
        21,840        21,731  

Machinery—2.4%

        

Arc Drilling Holdings LLC—Line of Credit, $875 available
(L + 8.0%, 10.5% Cash, Due 11/2020) (C)

     125        125        105  

Arc Drilling Holdings LLC—Term Debt (L + 9.5%, 12.0% Cash, 3.0% PIK, Due
11/2022) (C)

     5,931        5,931        4,967  

Precision International, LLC—Term Debt (10.0%, Due 9/2021) (C)(F)

     436        436        434  
     

 

 

    

 

 

 
        6,492        5,506  

Oil and Gas—17.7%

        

Impact! Chemical Technologies, Inc.—Line of Credit, $0 available (L + 8.8%, 11.3% Cash, Due 12/2020) (C)

     2,500        2,500        2,428  

Impact! Chemical Technologies, Inc.—Term Debt (L + 8.8%, 11.3% Cash, Due
12/2020) (C)

     20,000        20,000        19,425  

WadeCo Specialties, Inc.—Line of Credit, $0 available (L + 7.0%, 9.5% Cash, Due 3/2019) (C)

     2,000        2,000        1,993  

WadeCo Specialties, Inc.—Term Debt (L + 7.0%, 9.5% Cash,
Due 3/2019) (C)

     9,441        9,441        9,406  

WadeCo Specialties, Inc.—Term Debt (L + 9.0%, 12.0% Cash,
Due 3/2019) (C)

     7,000        7,000        6,947  
     

 

 

    

 

 

 
        40,941        40,199  

Printing and Publishing—0.0%

        

Chinese Yellow Pages Company—Line of Credit, $0 available (PRIME + 4.0%, 9.5% Cash, Due 2/2015) (E)(V)

     107        107         

 

 

 

 

S-F-7


Table of Contents

GLADSTONE CAPITAL CORPORATION

Consolidated Schedule of Investments

December 31, 2018

(Dollar amounts in thousands)

(Unaudited)

 

 

 

COMPANY AND INVESTMENT (A)(B)(W)(Y)

   PRINCIPAL/
SHARES/
UNITS (J)(X)
     COST      FAIR
VALUE
 

Telecommunications—19.9%

        

B+T Group Acquisition, Inc.(S)—Term Debt (L + 11.0%, 13.5% Cash, Due 12/2019) (C)

     6,000        6,000        5,940  

NetFortris Corp.—Term Debt (L + 9.0%, 11.5% Cash,
Due 2/2021) (C)

     23,302        23,252        22,603  

XMedius America, Inc.—Term Debt (L + 9.3%, 11.8% Cash,
Due 10/2022) (C)(AA)

     9,824        9,824        9,554  

XMedius Solutions Inc.—Term Debt (L + 9.3%, 11.8% Cash, Due 10/2022) (C)

     7,290        7,290        7,235  
     

 

 

    

 

 

 
        46,366        45,332  
     

 

 

    

 

 

 

Total Secured First Lien Debt

      $ 216,585      $ 211,218  
     

 

 

    

 

 

 

Secured Second Lien Debt—53.0%

        

Automobile—2.2%

        

Sea Link International IRB, Inc.—Term Debt (11.3% Cash,
Due 3/2023) (C)(F)

   $ 5,000      $ 4,981      $ 5,031  

Beverage, Food, and Tobacco—4.6%

        

8th Avenue Food & Provisions, Inc.—Term Debt (L + 7.8%, 10.3% Cash, Due
10/2026) (D)(I)

     3,683        3,709        3,619  

The Mochi Ice Cream Company—Term Debt (L + 10.5%, 13.0% Cash, Due
12/2023) (C)

     6,750        6,727        6,733  
     

 

 

    

 

 

 
        10,436        10,352  

Cargo Transportation—5.7%

        

AG Transportation Holdings, LLC.—Term Debt (L + 10.0%, 13.3% Cash, Due
3/2020) (C)

     13,000        13,000        12,869  

Chemicals, Plastics, and Rubber—0.5%

        

Vertellus Holdings LLC—Term Debt (L + 12.0%, 14.5% Cash, Due 10/2021) (C)

     1,099        1,099        1,080  

Diversified/Conglomerate Manufacturing—9.0%

        

Alloy Die Casting Co.(S)—Term Debt (L + 4.0%, 6.5% Cash, Due 4/2021) (C)

     5,235        5,235        4,855  

Alloy Die Casting Co.(S)—Term Debt (L + 4.0%, 6.5% Cash, Due 4/2021) (C)

     75        75        70  

Alloy Die Casting Co.(S)—Term Debt (L + 4.0%, 6.5% Cash, Due 4/2021) (C)

     390        390        362  

United Flexible, Inc.—Term Debt (L + 9.3%, 11.8% Cash, Due 2/2022) (C)

     15,300        15,235        15,300  
     

 

 

    

 

 

 
        20,935        20,587  

 

 

 

 

S-F-8


Table of Contents

GLADSTONE CAPITAL CORPORATION

Consolidated Schedule of Investments

December 31, 2018

(Dollar amounts in thousands)

(Unaudited)

 

 

 

COMPANY AND INVESTMENT (A)(B)(W)(Y)

   PRINCIPAL/
SHARES/
UNITS (J)(X)
     COST      FAIR
VALUE
 

Diversified/Conglomerate Service—10.8%

        

CHA Holdings, Inc.—Term Debt (L + 8.8%, 11.6% Cash,
Due 4/2026) (D)(U)

     3,000        2,943        3,030  

DigiCert Holdings, Inc.—Term Debt (L + 8.0%, 10.5% Cash,
Due 10/2025) (D)

     2,400        2,378        2,328  

Gray Matter Systems, LLC—Delayed Draw Term Loan, $2,000 available (12.0% Cash, Due 11/2023) (C)(F)

                    

Gray Matter Systems, LLC—Term Debt (12.0% Cash,
Due 11/2023) (C)(F)

     11,100        11,100        10,892  

Keystone Acquisition Corp.—Term Debt (L + 9.3%, 12.1% Cash, Due 5/2025) (D)(U)

