497 1 d429476d497.htm 497 497
Table of Contents

Filed pursuant to Rule 497
Registration No. 333-172968

PROSPECTUS SUPPLEMENT

(to Prospectus dated July 10, 2012)

$100,000,000

LOGO

Solar Capital Ltd.

6.75% Senior Notes due 2042

 

We are offering $100,000,000 in aggregate principal amount of 6.75% senior notes due 2042, which we refer to as the Notes. The Notes will mature on November 15, 2042. We will pay interest on the Notes on February 15, May 15, August 15, and November 15 of each year, beginning on February 15, 2013. We may redeem the Notes in whole or in part at any time or from time to time on or after November 15, 2017, at the redemption price discussed under the caption “Specific Terms of the Notes and the Offering—Optional redemption” in this prospectus supplement. The Notes will be issued in minimum denominations of $25 and integral multiples of $25 in excess thereof.

The Notes will be our direct senior unsecured obligations and rank pari passu with all future unsecured unsubordinated indebtedness issued by Solar Capital Ltd.

We intend to apply to list the Notes on The New York Stock Exchange. If the application is approved, we expect trading in the Notes on The New York Stock Exchange to begin within 30 days of the original issue date. The Notes are expected to trade “flat.” This means that purchasers will not pay, and sellers will not receive, any accrued and unpaid interest on the Notes that is not included in the trading price. Currently, there is no public market for the Notes.

We are an externally managed finance company. Our investment objective is to generate both current income and capital appreciation through debt and equity investments. We invest primarily in leveraged companies, including middle-market companies, in the form of senior secured loans, mezzanine loans and equity securities.

We were formed in February 2007 as Solar Capital LLC, a Maryland limited liability company, and commenced operations in March 2007. On February 9, 2010, Solar Capital LLC was merged with and into Solar Capital Ltd., an externally managed, non-diversified, closed-end management investment company that has elected to be treated as a business development company under the Investment Company Act of 1940, or the 1940 Act. We are managed by Solar Capital Partners, LLC. Solar Capital Management, LLC provides the administrative services necessary for us to operate.

This prospectus supplement and the accompanying prospectus contains important information about us that a prospective investor should know before investing in the Notes. Please read this prospectus supplement and the accompanying prospectus before investing and keep it for future reference. We are required to file annual, quarterly and current reports, proxy statements and other information about us with the Securities and Exchange Commission. This information is available free of charge by contacting us by mail at 500 Park Avenue, New York, NY 10022, by telephone at (212) 993-1670 or on our website at http://www.solarcapltd.com. The Securities and Exchange Commission also maintains a website at http://www.sec.gov that contains such information. Information contained on our website is not incorporated by reference into this prospectus supplement and the accompanying prospectus, and you should not consider that information to be part of this prospectus supplement and the accompanying prospectus.

 

An investment in the Notes is very risky and highly speculative. In addition, the companies in which we invest are subject to special risks. See “Risk Factors” beginning on page S-18 of this prospectus supplement and page 17 of the accompanying prospectus to read about factors you should consider, including the risk of leverage, before investing in the Notes.

 

     Per Note     Total  

Public offering price

     100.00   $ 100,000,000   

Underwriting discount (sales load)

     3.15   $ 3,150,000   

Proceeds to Solar Capital Ltd. (before expenses)(1)

     96.85   $ 96,850,000   

 

(1)   Before deducting expenses payable by us related to this offering, estimated at $200,000.

The public offering price set forth above does not include accrued interest, if any. Interest on the Notes will accrue from November 16, 2012 and must be paid by the purchaser if the Notes are delivered after November 16, 2012.

THE NOTES ARE NOT DEPOSITS OR OTHER OBLIGATIONS OF A BANK AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT AGENCY.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus supplement and the accompanying prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

Delivery of the Notes in book-entry form only through The Depository Trust Company will be made on or about November 16, 2012.

 

Joint Book-Running Managers

Citigroup        
  Morgan Stanley      
    Wells Fargo Securities    
      Deutsche Bank Securities  
        RBC Capital Markets

Co-Managers

 

BB&T Capital Markets   Ladenburg Thalmann & Co. Inc.

 

The date of this prospectus supplement is November 8, 2012.


Table of Contents

TABLE OF CONTENTS

 

PROSPECTUS SUPPLEMENT

 

     Page  

Specific Terms of the Notes and the Offering

     S-2   

Prospectus Supplement Summary

     S-7   

Selected Financial and Other Data

     S-14   

Cautionary Statement Regarding Forward-Looking Statements

     S-17   

Risk Factors

     S-18   

Capitalization

     S-21   

Use of Proceeds

     S-22   

Management’s Discussion and Analysis of Financial Condition and Results of Operations

     S-23   

United States Federal Income Tax Consequences

     S-32   

Underwriting

     S-36   

Legal Matters

     S-39   

Available Information

     S-40   

Index to Financial Statements

     F-1   

PROSPECTUS

 

  

     Page  

Summary

     1   

Fees and Expenses

     11   

Selected Financial and Other Data

     14   

Risk Factors

     17   

Cautionary Statement Regarding Forward-Looking Statements

     36   

Use of Proceeds

     37   

Price Range of Common Stock and Distributions

     38   

Management’s Discussion and Analysis of Financial Condition and Results of Operations

     40   

Senior Securities

     54   

Business

     55   

Portfolio Companies

     69   

Management

     73   

Portfolio Management

     82   

Investment Advisory and Management Agreement

     83   

Administration Agreement

     89   

License Agreement

     89   

Certain Relationships and Transactions

     90   

Control Persons and Principal Stockholders

     91   

Regulation as a Business Development Company

     92   

Determination of Net Asset Value

     97   

Dividend Reinvestment Plan

     99   

Material U.S. Federal Income Tax Considerations

     101   

Sale of Our Common Stock Below Net Asset Value

     108   

Issuance of Warrants or Securities to Subscribe For or Convertible Into Shares of Our Common Stock

     114   

Description of Our Capital Stock

     115   

Description of Our Preferred Stock

     122   

Description of Our Warrants

     123   

Description of Our Debt Securities

     124   

Description of Our Units

     137   


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     Page  

Shares Eligible for Future Sale

     138   

Plan of Distribution

     139   

Custodian, Transfer and Distribution Paying Agent and Registrar

     141   

Brokerage Allocation and Other Practices

     141   

Legal Matters

     141   

Independent Registered Public Accounting Firm

     141   

Available Information

     142   

Index to Financial Statements

     F-1   


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ABOUT THIS PROSPECTUS SUPPLEMENT

 

You should rely only on the information contained in this prospectus supplement and the accompanying prospectus. We have not, and the underwriters have not, authorized any other person to provide you with different information from that contained in this prospectus supplement or the accompanying prospectus. If anyone provides you with different or inconsistent information, you should not rely on it. This prospectus supplement and the accompanying prospectus do not constitute an offer to sell, or a solicitation of an offer to buy, any Notes by any person in any jurisdiction where it is unlawful for that person to make such an offer or solicitation or to any person in any jurisdiction to whom it is unlawful to make such an offer or solicitation. The information contained in this prospectus supplement and the accompanying prospectus is complete and accurate only as of their respective dates, regardless of the time of their delivery or sale of the Notes. This prospectus supplement supersedes the accompanying prospectus to the extent it contains information different from or additional to the information in that prospectus.

 

This document is in two parts. The first part is this prospectus supplement, which describes the terms of this offering of Notes and also adds to and updates information contained in the accompanying prospectus. The second part is the accompanying prospectus, which gives more general information and disclosure. To the extent the information contained in this prospectus supplement differs from the information contained in the accompanying prospectus, the information in this prospectus supplement shall control. You should read this prospectus supplement and the accompanying prospectus together with the additional information described under the heading “Available Information” before investing in the Notes.

 

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SPECIFIC TERMS OF THE NOTES AND THE OFFERING

 

This prospectus supplement sets forth certain terms of the Notes that we are offering pursuant to this prospectus supplement and supplements the accompanying prospectus that is attached to the back of this prospectus supplement. This section outlines the specific legal and financial terms of the Notes. You should read this section together with the more general description of the Notes in the accompanying prospectus under the heading “Description of Our Debt Securities” before investing in the Notes. Capitalized terms used in this prospectus supplement and not otherwise defined shall have the meanings ascribed to them in the accompanying prospectus or in the indenture governing the Notes.

 

Issuer

Solar Capital Ltd.

 

Title of the securities

6.75% Senior Notes due 2042

 

Initial aggregate principal amount being offered

$100,000,000

 

Initial public offering price

100% of the aggregate principal amount

 

Principal payable at maturity

100% of the aggregate principal amount; the principal amount of each Note will be payable on its stated maturity date at the office of the Paying Agent, Registrar and Transfer Agent for the Notes or at such other office in New York City as we may designate.

 

Type of Note

Fixed rate note

 

Listing

We intend to apply to list the Notes on The New York Stock Exchange. If the application is approved, we expect trading in the Notes on The New York Stock Exchange to begin within 30 days of the original issue date.

 

Interest rate

6.75% per year

 

Day count basis

360-day year of twelve 30-day months

 

Original issue date

November 16, 2012

 

Stated maturity date

November 15, 2042

 

Date interest starts accruing

November 16, 2012

 

Interest payment dates

Every February 15, May 15, August 15, and November 15, commencing February 15, 2013. If an interest payment date falls on a non-business day, the applicable interest payment will be made on the next business day and no additional interest will accrue as a result of such delayed payment.

 

 

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Interest periods

The initial interest period will be the period from and including November 16, 2012, to, but excluding, the initial interest payment date of February 15, 2013, and the subsequent interest periods will be the periods from and including an interest payment date to, but excluding, the next interest payment date or the stated maturity date, as the case may be.

 

Regular record dates for interest

Every February 1, May 1, August 1, and November 1, commencing February 1, 2013

 

Specified currency

U.S. Dollars

 

Place of payment

New York City

 

Ranking of Notes

The Notes will be Designated Senior Securities as defined in the Indenture governing the Notes. See “Description of Our Debt Securities — Indenture Provisions — Subordination,” in the accompanying prospectus. The Notes will be our direct unsecured obligations and will rank:

 

   

pari passu with any of our future senior unsecured indebtedness;

 

   

senior in right of payment to any of our future unsecured indebtedness that expressly provides it is subordinated to the Notes;

 

   

effectively subordinated to all of our existing and future secured indebtedness (including indebtedness that is initially unsecured in respect of which we subsequently grant security), to the extent of the value of the assets securing such indebtedness, including without limitation, approximately $145 million aggregate principal amount of outstanding indebtedness as of November 6, 2012 under our $525 million senior secured revolving credit facility (the “Senior Credit Facility”), and $75 million aggregate principal amount of our 5.875% senior secured notes that mature on May 10, 2017 (the “Senior Secured Notes”) outstanding as of November 6, 2012, in each case to the extent of the value of the assets securing the Senior Credit Facility or the Senior Secured Notes; and

 

   

structurally subordinated to all existing and future indebtedness and other obligations of any of our subsidiaries or financing vehicles, if any, including approximately $52.5 million aggregate principal amount of outstanding indebtedness as of November 6, 2012 under the $100 million senior secured credit facility (the “Credit Facility II” and, together with the Senior Credit Facility, the “Credit Facilities”) of our wholly owned subsidiary, Solar Capital Funding II, LLC (“SC Funding II”).

 

Denominations

We will issue the Notes in denominations of $25 and integral multiples of $25 in excess thereof.

 

Business day

Each Monday, Tuesday, Wednesday, Thursday and Friday that is not a day on which banking institutions in New York City are authorized or required by law or executive order to close.

 

 

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Optional redemption

The Notes may be redeemed in whole or in part at any time or from time to time at our option on or after November 15, 2017, upon not less than 30 days nor more than 60 days written notice by mail prior to the date fixed for redemption thereof, at a redemption price of 100% of the principal amount to be redeemed plus accrued and unpaid interest payments otherwise payable for the then-current quarterly interest period accrued to the date fixed for redemption.

 

  You may be prevented from exchanging or transferring the Notes when they are subject to redemption. In case any Notes are to be redeemed in part only, the redemption notice will provide that, upon surrender of such Note, you will receive, without a charge, a new Note or Notes of authorized denominations representing the principal amount of your remaining unredeemed Notes.

 

  Any exercise of our option to redeem the Notes will be done in compliance with the Investment Company Act of 1940, as amended, and the rules, regulations and interpretations promulgated thereunder (collectively, the “1940 Act”), to the extent applicable.

 

  If we redeem only some of the Notes, the Trustee will determine the method for selection of the particular Notes to be redeemed, in accordance with the 1940 Act to the extent applicable. Unless we default in payment of the redemption price, on and after the date of redemption, interest will cease to accrue on the Notes called for redemption. Under the Senior Credit Facility and the note purchase agreement for the Senior Secured Notes, we currently would not be permitted to exercise our optional redemption right without complying with certain repurchase conditions or obtaining the consent of the lenders.

 

Sinking fund

The Notes will not be subject to any sinking fund.

 

Repayment at option of Holders

Holders will not have the option to have the Notes repaid prior to the stated maturity date.

 

Defeasance and Covenant defeasance

The Notes are subject to defeasance and covenant defeasance by us. Under the Senior Credit Facility and the note purchase agreement for the Senior Secured Notes, we currently would not be permitted to exercise our rights to effect defeasance or covenant defeasance without complying with certain conditions or obtaining the consent of the lenders.

 

Form of Notes

The Notes will be represented by global securities that will be deposited and registered in the name of The Depository Trust Company (“DTC”) or its nominee. This means that, except in limited circumstances, you will not receive certificates for the Notes. Beneficial interests in the Notes will be represented through book-entry accounts of financial institutions acting on behalf of beneficial owners as direct and indirect participants in DTC. Investors may elect to hold interests in the Notes through either DTC, if they are a participant, or indirectly through organizations that are participants in DTC.

 

 

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Trustee, Paying Agent, Registrar and Transfer Agent

U.S. Bank National Association

 

Other covenants

In addition to the covenants described in the prospectus attached to this prospectus supplement, the following covenants shall apply to the Notes:

 

   

We agree that for the period of time during which the Notes are outstanding, we will not violate Section 18(a)(1)(A) of the 1940 Act as modified by Section 61(a)(1) of the 1940 Act or any successor provisions, whether or not we continue to be subject to such provisions of the 1940 Act, but giving effect, in either case, to any exemptive relief granted to us by the SEC.

 

   

If, at any time, we are not subject to the reporting requirements of Sections 13 or 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), to file any periodic reports with the SEC, we agree to furnish to holders of the Notes and the Trustee, for the period of time during which the Notes are outstanding, our audited annual consolidated financial statements, within 90 days of our fiscal year end, and unaudited interim consolidated financial statements, within 45 days of our fiscal quarter end (other than our fourth fiscal quarter). All such financial statements will be prepared, in all material respects, in accordance with applicable United States generally accepted accounting principles.

 

Modifications to events of default

The following event of default, as described in the accompanying prospectus:

 

   

We file for bankruptcy or certain other events of bankruptcy, insolvency or reorganization occur.

 

  with respect to the Notes has been revised to read as follows:

 

   

We file for bankruptcy or certain other events of bankruptcy, insolvency or reorganization occur and remain undischarged or unstayed for a period of 60 days.

 

 

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Determination of voting rights

In addition to the voting rights described in the accompanying prospectus the following shall apply to the Notes:

 

   

At any meeting of Note holders, each holder shall be entitled to one vote for each $25 principal amount of the outstanding Notes held by such holder.

 

Global Clearance and Settlement Procedures

Interests in the Notes will trade in DTC’s Same Day Funds Settlement System, and any permitted secondary market trading activity in such Notes will, therefore, be required by DTC to be settled in immediately available funds. None of the Company, the Trustee or the Paying Agent will have any responsibility for the performance by DTC or its participants or indirect participants of their respective obligations under the rules and procedures governing their operations.

 

 

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PROSPECTUS SUPPLEMENT SUMMARY

 

This summary highlights some of the information in this prospectus supplement and the accompanying prospectus. It is not complete and may not contain all of the information that you may want to consider. You should read carefully the more detailed information set forth under “Risk Factors” and the other information included in this prospectus supplement and the accompanying prospectus and the documents to which we have referred you.

 

We were formed in February 2007 as Solar Capital LLC, a Maryland limited liability company, and commenced operations in March 2007 after conducting a private placement of units of membership interest (“units”). On February 9, 2010, Solar Capital LLC was merged with and into Solar Capital Ltd., a Maryland corporation, which we refer to as the “Solar Capital Merger,” concurrent with the pricing of our initial public offering, leaving Solar Capital Ltd. as the surviving entity. Except where the context suggests otherwise, the terms “we,” “us,” “our” and “Solar Capital” refer to Solar Capital LLC prior to the Solar Capital Merger, and Solar Capital Ltd. after the Solar Capital Merger. In addition, the terms “Solar Capital Partners” or “investment adviser” refer to Solar Capital Partners, LLC, and “Solar Capital Management” or the “administrator” refers to Solar Capital Management, LLC.

 

In this prospectus supplement, we use the term “leveraged” to refer to companies of any size with non-investment grade debt outstanding or, if not explicitly rated, those which we believe would be rated as non-investment grade based on their leverage levels and other terms. In addition, we use the term “middle-market” to refer to companies with annual revenues between $50 million and $1 billion.

 

Solar Capital

 

Solar Capital Ltd., a Maryland corporation formed in November 2007, is a closed-end, externally managed, non-diversified management investment company that has elected to be treated as a business development company (“BDC”) under the 1940 Act. In addition, for 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”).