     4,000        3,931        3,910  

LDiscovery, LLC—Term Debt (L + 10.0%, 12.5% Cash,
Due 12/2023) (D)

     5,000        4,841        4,400  
     

 

 

    

 

 

 
        25,193        24,560  

Grocery—0.9%

        

GOBP Holdings, Inc.—Term Debt (L + 7.3%, 10.1% Cash,
Due 10/2026) (D)(I)(U)

     2,000        1,980        1,970  

Healthcare, education, and childcare—10.1%

        

Medical Solutions Holdings, Inc.—Term Debt (L + 8.3%, 10.8% Cash, Due 6/2025) (D)

     3,000        2,961        2,940  

Merlin International, Inc.—Term Debt (L + 10.0%, 12.5% Cash,
Due 10/2022) (Q)

     20,000        20,000        20,000  

New Trident Holdcorp, Inc.—Term Debt (L + 10.0%, 5.6%
Cash, 6.9% PIK, Due 7/2020) (E)

     4,409        4,409         
     

 

 

    

 

 

 
        27,370        22,940  

Home and Office Furnishings, Housewares and Durable Consumer Products—4.3%

        

Belnick, Inc.—Term Debt (11.0% Cash, Due 8/2023) (C)(F)

     10,000        10,000        9,875  

Hotels, Motels, Inns, and Gaming—2.9%

        

Vacation Rental Pros Property Management, LLC—Term Debt
(L + 10.0%, 12.5% Cash, 3.0% PIK, Due 6/2023) (C)

     7,422        7,422        6,504  

Machinery—0.4%

        

CPM Holdings, Inc.—Term Debt (L + 8.3%, 10.8% Cash,
Due 11/2026) (D)(I)

     1,000        1,000        980  

Personal and Non-Durable Consumer Products (Manufacturing Only)—1.6%

        

Canopy Safety Brands, LLC—Term Debt (L + 10.5%, 13.0% Cash, Due 7/2022) (C)

     3,750        3,750        3,750  
     

 

 

    

 

 

 

Total Secured Second Lien Debt

      $ 127,166      $ 120,498  
     

 

 

    

 

 

 

 

 

 

 

S-F-9


Table of Contents

GLADSTONE CAPITAL CORPORATION

Consolidated Schedule of Investments

December 31, 2018

(Dollar amounts in thousands)

(Unaudited)

 

 

 

COMPANY AND INVESTMENT (A)(B)(W)(Y)

   PRINCIPAL/
SHARES/
UNITS (J)(X)
     COST      FAIR
VALUE
 

Unsecured Debt—1.6%

        

Healthcare, education, and childcare—1.6%

        

Edmentum Ultimate Holdings, LLC—Term Debt (10.0% PIK,
Due 6/2020)(C)(F)

   $ 3,705      $ 3,705      $ 3,649  

Preferred Equity—5.8%

        

Automobile—0.0%

        

Meridian Rack & Pinion, Inc. (S)—Preferred Stock (E)(G)

     1,449      $ 1,449      $  

Buildings and Real Estate—0.4%

        

GFRC 360, LLC—Preferred Stock (E)(G)(BB)

     1,000        1,025        905  

Diversified/Conglomerate Manufacturing—1.1%

        

Alloy Die Casting Co.(S)—Preferred Stock (E)(G)

     2,192        2,192        1,737  

United Flexible, Inc.—Preferred Stock (E)(G)

     538        538        726  
     

 

 

    

 

 

 
        2,730        2,463  

Diversified/Conglomerate Service—0.0%

        

Frontier Financial Group Inc.—Preferred Stock (E)(G)

     766        500         

Frontier Financial Group Inc.—Preferred Stock Warrant (E)(G)

     169                
     

 

 

    

 

 

 
        500         

Oil and Gas—3.8%

        

Chemical & Injection Holdings Company, LLC—Preferred
Equity Units (E)(G)

     13,740        633        2,241  

FES Resources Holdings LLC—Preferred Equity Units (E)(G)(I)

     6,350        6,350        6,350  
     

 

 

    

 

 

 
        6,983        8,591  

Telecommunications—0.5%

        

B+T Group Acquisition, Inc.(S)—Preferred Stock (E)(G)

     5,503        1,799         

NetFortris Corp.—Preferred Stock (E)(G)

     5,656,380        566        1,250  
     

 

 

    

 

 

 
        2,365        1,250  
     

 

 

    

 

 

 

Total Preferred Equity

      $ 15,052      $ 13,209  
     

 

 

    

 

 

 

Common Equity—10.8%

        

Aerospace and Defense—2.2%

        

Antenna Research Associates, Inc.—Common Equity Units (E)(G)(I)

     4,283      $ 4,283      $ 4,283  

FedCap Partners, LLC—Class A Membership Units ($0 Uncalled Commitment) (G)(K)(R)

     80        1,449        616  
     

 

 

    

 

 

 
        5,732        4,899  

Automobile—0.4%

        

Sea Link International IRB, Inc.—Common Equity Units (E)(G)

     588,039        588        948  

 

 

 

 

S-F-10


Table of Contents

GLADSTONE CAPITAL CORPORATION

Consolidated Schedule of Investments

December 31, 2018

(Dollar amounts in thousands)

(Unaudited)

 

 

 

COMPANY AND INVESTMENT (A)(B)(W)(Y)

   PRINCIPAL/
SHARES/
UNITS (J)(X)
    COST      FAIR
VALUE
 

Beverage, Food, and Tobacco—0.6%

       

The Mochi Ice Cream Company—Common Stock (E)(G)

     450       450        642  

Triple H Food Processors, LLC—Common Stock (E)(G)

     250,000       250        731  
    

 

 

    

 

 

 
       700        1,373  

Buildings and Real Estate—0.0%

       

GFRC 360, LLC—Common Stock Warrants (E)(G)(BB)

     45.0             

Cargo Transportation—1.0%

       

AG Transportation Holdings, LLC—Member Profit Participation (E)(G)

     18.0     1,000        1,557  

AG Transportation Holdings, LLC—Profit Participation Warrants (E)(G)

     12.0     244        829  
    

 

 

    

 

 

 
       1,244        2,386  

Chemicals, Plastics, and Rubber—0.2%

       

Vertellus Holdings LLC—Common Stock Units (E)(G)

     879,121       3,017        357  

Diversified/Conglomerate Manufacturing—1.0%

       

Alloy Die Casting Co.(S)—Common Stock (E)(G)

     270       18         

United Flexible, Inc.—Common Stock (E)(G)

     1,158       148        2,282  
    

 

 

    

 

 

 
       166        2,282  

Healthcare, education, and childcare—1.5%

       

Edmentum Ultimate Holdings, LLC—Common Stock (E)(G)

     21,429       2,636         

EL Academies, Inc.—Common Stock (E)(G)

     649       649        671  

Leeds Novamark Capital I, L.P.—Limited Partnership Interest
($843 uncalled capital commitment) (G)(L)(R)

     3.5     2,152        2,868  
    

 

 

    

 

 

 
       5,437        3,539  

Machinery—0.4%

       

Arc Drilling Holdings LLC—Common Stock (E)(G)

     16.7     1,500         

Precision International, LLC—Membership Unit Warrant (E)(G)

     33.3            815  
    

 

 

    

 

 

 
       1,500        815  

Oil and Gas—0.1%

       

FES Resources Holdings LLC—Common Equity Units (E)(G)(I)

     6,233               

Total Safety Holdings, LLC—Common Equity (E)(G)(CC)

     435       499        193  
    

 

 

    

 

 

 
       499        193  

Personal and Non-Durable Consumer Products (Manufacturing Only)—0.4%

       

Canopy Safety Brands, LLC—Participation Warrant (E)(G)

     1       500        436  

Funko Acquisition Holdings, LLC (S)—Common Units (G)(T)

     39,483       167        373  
    

 

 

    

 

 

 
       667        809  

 

 

 

 

S-F-11


Table of Contents

GLADSTONE CAPITAL CORPORATION

Consolidated Schedule of Investments

December 31, 2018

(Dollar amounts in thousands)

(Unaudited)

 

 

 

COMPANY AND INVESTMENT (A)(B)(W)(Y)

   PRINCIPAL/
SHARES/
UNITS (J)(X)
     COST      FAIR
VALUE
 

Telecommunications—0.0%

        

NetFortris Corp.—Common Stock Warrant (E)(G)

     1        1         

Textiles and leather—3.0%

        

Targus Cayman HoldCo, Ltd.—Common Stock (E)(G)

     3,076,414        5,009        6,863  
     

 

 

    

 

 

 

Total Common Equity

      $ 24,560      $ 24,464  
     

 

 

    

 

 

 

Total Non-Control/Non-Affiliate Investments

      $ 387,068      $ 373,038  
     

 

 

    

 

 

 

AFFILIATE INVESTMENTS (N)—14.5%

        

Secured First Lien Debt—3.5%

        

Diversified/Conglomerate Manufacturing—3.5%

        

Edge Adhesives Holdings, Inc. (S)—Term Debt (L + 10.5%, 13.0% Cash,
Due 2/2022) (C)

   $ 6,200      $ 6,200      $ 5,937  

Edge Adhesives Holdings, Inc. (S)—Term Debt (L + 11.8%, 14.3% Cash,
Due 2/2022) (C)

     2,000        2,000        1,925  
     

 

 

    

 

 

 
        8,200        7,862  
     

 

 

    

 

 

 

Total Secured First Lien Debt

      $ 8,200      $ 7,862  
     

 

 

    

 

 

 

Secured Second Lien Debt—9.3%

        

Diversified Natural Resources, Precious Metals and Minerals—9.3%

        

Lignetics, Inc.—Term Debt (L + 9.0%, 12.0% Cash, Due 11/2022) (C)

   $ 6,000      $ 6,000      $ 5,977  

Lignetics, Inc.—Term Debt (L + 9.0%, 12.0% Cash, Due 11/2022) (C)

     8,000        8,000        7,970  

Lignetics, Inc.—Term Debt (L + 9.0%, 12.0% Cash, Due 11/2022) (C)

     3,300        3,300        3,288  

Lignetics, Inc.—Term Debt (L + 9.0%, 12.0% Cash, Due 11/2022) (C)

     4,000        4,000        3,985  
     

 

 

    

 

 

 
        21,300        21,220  
     

 

 

    

 

 

 

Total Secured Second Lien Debt

      $ 21,300      $ 21,220  
     

 

 

    

 

 

 

Preferred Equity—0.6%

        

Diversified/Conglomerate Manufacturing—0.2%

        

Edge Adhesives Holdings, Inc. (S)—Preferred Stock (E)(G)

     2,516      $ 2,516      $ 499  

Diversified Natural Resources, Precious Metals and Minerals—0.4%

        

Lignetics, Inc.—Preferred Stock (E)(G)

     40,000        800        898  
     

 

 

    

 

 

 

Total Preferred Equity

      $ 3,316      $ 1,397  
     

 

 

    

 

 

 

Common Equity—1.1%

        

Diversified Natural Resources, Precious Metals and Minerals—1.1%

        

Lignetics, Inc.—Common Stock (E)(G)

     152,603      $ 1,855      $ 2,585  
     

 

 

    

 

 

 

Total Common Equity

      $ 1,855      $ 2,585  
     

 

 

    

 

 

 

Total Affiliate Investments

      $ 34,671      $ 33,064  
     

 

 

    

 

 

 

 

 

 

 

S-F-12


Table of Contents

GLADSTONE CAPITAL CORPORATION

Consolidated Schedule of Investments

December 31, 2018

(Dollar amounts in thousands)

(Unaudited)

 

 

 

COMPANY AND INVESTMENT (A)(B)(W)(Y)

   PRINCIPAL/
SHARES/
UNITS (J)(X)
     COST      FAIR
VALUE
 

CONTROL INVESTMENTS (O)—11.0%

        

Secured First Lien Debt—6.0%

        

Diversified/Conglomerate Manufacturing—4.0%

        