 

On February 9, 2010, we priced our initial public offering, selling 5.68 million shares of our common stock. Concurrent with our initial public offering, Michael S. Gross, our chairman and chief executive officer, and Bruce Spohler, our chief operating officer, collectively purchased an additional 0.6 million shares of our common stock through a private placement transaction exempt from registration under the Securities Act (the “Concurrent Private Placement”). Solar Capital Ltd. issued an aggregate of approximately 26.65 million shares of common stock and $125 million in senior unsecured notes (the “Senior Unsecured Notes”) to the existing Solar Capital LLC unit holders in connection with the Solar Capital Merger. Solar Capital Ltd. had no assets or operations prior to completion of the Solar Capital Merger and as a result, the books and records of Solar Capital LLC have become the books and records of the surviving entity. As of December 17, 2010, the Senior Unsecured Notes have been repaid from proceeds of a private placement transaction that we completed on November 30, 2010 and from borrowings under our credit facility established in December 2010.

 

We invest primarily in U.S. middle-market companies, where we believe the supply of primary capital is limited and the investment opportunities are most attractive. Our investment objective is to generate both current income and capital appreciation through debt and equity investments. We invest primarily in leveraged middle-market companies in the form of senior secured loans, mezzanine loans and equity securities. From time to time, we may also invest in public companies that are thinly traded. Our business model is focused primarily on the direct origination of investments through portfolio companies or their financial sponsors. Our investments generally range between $20 million and $100 million each, although we expect that this investment size will

 

 

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vary proportionately with the size of our capital base. We are managed by Solar Capital Partners. Solar Capital Management provides the administrative services necessary for us to operate. In addition, we may invest a portion of our portfolio in other types of investments, which we refer to as opportunistic investments, which are not our primary focus but are intended to enhance our overall returns. These investments may include, but are not limited to, direct investments in public companies that are not thinly traded and securities of leveraged companies located in select countries outside of the United States.

 

As of September 30, 2012, our long term investments totaled $1.17 billion and our net asset value was $877.6 million. Our portfolio was comprised of debt and equity investments in 41 portfolio companies and our income producing assets, which represented 93.8% of our total portfolio, had a weighted average annualized yield on a fair value basis of approximately 13.9%.

 

About Solar Capital Partners

 

Solar Capital Partners, our investment adviser, is controlled and led by Michael S. Gross, our chairman and chief executive officer, and Bruce Spohler, our chief operating officer. They are supported by a team of dedicated investment professionals, including senior team members Brian Gerson, Cedric Henley, David Mait and Suhail Shaikh. We refer to Messrs. Gross, Spohler, Gerson, Henley, Mait and Shaikh as Solar Capital Partners’ senior investment professionals. Solar Capital Partners’ investment team has extensive experience in the private equity and leveraged lending industries, as well as significant contacts with financial sponsors operating in those industries.

 

In addition, Solar Capital Partners presently serves as the investment adviser for Solar Senior Capital Ltd., or “Solar Senior,” a publicly traded business development company with more than $300 million of investable capital that invests in the senior debt securities of leveraged middle-market companies similar to those we intend to target for investment. The investment team led by Messrs. Gross and Spohler has invested in approximately 110 different portfolio companies for Solar Capital and Solar Senior, which investments involved an aggregate of approximately 90 different financial sponsors, through September 30, 2012. Since Solar Capital’s inception, these investment professionals have used their relationships in the middle-market financial sponsor and financial intermediary community to generate deal flow. As of November 6, 2012, Mr. Gross and Mr. Spohler beneficially owned, either directly or indirectly, approximately 5.5% and 5.3%, respectively, of our outstanding common stock.

 

Mr. Gross has 25 years of experience in the private equity, distressed debt and mezzanine lending businesses and has been involved in originating, structuring, negotiating, consummating and managing private equity, distressed debt and mezzanine lending transactions. We also rely on the 25 years of experience of Mr. Spohler, who has served as our chief operating officer and a partner of Solar Capital Partners since its inception. In addition to Messrs. Gross and Spohler, Solar Capital Partners’ senior investment professionals include Messrs. Gerson, Henley, Mait and Shaikh, each of whom has extensive experience in originating, evaluating and structuring investments in the types of middle-market companies we currently target.

 

Solar Capital Partners’ senior investment professionals have been active participants in the primary and secondary leveraged credit markets throughout their careers. They have effectively managed portfolios of distressed and mezzanine debt as well as other investment types. The depth of their experience and credit market expertise has led them through various stages of the economic cycle as well as several market disruptions.

 

 

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Market Opportunity

 

Solar Capital invests primarily in senior secured loans, mezzanine loans and equity securities of middle-market leveraged companies. We believe that the size of this market, coupled with leveraged companies’ need for flexible sources of capital at attractive terms and rates, creates an attractive investment environment for us. See “Business — Market Opportunity.”

 

   

Middle-market companies have faced increasing difficulty in accessing the capital markets. While many middle-market companies were formerly able to raise funds by issuing high-yield bonds, we believe this approach to financing has become more difficult in recent years as institutional investors have sought to invest in larger, more liquid offerings. In addition, many private finance companies that historically financed their lending and investing activities through securitization transactions have lost that source of funding and reduced lending significantly. Moreover, consolidation and the illiquid nature of investments have resulted in fewer middle-market lenders and market participants.

 

   

There is a large pool of uninvested private equity capital likely to seek additional capital to support their investments. There is currently over $500 billion of uninvested private equity capital seeking debt financing to support acquisitions. We expect that middle-market private equity firms will continue to invest the approximately $185 billion raised since 2000 in middle-market companies and that those private equity firms will seek to support their investments with mezzanine loans from sources such as Solar Capital. Additionally, over $17.4 billion was raised by middle-market sponsors during 2011, which we believe demonstrates the continued appetite for middle-market acquisitions that require debt financing.

 

   

The significant amount of debt maturing through 2018 should provide additional demand for capital. A high volume of financings were completed between the years 2004 and 2007, which are expected to mature over the next few years. We believe that this supply of prospective lending opportunities coupled with a lack of available credit in the middle-market lending space may offer attractive risk-adjusted returns to investors.

 

   

Investing in private middle-market debt provides an attractive risk reward profile. In general, terms for illiquid, middle-market subordinated debt have been more attractive than those for larger corporations which are typically more liquid. We believe this is because fewer institutions are able to invest in illiquid asset classes. In 2011, on average, the total debt to EBITDA ratio for middle-market leveraged buyouts (“LBOs”) was 4.3x, versus 5.4x for large capitalization LBOs. This reduced leverage provides further cushion for borrowers to meet debt service obligations.

 

Therefore, we believe that there is an attractive opportunity to invest in senior secured loans, mezzanine loans and equity securities of leveraged companies, and that we are well positioned to serve this market.

 

Competitive Advantages and Strategy

 

We believe that we have the following competitive advantages over other providers of financing to leveraged companies. See “Business — Competitive Advantages and Strategy.”

 

Management Expertise

 

As managing partner, Mr. Gross has principal management responsibility for Solar Capital Partners, to which he currently dedicates substantially all of his time. Mr. Gross has 25 years of experience in leveraged finance, private equity and distressed debt investing. Mr. Spohler, our chief operating officer and a partner of Solar Capital Partners, has 25 years of experience in evaluating and executing leverage finance transactions. We believe that Messrs. Gross and Spohler have developed a strong reputation in the capital markets, and that this experience provides us with a competitive advantage in identifying and investing in leveraged companies with the potential to generate returns.

 

 

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In addition to Messrs. Gross and Spohler, Solar Capital Partners’ senior investment team includes Messrs. Gerson, Henley, Mait and Shaikh, each of whom has extensive experience in originating, evaluating and structuring investments in the types of middle-market companies we currently target. Solar Capital Partners’ senior investment professionals have an average of over 20 years of experience in the private equity and leveraged lending industries.

 

Investment Portfolio

 

Our portfolio investments consist of portfolio companies that have strong cash flows and have maintained financial and operating performance despite the recent economic climate. As of September 30, 2012, 98.1% of our total portfolio value of income producing assets, measured at fair value, was comprised of performing assets.

 

Investment Capacity

 

The proceeds from our initial public offering and the Concurrent Private Placement, the borrowing capacity under our revolving credit facilities and our $75 million of senior secured notes, and the expected repayments of existing investments provide us with a substantial amount of capital available for deployment into new investment opportunities. We believe we are well positioned for the current marketplace.

 

Solar Capital’s Limited Leverage

 

As of September 30, 2012, we had outstanding borrowings of $248.4 million. We believe our relatively low level of leverage provides us with a competitive advantage, allowing us to anticipate providing a consistent dividend to our investors, as proceeds from our investments are available for reinvestment as opposed to being consumed by debt repayment. We may increase our relative level of debt in the future. However, we do not currently anticipate operating with a substantial amount of debt relative to our total assets.

 

Proprietary Sourcing and Origination

 

We believe that Solar Capital Partners’ senior investment professionals’ longstanding relationships with financial sponsors, commercial and investment banks, management teams and other financial intermediaries provide us with a strong pipeline of proprietary origination opportunities. We believe the broad expertise of Solar Capital Partners’ senior investment team and their ability to draw upon their average of over 20 years of investment experience enable us to identify, assess and structure investments successfully. We expect to continue leveraging the relationships Mr. Gross established while sourcing and originating investments at Apollo Investment Corporation (“Apollo”) as well as the financial sponsor relationships Mr. Spohler developed while he was a co-head of CIBC World Markets’ U.S. Leveraged Finance Group.

 

Since its inception, Solar Capital Partners has sourced investments in approximately 110 different portfolio companies for both Solar Capital and Solar Senior, collectively, which investments involved an aggregate of approximately 90 different financial sponsors, through September 30, 2012.

 

Versatile Transaction Structuring and Flexibility of Capital

 

We believe Solar Capital Partners’ senior investment team’s broad expertise and ability to draw upon its extensive experience enable us to identify, assess and structure investments successfully across all levels of a company’s capital structure and to manage potential risk and return at all stages of the economic cycle. While we are subject to significant regulation as a BDC, we are not subject to many of the regulatory limitations that govern traditional lending institutions such as banks. As a result, we believe that we can be more flexible than such lending institutions in selecting and structuring investments, adjusting investment criteria, transaction

 

 

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structures and, in some cases, the types of securities in which we invest. We believe financial sponsors, management teams and investment banks see this flexibility as a benefit, making us an attractive financing partner.

 

Emphasis on Achieving Strong Risk-Adjusted Returns

 

Solar Capital Partners uses a disciplined investment and risk management process that emphasizes a rigorous fundamental research and analysis framework. Solar Capital Partners seeks to build our portfolio on a “bottom-up” basis, choosing and sizing individual positions based on their relative risk/reward profiles as a function of the associated downside risk, volatility, correlation with the existing portfolio and liquidity. At the same time, Solar Capital Partners takes into consideration a variety of factors in managing our portfolio and imposes portfolio-based risk constraints promoting a more diverse portfolio of investments and limiting issuer and industry concentration. Our value-oriented investment philosophy focuses on preserving capital and ensuring that our investments have an appropriate return profile in relation to risk. When market conditions make it difficult for us to invest according to our criteria, we are highly selective in deploying our capital. We do not pursue short-term origination targets. We believe this approach enables us to build an attractive investment portfolio that meets our return and value criteria over the long term.

 

We believe it is critical to conduct extensive due diligence on investment targets. In evaluating new investments we, through Solar Capital Partners, conduct a rigorous due diligence process that draws upon the investment experience, industry expertise and network of contacts of our senior investment professionals, as well as the other members of our investment team.

 

Deep Industry Focus with Substantial Information Flow

 

We concentrate our investing activities in industries characterized by strong cash flow and in which Solar Capital Partners’ investment professionals have deep investment experience. During his time with the Apollo entities, Mr. Gross oversaw investments in over 200 companies in 20 industries. As a result of their investment experience, Messrs. Gross and Spohler, together with Solar Capital Partners’ other senior investment professionals, have long-term relationships with management consultants and management teams in the industries we target, as well as substantial information concerning those industries.

 

Longer Investment Horizon

 

Unlike private equity and venture capital funds, we will not be subject to standard periodic capital return requirements. Such requirements typically stipulate that the capital of these funds, together with any capital gains on such invested funds, can only be invested once and must be returned to investors after a pre-agreed time period. We believe that our flexibility to make investments with a long-term view and without the capital return requirements of traditional private investment vehicles provides us with the opportunity to generate favorable returns on invested capital and enables us to be a better long-term partner for our portfolio companies.

 

Risk Factors

 

The value of our assets, as well as the market price of the Notes, will fluctuate. Our investments may be risky, and you may lose all or part of your investment in us. Investing in Solar Capital involves other risks, including the following:

 

   

The Notes will be unsecured and therefore will be effectively subordinated to any secured indebtedness we have currently incurred or may incur in the future;

 

 

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The Notes will be structurally subordinated to the indebtedness and other liabilities of our subsidiaries;

 

   

The indenture under which the Notes will be issued will contain limited protection for holders of the Notes;

 

   

The optional redemption provision may materially adversely affect your return on the Notes;

 

   

We may be subject to certain corporate-level taxes which could adversely affect our cash flow and consequently adversely affect availability to make payments on the Notes;

 

   

An active trading market for the Notes may not develop, which could limit the market price of the Notes or your ability to sell them. If a rating agency assigns the Notes a non-investment grade rating, the Notes may be subject to greater price volatility than similar securities without such a rating;

 

   

We operate in a highly competitive market for investment opportunities;

 

   

The lack of liquidity in our investments may adversely affect our business;

 

   

We may borrow money, which would magnify the potential for gain or loss on amounts invested and may increase the risk of investing in us;

 

   

To the extent we use debt to finance our investments, changes in interest rates will affect our cost of capital and net investment income;

 

   

There will be uncertainty as to the value of our portfolio investments;

 

   

We may experience fluctuations in our quarterly results;

 

   

We will become subject to corporate-level income tax on all of our income if we are unable to continue to qualify as a regulated investment company, or RIC, under Subchapter M of the Code, which would have a material adverse effect on our financial performance;

 

   

We are dependent upon Solar Capital Partners’ key personnel for our future success; and

 

   

Regulations governing our operation as a BDC affect our ability to, and the way in which we, raise additional capital. As a BDC, the necessity of raising additional capital may expose us to risks, including the typical risks associated with leverage.

 

See “Risk Factors” beginning on page S-18 of this prospectus supplement and page 17 of the accompanying prospectus and the other information included in the accompanying prospectus for additional discussion of factors you should carefully consider before deciding to invest in the Notes.

 

Operating and Regulatory Structure

 

Immediately prior to the pricing of our initial public offering, Solar Capital LLC was merged with and into Solar Capital Ltd., a Maryland corporation that is an externally managed, non-diversified closed-end management investment company which has elected to be treated as a BDC under the 1940 Act. As a BDC, we are required to meet regulatory tests, including the requirement to invest at least 70% of our total assets in “qualifying assets.” Qualifying assets generally include, among other things, securities of “eligible portfolio companies.” “Eligible portfolio companies” generally include U.S. companies that are not investment companies and that do not have securities listed on a national exchange. See “Regulation as a Business Development Company.” We may also borrow funds to make investments. In addition, we have elected to be treated for federal income tax purposes, and intend to continue to qualify annually, as a RIC under Subchapter M of the Code. See “Material U.S. Federal Income Tax Considerations” in the accompanying prospectus.

 

 

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Our investment activities are managed by Solar Capital Partners and supervised by our board of directors. Solar Capital Partners is an investment adviser that is registered under the Investment Advisers Act of 1940, as amended (the “Advisers Act”). Under our investment advisory and management agreement, which we refer to as the Investment Advisory and Management Agreement, we have agreed to pay Solar Capital Partners an annual base management fee based on our gross assets as well as an incentive fee based on our performance. See “Investment Advisory and Management Agreement.” We have also entered into an administration agreement, which we refer to as the Administration Agreement, under which we have agreed to reimburse Solar Capital Management for the allocable portion of overhead and other expenses incurred by Solar Capital Management in performing its obligations under the Administration Agreement, including furnishing us with office facilities, equipment and clerical, bookkeeping and record keeping services at such facilities, as well as providing us with other administrative services. See “Administration Agreement.”

 

Our Corporate Information

 

Our offices are located at 500 Park Avenue, New York, New York 10022, and our telephone number is (212) 993-1670.

 

 

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SELECTED FINANCIAL AND OTHER DATA

 

The selected financial and other data below should be read in conjunction with our “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the financial statements and notes thereto. Financial information is presented for the fiscal years ended December 31, 2011, 2010, 2009 and 2008 and for the period from March 13, 2007 (Solar Capital LLC inception) through December 31, 2007. Financial information for the periods ending December 31, 2011, 2010, 2009, 2008 and 2007 has been derived from our audited financial statements. The financial information at and for the nine months ended September 30, 2012 was derived from our unaudited financial statements and related notes. In the opinion of management, all adjustments, consisting solely of normal recurring accruals, considered necessary for the fair presentation of financial statements for the interim periods, have been included. Our results for the interim period may not be indicative of our results for the full year. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this prospectus supplement and “Senior Securities” in the accompanying prospectus for more information.