LWO Acquisitions Company LLC—Line of Credit, $0 available
(L + 5.5%, 8.0% Cash, 2.0% PIK, Due 12/2019) (E)

   $ 3,971      $ 3,971      $ 3,971  

LWO Acquisitions Company LLC—Term Debt (L + 8.5%, 11.0% Cash, 2.0% PIK, Due 12/2019) (E)

     11,223        11,223        5,250  
     

 

 

    

 

 

 
        15,194        9,221  

Machinery—1.3%

        

PIC 360, LLC—Term Debt (14.0% Cash, Due 9/2019) (E)(F)

     2,850        2,850        2,850  

Printing and Publishing—0.7%

        

TNCP Intermediate HoldCo, LLC—Line of Credit, $500 available (8.0% Cash, Due 9/2021) (E)(F)

     1,500        1,454        1,500  
     

 

 

    

 

 

 

Total Secured First Lien Debt

      $ 19,498      $ 13,571  
     

 

 

    

 

 

 

Secured Second Lien Debt—3.5%

        

Automobile—3.5%

        

Defiance Integrated Technologies, Inc.—Term Debt (L + 9.5%, 12.0% Cash, Due 8/2023) (E)

   $ 8,065      $ 8,065      $ 8,065  

Unsecured Debt—0.0%

        

Diversified/Conglomerate Manufacturing—0.0%

        

LWO Acquisitions Company LLC—Term Debt
(Due 6/2020) (E)(P)

   $ 95      $ 95      $  

Common Equity—1.5%

        

Automobile—0.5%

        

Defiance Integrated Technologies, Inc.—Common Stock (E)(G)

     33,321      $ 580      $ 1,204  

Diversified/Conglomerate Manufacturing—0.0%

        

LWO Acquisitions Company LLC—Common Units (E)(G)

     921,000        921         

Machinery—0.8%

        

PIC 360, LLC—Common Equity Units (E)(G)

     750        1        1,664  

Printing and Publishing—0.2%

        

TNCP Intermediate HoldCo, LLC—Common Equity Units (E)(G)

     790,000        500        541  
     

 

 

    

 

 

 

Total Common Equity

      $ 2,002      $ 3,409  
     

 

 

    

 

 

 

Total Control Investments

      $ 29,660      $ 25,045  
     

 

 

    

 

 

 

TOTAL INVESTMENTS—189.6%

      $ 451,399      $ 431,147  
     

 

 

    

 

 

 

 

 

  (A)  

Certain of the securities listed in this schedule are issued by affiliate(s) of the indicated portfolio company. The majority of the securities listed, totaling $361.2 million at fair value, are pledged as collateral to our revolving line of credit, as described further in Note 5—Borrowings in the accompanying Notes to Consolidated Financial Statements. Under the Investment Company Act of 1940, as amended, (the “1940 Act”), we may not acquire any non-qualifying assets unless, at the time such acquisition is made, qualifying assets represent at least 70% of our total assets. As of December 31, 2018, our investments in FedCap Partners, LLC, Leeds Novamark Capital I, L.P., Funko Acquisition Holdings, LLC (“Funko”), and XMedius Solutions Inc. are considered non-qualifying

 

S-F-13


Table of Contents

GLADSTONE CAPITAL CORPORATION

Consolidated Schedule of Investments

December 31, 2018

(Dollar amounts in thousands)

(Unaudited)

 

 

 

  assets under Section 55 of the 1940 Act. Such non-qualifying assets represent 2.6% of total investments, at fair value, as of December 31, 2018.
  (B)   Unless indicated otherwise, all cash interest rates are indexed to 30-day London Interbank Offered Rate (“LIBOR” or “L”), which was 2.50% as of December 31, 2018. If applicable, paid-in-kind (“PIK”) interest rates are noted separately from the cash interest rate. Certain securities are subject to an interest rate floor. The cash interest rate is the greater of the floor or LIBOR plus a spread. Due dates represent the contractual maturity date.
  (C)   Fair value was based on an internal yield analysis or on estimates of value submitted by ICE Data Pricing and Reference Data, LLC (formerly Standard and Poor’s Securities Evaluations, Inc.).
(D)   Fair value was based on the indicative bid price on or near December 31, 2018, offered by the respective syndication agent’s trading desk.
  (E)   Fair value was based on the total enterprise value of the portfolio company, which was then allocated to the portfolio company’s securities in order of their relative priority in the capital structure.
(F)   Debt security has a fixed interest rate.
  (G)   Security is non-income producing.
(H)   Reserved.
(I)   New investment during the quarter ended December 31, 2018.
(J)   Where applicable, aggregates all shares of a class of stock owned without regard to specific series owned within such class (some series of which may or may not be voting shares) or aggregates all warrants to purchase shares of a class of stock owned without regard to specific series of such class of stock such warrants allow us to purchase.
(K)   There are certain limitations on our ability to transfer our units owned, withdraw or resign prior to dissolution of the entity, which must occur no later than May 3, 2020.
(L)   There are certain limitations on our ability to withdraw our partnership interest prior to dissolution of the entity, which must occur no later than May 9, 2024 or two years after all outstanding leverage has matured.
(M)   Non-Control/Non-Affiliate investments, as defined by the 1940 Act, are those that are neither Control nor Affiliate investments and in which we own less than 5.0% of the issued and outstanding voting securities.
(N)   Affiliate investments, as defined by the 1940 Act, are those in which we own, with the power to vote, between and inclusive of 5.0% and 25.0% of the issued and outstanding voting securities.
(O)   Control investments, as defined by the 1940 Act, are those where we have the power to exercise a controlling influence over the management or policies of the portfolio company, which may include owning, with the power to vote, more than 25.0% of the issued and outstanding voting securities.
(P)   Debt security does not have a stated interest rate that is payable thereon.
(Q)   Fair value was based on the expected exit or payoff amount, where such event has occurred or is expected to occur imminently.
(R)   Fair value was based on net asset value provided by the fund as a practical expedient.
(S)   One of our affiliated funds, Gladstone Investment Corporation, co-invested with us in this portfolio company pursuant to an exemptive order granted by the U.S. Securities and Exchange Commission.
(T)   Our investment in Funko was valued using Level 2 inputs within the FASB Accounting Standard Codification (“ASC”) Topic 820, “Fair Value Measurements and Disclosures” (“ASC 820”) fair value hierarchy. Our common units in Funko are convertible to class A common stock in Funko, Inc. upon meeting certain requirements. Fair value was based on the closing market price of shares of Funko, Inc. as of the reporting date, less a discount for lack of marketability. Funko, Inc. is traded on the Nasdaq Stock Market under the trading symbol “FNKO.” Refer to Note 3—Investments in the accompanying Notes to Consolidated Financial Statements for additional information.
(U)   The cash interest rate on this investment was indexed to 90-day LIBOR, which was 2.81% as of December 31, 2018.
(V)   The cash interest rate on this investment was indexed to the U.S. Prime Rate, which was 5.50% as of December 31, 2018.
(W)   Unless indicated otherwise, all of our investments are valued using Level 3 inputs within the ASC 820 fair value hierarchy. Refer to Note 3—Investments in the accompanying Notes to Consolidated Financial Statements for additional information.
(X)   Represents the principal balance for debt investments and the number of shares/units held for equity investments. Warrants are represented as a percentage of ownership, as applicable.
(Y)   Category percentages represent the fair value of each category and subcategory as a percentage of net assets as of December 31, 2018.
(Z)   Subsequent to December 31, 2018, the investment maturity date was extended to September 2020.
(AA)   Investment formerly known as Applied Voice & Speech Technologies, Inc.
(BB)   Investment formerly known as GFRC Holdings, LLC.
(CC)   Investment formerly known as W3, Co.