 

($ in thousands, except per
share data)

  Nine Months ended
September 30,

2012
    Year ended
December 31,

2011
    Year ended
December 31,

2010
    Year ended
December 31,

2009
    Year ended
December 31,

2008
    Period from March 13,
2007 (inception) through
December  31,

2007
 
    (unaudited)                                

Income statement data:

           

Total investment income

  $ 111,788      $ 138,900      $ 124,641      $ 109,670      $ 133,959      $ 78,455   

Total expenses

  $ 54,062      $ 56,996      $ 55,429      $ 42,408      $ 46,560      $ 25,461   

Net investment income

  $ 57,726      $ 81,904      $ 69,212      $ 67,262      $ 87,399      $ 52,994   

Net realized loss

  $ (9,633   $ (2,393   $ (38,968   $ (264,898   $ (937   $ (10,489

Net change in
unrealized gain (loss)

  $ 44,370      $ (18,196   $ 111,641      $ 284,572      $ (492,290   $ 6,595   

Net increase (decrease) in net assets resulting from
operations

  $ 92,463      $ 61,315      $ 141,885      $ 86,936      $ (405,828   $ 49,100   

Other data (unaudited):

           

Weighted average annualized yield on income producing investments:

           

On fair value(1)(4)

    13.9     14.2     14.3     14.8     17.1     12.9

On cost(2)(4)

    13.9     13.2     13.8     13.7     11.9     12.7

Number of portfolio companies at period end(4)

    41        42        36        36        44        38   
    As of
September 30,
2012
    As of
December 31,
2011
    As of
December 31,
2010
    As of
December 31,
2009
    As of
December 31,
2008
    As of
December 31,
2007
 
Balance sheet data:   (unaudited)                                

Total investment portfolio

  $ 1,170,627      $ 1,045,043      $ 976,221      $ 863,140      $ 768,215      $ 1,178,736   

Total cash and cash equivalents

  $ 13,048      $ 11,787      $ 288,732      $ 5,675      $ 65,841      $ 169,692   

Total assets

  $ 1,200,160      $ 1,079,431      $ 1,291,791      $ 885,421      $ 873,026      $ 1,396,545   

Revolving credit facilities

  $ 123,362      $ 201,355      $ 400,000      $ 88,114      $ —        $ —     

Senior secured notes

  $ 75,000      $ —        $ —        $ —        $ —        $ —     

Term Loan

  $ 50,000      $ 35,000      $ 35,000      $ —        $ —        $ —     

Net assets

  $ 877,603      $ 805,941      $ 826,994      $ 697,903      $ 852,673      $ 1,258,501   

Per share data:(3)

           

Net asset value per share

  $ 22.70      $ 22.02      $ 22.73      $ 21.24      $ 25.95      $ 38.30   

Net investment income

  $ 1.57      $ 2.25      $ 2.08      $ 2.05      $ 2.66      $ 1.62   

Net realized and unrealized
gain (loss)

  $ 0.95      $ (0.57   $ 2.19      $ 0.60      $ (15.01   $ (0.12

Dividends and distributions
declared

  $ 1.83      $ 2.40      $ 2.14      $ 7.36      $ —        $ —     

 

(1)  

Throughout this document, the weighted average yield on income producing investments is computed as the (a) annual stated interest on accruing loans and debt securities plus the annual amortization of loan origination fees, original issue discount, and market discount on accruing loans and debt securities, plus the

 

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effective interest yield on preferred shares divided by (b) total income producing investments at fair value. The weighted average yield is computed as of the balance sheet date and excludes assets on non-accrual status or on a cost recovery basis as of such date.

(2)   For this calculation, the weighted average yield on income producing investments is computed as the (a) annual stated interest on accruing loans and debt securities plus the annual amortization of loan origination fees, original issue discount, and market discount on accruing loans and debt securities, plus the effective interest yield on preferred shares divided by (b) total income producing investments at cost. The weighted average yield is computed as of the balance sheet date and excludes assets on non-accrual status or on a cost recovery basis as of such date.
(3)   The number of shares used to calculate weighted average shares for use in computations on a per share basis has been decreased retroactively by a factor of approximately 0.4022 for all periods prior to February 9, 2010. This factor represents the effective impact of the reduction in shares resulting from the Solar Capital Merger. The per-share calculations are based on 32,860,454 weighted average shares outstanding as of and for the years and period ended December 31, 2009, 2008, and 2007, 36,383,158 shares outstanding and 33,258,402 weighted average shares outstanding for the year ended December 31, 2010, and 36,608,038 shares outstanding and 36,470,384 weighted average shares outstanding for the year ended December 31, 2011.
(4)   Unaudited.

 

Selected Quarterly Financial Data (Unaudited)

(dollar amounts in thousands, except per share data)

 

     2012  
     Q3      Q2      Q1  

Total investment income

   $ 40,646       $ 34,833       $ 36,309   

Net investment income

   $ 22,258       $ 14,369       $ 21,099   

Net realized and unrealized gain (loss)

   $ 7,985       $ 1,693       $ 25,059   

Net increase (decrease) in net assets resulting from operations

   $ 30,243       $ 16,062       $ 46,158   

Earnings per share(1)

   $ 0.82       $ 0.44       $ 1.26   

Net asset value per share at the end of the quarter(2)

   $ 22.70       $ 22.51       $ 22.68   

 

     2011  
     Q4      Q3     Q2     Q1  

Total investment income

   $ 35,994       $ 35,329      $ 35,283      $ 32,294   

Net investment income

   $ 20,675       $ 20,711      $ 21,368      $ 19,150   

Net realized and unrealized gain (loss)

   $ 31,182       $ (72,655   $ (8,984   $ 29,868   

Net increase (decrease)in net assets resulting from operations

   $ 51,857       $ (51,944   $ 12,384      $ 49,018   

Earnings per share(3)

   $ 1.42       $ (1.42   $ 0.34      $ 1.35   

Net asset value per share at the end of the quarter(4)

   $ 22.02       $ 21.20      $ 23.22      $ 23.48   
     2010  
     Q4      Q3     Q2     Q1  

Total investment income

   $ 31,644       $ 29,403      $ 28,284      $ 35,310   

Net investment income (loss)

   $ 17,384       $ 15,551      $ 15,166      $ 21,111   

Net realized and unrealized gain (loss)

   $ 24,974       $ 5,458      $ 1,348      $ 40,893   

Net increase (decrease) in net assets resulting from operations

   $ 42,358       $ 21,009      $ 16,514      $ 62,004   

Earnings per share(5)

   $ 1.24       $ 0.63      $ 0.50      $ 1.90   

Net asset value per share at the end of the quarter(6)

   $ 22.73       $ 22.09      $ 22.07      $ 22.18   

 

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     2009  
     Q4      Q3      Q2      Q1  

Total investment income

   $ 28,456       $ 27,785       $ 25,252       $ 28,177   

Net investment income (loss)

   $ 17,685       $ 16,383       $ 16,099       $ 17,095   

Net realized and unrealized gain (loss)

   $ 22,271       $ 22,181       $ 17,899       $ (42,677 )

Net increase (decrease) in net assets resulting from operations

   $ 39,956       $ 38,564       $ 33,998       $ (25,582 )

Earnings per share(7)

   $ 1.23       $ 1.17       $ 1.03       $ (0.78 )

Net asset value per share at the end of the quarter(8)

   $ 21.24       $ 22.30       $ 23.61       $ 22.57   

 

(1)   Based on 36,948,921, 36,639,037 and 36,608,038 weighted average shares of Solar Capital Ltd. outstanding during the third, second and first quarters of 2012, respectively.
(2)   Based on 38,667,196, 36,640,094 and 36,608,038 shares of Solar Capital Ltd. outstanding as of the end of the third, second and first quarters of 2012, respectively.
(3)   Based on 36,552,979, 36,498,451, 36,444,775 and 36,383,158 weighted average shares of Solar Capital Ltd. outstanding during the fourth, third, second and first quarters of 2011, respectively.
(4)   Based on 36,608,038, 36,501,373, 36,447,607 and 36,383,158 shares of Solar Capital Ltd. outstanding as of the end of the fourth, third, second and first quarters of 2011, respectively.
(5)   Based on 34,267,088, 33,165,867, 33,029,516 and 32,553,322 weighted average shares of Solar Capital Ltd. outstanding during each of the fourth, third, second and first quarters of 2010, respectively.
(6)   Based on 36,383,158, 33,168,872, 33,030,641 and 32,928,257 shares of Solar Capital Ltd. outstanding as of the end of the fourth, third, second and first quarter of 2010, respectively.
(7)   Based on 32,860,454 weighted average shares of Solar Capital Ltd. outstanding during each respective quarter.
(8)   Based on 32,860,454 shares of Solar Capital Ltd. outstanding as of the end of the respective quarter.

 

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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

 

This prospectus supplement contains forward-looking statements that involve substantial risks and uncertainties. These forward-looking statements are not historical facts, but rather are based on current expectations, estimates and projections about Solar Capital, our current and prospective portfolio investments, our industry, our beliefs, and our assumptions. Words such as “anticipates,” “expects,” “intends,” “plans,” “believes,” “seeks,” “estimates,” “would,” “should,” “targets,” “projects,” and variations of these words and similar expressions are intended to identify forward-looking statements.

 

The forward-looking statements contained in this prospectus involve risks and uncertainties, including statements as to:

 

   

our future operating results;

 

   

our business prospects and the prospects of our portfolio companies;

 

   

the impact of investments that we expect to make;

 

   

our contractual arrangements and relationships with third parties;

 

   

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

 

   

the ability of our portfolio companies to achieve their objectives;

 

   

our expected financings and investments;

 

   

our breach of any of the covenants or other provisions in our debt agreements;

 

   

the adequacy of our cash resources and working capital; and

 

   

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

 

These statements are not guarantees of future performance and are subject to risks, uncertainties, and other factors, some of which are beyond our control and difficult to predict and could cause actual results to differ materially from those expressed or forecasted in the forward-looking statements, including without limitation:

 

   

an economic downturn could impair our portfolio companies’ ability to continue to operate, which could lead to the loss of some or all of our investments in such portfolio companies;

 

   

a contraction of available credit and/or an inability to access the equity markets could impair our lending and investment activities;

 

   

interest rate volatility could adversely affect our results, particularly if we elect to use leverage as part of our investment strategy;

 

   

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

 

   

the risks, uncertainties and other factors we identify in “Risk Factors” and elsewhere in this prospectus supplement, the accompanying prospectus and in our filings with the SEC.

 

Although we believe that the assumptions on which these forward-looking statements are based are reasonable, any of those assumptions could prove to be inaccurate, and as a result, the forward-looking statements based on those assumptions also could be inaccurate. Important assumptions include our ability to originate new loans and investments, certain margins and levels of profitability and the availability of additional capital. In light of these and other uncertainties, the inclusion of a projection or forward-looking statement in this prospectus should not be regarded as a representation by us that our plans and objectives will be achieved. These risks and uncertainties include those described or identified in “Risk Factors” and elsewhere in the accompanying prospectus. You should not place undue reliance on these forward-looking statements, which apply only as of the date of this prospectus supplement. However, we will update this prospectus supplement to reflect any material changes to the information contained herein. The forward-looking statements and projections contained in this prospectus supplement are excluded from the safe harbor protection provided by Section 27A of the Securities Act.

 

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RISK FACTORS

 

Investing in the Notes involves a high degree of risk. In addition to the other information contained in this prospectus supplement and the accompanying prospectus, you should carefully consider the following supplementary risk factors together with the risk factors set forth in the accompanying prospectus before making an investment in the Notes. The risks set out below and in the accompanying prospectus are not the only risks we face. Additional risks and uncertainties not presently known to us might also impair our operations and performance. If any of the events described herein or in the accompanying prospectus occur, our business, financial condition and results of operations could be materially and adversely affected. In such case, our net asset value and the market price of the Notes could decline, and you may lose part or all of your investment.

 

The Notes will be unsecured and therefore will be effectively subordinated to any secured indebtedness we have currently incurred or may incur in the future.

 

The Notes will not be secured by any of our assets or any of the assets of our subsidiaries. As a result, the Notes are effectively subordinated to any secured indebtedness we or our subsidiaries have currently incurred and may incur in the future (or any indebtedness that is initially unsecured to which we subsequently grant security) to the extent of the value of the assets securing such indebtedness. In any liquidation, dissolution, bankruptcy or other similar proceeding, the holders of any of our existing or future secured indebtedness and the secured indebtedness of our subsidiaries may assert rights against the assets pledged to secure that indebtedness in order to receive full payment of their indebtedness before the assets may be used to pay other creditors, including the holders of the Notes. As of November 6, 2012, outstanding secured indebtedness under our revolving credit facilities, the term loan and the Senior Secured Notes was $147.5 million, $50 million and $75 million, respectively.

 

The Notes will be structurally subordinated to the indebtedness and other liabilities of our subsidiaries.

 

The Notes are obligations exclusively of Solar Capital and not of any of our subsidiaries. None of our subsidiaries is a guarantor of the Notes and the Notes are not required to be guaranteed by any subsidiaries we may acquire or create in the future. A portion of the indebtedness required to be consolidated on our balance sheet is held through subsidiary financing vehicles, including our debt under the Credit Facility II, and secured by certain assets of such subsidiaries. The assets of such subsidiaries, including the assets of SC Funding II, are not directly available to satisfy the claims of our creditors, including holders of the Notes.

 

Except to the extent we are a creditor with recognized claims against our subsidiaries, all claims of creditors (including trade creditors) and holders of preferred stock, if any, of our subsidiaries will have priority over our equity interests in such subsidiaries (and therefore the claims of our creditors, including holders of the Notes) with respect to the assets of such subsidiaries. Even if we are recognized as a creditor of one or more of our subsidiaries, our claims would still be effectively subordinated to any security interests in the assets of any such subsidiary and to any indebtedness or other liabilities of any such subsidiary senior to our claims. Consequently, the Notes will be structurally subordinated to all indebtedness and other liabilities (including trade payables) of any of our subsidiaries and any subsidiaries that we may in the future acquire or establish as financing vehicles or otherwise. As of November 6, 2012, there was approximately $52.5 million aggregate principal amount of outstanding indebtedness under the Credit Facility II. In addition, our subsidiaries may incur substantial additional indebtedness in the future, all of which would be structurally senior to the Notes.

 

The indenture under which the Notes will be issued will contain limited protection for holders of the Notes.

 

The indenture under which the Notes will be issued offers limited protection to holders of the Notes. The terms of the indenture and the Notes do not restrict our or any of our subsidiaries’ ability to engage in, or otherwise be a party to, a variety of corporate transactions, circumstances or events that could have an adverse impact on your investment in the Notes. In particular, the terms of the indenture and the Notes will not place any restrictions on our or our subsidiaries’ ability to:

 

   

issue securities or otherwise incur additional indebtedness or other obligations, including (1) any indebtedness or other obligations that would be equal in right of payment to the Notes, (2) any

 

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indebtedness or other obligations that would be secured and therefore rank effectively senior in right of payment to the Notes to the extent of the values of the assets securing such debt, (3) indebtedness of ours that is guaranteed by one or more of our subsidiaries and which therefore is structurally senior to the Notes and (4) securities, indebtedness or obligations issued or incurred by our subsidiaries that would be senior to our equity interests in our subsidiaries and therefore rank structurally senior to the Notes with respect to the assets of our subsidiaries, in each case other than an incurrence of indebtedness or other obligation that would cause a violation of Section 18(a)(1)(A) of the 1940 Act as modified by Section 61(a)(1) of the 1940 Act or any successor provisions;

 

   

pay dividends on, or purchase or redeem or make any payments in respect of, capital stock or other securities ranking junior in right of payment to the Notes;

 

   

sell assets (other than certain limited restrictions on our ability to consolidate, merge or sell all or substantially all of our assets);

 

   

enter into transactions with affiliates;

 

   

create liens (including liens on the shares of our subsidiaries) or enter into sale and leaseback transactions;

 

   

make investments; or

 

   

create restrictions on the payment of dividends or other amounts to us from our subsidiaries.

 

In addition, the indenture will not require us to offer to purchase the Notes in connection with a change of control or any other event.

 

Furthermore, the terms of the indenture and the Notes do not protect holders of the Notes in the event that we experience changes (including significant adverse changes) in our financial condition, results of operations or credit ratings, as they do not require that we or our subsidiaries adhere to any financial tests or ratios or specified levels of net worth, revenues, income, cash flow, or liquidity.

 

Our ability to recapitalize, incur additional debt and take a number of other actions that are not limited by the terms of the Notes may have important consequences for you as a holder of the Notes, including making it more difficult for us to satisfy our obligations with respect to the Notes or negatively affecting the trading value of the Notes. Certain of our current debt instruments include more protections for their holders than the indenture and the Notes. In addition, other debt we issue or incur in the future could contain more protections for its holders than the indenture and the Notes, including additional covenants and events of default. The issuance or incurrence of any such debt with incremental protections could affect the market for and trading levels and prices of the Notes.

 

The optional redemption provision may materially adversely affect your return on the Notes.

 

The Notes are redeemable in whole or in part upon certain conditions at any time or from time to time at our option on or after November 15, 2017. We may choose to redeem the Notes at times when prevailing interest rates are lower than the interest rate paid on the Notes. In this circumstance, you may not be able to reinvest the redemption proceeds in a comparable security at an effective interest rate as high as the Notes being redeemed.

 

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We may be subject to certain corporate-level taxes which could adversely affect our cash flow and consequently adversely affect our ability to make payments on the Notes.

 

We may be subject to certain corporate-level taxes regardless of whether we continue to qualify as a RIC. Additionally, should we fail to qualify as a RIC, we would be subject to corporate-level taxes on all of our taxable income. The imposition of corporate-level taxes could adversely affect our cash flow and consequently adversely affect our ability to make payments on the Notes.

 

An active trading market for the Notes may not develop, which could limit the market price of the Notes or your ability to sell them. If a rating agency assigns the Notes a non-investment grade rating, the Notes may be subject to greater price volatility than similar securities without such a rating.

 

The Notes are a new issue of debt securities with no currently-established trading market. We intend to apply to list the Notes on The New York Stock Exchange. If the application is approved, we expect trading in the Notes on The New York Stock Exchange to begin within 30 days of the original issue date. Although we expect the Notes to be listed on The New York Stock Exchange, we cannot provide any assurances that an active trading market will develop for the Notes or that you will be able to sell your Notes. If the Notes are traded after their initial issuance, they may trade at a discount from their initial offering price depending on prevailing interest rates, the market for similar securities, our credit ratings, general economic conditions, our financial condition, performance and prospects and other factors. If a rating agency assigns the Notes a non-investment grade rating, the Notes may be subject to greater price volatility than securities of similar maturity without such a non-investment grade rating. The underwriters have advised us that they intend to make a market in the Notes, but they are not obligated to do so. The underwriters may discontinue any market-making in the Notes at any time at their sole discretion. Accordingly, we cannot assure you that a liquid trading market will develop for the Notes, that you will be able to sell your Notes at a particular time or that the price you receive when you sell will be favorable. To the extent an active trading market does not develop, the liquidity and trading price for the Notes may be harmed. Accordingly, you may be required to bear the financial risk of an investment in the Notes for an indefinite period of time.