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS.

 

S-F-14


Table of Contents

GLADSTONE CAPITAL CORPORATION

Consolidated Schedule of Investments

September 30, 2018

(Dollar amounts in thousands)

 

 

 

COMPANY AND INVESTMENT (A)(B)(W)(Y)

   PRINCIPAL/
SHARES/
UNITS (J)(X)
     COST      FAIR VALUE  

NON-CONTROL/NON-AFFILIATE INVESTMENTS (M)—137.3%

        

Secured First Lien Debt—75.3%

        

Automobile—1.3%

        

Meridian Rack & Pinion, Inc. (S)—Term Debt (L + 11.5%, 13.8% Cash, Due 6/2019) (C)

   $ 4,140      $ 4,140      $ 3,105  

Beverage, Food, and Tobacco—2.6%

        

Triple H Food Processors, LLC—Line of Credit, $750 available (L + 6.8%, 9.0% Cash, Due 8/2020) (C)

                    

Triple H Food Processors, LLC—Term Debt (L + 8.3%, 10.5% Cash, Due 8/2020) (C)

     6,000        6,000        6,135  
     

 

 

    

 

 

 
        6,000        6,135  

Buildings and Real Estate—0.9%

        

GFRC Holdings, LLC—Line of Credit, $0 available (L + 8.0%, 10.3% Cash, Due 9/2018) (E)

     1,150        1,150        1,150  

GFRC Holdings, LLC—Term Debt (L + 8.0%, 10.3% Cash, Due 9/2018) (E)

     1,000        1,000        1,000  
     

 

 

    

 

 

 
        2,150        2,150  

Diversified/Conglomerate Service—21.3%

        

IA Tech, LLC—Term Debt (L + 11.0%, 13.3% Cash, Due 6/2023) (C)

     30,000        30,000        30,900  

Travel Sentry, Inc.—Term Debt (L + 8.0%, 10.4% Cash, Due 12/2021) (C)(U)

     8,415        8,415        8,646  

Vision Government Solutions, Inc.—Line of Credit, $0 available (L + 8.8%, 11.0% Cash, Due 6/2021) (C)

     1,450        1,446        1,305  

Vision Government Solutions, Inc.—Delayed Draw Term Loan, $900 available (10.0% Cash, Due 6/2021) (C)(F)

     1,600        1,596        1,448  

Vision Government Solutions, Inc.—Term Debt (L + 8.8%, 11.0% Cash, Due 6/2021) (C)

     9,000        8,978        8,100  
     

 

 

    

 

 

 
        50,435        50,399  

Healthcare, education, and childcare—9.7%

        

EL Academies, Inc.—Line of Credit, $2,000 available (L + 9.5%, 11.8% Cash, Due 8/2020) (C)

                    

EL Academies, Inc.—Delayed Draw Term Loan, $1,010 available (L + 9.5%, 11.8% Cash, Due 8/2022) (C)

     8,990        8,990        9,069  

EL Academies, Inc.—Term Debt (L + 9.5%, 11.8% Cash, Due 8/2022) (C)

     12,000        12,000        12,105  

TWS Acquisition Corporation—Term Debt (L + 8.0%, 10.3% Cash, Due 7/2020) (Q)(AA)

     2,000        2,000        2,000  
     

 

 

    

 

 

 
        22,990        23,174  

 

 

 

 

S-F-15


Table of Contents

GLADSTONE CAPITAL CORPORATION

Consolidated Schedule of Investments

September 30, 2018

(Dollar amounts in thousands)

 

 

 

COMPANY AND INVESTMENT (A)(B)(W)(Y)

   PRINCIPAL/
SHARES/
UNITS (J)(X)
     COST      FAIR VALUE  

Machinery—2.7%

        

Arc Drilling Holdings LLC—Line of Credit, $1,000 available (L + 8.0%, 10.3% Cash, Due 11/2020) (C)

                    

Arc Drilling Holdings LLC—Term Debt (L + 9.5%, 11.8% Cash, 3.0% PIK, Due 11/2022) (C)

     5,960        5,960        5,454  

Precision International, LLC—Term Debt (10.0%,
Due 9/2021) (C)(F)

     836        836        836  
     

 

 

    

 

 

 
        6,796        6,290  

Oil and Gas—17.0%

        

Impact! Chemical Technologies, Inc.—Line of Credit, $0 available (L + 8.8%, 11.0% Cash, Due 12/2020) (C)