 

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CAPITALIZATION

 

The following table sets forth the actual capitalization of Solar Capital Ltd. at September 30, 2012.

 

You should read this table together with “Use of Proceeds” described in this prospectus supplement and our most recent balance sheet included elsewhere in this prospectus supplement or the accompanying prospectus.

 

     As of September 30, 2012  
     Solar Capital Ltd.  
     Actual
(unaudited)
 
     (in thousands)  

Assets:

  

Cash and cash equivalents

   $ 13,048   

Investments at fair value

   $ 1,170,627   

Other assets

   $ 16,485   
  

 

 

 

Total assets

   $ 1,200,160   
  

 

 

 

Liabilities(1):

  

Revolving credit facilities

   $ 123,362   

Senior secured notes

   $ 75,000   

Term loan

   $ 50,000   

Other Liabilities

   $ 74,195   
  

 

 

 

Total Liabilities

   $ 322,557   
  

 

 

 

Net Assets:

  

Common stock, par value $0.01 per share; 200,000,000 shares authorized, 38,667,196 shares issued and outstanding

   $ 387   

Paid-in capital in excess of par value

   $ 974,507   
  

 

 

 

Total Net Assets

   $ 877,603   
  

 

 

 

 

(1)   The above table reflects the carrying value of indebtedness outstanding as of September 30, 2012. As of November 6, 2012, outstanding indebtedness under our revolving credit facilities, the term loan and the Senior Secured Notes was $147.5 million, $50 million and $75 million, respectively. The net proceeds from the sale of the Notes in this offering are expected to be used to pay down outstanding indebtedness under our revolving credit facilities and for general corporate purposes. See “Use of Proceeds” in this prospectus supplement.

 

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USE OF PROCEEDS

 

We estimate that the net proceeds we will receive from the sale of the $100 million aggregate principal amount of Notes in this offering will be approximately $96.6 million assuming a public offering price of 100% of par, after deducting the underwriting discount of approximately $3.2 million payable by us and estimated offering expenses of approximately $0.2 million payable by us.

 

We expect to use the net proceeds from this offering to pay down outstanding indebtedness under our revolving credit facilities, and for general corporate purposes, including working capital requirements. However, through reborrowing under our revolving credit facilities, we intend to make investments in debt or equity securities consistent with our investment objective, acquisitions and other general corporate purposes. We are continuously identifying, reviewing and, to the extent consistent with our investment objective, funding new investments. As a result, we typically raise capital as we deem appropriate to fund such new investments.

 

Under the Senior Credit Facility, which matures in July 2016 and generally bears interest at LIBOR plus 2.50%, we had $145 million outstanding as of November 6, 2012. Under the Credit Facility II, which matures in December 2015 and generally bears interest at LIBOR plus 2.75%, there was $52.5 million outstanding as of November 6, 2012. Under the Senior Secured Notes, which mature in May 2017 and bear interest at a fixed interest rate of 5.875%, we had $75 million outstanding as of November 6, 2012. For additional information regarding the Credit Facilities and the Senior Secured Notes, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources” in this prospectus supplement.

 

Affiliates of the underwriters are lenders under our revolving credit facilities. Accordingly, affiliates of certain of the underwriters may receive more than 5% of the net proceeds of this offering to the extent such proceeds are used to repay outstanding indebtedness under our revolving credit facilities.

 

We estimate that it will take three to six months for us to substantially invest the net proceeds of this offering in new investments, depending on the availability of attractive opportunities and market conditions. However, we can offer no assurance that we will be able to achieve this goal. We expect that it may take more than three months to invest all of the net proceeds of this offering, in part because investments in private companies often require substantial research and due diligence.

 

Pending these uses, we will invest such net proceeds primarily in cash, cash equivalents, and U.S. government securities and other high-quality debt investments that mature in one year or less. The management fee payable by us to our investment adviser will not be reduced while our assets are invested in such securities.

 

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

The information contained in this section should be read in conjunction with the Selected Financial and Other Data and our Financial Statements and notes thereto appearing elsewhere in this prospectus supplement.

 

Overview

 

Solar Capital, a Maryland corporation formed in November 2007, is a closed-end, externally managed, non-diversified management investment company that has elected to be treated as a BDC under the 1940 Act. In addition, for tax purposes we have elected to be treated as a RIC under Subchapter M of the Code. In February 2010, we completed our initial public offering and a concurrent private offering of shares to management.

 

We invest primarily in U.S. middle market companies, where we believe the supply of primary capital is limited and the investment opportunities are most attractive. Our investment objective is to generate both current income and capital appreciation through debt and equity investments. We invest primarily in leveraged middle market companies in the form of senior secured loans, mezzanine loans and equity securities. From time to time, we may also invest in public companies that are thinly traded. Our business model is focused primarily on the direct origination of investments through portfolio companies or their financial sponsors. Our investments generally range between $20 million and $100 million each, although we expect that this investment size will vary proportionately with the size of our capital base. We are managed by Solar Capital Partners, LLC. Solar Capital Management, LLC provides the administrative services necessary for us to operate.

 

In addition, we may invest a portion of our portfolio in other types of investments, which we refer to as opportunistic investments, which are not our primary focus but are intended to enhance our overall returns. These investments may include, but are not limited to, direct investments in public companies that are not thinly traded and securities of leveraged companies located in select countries outside of the United States.

 

As of September 30, 2012, our investments totaled $1.17 billion and our net asset value was $877.6 million. Our portfolio was comprised of debt and equity investments in 41 portfolio companies and our income producing assets, which represented 93.8% of our total portfolio at fair value, had a weighted average annualized yield on a fair value basis of approximately 13.9%.

 

Recent Developments

 

Dividend

 

On November 1, 2012, our board of directors declared a quarterly dividend of $0.60 per share payable on January 3, 2013 to holders of record as of December 20, 2012. We expect the dividend to be paid from taxable earnings with specific tax characteristics reported to stockholders after the end of the calendar year.

 

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 amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and revenues and expenses during the periods reported. Actual results could materially differ from those estimates. We have identified the following items as critical accounting policies.

 

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Valuation of Portfolio Investments

 

We conduct the valuation of our assets, pursuant to which our net asset value is determined, at all times consistent with GAAP, and the 1940 Act. Our valuation procedures are set forth in more detail below:

 

Securities for which market quotations are readily available on an exchange are valued at the closing price on the day of valuation. We may also obtain quotes with respect to certain of our investments from pricing services or brokers or dealers in order to value assets. When doing so, we determine whether the quote obtained is sufficient according to GAAP to determine the fair value of the security. If determined reliable, we use the quote obtained.

 

Securities for which reliable market quotations are not readily available or for which the pricing source does not provide a valuation or methodology or provides a valuation or methodology that, in the judgment of our investment adviser or board of directors, does not represent fair value, shall be valued as follows: (i) each portfolio company or investment is initially valued by the investment professionals responsible for the portfolio investment; (ii) preliminary valuation conclusions are documented and discussed with our senior management; (iii) independent third-party valuation firms engaged by, or on behalf of, the board of directors will conduct independent appraisals and review management’s preliminary valuations and make their own assessment for all material assets; (iv) the board of directors will discuss valuations and determine the fair value of each investment in our portfolio in good faith based on the input of the investment adviser and, where appropriate, the respective third-party valuation firms.

 

The recommendation of fair value will generally be based on the following factors, as relevant:

 

   

the nature and realizable value of any collateral including credit risk;

 

   

the portfolio company’s ability to make payments;

 

   

the portfolio company’s earnings and discounted cash flow;

 

   

the markets in which the issuer does business and; and

 

   

comparisons to publicly traded securities.

 

Securities for which market quotations are not readily available or for which a pricing source is not sufficient may include, but are not limited to, the following:

 

   

private placements and restricted securities that do not have an active trading market;

 

   

securities whose trading has been suspended or for which market quotes are no longer available;

 

   

debt securities that have recently gone into default and for which there is no current market;

 

   

securities whose prices are stale;

 

   

securities affected by significant events; and

 

   

securities that the investment adviser believes were priced incorrectly.

 

Determination of fair value involves subjective judgments and estimates. Accordingly, the notes to our financial statements express the uncertainty with respect to the possible effect of such valuations, and any change in such valuations, on our financial statements.

 

GAAP fair value measurement guidance classifies the inputs used to measure these fair values into the following hierarchy:

 

Level 1. Financial assets and liabilities whose values are based on unadjusted quoted prices for identical assets or liabilities in an active market that the Company has the ability to access (examples include active exchange-traded equity securities, exchange-traded derivatives, and most U.S. Government and agency securities).

 

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Level 2. Financial assets and liabilities whose values are based on quoted prices in markets that are not active or model inputs that are observable either directly or indirectly for substantially the full term of the asset or liability. Level 2 inputs include the following:

 

a) Quoted prices for similar assets or liabilities in active markets;

 

b) Quoted prices for identical or similar assets or liabilities in non-active markets (examples include corporate and municipal bonds, which trade infrequently);

 

c) Pricing models whose inputs are observable for substantially the full term of the asset or liability (examples include most over-the-counter derivatives, including foreign exchange forward contracts); and

 

d) Pricing models whose inputs are derived principally from or corroborated by observable market data through correlation or other means for substantially the full term of the asset or liability.

 

Level 3. Financial assets and liabilities whose values are based on prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement. These inputs reflect management’s own assumptions about the assumptions a market participant would use in pricing the asset or liability (examples include certain of our private debt and equity investments) and long-dated or complex derivatives (including certain equity and currency derivatives).

 

Fair Value Measurements

As of September 30, 2012

 

     Level 1      Level 2      Level 3      Total  

Assets:

           

Bank Debt/Senior Secured Loans

     —           25,920         450,597         476,517   

Subordinated Debt / Corporate Notes

     —           30,076         464,518         494,594   

Preferred Equity

     —           —           147,852         147,852   

Common Equity / Partnership Interests / Warrants

     6,340         —           45,324         51,664   

Derivative assets – interest rate caps

     —           30         —           30   

Liabilities:

           

The Facility and Private Notes

     —           —           210,907         210,907   

 

At September 30, 2012, the fair value of investments classified as Level 3 was approximately $1,108 million or 92.3% of total assets. There were no investments transferred in or out of Level 3 during the 3rd quarter of 2012.

 

Revenue Recognition

 

Our revenue recognition policies are as follows:

 

Sales: Gains or losses on the sale of investments are calculated by using the specific identification method.

 

Interest Income: Interest income, adjusted for amortization of premium and accretion of discount, is recorded on an accrual basis. Origination, closing and/or commitment fees associated with investments in portfolio companies are accreted into interest income over the respective terms of the applicable loans. Upon the prepayment of a loan or debt security, any prepayment penalties and unamortized loan origination, closing and commitment fees are recorded as part of interest income. We have loans in our portfolio that contain a PIK provision. PIK interest is accrued at the contractual rates and added to the loan principal on the reset dates.

 

Non-accrual: Loans are placed on non-accrual status when principal or interest payments are past due 30 days or more or when there is reasonable doubt that principal or interest will be collected. Accrued interest is

 

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generally reversed when a loan is placed on non-accrual status. Interest payments received on non-accrual loans may be recognized as income or applied to principal depending upon management’s judgment about ultimate collectability of principal. Non-accrual loans are restored to accrual status when past due principal and interest is paid and, in management’s judgment, are likely to remain current.

 

Payment-in-Kind Interest

 

We have investments in our portfolio which contain a PIK interest provision. Over time, PIK interest increases the principal balance of the investment, but is recorded as interest income. For us to maintain our status as a RIC, substantially all of this income must be paid out to stockholders in the form of dividends, even though we have not currently collected cash with respect to the PIK interest.

 

New Accounting Pronouncements and Accounting Standards Updates

 

In May 2011, the Financial Accounting Standards Board issued Accounting Standards Update (“ASU”) 2011-04, Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs (“ASU 2011-04”). ASU 2011-04 was issued concurrently with International Financial Reporting Standards No. 13 (“IFRS 13”), Fair Value Measurements, to provide largely identical guidance about fair value measurement and disclosure requirements as is currently required under ASU 2010-06, Fair Value Measurements and Disclosures (Topic 820). The new standards did not extend the use of fair value but, rather, provided guidance about how fair value should be applied where it already is required or permitted under IFRS or GAAP. For GAAP, most of the changes were clarifications of existing guidance or wording changes to align with IFRS 13. ASU 2011-04 eliminated the concepts of in-use and in-exchange when measuring fair value of all financial instruments. For Level 3 fair value measurements, the ASU requires that our disclosure include quantitative information about significant unobservable inputs, a qualitative discussion about the sensitivity of the fair value measurement to changes in the unobservable inputs and the interrelationship between inputs, and a description of our valuation process. Public companies were required to apply ASU 2011-04 prospectively for interim and annual periods beginning after December 15, 2011. The adoption of ASU 2011-04 did not have a significant impact on the Company’s financial statements or its disclosures.

 

Portfolio Investments

 

The total value of our investments was approximately $1.17 billion and $1.05 billion at September 30, 2012 and December 31, 2011, respectively. During the three months ended September 30, 2012, we invested approximately $27.2 million in two new portfolio companies and $0.2 million in one existing portfolio company. During the nine months ended September 30, 2012, we originated approximately $191.8 million of investments in seven new portfolio companies and approximately $89.9 million was invested in six existing portfolio companies.

 

In certain instances, we receive payments on our debt investments based on scheduled amortization of the outstanding balances. In addition, we may receive repayments of certain debt investments prior to their scheduled maturity date. The frequency or volume of these repayments may fluctuate significantly from period to period. Our portfolio activity may reflect sales of securities. For the three months ended September 30, 2012, we had approximately $64.5 million in debt investments repaid as well as $7.0 million of investments sold. For the nine months ended September 30, 2012, we had approximately $176.7 million in debt investments repaid and sales of securities of approximately $36.4 million.

 

At September 30, 2012, we had investments in 41 portfolio companies that include debt and preferred securities in 37 portfolio companies, totaling approximately $1.12 billion, and equity investments in seven portfolio companies, totaling approximately $51.7 million. At December 31, 2011, we had investments in 42 portfolio companies that include debt and preferred securities of 34 portfolio companies, totaling approximately $973.9 million, and equity investments in seven portfolio companies, totaling approximately $71.1 million.

 

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The following table shows the fair value of our portfolio of investments by asset class as of September 30, 2012 and December 31, 2011 (in thousands):

 

     September 30, 2012      December 31, 2011  
     Cost      Fair Value      Cost      Fair Value  

Bank Debt/Senior Secured Loans

   $ 484,350       $ 476,517       $ 426,201       $ 412,396   

Subordinated Debt/Corporate Notes

     508,558         494,594         604,157         546,859   

Preferred Equity

     148,921         147,852         15,107         14,664   

Common Equity/Partnership Interests/Warrants

     88,430         51,664         107,108         71,124   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 1,230,259       $ 1,170,627       $ 1,152,573       $ 1,045,043   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

As of September 30, 2012, the Company had two non-accrual assets with a total market value of $20,725. As of December 31, 2011, there was one non-accrual asset with a market value of $5,875.

 

As of September 30, 2012 and December 31, 2011, the weighted average yield on income producing investments in our portfolio based on fair market value was approximately 13.9% and 14.2%, respectively. The weighted average yield on income producing investments in our portfolio based on cost was approximately 13.9% and 13.2%, respectively.

 

Results of Operations for the Three and Nine Months Ended September 30, 2012 compared to the Three and Nine Months Ended September 30, 2011

 

Investment Income

 

For the three and nine months ended September 30, 2012, gross investment income totaled $40.6 million and $111.8 million, respectively. For the three and nine months ended September 30, 2011, gross investment income totaled $35.3 million and $102.9 million, respectively. The increase in gross investment income for the three and nine months ended September 30, 2012 as compared to the three and nine months ended September 30, 2011 was primarily due to a larger average earning asset base partially offset by a slightly lower weighted average yield on the comparative portfolios.

 

Expenses

 

Total expenses, including income taxes, totaled $18.4 million and $54.0 million, respectively, for the three and nine months ended September 30, 2012, of which $11.6 million and $31.5 million, respectively, were base management fees and performance-based incentive fees and $3.5 million and $15.2 million, respectively, were interest and other debt expenses. Administrative services and other general and administrative expenses totaled $3.2 million and $7.0 million, respectively, for the three and nine months ended September 30, 2012. Total expenses, including income taxes, totaled $14.6 million and $41.7 million, respectively, for the three and nine months ended September 30, 2011, of which $10.5 million and $30.6 million, respectively, were base management fees and performance -based incentive fees and $2.2 million and $6.2 million, respectively, were interest and other debt expenses. Administrative services and other general and administrative expenses totaled $1.6 million and $4.1 million, respectively, for the three and nine months ended September 30, 2011. Expenses consist of base investment advisory and management fees, insurance expenses, administrative services fees, legal fees, directors’ fees, audit and tax services expenses, and other general and administrative expenses. The increase in expenses from the September 2012 periods to the September 2011 periods was primarily due to an increase in interest and related expenses associated with the establishment of a new credit facility and the issuance of the Senior Secured Notes, together with a larger average outstanding debt balance relative to comparative periods. In addition, higher administrative services and other general and administrative expenses were primarily related to higher legal, insurance and tax services expense.