     2,500        2,500        2,497  

Impact! Chemical Technologies, Inc.—Term Debt (L + 8.8%, 11.0% Cash, Due 12/2020) (C)

     20,000        20,000        19,975  

WadeCo Specialties, Inc.—Line of Credit, $1,100 available (L + 7.0%, 9.3% Cash, Due 3/2019) (C)

     900        900        909  

WadeCo Specialties, Inc.—Term Debt (L + 7.0%, 9.3% Cash, Due 3/2019) (C)

     9,691        9,691        9,788  

WadeCo Specialties, Inc.—Term Debt (L + 9.0%, 12.0% Cash, Due 3/2019) (C)

     7,000        7,000        7,035  
     

 

 

    

 

 

 
        40,091        40,204  

Printing and Publishing—0.0%

        

Chinese Yellow Pages Company—Line of Credit, $0 available (PRIME + 4.0%, 9.3% Cash, Due 2/2015)(E)(V)

     107        107         

Telecommunications—19.8%

        

Applied Voice & Speech Technologies, Inc.—Term Debt (L + 9.3%, 11.5% Cash, Due 10/2022) (C)

     10,100        10,100        9,948  

B+T Group Acquisition, Inc.(S)—Term Debt (L + 11.0%, 13.3% Cash, Due 12/2019)(C)

     6,000        6,000        6,000  

NetFortris Corp.—Term Debt (L + 8.4%, 10.7% Cash, Due 2/2021) (C)

     23,700        23,700        23,522  

XMedius Solutions Inc.—Term Debt (L + 9.3%, 11.5% Cash, Due 10/2022) (C)

     7,493        7,493        7,521  
     

 

 

    

 

 

 
        47,293        46,991  
     

 

 

    

 

 

 

Total Secured First Lien Debt

      $ 180,002      $ 178,448  
     

 

 

    

 

 

 

Secured Second Lien Debt—53.5%

        

Automobile—2.1%

        

Sea Link International IRB, Inc.—Term Debt (11.3% Cash, Due 3/2023) (C)(F)

   $ 5,000      $ 4,980      $ 5,094  

 

 

 

 

S-F-16


Table of Contents

GLADSTONE CAPITAL CORPORATION

Consolidated Schedule of Investments

September 30, 2018

(Dollar amounts in thousands)

 

 

 

COMPANY AND INVESTMENT (A)(B)(W)(Y)

   PRINCIPAL/
SHARES/
UNITS (J)(X)
     COST      FAIR VALUE  

Beverage, Food, and Tobacco—2.9%

        

The Mochi Ice Cream Company—Term Debt (L + 10.5%, 12.8% Cash, Due 12/2023) (C)

     6,750        6,726        6,767  

Cargo Transportation—5.5%

        

AG Transportation Holdings, LLC.—Term Debt (L + 10.0%, 13.3% Cash, Due 3/2020) (C)

     13,000        13,000        13,097  

Chemicals, Plastics, and Rubber—0.5%

        

Vertellus Holdings LLC—Term Debt (L + 12.0%, 14.3% Cash, Due 10/2021) (C)

     1,099        1,099        1,096  

Diversified/Conglomerate Manufacturing—8.7%

        

Alloy Die Casting Co. (S)—Term Debt (L + 4.0%, 6.3% Cash, Due 4/2021) (C)

     5,235        5,235        4,934  

Alloy Die Casting Co.(S)—Term Debt (L + 4.0%, 6.3% Cash, Due 4/2021) (C)

     75        75        71  

Alloy Die Casting Co.(S)—Term Debt (L + 4.0%, 6.3% Cash, Due 4/2021) (C)

     390        390        368  

United Flexible, Inc.—Term Debt (L + 9.3%, 11.5% Cash, Due 2/2022) (C)

     15,300        15,232        15,300  
     

 

 

    

 

 

 
        20,932        20,673  

Diversified/Conglomerate Service—12.1%

        

CHA Holdings, Inc.—Term Debt (L + 8.8%, 11.1% Cash, Due 4/2026) (D)(U)

     3,000        2,942        3,030  

DigiCert Holdings, Inc.—Term Debt (L + 8.0%, 10.3% Cash, Due 10/2025) (D)

     3,000        2,977        2,989  

Gray Matter Systems, LLC—Delayed Draw Term Loan, $2,000 available (12.0% Cash, Due 11/2023) (C)(F)

                    

Gray Matter Systems, LLC—Term Debt (12.0% Cash, Due 11/2023) (C)(F)

     11,100        11,100        11,045  

Keystone Acquisition Corp.—Term Debt (L + 9.3%, 11.6% Cash, Due 5/2025) (D)(U)

     4,000        3,929        4,015  

LDiscovery, LLC—Term Debt (L + 10.0%, 12.3% Cash, Due 12/2023) (D)

     5,000        4,836        4,400  

Red Ventures, LLC—Term Debt (L + 8.0%, 10.3% Cash, Due 11/2025) (D)(AA)

     3,125        3,069        3,188  
     

 

 

    

 

 

 
        28,853        28,667  

Healthcare, education, and childcare—10.0%

        

Medical Solutions Holdings, Inc.—Term Debt (L + 8.3%, 10.5% Cash, Due 6/2025) (D)

     3,000        2,960        3,000  

Merlin International, Inc.—Term Debt (L + 10.0%, 12.3% Cash, Due 10/2022) (C)

     20,000        20,000        20,600  

New Trident Holdcorp, Inc.—Term Debt (L + 10.0%, 5.5% Cash, 6.8% PIK, Due 7/2020)(E)

     4,382        4,382         
     

 

 

    

 

 

 
        27,342        23,600  

 

 

 

 

S-F-17


Table of Contents

GLADSTONE CAPITAL CORPORATION

Consolidated Schedule of Investments

September 30, 2018

(Dollar amounts in thousands)

 

 

 

COMPANY AND INVESTMENT (A)(B)(W)(Y)

   PRINCIPAL/
SHARES/
UNITS (J)(X)
     COST      FAIR VALUE  

Home and Office Furnishings, Housewares and Durable Consumer Products—4.3%

        