 

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Net Investment Income

 

The Company’s net investment income totaled $22.3 million and $57.7 million, or $0.60 and $1.57, on a per average share basis, respectively, for the three and nine months ended September 30, 2012. The Company’s net investment income totaled $20.7 million and $61.2 million, or $0.57 and $1.68 on a per average share basis, respectively, for the three and nine months ended September 30, 2011.

 

Net Realized Gains (Losses)

 

Net realized gains (losses) for the three and nine months ended September 30, 2012 were $0.4 million and ($9.6) million, respectively. For the three and nine months ended September 30, 2011, net realized gains (losses) totaled $2.1 million and ($2.3) million, respectively. Net realized gains were not significant for the three months ended September 30, 2012 but net realized losses for the nine month period ended September 30, 2012 were primarily derived from the recapitalization of our investment in DSW Group and select sales of a portion of our holdings of NXP Semiconductors. Realized losses incurred upon the exit of these investments reversed out previously reported unrealized losses. Net realized gains and net realized losses for the three and nine months ended September 30, 2011, respectively, were primarily derived from selected exits of outperforming and underperforming investments.

 

Net Unrealized Appreciation (Depreciation) on Investments, Foreign Currencies and Derivatives

 

For the three and nine months ended September 30, 2012, the net change in unrealized appreciation (depreciation) on the Company’s investments, cash equivalents, foreign currencies and other assets and liabilities totaled $7.6 million and $44.4 million, respectively. For the three and nine months ended September 30, 2011, the net change in unrealized appreciation (depreciation) on the Company’s investments, cash equivalents, foreign currencies and other assets and liabilities totaled ($74.8) million and ($49.4) million, respectively. For the three and nine months ended September 30, 2012, unrealized appreciation was derived from a general tightening of credit spreads and modestly improved overall health of the investment portfolio. For the three and nine months ended September 30, 2011, unrealized depreciation was derived from a temporary spike in credit spreads and generally weaker market conditions during the period.

 

Net Increase (Decrease) in Net Assets Resulting From Operations

 

For the three and nine months ended September 30, 2012, the Company had a net increase in net assets resulting from operations of $30.2 million and $92.5 million, respectively. For the three months ended September 30, 2011, the Company had a net decrease in net assets resulting from operations of $51.9 million. For the nine months ended September 30, 2011, the Company had a net increase in net assets resulting from operations of $9.5 million. For the three and nine months ended September 30, 2012 earnings per average share were $0.82 and $2.52, respectively. Losses per average share were $1.42 for the three months ended September 30, 2011. For the nine months ended September 30, 2011, earnings per average share totaled $0.26.

 

Liquidity and Capital Resources

 

The Company’s liquidity and capital resources are generated and generally available through the Credit Facilities, through cash flows from operations, investment sales, repayments of senior and subordinated loans, income earned on investments and cash equivalents, and we expect periodic follow-on equity and/or debt offerings. We may from time to time issue such securities in either public or private offerings. The issuance of debt or equity securities will depend on future market conditions, funding needs and other factors and there can be no assurance that any such issuance will occur or be successful. The primary use of existing funds and any funds raised in the future is expected to be for investments in portfolio companies, repayment of indebtedness, cash distributions to our shareholders, or for other general corporate purposes.

 

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On August 23, 2012, the Company entered into its most recent follow-on public equity offering of 2.0 million shares of common stock at $22.51 per share raising approximately $45.0 million in proceeds. In the future, the Company may raise additional equity or debt capital, among other considerations.

 

At September 30, 2012 and December 31, 2011, we had cash and cash equivalents of approximately $13.0 million and $11.8 million, respectively. Cash (used) and provided by operating activities for the nine months ended September 30, 2012 and 2011 was approximately ($15.7) million and $30.9 million, respectively. We expect that all current liquidity needs will be met with cash flows from operations and other activities.

 

Credit Facilities and Senior Secured Notes – In June 2012, Solar Capital Ltd. entered into the Senior Credit Facility, which was then comprised of $450 million of multi-currency revolving credit and a $35 million term loan. In August 2012, the Company added $40 million under the Senior Credit Facility’s accordion feature split $25 million in revolving credit commitments and $15 million in a term loan. Borrowings bear interest at a rate per annum equal to the base rate plus 2.50% or the alternate base rate plus 1.50% and has no LIBOR floor requirement. The increased Senior Credit Facility matures in July 2016 and includes a ratable amortization in the fourth year. With additional new lenders or the increase in commitments of current lenders, the Senior Credit Facility may be increased up to $800 million. The Senior Credit Facility contains certain customary affirmative and negative covenants and events of default. In addition, the Senior Credit Facility contains certain financial covenants that among other things, require the Company to maintain a minimum shareholder’s equity and a minimum asset coverage ratio. The Company will also pay issuers of term loans quarterly in arrears a commitment fee at the rate of 0.25% per annum on the average daily outstanding balance. In conjunction with the establishment of the Senior Credit Facility, a predecessor facility and term loan were retired.

 

On May 10, 2012, the Company closed a private offering of $75,000 of the Senior Secured Notes with a fixed interest rate of 5.875% and a maturity date of May 10, 2017. Interest on the Senior Secured Notes is due semi-annually on May 10th and November 10th. The Senior Secured Notes were issued in a private placement only to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended.

 

On December 17, 2010, we established the Credit Facility II with Wells Fargo Securities, LLC acting as administrative agent. In connection with the Credit Facility II, our wholly-owned financing subsidiary, SC Funding II, as borrower, entered into a Loan and Servicing Agreement whereby we transferred certain loans we have originated or acquired or will originate or acquire from time to time to SC Funding II via a Purchase and Sale Agreement. The Credit Facility II, as amended, among other things, matures on December 17, 2015 and generally bears interest based on LIBOR plus 2.75%. The Credit Facility II is secured by all of the assets held by SC Funding II. Under the Credit Facility II, Solar and SC Funding II, as applicable, have made certain customary representations and warranties, and are required to comply with various covenants, reporting requirements and other customary requirements for similar credit facilities. The Credit Facility II includes usual and customary events of default for credit facilities of this nature.

 

Certain covenants may restrict our business activities, including limitations that could hinder our ability to finance additional loans and investments or to make the distributions required to maintain our status as a RIC under Subchapter M of the Code.

 

Contractual Obligations

 

A summary of our significant contractual payment obligations is as follows as of September 30, 2012:

 

     Payments Due by Period  

(in millions)

   Total      Less than
1 Year
     1-3 Years      3-5 Years      More Than
5 Years
 

Senior secured revolving credit facilities(1)

   $ 123.4       $ —         $ —         $ 123.4       $ —     

Senior Secured Notes

   $ 75.0       $ —         $ —         $ 75.0       $ —     

Term Loan

   $ 50.0       $ —         $ —         $ 50.0       $ —     

 

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(1)   As of September 30, 2012, we had approximately $452 million of unused borrowing capacity under our credit facilities.

 

We have certain commitments pursuant to our Investment Advisory and Management Agreement entered into with Solar Capital Partners, LLC. We have agreed to pay a fee for investment advisory and management services consisting of two components – a base management fee and an incentive fee. Payments under the Investment Advisory and Management Agreement are equal to (1) a percentage of the value of our average gross assets and (2) a two-part incentive fee. We have also entered into a contract with Solar Capital Management, LLC to serve as our administrator. Payments under the Administration Agreement are equal to an amount based upon our allocable portion of Solar Capital Management, LLC’s overhead in performing its obligations under the agreement, including rent, fees, and other expenses inclusive of our allocable portion of the compensation of our chief financial officer and any administrative staff.

 

Off-Balance Sheet Arrangements

 

In the normal course of its business, we trade various financial instruments and may enter into various investment activities with off-balance sheet risk, which include forward foreign currency contracts. Generally, these financial instruments represent future commitments to purchase or sell other financial instruments at specific terms at future dates. These financial instruments contain varying degrees of off-balance sheet risk whereby changes in the market value or our satisfaction of the obligations may exceed the amount recognized in our Consolidated Statement of Assets and Liabilities.

 

Distributions and Dividends

 

The following table reflects the cash distributions, including dividends and returns of capital, if any, per share that we have declared on our common stock since our initial public offering:

 

Date Declared

   Record Date      Payment Date      Amount  

Fiscal 2012

        

November 1, 2012

     December 20, 2012         January 3, 2013       $ 0.60   

July 31, 2012

     September 20, 2012         October 2, 2012       $ 0.60   

May 1, 2012

     June 19, 2012         July 3, 2012         0.60   

February 22, 2012

     March 20, 2012         April 3, 2012         0.60   
        

 

 

 

Total 2012

         $ 2.40   
        

 

 

 

Fiscal 2011

        

November 1, 2011

     December 15, 2011         December 29, 2011       $ 0.60   

August 2, 2011

     September 20, 2011         October 4, 2011         0.60   

May 2, 2011

     June 17, 2011         July 5, 2011         0.60   

March 1, 2011

     March 17, 2011         April 4, 2011         0.60   
        

 

 

 

Total 2011

         $ 2.40   
        

 

 

 

Fiscal 2010

        

November 2, 2010

     December 17, 2010         December 30, 2010       $ 0.60   

August 3, 2010

     September 17, 2010         October 4, 2010         0.60   

May 4, 2010

     June 17, 2010         July 2, 2010         0.60   

January 26, 2010

     March 18, 2010         April 1, 2010         0.34
        

 

 

 

Total 2010

         $ 2.14   
        

 

 

 

 

*   Partial period dividend of $0.60 per share prorated for the number of days that remained in the quarter after our initial public offering.

 

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Tax characteristics of all dividends will be reported to shareholders on Form 1099 after the end of each calendar year. Future quarterly dividends, if any, will be determined by our board of directors.

 

We have elected to be taxed as a RIC under Subchapter M of the Code. To maintain our RIC status, we must distribute at least 90% of our ordinary income and realized net short-term capital gains in excess of realized net long-term capital losses, if any, out of the assets legally available for distribution. In addition, although we currently intend to distribute net realized capital gains (net long-term capital gains in excess of short-term capital losses), if any, at least annually, out of the assets legally available for such distributions, we may in the future decide to retain such capital gains for investment.

 

We maintain an “opt out” dividend reinvestment plan for our common stockholders. As a result, if we declare a dividend, then stockholders’ cash dividends will be automatically reinvested in additional shares of our common stock, unless they specifically “opt out” of the dividend reinvestment plan so as to receive cash dividends.

 

Related Parties

 

We have entered into a number of business relationships with affiliated or related parties, including the following:

 

   

We have entered into an Investment Advisory and Management Agreement with Solar Capital Partners, LLC. Mr. Gross, our chairman and chief executive officer, is the managing member and a senior investment professional of, and has financial and controlling interests in, Solar Capital Partners, LLC. In addition, Mr. Spohler, our chief operating officer is a partner and a senior investment professional of, and has financial interests in, Solar Capital Partners, LLC.

 

   

Solar Capital Management, LLC provides us with the office facilities and administrative services necessary to conduct day-to-day operations pursuant to our Administration Agreement. We reimburse Solar Capital Management, LLC for the allocable portion of overhead and other expenses incurred by it in performing its obligations under the Administration Agreement, including rent, the fees and expenses associated with performing compliance functions, and the compensation of our chief compliance officer, our chief financial officer and any administrative support staff. Solar Capital Partners, LLC, our Investment Adviser, is the sole member of and controls Solar Capital Management, LLC.

 

   

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

 

Solar Capital Partners, LLC and its affiliates may also manage other funds in the future that may have investment mandates that are similar, in whole and in part, with ours. For example, Solar Capital Partners, LLC presently serves as investment adviser to Solar Senior Capital Ltd., a publicly traded BDC, which to focuses on investing primarily in senior secured loans, including first lien, unitranche and second lien debt instruments. In addition, Michael S. Gross, our chairman and chief executive officer, Bruce Spohler, our chief operating officer, and Richard Peteka, our chief financial officer, serve in similar capacities for Solar Senior Capital Ltd.

 

Solar Capital Partners, LLC and its affiliates may determine that an investment is appropriate for us and for one or more of those other funds. In such event, depending on the availability of such investment and other appropriate factors, Solar Capital Partners, LLC or its affiliates may determine that we should invest side-by-side with one or more other funds. Any such investments will be made only to the extent permitted by applicable law and interpretive positions of the SEC and its staff, and consistent with Solar Capital Partners, LLC’s allocation procedures.

 

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

 

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UNITED STATES FEDERAL INCOME TAX CONSEQUENCES

 

The following discussion is a general summary of the material United States federal income tax considerations (and, in the case of a non-U.S. holder (as specifically defined for United States federal estate tax purposes), the material United States federal estate tax consequences) applicable to an investment in the Notes. This summary does not purport to be a complete description of the income tax considerations applicable to such an investment. The discussion is based upon the Internal Revenue Code of 1986, as amended (the “Code”), Treasury Regulations, and administrative and judicial interpretations, each as of the date of this prospectus supplement and all of which are subject to change, potentially with retroactive effect. You should consult your own tax advisor with respect to tax considerations that pertain to your purchase, ownership and disposition of our Notes.

 

This discussion deals only with Notes held as capital assets within the meaning of Section 1221 of the Code and does not purport to deal with persons in special tax situations, such as financial institutions, insurance companies, regulated investment companies, real estate investment trusts, controlled foreign corporations and passive foreign investment companies (and shareholders of such corporations), dealers in securities or currencies, traders in securities, former citizens of the United States, persons holding the Notes as a position in a “straddle,” “hedge,” “constructive sale transaction” or “conversion transaction” for tax purposes, entities that are tax-exempt for United States federal income tax purposes, retirement plans, individual retirement accounts, tax-deferred accounts, persons subject to the alternative minimum tax, pass-through entities (including partnerships and entities and arrangements classified as partnerships for United States federal income tax purposes) and beneficial owners of pass-through entities, or U.S. holders (as defined below) whose functional currency is not the U.S. dollar. It also does not deal with beneficial owners of the Notes other than original purchasers of the Notes who acquire the Notes in this offering for a price equal to their original issue price (i.e., the first price at which a substantial amount of the notes is sold other than to bond houses, brokers, or similar persons or organizations acting in the capacity of underwriters, placement agents or wholesalers). If you are considering purchasing the Notes, you should consult your own tax advisor concerning the application of the United States federal tax laws to you in light of your particular situation, as well as any consequences to you of purchasing, owning and disposing of the Notes under the laws of any other taxing jurisdiction.

 

For purposes of this discussion, the term “U.S. holder” means a beneficial owner of a Note that is, for United States federal income tax purposes, (i) an individual citizen or resident of the United States, (ii) a corporation or other entity treated as a corporation for United States federal income tax purposes, created or organized in or under the laws of the United States or of any political subdivision thereof, (iii) a trust (a) subject to the control of one or more United States persons and the primary supervision of a court in the United States, or (b) that has a valid election (under applicable Treasury Regulations) to be treated as a United States person, or (iv) an estate the income of which is subject to United States federal income taxation regardless of its source. The term “non-U.S. holder” means a beneficial owner of a Note that is neither a U.S. holder nor a partnership (including an entity or arrangement treated as a partnership for United States federal income tax purposes). An individual may, subject to exceptions, be deemed to be a resident alien, as opposed to a non-resident alien, by, among other ways, being present in the United States (i) on at least 31 days in the calendar year, and (ii) for an aggregate of at least 183 days during a three-year period ending in the current calendar year, counting for such purposes all of the days present in the current year, one-third of the days present in the immediately preceding year, and one-sixth of the days present in the second preceding year. Resident aliens are subject to United States federal income tax as if they were United States citizens.

 

If a partnership (including an entity or arrangement treated as a partnership for United States federal income tax purposes) holds any Notes, the United States federal income tax treatment of a partner of the partnership generally will depend upon the status of the partner, the activities of the partnership and certain determinations made at the partner level. Partners of partnerships holding Notes should consult their own tax advisors.

 

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Taxation of Note Holders

 

Under present law, we are of the opinion that the Notes will constitute indebtedness of us for United States federal income tax purposes, which the below discussion assumes. We intend to treat all payments made with respect to the Notes consistent with this characterization.

 

Taxation of U.S. Holders

 

Payments or accruals of interest on a Note generally will be taxable to a U.S. holder as ordinary interest income at the time they are received (actually or constructively) or accrued, in accordance with the U.S. holder’s regular method of tax accounting.

 

Upon the sale, exchange, redemption or retirement of a Note, a U.S. holder generally will recognize capital gain or loss equal to the difference between the amount realized on the sale, exchange, redemption or retirement (excluding amounts representing accrued and unpaid interest, which are treated as ordinary income to the extent not previously included in income) and the U.S. holder’s adjusted tax basis in the Note. A U.S. holder’s adjusted tax basis in a Note generally will equal the U.S. holder’s initial investment in the Note. Capital gain or loss generally will be long-term capital gain or loss if the Note was held for more than one year. Long-term capital gains recognized by individuals and certain other non-corporate U.S. holders generally are eligible for reduced rates of taxation. The distinction between capital gain or loss and ordinary income or loss is also important in other contexts; for example, for purposes of the limitations on a U.S. holder’s ability to offset capital losses against ordinary income.

 

Unearned Income Medicare Contribution

 

After December 31, 2012, a tax of 3.8 percent will be imposed on the amount of “net investment income,” in the case of an individual, or undistributed “net investment income,” in the case of an estate or trust (other than a charitable trust), which exceeds certain threshold amounts. “Net investment income” as defined for United States federal Medicare contribution purposes generally includes interest payments and gain recognized from the sale or other disposition of the Notes. Qualified pension trusts, which are not subject to income taxes generally, and foreign individuals will not be subject to this tax. U.S. holders should consult their own tax advisors regarding the effect, if any, of this tax on their ownership and disposition of the Notes.

 

Taxation of Non-U.S. Holders

 

A non-U.S. holder generally will not be subject to United States federal income or withholding taxes on payments of principal or interest on a Note provided that (i) income on the Note is not effectively connected with the conduct by the non-U.S. holder of a trade or business within the United States, (ii) the non-U.S. holder is not a controlled foreign corporation related to the Company through stock ownership, (iii) the non-U.S. holder is not a bank receiving interest described in Section 881(c)(3)(A) of the Code, (iv) the non-U.S. holder does not own (directly or indirectly, actually or constructively) 10% or more of the total combined voting power of all classes of stock of the Company, and (v) the U.S. payer of interest does not have actual knowledge or reason to know that such holder is a U.S. person and the non-U.S. holder provides a statement on an Internal Revenue Service (“IRS”) Form W-8BEN (or substantially similar substitute form) signed under penalties of perjury that includes its name and address and certifies that it is not a United States person in compliance with applicable requirements, or satisfies documentary evidence requirements for establishing that it is a non-U.S. holder.

 

A non-U.S. holder that is not exempt from tax under these rules generally will be subject to United States federal income tax withholding on payments of interest on the Notes at a rate of 30% unless (i) the income is effectively connected with the conduct of a United States trade or business and the non-U.S. holder has provided a properly executed IRS Form W-8ECI (or substantially similar substitute form), in which case the interest will be subject to United States federal income tax on a net income basis as applicable to U.S. holders generally (unless an applicable income tax treaty provides otherwise), or (ii) an applicable income tax treaty provides for a lower rate of, or exemption from, withholding tax.

 

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In the case of a non-U.S. holder that is a corporation and that receives income that is effectively connected with the conduct of a United States trade or business, such income may also be subject to a branch profits tax (which is generally imposed on a non-U.S. corporation on the actual or deemed repatriation from the United States of earnings and profits attributable to a United States trade or business) at a 30% rate. The branch profits tax may not apply (or may apply at a reduced rate) if the non-U.S. holder is a qualified resident of a country with which the United States has an income tax treaty.

 

To claim the benefit of an income tax treaty or to claim exemption from withholding because income is effectively connected with a United States trade or business, the non-U.S. holder must timely provide the appropriate, properly executed IRS forms. These forms may be required to be periodically updated. Also, a non-U.S. holder who is claiming the benefits of a treaty may be required to obtain a United States taxpayer identification number and to provide certain documentary evidence issued by foreign governmental authorities to prove residence in the foreign country.

 

Generally, a non-U.S. holder will not be subject to United States federal income or withholding taxes on any amount that constitutes capital gain upon the sale, exchange, redemption or retirement of a Note, provided the gain is not effectively connected with the conduct of a trade or business in the United States by the non-U.S. holder (or, if required by an applicable income tax treaty, is not attributable to a United States “permanent establishment” maintained by the non-U.S. holder). Certain other exceptions or special rules may be applicable, and a non-U.S. holder should consult its tax advisor in this regard.

 

Estate Tax

 

A Note that is held by an individual who, at the time of death, is not a citizen or resident of the United States (as specially defined for United States federal estate tax purposes) generally will not be subject to the United States federal estate tax, unless, at the time of death, (i) such individual directly or indirectly, actually or constructively, owns 10% or more of the total combined voting power of all classes of our stock entitled to vote within the meaning of Section 871(h)(3) of the Code and the Treasury Regulations thereunder or (ii) such individual’s interest in the Notes is effectively connected with the individual’s conduct of a United States trade or business.

 

Information Reporting and Backup Withholding

 

A U.S. holder (other than an “exempt recipient,” including a corporation and certain other persons who, when required, demonstrate their exempt status) generally will be subject to information reporting requirements with respect to payments of principal or interest on, and proceeds from the sale, exchange, redemption or retirement of, the Notes. In general, if a non-corporate U.S. holder subject to information reporting fails to furnish a correct taxpayer identification number or otherwise fails to comply with applicable backup withholding requirements, backup withholding at the applicable rate may apply.

 

Information returns, including a Form 1042-S, will be filed with the IRS in connection with interest payments on the Notes to a non-U.S. holder, even if the non-U.S. holder is exempt from withholding tax. Copies of the information returns reporting the payments and amounts withheld, if any, may also be made available to the tax authorities in the country where the non-U.S. holder is resident under the provisions of an applicable income tax treaty or agreement. In addition, backup withholding tax and certain other information reporting requirements apply to payments of interest and certain reportable payments, unless an exemption applies. Backup withholding and other information reporting will not apply to payments made to a non-U.S. holder if the non-U.S. holder has provided under penalties of perjury the required certification of such holder’s non-United States person status (and the payor does not have actual knowledge or reason to know that the non-U.S. holder is a U.S. holder) or if the non-U.S. holder is an exempt recipient. The certification procedures required to claim the exemption from withholding tax on interest described above will satisfy the certification requirements necessary to avoid backup withholding and other information reporting as well.

 

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If a non-U.S. holder sells or redeems a Note through the U.S. office of a broker, the proceeds from such sale or redemption will be subject to information reporting and backup withholding unless such holder provides a withholding certificate or other appropriate documentary evidence establishing that the holder is not a U.S. holder to the broker and such broker does not have actual knowledge or reason to know that such holder is a U.S. holder, or the holder is an exempt recipient eligible for an exemption from information reporting and backup withholding. If a non-U.S. holder sells or redeems a Note through the foreign office of a broker who is a U.S. person or has certain enumerated connections with the United States, the proceeds from such sale or redemption will be subject to information reporting unless the holder provides to such broker a withholding certificate or other appropriate documentary evidence establishing that the holder is not a U.S. holder and such broker does not have actual knowledge or reason to know that such evidence is false, or the holder is an exempt recipient eligible for an exemption from information reporting. In circumstances where information reporting by the foreign office of such a broker is required, backup withholding will be required only if the broker has actual knowledge that the holder is a U.S. holder.

 

You should consult your tax advisor regarding the qualification for an exemption from backup withholding and information reporting and the procedures for obtaining such an exemption, if applicable. The amount of any backup withholding from a payment to a holder generally will be allowed as a credit against such holder’s United States federal income tax liability and may entitle the holder to a refund, provided that the required information is timely furnished to the IRS.

 

Foreign Account Tax Compliance Act

 

Legislation enacted in 2010 imposes a United States federal withholding tax of 30% on payments of interest or gross proceeds from the disposition of a debt instrument paid after December 31, 2012 to certain non-U.S. entities, including certain foreign financial institutions and investment funds, unless such non-U.S. entity complies with certain reporting requirements regarding its United States account holders and its United States owners. Pursuant to proposed Treasury Regulations and other Treasury guidance, these rules generally are not proposed to be effective for payments of interest until January 1, 2014, and, in the case of payments of gross proceeds, until January 1, 2017. In addition, proposed Treasury guidance has stated that even after the effective dates the new withholding obligations will not apply to payments on, or with respect to, to obligations that are outstanding on January 1, 2013. Congress delegated broad authority to the United States Treasury Department to promulgate regulations to implement the new withholding and reporting regime. It cannot be predicted whether or how any regulations promulgated by the United States Treasury Department pursuant to this broad delegation of regulatory authority will affect holders of the Notes. Prospective purchasers of the Notes should consult their own tax advisors regarding the new withholding and reporting provisions.

 

You should consult your own tax advisor with respect to the particular tax consequences to you of an investment in the Notes, including the possible effect of any pending legislation or proposed regulations.

 

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UNDERWRITING

 

Citigroup Global Markets Inc., Morgan Stanley & Co. LLC, Wells Fargo Securities, LLC, Deutsche Bank Securities Inc. and RBC Capital Markets, LLC are acting as representatives of each of the underwriters named below. Subject to the terms and conditions set forth in an underwriting agreement, dated the date hereof, among us, Solar Capital Partners, Solar Capital Management and the underwriters, we have agreed to sell to the underwriters, and each of the underwriters has agreed, severally and not jointly, to purchase from us, the aggregate principal amount of Notes set forth opposite its name below.

 

Underwriter    Principal
Amount
 

Citigroup Global Markets Inc.

   $ 20,666,000   

Morgan Stanley & Co. LLC

     20,668,000   

Wells Fargo Securities, LLC

     20,666,000   

Deutsche Bank Securities Inc.

     15,000,000   

RBC Capital Markets, LLC

     15,000,000   

BB&T Capital Markets, a division of Scott Stringfellow, LLC

     4,000,000   

Ladenburg Thalmann & Co. Inc

     4,000,000   
  

 

 

 

Total

   $ 100,000,000   
  

 

 

 

 

Subject to the terms and conditions set forth in the underwriting agreement, the underwriters have agreed, severally and not jointly, to purchase all of the Notes sold under the underwriting agreement if any of these Notes are purchased. If an underwriter defaults, the underwriting agreement provides that the purchase commitments of the nondefaulting underwriters may be increased or the underwriting agreement may be terminated.

 

We, Solar Capital Partners and Solar Capital Management have agreed to indemnify the underwriters against certain liabilities, including liabilities under the Securities Act, or to contribute to payments the underwriters may be required to make in respect of those liabilities.

 

The underwriters are offering the Notes, subject to prior sale, when, as and if issued to and accepted by them, subject to approval of legal matters by their counsel, including the validity of the shares, and other conditions contained in the underwriting agreement, such as the receipt by the underwriters of officer’s certificates and legal opinions. The underwriters reserve the right to withdraw, cancel or modify offers to the public and to reject orders in whole or in part.

 

Commissions and Discounts

 

The following table shows the total underwriting discounts that we are to pay to the underwriters in connection with this offering.

 

     Per Note     Total  

Public offering price

     100.00   $ 100,000,000   

Underwriting discount (sales load)

     3.15   $ 3,150,000   

Proceeds, before expenses, to us

     96.85   $ 96,850,000   

 

The underwriters propose to offer some of the Notes to the public at the public offering price set forth on the cover page of this prospectus supplement and some of the Notes to certain other Financial Industry Regulatory Authority (FINRA) members at the public offering price less a concession not in excess of 2.00% of the aggregate principal amount of the Notes. The underwriters may allow, and the dealers may reallow, a discount not in excess of 1.80% of the aggregate principal amount of the Notes. After the initial offering of the Notes to the public, the public offering price and such concessions may be changed. No such change shall change the amount of proceeds to be received by us as set forth on the cover page of this prospectus supplement.

 

The expenses of the offering, not including the underwriting discount, are estimated at $200,000 and are payable by us.

 

 

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No Sales of Similar Securities

 

Subject to certain exceptions, we, Solar Capital Partners, Solar Capital Management and our officers and directors have agreed not to directly or indirectly, offer, pledge, sell, contract to sell, grant any option for the sale of, or otherwise transfer or dispose of any debt securities issued or guaranteed by the Company or any securities convertible into or exercisable or exchangeable for debt securities issued or guaranteed by the Company or file any registration statement under the Securities Act with respect to any of the foregoing for a period of 30 days after the date of this prospectus supplement without first obtaining the written consent of the representatives other than sales of certain private debt securities. This consent may be given at any time without public notice.

 

Listing

 

The Notes are a new issue of securities with no established trading market. We intend to apply to list the Notes on The New York Stock Exchange. If the application is approved, we expect trading in the Notes on The New York Stock Exchange to begin within 30 days after the original issue date. Currently there is no public market for the Notes.

 

We have been advised by the underwriters that they presently intend to make a market in the Notes after completion of the offering as permitted by applicable laws and regulations. The underwriters are not obligated, however, to make a market in the Notes and any such market-making may be discontinued at any time in the sole discretion of the underwriters without any notice. Accordingly, no assurance can be given as to the liquidity of, or development of a public trading market for, the Notes. If an active public trading market for the Notes does not develop, the market price and liquidity of the Notes may be adversely affected.

 

Settlement

 

We expect that delivery of the Notes will be made to investors on or about November 16, 2012, which will be the fifth business day following the date of this prospectus supplement (such settlement being referred to as “T+5”). Under Rule 15c6-1 under the Exchange Act, trades in the secondary market are required to settle in three business days, unless the parties to any such trade expressly agree otherwise. Accordingly, purchasers who wish to trade Notes prior to the delivery of the Notes hereunder will be required, by virtue of the fact that the Notes initially settle in T+5, to specify an alternate settlement arrangement at the time of any such trade to prevent a failed settlement. Purchasers of the Notes who wish to trade the Notes prior to their date of delivery hereunder should consult their advisors.

 

Price Stabilization, Short Positions

 

In connection with the offering, the underwriters may purchase and sell Notes in the open market. These transactions may include covering transactions and stabilizing transactions. Covering transactions involve purchases of the securities in the open market after the distribution has been completed in order to cover short positions. Stabilizing transactions consist of certain bids or purchases of securities made for the purpose of preventing or retarding a decline in the market price of the securities while the offering is in progress.

 

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The underwriters may also impose a penalty bid. This occurs when a particular underwriter repays to the underwriters a portion of the underwriting discount received by it because the representatives have repurchased Notes sold by or for the account of such underwriter in stabilizing or short covering transactions.

 

Any of these activities may cause the price of the Notes to be higher than the price that otherwise would exist in the open market in the absence of such transactions. These transactions may be affected in the over-the-counter market or otherwise and, if commenced, may be discontinued at any time without any notice relating thereto.

 

Electronic Offer, Sale and Distribution of Notes

 

The underwriters may make prospectuses available in electronic (PDF) format. A prospectus in electronic (PDF) format may be made available on a web site maintained by the underwriters, and the underwriters may distribute such prospectuses electronically. The underwriters may allocate a limited principal amount of the Notes for sale to their online brokerage customers.

 

Other Relationships

 

The underwriters and their respective affiliates are full service financial institutions engaged in various activities, which may include sales and trading, commercial and investment banking, advisory, investment management, investment research, principal investment, hedging, market making, brokerage and other financial and non-financial activities and services. The underwriters and their respective affiliates have provided in the past and may provide from time to time in the future in the ordinary course of their business certain commercial banking, financial advisory, investment banking and other services to Solar Capital and our affiliates or our portfolio companies for which they have received or will be entitled to receive separate fees. In particular, the underwriters or their affiliates may execute transactions with Solar Capital or on behalf of Solar Capital or any of our portfolio companies and/or affiliates. In addition, the underwriters or their affiliates may act as arrangers, underwriters or placement agents for companies whose securities are sold to or whose loans are syndicated to Solar Capital or Solar Capital Partners and our affiliates.

 

The underwriters or their affiliates may also trade in our securities, securities of our portfolio companies or other financial instruments related thereto for their own accounts or for the account of others and may extend loans or financing directly or through derivative transactions to Solar Capital, Solar Capital Partners or any of our portfolio companies.

 

We may purchase securities of third parties from the underwriters or their affiliates after the offering. However, we have not entered into any agreement or arrangement regarding the acquisition of any such securities, and we may not purchase any such securities. We would only purchase any such securities if—among other things—we identified securities that satisfied our investment needs and completed our due diligence review of such securities.

 

After the date of this prospectus supplement, the underwriters and their affiliates may from time to time obtain information regarding specific portfolio companies or us that may not be available to the general public. Any such information is obtained by the underwriters and their affiliates in the ordinary course of their businesses and not in connection with the offering of the Notes. In addition, after the offering period for the sale of the Notes, the underwriters or their affiliates may develop analyses or opinions related to Solar Capital or our portfolio companies and buy or sell interests in one or more of our portfolio companies on behalf of their proprietary or client accounts and may engage in competitive activities. There is no obligation on behalf of these parties to disclose their respective analyses, opinions or purchase and sale activities regarding any portfolio company or regarding Solar Capital to our noteholders or any other persons.

 

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In the ordinary course of their business activities, the underwriters and their respective affiliates may make or hold a broad array of investments and actively trade debt and equity securities (or related derivative securities) and financial instruments (including bank loans) for their own account and for the accounts of their customers. Such investments and securities activities may involve securities and/or instruments of ours or our affiliates. Certain of the underwriters and their affiliates that have a lending relationship with us routinely hedge their credit exposure to us consistent with their customary risk management policies. Typically, such underwriters and their affiliates would hedge such exposure by entering into transactions which consist of either the purchase of credit default swaps or the creation of short positions in our securities, including potentially the Notes. Any such short positions could adversely affect future trading prices of the Notes. The underwriters and their respective affiliates may also make investment recommendations and/or publish or express independent research views in respect of such securities or financial instruments and may hold, or recommend to clients that they acquire, long and/or short positions in such securities and instruments.

 

Affiliates of certain of the underwriters serve as agents and/or lenders under the Credit Facilities. Certain of the underwriters and their affiliates were underwriters in connection with our initial public offering and our subsequent common stock offerings, for which they received customary fees.

 

The net proceeds from the sale of the Notes in this offering are expected to be used to pay down outstanding indebtedness under our revolving credit facilities and for general corporate purposes. Affiliates of the underwriters are lenders under our revolving credit facilities. Accordingly, affiliates of certain of the underwriters may receive more than 5% of the net proceeds of this offering to the extent such proceeds are used to repay outstanding indebtedness under our revolving credit facilities.

 

The principal business address of Citigroup Global Markets Inc. is 388 Greenwich Street, New York, New York 10013. The principal business address of Morgan Stanley & Co. LLC is 1585 Broadway, New York, New York 10036. The principal business address of Wells Fargo Securities, LLC is 301 S. College Street, Charlotte, North Carolina 28288. The principal business address of Deutsche Bank Securities Inc. is 60 Wall Street, New York, New York 10005. The principal business address of RBC Capital Markets, LLC is 200 Vesey Street, New York, New York 10281.