Belnick, Inc.—Term Debt (11.0% Cash, Due 8/2023) (C)(F)

     10,000        10,000        10,125  

Hotels, Motels, Inns, and Gaming—2.6%

        

Vacation Rental Pros Property Management, LLC—Term Debt
(L + 10.0%, 12.3% Cash, 3.0% PIK, Due 6/2023) (C)

     7,366        7,366        6,337  

Oil and Gas—3.2%

        

Francis Drilling Fluids, Ltd.—Term Debt (L + 10.4%, 12.6% Cash, Due 4/2020) (E)(H)(I)

     18,510        18,427        5,281  

Francis Drilling Fluids, Ltd.—Term Debt (L + 9.3%, 11.5% Cash, Due 4/2020) (E)(H)(I)

     8,473        8,434        2,417  
     

 

 

    

 

 

 
        26,861        7,698  

Personal and Non-Durable Consumer Products (Manufacturing Only)—1.6%

        

Canopy Safety Brands, LLC—Term Debt (L + 10.5%, 12.8% Cash, Due 7/2022) (C)

     3,750        3,750        3,802  
     

 

 

    

 

 

 

Total Secured Second Lien Debt

      $ 150,909      $ 126,956  
     

 

 

    

 

 

 

Unsecured Debt—1.5%

        

Healthcare, education, and childcare—1.5%

        

Edmentum Ultimate Holdings, LLC—Term Debt (10.0% PIK, Due 6/2020) (C)(F)

   $ 3,613      $ 3,613      $ 3,603  

Preferred Equity—1.9%

        

Automobile—0.0%

        

Meridian Rack & Pinion, Inc. (S)—Preferred Stock(E)(G)

     1,449      $ 1,449      $  

Buildings and Real Estate—0.1%

        

GFRC Holdings, LLC—Preferred Stock (E)(G)

     1,000        1,025        305  

Diversified/Conglomerate Manufacturing—0.5%

        

Alloy Die Casting Co.(S)—Preferred Stock (E)(G)

     2,192        2,192        533  

United Flexible, Inc.—Preferred Stock (E)(G)

     538        538        708  
     

 

 

    

 

 

 
        2,730        1,241  

Diversified/Conglomerate Service—0.0%

        

Frontier Financial Group Inc.—Preferred Stock (E)(G)

     766        500         

Frontier Financial Group Inc.—Preferred Stock Warrant (E)(G)

     169                
     

 

 

    

 

 

 
        500         

Oil and Gas—0.9%

        

Chemical & Injection Holdings Company, LLC—Preferred Equity Units (E)(G)

     13,830        618        2,137  

Francis Drilling Fluids, Ltd.—Preferred Equity Units (E)(G)(I)

     1,656        1,215         
     

 

 

    

 

 

 
        1,833        2,137  

 

 

 

 

S-F-18


Table of Contents

GLADSTONE CAPITAL CORPORATION

Consolidated Schedule of Investments

September 30, 2018

(Dollar amounts in thousands)

 

 

 

COMPANY AND INVESTMENT (A)(B)(W)(Y)

   PRINCIPAL/
SHARES/
UNITS (J)(X)
    COST      FAIR VALUE  

Telecommunications—0.4%

       

B+T Group Acquisition, Inc. (S)—Preferred Stock (E)(G)

     5,503       1,799         

NetFortris Corp.—Preferred Stock (E)(G)

     2,677,070       268        803  
    

 

 

    

 

 

 
       2,067        803  
    

 

 

    

 

 

 

Total Preferred Equity

     $ 9,604      $ 4,486  
    

 

 

    

 

 

 

Common Equity—5.1%

       

Aerospace and Defense—0.3%

       

FedCap Partners, LLC—Class A Membership Units ($0 Uncalled Commitment) (G)(K)(R)

     80     $ 1,449      $ 616  

Automobile—0.4%

       

Sea Link International IRB, Inc.—Common Equity Units (E)(G)

     494,902       495        857  

Beverage, Food, and Tobacco—0.3%

       

The Mochi Ice Cream Company—Common Stock (E)(G)

     450       450        230  

Triple H Food Processors, LLC—Common Stock (E)(G)

     250,000       250        595  
    

 

 

    

 

 

 
       700        825  

Buildings and Real Estate—0.0%

       

GFRC Holdings, LLC—Common Stock Warrants (E)(G)

     45.0             

Cargo Transportation—0.9%

       

AG Transportation Holdings, LLC—Member Profit
Participation (E)(G)

     18.0     1,000        1,375  

AG Transportation Holdings, LLC—Profit Participation
Warrants (E)(G)

     12.0     244        692  
    

 

 

    

 

 

 
       1,244        2,067  

Chemicals, Plastics, and Rubber—0.2%

       

Vertellus Holdings LLC—Common Stock Units (E)(G)

     879,121       3,017        404  

Diversified/Conglomerate Manufacturing—0.9%

       

Alloy Die Casting Co. (S)—Common Stock (E)(G)

     270       18         

United Flexible, Inc.—Common Stock (E)(G)

     1,158       148        2,247  
    

 

 

    

 

 

 
       166        2,247  

Healthcare, education, and childcare—1.4%

       

Edmentum Ultimate Holdings, LLC—Common Stock (E)(G)

     21,429       2,636         

EL Academies, Inc.—Common Stock (E)(G)

     649       649        844  

Leeds Novamark Capital I, L.P.—Limited Partnership Interest ($843 uncalled capital commitment) (G)(L)(R)

     3.5     2,152        2,695  
    

 

 

    

 

 

 
       5,437        3,539  

Machinery—0.1%

       

Arc Drilling Holdings LLC—Common Stock (E)(G)

     16.7     1,500         

Precision International, LLC—Membership Unit Warrant (E)(G)

     33.3            296  
    

 

 

    

 

 

 
       1,500        296  

 

 

 

 

S-F-19


Table of Contents

GLADSTONE CAPITAL CORPORATION

Consolidated Schedule of Investments

September 30, 2018

(Dollar amounts in thousands)

 

 

 

COMPANY AND INVESTMENT (A)(B)(W)(Y)

   PRINCIPAL/
SHARES/
UNITS (J)(X)
     COST      FAIR VALUE  

Oil and Gas—0.1%

        

Francis Drilling Fluids, Ltd.—Common Equity Units (E)(G)(I)

     1,656        1         

W3, Co.—Common Equity (E)(G)

     435        499        133  
     

 

 

    

 

 

 
        500        133  

Personal and Non-Durable Consumer Products (Manufacturing Only)—0.5%

        

Canopy Safety Brands, LLC—Participation Warrant (E)(G)

     1        500        418  

Funko Acquisition Holdings, LLC (S)—Common Units (G)(T)

     39,483        167        672  
     

 

 

    

 

 

 
        667        1,090  

Telecommunications—0.0%

        

NetFortris Corp.—Common Stock Warrant (E)(G)

     1        1         
     

 

 

    

 

 

 

Total Common Equity

      $ 15,176      $ 12,074  
     

 

 

    

 

 

 

Total Non-Control/Non-Affiliate Investments

      $ 359,304      $ 325,567  
     

 

 

    

 

 

 

AFFILIATE INVESTMENTS (N)—20.6%

        

Secured First Lien Debt—7.1%

        

Diversified/Conglomerate Manufacturing—7.1%

        

Edge Adhesives Holdings, Inc. (S)—Term Debt (L + 10.5%, 12.8% Cash,
Due 2/2019) (C)

   $ 6,200      $ 6,200      $ 6,061  

Edge Adhesives Holdings, Inc. (S)—Term Debt (L + 11.8%, 14.0% Cash,
Due 2/2019) (C)

     1,600        1,600        1,572  

LWO Acquisitions Company LLC—Line of Credit, $0 available (L + 5.5%, 7.8% Cash, 2.0% PIK, Due 12/2019) (C)

     3,205        3,205        3,105  

LWO Acquisitions Company LLC—Term Debt (L + 8.5%, 10.8% Cash, 2.0% PIK, Due 12/2019) (C)

     11,166        11,166        6,089  
     

 

 

    

 

 

 
        22,171        16,827  
     

 

 

    

 

 

 

Total Secured First Lien Debt

      $ 22,171      $ 16,827  
     

 

 

    

 

 

 

Secured Second Lien Debt—9.0%

        

Diversified Natural Resources, Precious Metals and Minerals—9.0%

        

Lignetics, Inc.—Term Debt (L + 9.0%, 12.0% Cash, Due 11/2022) (C)

   $ 6,000      $ 6,000      $ 6,014  

Lignetics, Inc.—Term Debt (L + 9.0%, 12.0% Cash, Due 11/2022) (C)

     8,000        8,000        8,020  

Lignetics, Inc.—Term Debt (L + 9.0%, 12.0% Cash, Due 11/2022) (C)

     3,300        3,300        3,308  

Lignetics, Inc.—Term Debt (L + 9.0%, 12.0% Cash, Due 11/2022) (C)

     4,000        4,000        4,010  
     

 

 

    

 

 

 
        21,300        21,352  
     

 

 

    

 

 

 

Total Secured Second Lien Debt

      $ 21,300      $ 21,352  
     

 

 

    

 

 

 

 

 

 

 

S-F-20


Table of Contents

GLADSTONE CAPITAL CORPORATION

Consolidated Schedule of Investments

September 30, 2018

(Dollar amounts in thousands)

 

 

 

COMPANY AND INVESTMENT (A)(B)(W)(Y)

   PRINCIPAL/
SHARES/
UNITS (J)(X)
     COST      FAIR VALUE  

Unsecured Debt—0.0%

        

Diversified/Conglomerate Manufacturing—0.0%

        

LWO Acquisitions Company LLC—Term Debt
(Due 6/2020) (C)(P)

   $ 95      $ 95      $ 52  

Preferred Equity—1.4%

        

Diversified/Conglomerate Manufacturing—1.0%

        

Edge Adhesives Holdings, Inc. (S)—Preferred Stock (E)(G)

     2,516      $ 2,516      $ 2,381  

Diversified Natural Resources, Precious Metals and Minerals—0.4%

        

Lignetics, Inc.—Preferred Stock (E)(G)

     40,000        800        882  
     

 

 

    

 

 

 

Total Preferred Equity

      $ 3,316      $ 3,263  
     

 

 

    

 

 

 

Common Equity—3.1%

        

Diversified/Conglomerate Manufacturing—0.0%

        

LWO Acquisitions Company LLC—Common Units (E)(G)

     921,000      $ 921      $  

Diversified Natural Resources, Precious Metals and Minerals—0.3%

        

Lignetics, Inc.—Common Stock (E)(G)

     152,603        1,855        806  

Textiles and Leather—2.8%

        

Targus Cayman HoldCo, Ltd.—Common Stock (E)(G)

     3,076,414        5,009        6,556  
     

 

 

    

 

 

 

Total Common Equity

      $ 7,785      $ 7,362  
     

 

 

    

 

 

 

Total Affiliate Investments

      $ 54,667      $ 48,856  
     

 

 

    

 

 

 

CONTROL INVESTMENTS (O)—6.6%

        

Secured First Lien Debt—1.8%

        

Machinery—1.2%

        

PIC 360, LLC—Term Debt (14.0% Cash, Due 9/2019) (E)(F)

   $ 2,850      $ 2,850      $ 2,850  

Printing and Publishing—0.6%

        

TNCP Intermediate HoldCo, LLC—Line of Credit, $500 available (8.0% Cash, Due 9/2021) (E)(F)

   $ 1,500        1,500        1,500  
     

 

 

    

 

 

 

Total Secured First Lien Debt

      $ 4,350      $ 4,350  
     

 

 

    

 

 

 

Secured Second Lien Debt—3.4%

        

Automobile—3.4%

        

Defiance Integrated Technologies, Inc.—Term Debt (L + 9.5%, 11.8% Cash, Due 8/2023) (E)

   $ 8,065      $ 8,065