 

Other Jurisdictions

 

Other than in the United States, no action has been taken by us or the underwriters that would permit a public offering of the Notes offered by this prospectus supplement in any jurisdiction where action for that purpose is required. The Notes offered by this prospectus supplement may not be offered or sold, directly or indirectly, nor may this prospectus supplement or any other offering material or advertisements in connection with the offer and sale of any such Notes be distributed or published in any jurisdiction, except under circumstances that will result in compliance with the applicable rules and regulations of that jurisdiction. Persons into whose possession this prospectus supplement comes are advised to inform themselves about and to observe any restriction relating to the offering and the distribution of this prospectus supplement. This prospectus supplement and the accompanying prospectus do not constitute an offer to sell or a solicitation of an offer to buy the Notes offered by this prospectus supplement and the accompanying prospectus in any jurisdiction in which such an offer or a solicitation is unlawful.

 

LEGAL MATTERS

 

Certain legal matters in connection with the offering will be passed upon for us by Sutherland Asbill & Brennan LLP, Washington, D.C., Proskauer Rose LLP, Los Angeles, California, and Venable LLP, Baltimore, Maryland. Certain legal matters in connection with the offering will be passed upon for the underwriters by Simpson Thacher & Bartlett LLP, New York, NY.

 

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AVAILABLE INFORMATION

 

We have filed with the SEC a registration statement on Form N-2, together with all amendments and related exhibits, under the Securities Act, with respect to the Notes offered by this prospectus supplement and the accompanying prospectus. The registration statement contains additional information about us and the Notes being offered by this prospectus supplement and the accompanying prospectus.

 

We are required to file with or submit to the SEC annual, quarterly and current periodic reports, proxy statements and other information meeting the informational requirements of the Exchange Act. You may inspect and copy these reports, proxy statements and other information, as well as the registration statement and related exhibits and schedules, at the Public Reference Room of the SEC at 100 F Street, NE, Washington, D.C. 20549. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet site that contains reports, proxy and information statements and other information filed electronically by us with the SEC which are available on the SEC’s website at http://www.sec.gov. Copies of these reports, proxy and information statements and other information may be obtained, after paying a duplicating fee, by electronic request at the following e-mail address: publicinfo@sec.gov, or by writing to the SEC’s Public Reference Section, Washington, D.C. 20549. This information will also be available free of charge by contacting us at Solar Capital Ltd., 500 Park Avenue, New York, NY 10022, by telephone at (212) 993-1670, or on our website at http://www.solarcapltd.com.

 

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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

 

     Page  

Consolidated Statements of Assets and Liabilities as of September 30, 2012 (unaudited) and December 31, 2011

     F-2   

Consolidated Statements of Operations for the three and nine months ended September 30, 2012 (unaudited) and September 30, 2011 (unaudited)

     F-3   

Consolidated Statements of Changes in Net Assets for the nine months ended September 30, 2012 (unaudited) and the year ended December 31, 2011

     F-4   

Consolidated Statements of Cash Flows for the nine months ended September 30, 2012 (unaudited) and September 30, 2011 (unaudited)

     F-5   

Consolidated Schedule of Investments as of September 30, 2012 (unaudited)

     F-6   

Consolidated Schedule of Investments as of December 31, 2011

     F-10   

Notes to Consolidated Financial Statements (unaudited)

     F-14   

 

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SOLAR CAPITAL LTD.

CONSOLIDATED STATEMENTS OF ASSETS AND LIABILITIES

(in thousands, except shares)

 

    

 

 

September 30,

2012

(unaudited)

  

  

  

   

 

December 31,

2011

  

  

Assets

    

Investments at value:

    

Companies less than 5% owned (cost: $1,128,982 and $1,062,844 respectively)

   $ 1,078,553      $ 955,769   

Companies 5% to 25% owned (cost: $72,492 and $41,819, respectively)

     62,103        35,820   

Companies more than 25% owned (cost: $28,785 and $47,910, respectively)

     29,971        53,454   
  

 

 

   

 

 

 

Total investments (cost: $1,230,259 and $1,152,573, respectively)

     1,170,627        1,045,043   

Cash and cash equivalents

     13,048        11,787   

Interest and dividends receivable

     14,416        9,763   

Deferred credit facility costs

     1,087        3,635   

Deferred offering costs

     578        469   

Receivable for investments sold

     —          3,225   

Fee revenue receivable

     —          4,379   

Unrealized appreciation on foreign exchange contracts and fair value of interest rate caps

     30        649   

Prepaid expenses and other receivables

     374        481   
  

 

 

   

 

 

 

Total Assets

     1,200,160        1,079,431   
  

 

 

   

 

 

 

Liabilities

    

Revolving credit facilities

     123,362        201,355   

Senior secured notes

     75,000        —     

Term Loan

     50,000        35,000   

Payable for investments purchased

     32,202        22,443   

Dividend payable

     23,200        —     

Investment advisory and management fee payable

     6,083        5,277   

Performance-based incentive fee payable

     5,565        5,203   

Interest payable

     3,165        1,063   

Administrative services fee payable

     1,282        1,069   

Deferred fee revenue

     —          318   

Other accrued expenses and payables

     2,698        1,762   
  

 

 

   

 

 

 

Total Liabilities

     322,557        273,490   
  

 

 

   

 

 

 

Net Assets

    

Common stock, par value $0.01 per share, 38,667,196 and 36,608,038 shares issued and outstanding, respectively, 200,000,000 authorized

     387        366   

Paid-in capital in excess of par

     974,507        928,180   

Undistributed net investment income

     —          2,245   

Distributions in excess of net investment income

     (7,178     —     

Accumulated net realized losses

     (28,012     (18,379

Net unrealized depreciation

     (62,101     (106,471
  

 

 

   

 

 

 

Total Net Assets

   $ 877,603      $ 805,941   
  

 

 

   

 

 

 

Number of shares outstanding

     38,667,196        36,608,038   
  

 

 

   

 

 

 

Net Asset Value Per Share

   $ 22.70      $ 22.02   
  

 

 

   

 

 

 

See notes to consolidated financial statements.

 

F-2


Table of Contents

SOLAR CAPITAL LTD.

CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)

(in thousands, except shares)

 

    Three months
ended
September 30,
2012
    Three months
ended
September 30,
2011
    Nine months
ended
September 30,
2012
    Nine months
ended
September 30,
2011
 

INVESTMENT INCOME:

       

Interest and dividends:

       

Other interest and dividend income

  $ 26,382      $ 30,988      $ 89,428      $ 97,117   

Companies 5% to 25% owned

    13,460        —          19,112        —     

Companies more than 25% owned

    804        4,341        3,248        5,789   
 

 

 

   

 

 

   

 

 

   

 

 

 

Total investment income

    40,646        35,329        111,788        102,906   
 

 

 

   

 

 

   

 

 

   

 

 

 

EXPENSES:

       

Investment advisory and management fees

    6,083        5,236        17,034        15,319   

Performance-based incentive fees

    5,565        5,216        14,431        15,273   

Interest and other credit facility expenses

    3,475        2,242        15,221        6,174   

Administrative services fees

    1,194        357        3,018        1,074   

Other general and administrative expenses

    2,011        1,223        4,015        3,039   
 

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

    18,328        14,274        53,719        40,879   
 

 

 

   

 

 

   

 

 

   

 

 

 

Net investment income before income tax expense

    22,318        21,055        58,069        62,027   

Income tax expense

    60        344        343        798   
 

 

 

   

 

 

   

 

 

   

 

 

 

Net investment income

    22,258        20,711        57,726        61,229   
 

 

 

   

 

 

   

 

 

   

 

 

 

REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS, DERIVATIVES AND FOREIGN CURRENCIES:

       

Net realized gain (loss):

       

Investments:

       

Companies more than 25% owned

    687        —          11,002        —     

Companies 5% to 25% owned

    —          784        —          784   

Companies less than 5% owned

    (256     —          (20,616 )     5,106   
 

 

 

   

 

 

   

 

 

   

 

 

 

Net realized gain (loss) on investments

    431        784        (9,614     5,890   

Foreign currencies & derivatives

    (860     1,453        (19     (8,096
 

 

 

   

 

 

   

 

 

   

 

 

 

Net realized gain (loss) before income taxes

    (429     2,237        (9,633     (2,206

Income tax expense

    (785     137        —          137   
 

 

 

   

 

 

   

 

 

   

 

 

 

Net realized gain (loss)

    356        2,100        (9,633     (2,343
 

 

 

   

 

 

   

 

 

   

 

 

 

Net change in unrealized gain (loss):

       

Investments

    6,869        (78,604     44,989        (53,802

Foreign currencies & derivatives

    760        3,849        (619     4,374   
 

 

 

   

 

 

   

 

 

   

 

 

 

Net change in unrealized gain (loss)

    7,629        (74,755     44,370        (49,428
 

 

 

   

 

 

   

 

 

   

 

 

 

Net realized and unrealized gain (loss) on investments, derivatives and foreign currencies

    7,985        (72,655     34,737        (51,771
 

 

 

   

 

 

   

 

 

   

 

 

 

Net Increase (Decrease) in Net Assets Resulting From Operations

  $ 30,243      $ (51,944   $ 92,463      $ 9,458   
 

 

 

   

 

 

   

 

 

   

 

 

 

Earnings (Loss) per share

  $ 0.82      $ (1.42   $ 2.52      $ 0.26   
 

 

 

   

 

 

   

 

 

   

 

 

 

See notes to consolidated financial statements.

 

F-3


Table of Contents

SOLAR CAPITAL LTD.

CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS

(in thousands, except shares)

 

     Nine months ended
September 30, 2012
(unaudited)
    Year ended
December 31, 2011
 

Increase in net assets resulting from operations:

    

Net investment income

   $ 57,726      $ 81,904   

Net realized loss

     (9,633     (2,393

Net change in unrealized gain (loss)

     44,370        (18,196
  

 

 

   

 

 

 

Net increase in net assets resulting from operations

     92,463        61,315   
  

 

 

   

 

 

 

Dividends and distributions to shareholders:

     (67,149     (87,532
  

 

 

   

 

 

 

Capital share transactions:

    

Common equity offering

     45,020        —     

Reinvestment of dividends

     1,328        5,164   
  

 

 

   

 

 

 

Total capital share transactions

     46,348        5,164   
  

 

 

   

 

 

 

Net increase (decrease) in net assets

     71,662        (21,053
  

 

 

   

 

 

 

Net assets at beginning of period

     805,941        826,994   
  

 

 

   

 

 

 

Net assets at end of period

   $ 877,603      $ 805,941   
  

 

 

   

 

 

 

See notes to consolidated financial statements.

 

F-4


Table of Contents

SOLAR CAPITAL LTD.

CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)

(in thousands except shares)

 

     Nine months ended
September 30, 2012
    Nine months ended
September 30, 2011
 

Cash Flows from Operating Activities:

    

Net increase in net assets from operations

   $ 92,463      $ 9,458   

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

    

Net realized (gain) loss from investments

     9,614        (5,890

Net realized (gain) loss from foreign currency exchange

     19        348   

Net change in unrealized (gain) loss on investments

     (44,989     53,802   

Net change in (gain) loss on derivatives

     619        (2,209

(Increase) decrease in operating assets:

    

Purchase of investment securities

     (395,695     (324,541

Proceeds from disposition of investment securities

     323,877        238,365   

Capitalization of payment-in-kind interest

     (25,569     (13,710

Collections of payment-in-kind interest

     7,159        3,602   

Interest and dividends receivable

     (4,653     (5,267

Purchase of interest rate cap

     —          (2,938

Fee revenue receivable

     4,379        (282

Deferred offering costs

     (109     (376

Receivable for investments sold

     3,225        7,335   

Prepaid expenses and other receivables

     107        (211

Increase (decrease) in operating liabilities:

    

Payable for investments purchased

     9,759        71,857   

Investment advisory and management fee payable

     806        344   

Performance-based incentive fee payable

     362        869   

Interest payable

     2,102        672   

Administrative services fees

     213        22   

Deferred fee revenue

     (318     (705

Other accrued expenses and payables

     936        329   
  

 

 

   

 

 

 

Net Cash (Used) Provided by Operating Activities

     (15,693     30,874   
  

 

 

   

 

 

 

Cash Flows from Financing Activities:

    

Cash dividends paid

     (42,621     (40,804

Common equity offering

     45,020     

Deferred credit facility costs

     2,548        1,712   

Proceeds from borrowings on senior secured notes

     75,000        —     

Proceeds from borrowings on revolving/term credit facilities

     475,023        1,103,669   

Repayments of borrowings on revolving/term credit facilities

     (538,016     (1,150,341
  

 

 

   

 

 

 

Net Cash Provided (Used) in Financing Activities

     16,954        (85,764
  

 

 

   

 

 

 

NET INCREASE IN CASH AND CASH EQUIVALENTS

     1,261        (54,890

CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD

     11,787        288,732   
  

 

 

   

 

 

 

CASH AND CASH EQUIVALENTS AT END OF PERIOD

   $ 13,048      $ 233,842   
  

 

 

   

 

 

 

Supplemental disclosure of cash flow information:

    

Cash paid for interest

   $ 5,398      $ 3,390   
  

 

 

   

 

 

 

Cash paid for income taxes

   $ 727      $ 477   
  

 

 

   

 

 

 

Non-cash financing activity:

    

Dividends reinvestment

   $ 1,328      $ 2,895   
  

 

 

   

 

 

 

See notes to consolidated financial statements.

 

F-5


Table of Contents

SOLAR CAPITAL LTD.

CONSOLIDATED SCHEDULE OF INVESTMENTS (unaudited)

September 30, 2012

(in thousands, except shares)

 

Description(1)

  

Industry

  Interest(2)     Maturity     Par Amount/
Shares
    Cost     Fair
Value
 

Bank Debt/Senior Secured Loans-54.3%

            

Asurion Corporation(16)

   Insurance     9.00     5/24/2019      $ 17,834      $ 17,757      $ 18,500   

AREP Fifty-Seventh LLC(10)(23)

   Buildings & Real Estate     14.00     8/1/2013        19,769        19,769        19,373   

ARK Real Estate Partners II LP(10)(23)

   Buildings & Real Estate     14.00     8/1/2013        8,027        8,027        7,866   

AviatorCap SII, LLC I(9)

   Aerospace & Defense     12.00     12/31/2014        3,225        3,194        3,225   

AviatorCap SII, LLC II(9)

   Aerospace & Defense     11.00     12/31/2014        4,733        4,681        4,733   

AviatorCap SII, LLC III(9)

   Aerospace & Defense     13.00     12/31/2014        5,151        5,074        5,152   

Direct Buy Inc.(18)

   Home, Office Furnishing & Durable Consumer Products     12.00     2/1/2017        25,000        24,347        5,000   

DS Waters of America, Inc.(10)(22)

   Beverage, Food & Tobacco    

 

15% (11% Cash &

4% PIK)

  

(7) 

    2/28/2018        30,689        29,682        31,763   

Fulton Holding Corp.

   Retail Stores     13.37     5/28/2016        35,000        34,298        35,000   

Easy Financial Services, Inc.(19)(24)

   Consumer Finance     10.50     10/5/2017        10,000        9,921        9,921   

Grakon, LLC(11)

   Machinery     12.00     12/31/2015        9,524        7,738        9,429   

Good Sam Enterprise, LLC

   Insurance     11.50     12/1/2016        7,000        6,588        7,420   

Grocery Outlet Inc.(16)

   Grocery     10.50     12/15/2017        33,096        32,208        33,261   

Isotoner Corporation

   Personal & Nondurable Consumer Products     10.75     1/8/2018        39,000        38,009        38,610   

Interactive Health Solutions, Inc.(16)(17)

   Healthcare, Education & Childcare     11.50     10/4/2016        19,775        19,395        19,894   

MYI Acquiror Corporation(4)(8)(19)

   Insurance    

 

13% (12% Cash &

1% PIK)

  

(7) 

    3/13/2017        31,707        31,168        32,024   

SMG

   Personal, Food & Misc. Services     10.75     12/7/2018        25,000        24,522        24,875   

Southern Auto Finance Company(19)

   Banking     13.50     10/19/2017        25,000        24,509        25,000   

SOINT, LLC(9)

   Aerospace & Defense     15.00     6/30/2016        16,667        16,344        16,333   

Spencer Spirit Holdings, Inc.

   Retail Stores     11.00     5/1/2017        10,000        10,000        10,775   

T&D Solutions holdings

   Utilities     13.00     1/29/2015        17,003        17,003        17,003   

Transplace Texas, LP(16)

   Cargo Transport     11.00     4/12/2017        20,000        19,598        19,700   

Trident USA Health Services, LLC

   Healthcare, Education & Childcare     11.75     10/30/2017        38,000        37,287        37,430   

USAW 767(9)

   Aerospace & Defense     14.50     6/30/2014        3,539        3,519        3,539   

ViaWest Inc(16)

   Personal, Food & Misc. Services    

 

13.5% (12% Cash &

1.5% PIK)

  

(7) 

    5/20/2018        40,691        39,712        40,691   
        

 

 

   

 

 

   

 

 

 

Total Bank Debt/Senior Secured Loans

         $ 495,430      $ 484,350      $ 476,517   
        

 

 

   

 

 

   

 

 

 

Subordinated Debt/Corporate Notes – 56.4%

            

Adams Outdoor Advertising

   Diversified/Conglomerate Service     18.00     12/8/2015      $ 42,500      $ 41,875      $ 42,500   

Asurion Holdco(21)

   Insurance     11.00 %(7)      3/2/2019        12,000        11,655        12,800   

CIBT Solutions

   Leisure, Amusement, Entertainment     13.50     6/15/2018        36,200        35,473        36,200   

Crosman Corporation

   Leisure, Amusement, Entertainment    

 

13% (11% Cash &

2% PIK)

  

(7) 

    10/15/2016        15,219        14,861        14,914   

Earthbound Farm(16)

   Farming & Agriculture     14.25     6/21/2017        58,947        57,927        57,474   

FIS Healthcare Holdings, LLC

   Healthcare Technology     12.00     2/28/2019        28,200        27,574        27,566   

Grakon Holdings LLC Sr(11)

   Machinery     14% PIK (7)      12/31/2015        1,761        1,761        1,743   

Grakon Holdings LLC Jr(11)

   Machinery     12% PIK (7)      12/31/2015        11,812        10,008        8,268   

Granite Global Solutions Corp.(3)(18)(19)

   Insurance     13.50     5/31/2016        18,182        18,029        15,725   

Midcap Financial Intermediate Holdings, LLC(16)(19)

   Banking     13.00     7/9/2015        85,000        83,785        85,000   

ProSieben Sat.1 Media AG(3)(6)(19)

   Broadcasting & Entertainment    

 

8.43% (4.93% Cash &

3.5% PIK)

  

(7) 

    3/6/2017        16,911        21,022        17,276   

Richelieu Foods, Inc.(15)

   Beverage, Food & Tobacco    

 

14.25% (12% Cash &

2.25% PIK)

  

(7) 

    5/18/2016        22,952        22,498        22,493   

Rug Doctor L.P.(20)(16)

   Personal, Food & Misc. Services    

 

15.50% to 20.00%

(wtd. avg. 17.54%

  

(7) 

    10/31/2014        53,320        50,901        47,987   

Weetabix Group(3)(5)(19)

   Beverage, Food & Tobacco     9.13% PIK (7)      9/14/2016        23,216        43,485        37,485   

Weetabix Group(3)(5)(19)

   Beverage, Food & Tobacco     10.29% PIK (7)      5/3/2017        11,274        20,168        18,203   

WireCo. Worldgroup Inc.

   Building Products     11.75     5/15/2017        48,000        47,536        48,960   
        

 

 

   

 

 

   

 

 

 

Total Subordinated Debt/Corporate Notes

         $ 485,494      $ 508,558      $ 494,594   
        

 

 

   

 

 

   

 

 

 

See notes to consolidated financial statements.

 

F-6


Table of Contents

SOLAR CAPITAL LTD.

CONSOLIDATED SCHEDULE OF INVESTMENTS (unaudited) (continued)

September 30, 2012

(in thousands, except shares)

 

Description(1)

   Industry    Interest(2)     Maturity      Par Amount/
Shares
     Cost      Fair
Value
 

Preferred Equity – 16.8%

                

Senior Preferred 15% Units of DSW Group
Holdings LLC(10)

   Beverage, Food & Tobacco      15.00% PIK (7)      —           1,445,321       $ 124,379       $ 122,274   

SODO Corp.(9)(12)

   Aerospace & Defense      8.43% PIK (7)      6/30/2018         2,117         2,117         2,371   

SOCAY Limited(9)(12)(19)

   Aerospace & Defense      8.59% PIK (7)      6/30/2018         13,719         13,719         14,490   

SOINT, LLC(9)(19)

   Aerospace & Defense      15.00% PIK (7)      6/30/2018         86,667         8,667         8,667   

Wyle Laboratories

   Aerospace & Defense      8.00     7/17/2015         387         39         50   
             

 

 

    

 

 

 

Total Preferred Equity

              $ 148,921       $ 147,852   
             

 

 

    

 

 

 

Common Equity / Partnership Interests /
Warrants – 5.9%

                

Ark Real Estate Partners LP(10)(11)

   Buildings & Real Estate           44,697,684       $ 44,698       $ 34,864   

Participating Preferred Units of DSW Group
Holdings LLC(10)

   Beverage, Food & Tobacco           1,296,078         —           —     

Grakon, LLC(11)

   Machinery           1,714,286         1,714         —     

Grakon, LLC Warrants(11)

   Machinery           3,518,001         —           —     

Great American Group Inc.(13)(19)

   Personal, Food & Misc. Services           572,800         2,681         235   

Great American Group Inc.(13)(19)

   Personal, Food & Misc. Services           125,000         —           —     

Great American Group Inc.(14)(19)

   Personal, Food & Misc. Services           187,500         3         77   

Nuveen Investments, Inc.

   Finance           3,486,444         30,876         10,460   

NXP Semiconductors Netherlands B.V.(3)(19)

   Electronics           210,271         5,732         5,259   

Seven West Media Limited(3)(19)

   Broadcasting & Entertainment           656,530         2,726         769   
             

 

 

    

 

 

 

Total Common Equity/Partnerships
Interests / Warrants

              $ 88,430       $ 51,664   
             

 

 

    

 

 

 

Total Investments – 133.4%

              $ 1,230,259       $ 1,170,627   
             

 

 

    

 

 

 

Liabilities in Excess of Other Assets – (33.4%)

                (293,024
                

 

 

 

Net Assets – 100.0%

                 $ 877,603   
                

 

 

 

 

(1) We generally acquire our investments in private transactions exempt from registration under the Securities Act of 1933, as amended (the “Securities Act”). Our investments are therefore generally subject to certain limitations on resale, and may be deemed to be “restricted securities” under the Securities Act.
(2) A majority of the variable rate debt investments bear interest at a rate that may be determined by reference to LIBOR or EURIBOR, and which reset daily, quarterly or semi-annually. For each debt investment we have provided the current interest rate in effect as of September 30, 2012.
(3) The following entities are domiciled outside the United States and the investments are denominated in either Euro, British Pounds, Canadian Dollars or Australian Dollars: Weetabix Group in the United Kingdom; ProSieben Sat.1 Media AG in Germany; Granite Global Solutions Corp. in Canada; and Seven Media Group Limited in Australia. NXP Semiconductors Netherlands B.V. is domiciled in the Netherlands and is denominated in U.S. dollars. All other investments are domiciled in the United States.
(4) Solar Capital Ltd.’s foreign domiciled portion of MYI Aquiror Corporation is held through its wholly-owned subsidiary Solar Capital Luxembourg I S.ar.l.
(5) Solar Capital Ltd.’s investments in Weetabix Group are held through its wholly-owned subsidiary Solar Capital Luxembourg I S.a.r.l.
(6) Solar Capital Ltd.’s investment in ProSieben Sat. 1 Media AG is held through its wholly-owned subsidiary Solar Capital Luxembourg I S.a.r.l.
(7) Coupon is payable in cash and/or in kind (PIK).
(8) Includes an unfunded commitment of $5,880.
(9) Denotes a Control Investment. “Control Investments” are defined in the 1940 Act as investments in those companies that the Company is deemed to “Control.” Generally, under the Investment Company Act of 1940, as amended (the “1940 Act”), the Company is deemed to “Control” a company in which it has invested if it owns 25% or more of the voting securities of such company or has greater than 50% representation on its board.
(10) Denotes an Affiliate Investment. “Affiliate Investments” are investments in those companies that are “Affiliated Companies” of the Company, as defined in the 1940 Act, which are not “Control Investments.” The Company is deemed to be an “Affiliate” of a company in which it has invested if it owns 5% or more but less than 25% of the voting securities of such company.
(11) Investments are held in taxable subsidiaries. Ark Real Estate Partners LP is held through SLRC ADI Corp and our equity investment in Grakon LLC is held through Grakon TL Holding, Inc.
(12) Solar Capital Ltd.’s investments in SODO Corp. and SOCAY Corp. each include a one dollar investment in common shares.
(13) Founders Shares.
(14) Contingent Founders Shares.
(15) Indicates an investment held by Solar Capital Ltd. through its wholly-owned subsidiary Solar Capital Funding II LLC (“SC Funding”). Such investments are pledged as collateral under the Senior Secured Loan Facility (see Note 6 to the consolidated financial statements) and are not generally available to the creditors of Solar Capital Ltd. Unless otherwise noted, as of September 30, 2012, all other investments were pledged as collateral for the Senior Secured Credit Facility, Term Loan and Senior Secured Notes (see Note 6 to the consolidated financial statements).
(16) Indicates an investment partially held by Solar Capital Ltd. through its wholly-owned subsidiary SC Funding. (See footnote 15 above for further explanation.) Par amounts held through SC Funding include: Asurion Corp $9,017; Earthbound Farm $23,500; Fulton Holding Corp. $18,000; Grocery Outlet Inc. $19,700; Interactive Health Solutions, Inc. $14,476; Midcap Financial Intermediate Holdings, LLC $23,500; Rug Doctor L.P. $9,756; Transplace Texas, LP $18,800 and ViaWest Inc. $15,413. Remaining par balances are held directly by Solar Capital Ltd.

 

F-7


Table of Contents

SOLAR CAPITAL LTD.

CONSOLIDATED SCHEDULE OF INVESTMENTS (unaudited) (continued)

September 30, 2012

(in thousands, except shares)

 

(17) Includes an unfunded commitment of $1,250.
(18) Investments on non-accrual status.
(19) Indicates assets that the Company believes do not represent “qualifying assets” under Section 55(a) of the Investment Company Act of 1940, as amended. Qualifying assets must represent at least 70% of the Company’s total assets at the time of acquisition of any additional non-qualifying assets.
(20) Includes PIK payable on $12,898 of par at 4.50% PIK, $14,769 of par at 5.25% PIK, $15,400 of par at 8.00% PIK, and $9,669 of par at 3.50% PIK.
(21) Asurion Holdco has the option to pay interest in kind at L+10.25% if certain specified conditions are met.
(22) In March 2012, Solar Capital Ltd. purchased $36,991 and participated $7,000 to a third party with no recourse to the Company.
(23) Includes an unfunded commitment of $15,151
(24) Includes an unfunded commitment of CAD 10,000

See notes to consolidated financial statements.

 

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Table of Contents

SOLAR CAPITAL LTD.

CONSOLIDATED SCHEDULE OF INVESTMENTS (unaudited) (continued)

September 30, 2012

(in thousands, except shares)

 

Industry Classification

   Percentage of Total
Investments (at fair value) as
of September 30, 2012
 

Beverage, Food & Tobacco

     19.8

Personal, Food & Misc. Services

     9.7

Banking

     9.4

Insurance

     7.4

Healthcare, Education & Childcare

     5.3

Buildings & Real Estate

     5.0

Farming & Agriculture

     4.9

Aerospace & Defense

     4.9

Building Products

     4.4

Leisure, Amusement, Entertainment

     4.2

Retail Stores

     3.9

Diversified/Conglomerate Service

     3.6

Personal & Nondurable Consumer Products

     3.3

Grocery

     2.8

Healthcare Technology

     2.4

Machinery

     1.7

Cargo Transport

     1.7

Broadcasting & Entertainment

     1.5

Utilities

     1.5

Consumer Finance

     0.9

Finance

     0.8

Electronics

     0.5

Home, Office Furnishing & Durable Consumer Products

     0.4
  

 

 

 
     100
  

 

 

 

See notes to consolidated financial statements.

 

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Table of Contents

SOLAR CAPITAL LTD.

CONSOLIDATED SCHEDULE OF INVESTMENTS

December 31, 2011

(in thousands, except shares)

 

Description(1)

 

Industry

  Interest(2)     Maturity     Par Amount/
Shares
    Cost     Fair
Value
 

Bank Debt/Senior Secured Loans – 51.2%

           

Asurion Corporation(18)

  Insurance     9.00     5/24/2019      $ 40,000      $ 39,811      $ 39,517   

Airvana Network Solutions Inc.

  Telecommunications     10.00     3/25/2015        8,324        8,186        8,324   

AviatorCap SII, LLC I(10)

  Aerospace & Defense     12.00     12/31/2014        3,728        3,678        3,671   

AviatorCap SII, LLC II(10)

  Aerospace & Defense     11.00     12/31/2014        5,697        5,618        5,611   

AviatorCap SII, LLC III(10)

  Aerospace & Defense     13.00     12/31/2014        8,856        8,696        8,724   

Direct Buy Inc.(20)

  Home, Office Furnishing & Durable Consumer Products     12.00     2/1/2017        25,000        24,332        5,875   

Fulton Holding Corp(18)

  Retail Stores     13.74     5/28/2016        35,000        34,155        35,000   

Grakon, LLC

  Machinery     12.00     12/31/2015        9,524        7,610        9,286   

Good Sam Enterprise, LLC

  Insurance     11.50     12/1/2016        7,000        6,523        6,860   

Grocery Outlet Inc.

  Grocery     10.50     12/15/2017        33,600        32,599        32,592   

Isotoner Corporation

  Personal & Nondurable Consumer Products     10.75     1/8/2018        39,000        37,895        37,830   

Interactive Health Solutions, Inc.(18)(19)

  Healthcare, Education & Childcare     11.50     10/4/2016        20,131        19,691        19,930   

MYI Acquiror Corporation(3)(4)(8)(21)

  Insurance    
 
13% (12% Cash &
1% PIK)
  
(7) 
    3/13/2017        31,500        30,899        31,500   

Roundy’s Supermarkets, Inc. – 2nd Lien(18)

  Grocery     10.00     4/16/2016        22,000        21,685        22,069   

Southern Auto Finance Company(21)

  Banking     13.50     10/19/2017        25,000        24,453        24,437   

Spencer Spirit Holdings, Inc.

  Retail Stores     11.00     5/1/2017        10,000        10,000        10,000   

Transplace Texas, LP(18)

  Cargo Transport     11.00     4/12/2017        20,000        19,533        19,500   

USAW 767(10)

  Aerospace & Defense     14.50     12/31/2012        4,904        4,850        4,831   

ViaWest Inc(18)

  Personal, Food & Misc. Services    
 
13.5% (12% Cash
& 1.5% PIK)
  
(7) 
    5/20/2016        33,255        32,520        32,756   

Vision Holding Corp.(18)

  Healthcare, Education & Childcare     12.00     11/23/2016        37,500        36,869        37,125   

VPSI, Inc.(17)

  Personal Transportation     12.00     12/23/2015        16,958        16,598        16,958   
       

 

 

   

 

 

   

 

 

 

Total Bank Debt/Senior Secured Loans

        $ 436,977      $ 426,201      $ 412,396   
       

 

 

   

 

 

   

 

 

 

Subordinated Debt/Corporate Notes – 67.9%

           

Adams Outdoor Advertising

  Diversified/Conglomerate Service     18.00     12/8/2015      $ 42,500      $ 41,878      $ 42,075   

AMC Entertainment Holdings, Inc.

  Leisure, Amusement, Entertainment     5.55%PIK        6/13/2012        27,141        27,086        26,462   

CIBT Solutions

  Leisure, Amusement, Entertainment     13.50     6/15/2018        36,200        35,389        35,386   

Crosman Corporation

  Leisure, Amusement, Entertainment    

 

13% (11% Cash &

2% PIK)

  

(7) 

    10/15/2016        15,219        14,808        14,762   

DSW Group, Inc.

  Beverage, Food & Tobacco     15% PIK        4/24/2012        125,106        124,972        106,340   

Earthbound Farm(18)

  Farming & Agriculture     14.25     6/21/2017        58,947        57,739        56,590   

Grakon Holdings LLC Sr

  Machinery     14% PIK        12/31/2015        1,588        1,588        1,469   

Grakon Holdings LLC Jr

  Machinery     12% PIK        12/31/2015        15,118        12,344        7,710   

Granite Global Solutions Corp.(3)(16)(21)

  Insurance     13.50     5/31/2016        29,983        30,234        29,121   

Magnolia River, LLC

  Hotels, Motels, Inns and Gaming     14.00     4/28/2014        19,064        18,664        19,064   

Midcap Financial Intermediate Holdings, LLC(18)

  Banking     14.25     7/9/2015        75,000        73,542        75,000   

ProSieben Sat.1 Media AG(3)(6)(21)

  Broadcasting & Entertainment    
 
8.83%(5.3% Cash
& 3.5% PIK)
  
(7) 
    3/6/2017        21,125        20,261        10,508   

Richelieu Foods, Inc.(17)

  Beverage, Food & Tobacco     13.75     5/18/2016        22,500        21,972        21,150   
      15.50% to 20.00% (7)         

Rug Doctor L.P.(18)(22)

  Personal, Food & Misc. Services     (wtd. avg. 17.54 %)      10/31/2014        51,225        48,034        47,383   

Shoes For Crews, LLC (17)

  Textiles & Leather     13.75% (7)      7/23/2016        15,650        15,318        15,650   

Weetabix Group(3)(5)(21)

  Beverage, Food & Tobacco     9.22% PIK        9/14/2016        15,986        18,589        12,469   

Weetabix Group(3)(5)(21)

  Beverage, Food & Tobacco     10.03%PIK        5/3/2017        34,294        41,739        25,720   
       

 

 

   

 

 

   

 

 

 

Total Subordinated Debt/Corporate Notes

        $ 606,646      $ 604,157      $ 546,859   
       

 

 

   

 

 

   

 

 

 

Preferred Equity – 1.8%

           

SODO Corp.(10)(13)

  Aerospace & Defense     8.43% PIK        —          1,912      $ 2,009      $ 1,949   

SOCAY Limited(10)(13)

  Aerospace & Defense     8.59% PIK        —          12,357        13,059        12,668   

Wyle Laboratories

  Aerospace & Defense     8.00%               7/17/2015        387        39        47   
         

 

 

   

 

 

 

Total Preferred Equity

          $ 15,107      $ 14,664   
         

 

 

   

 

 

 

 

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Table of Contents

SOLAR CAPITAL LTD.

CONSOLIDATED SCHEDULE OF INVESTMENTS (continued)

December 31, 2011

(in thousands, except shares)

 

Description(1)

 

Industry

  Interest(2)   Maturity   Par Amount/
Shares
    Cost     Fair
Value
 

Common Equity / Partnership Interests / Warrants – 8.8%

           

Ark Real Estate Partners LP(9)(11)(12)

  Buildings & Real Estate         41,818,834      $ 41,819      $ 35,820   

Grakon, LLC

  Machinery         1,714,286        1,714        —     

Grakon, LLC Warrants

  Machinery         3,518,001        —          —     

Great American Group Inc.(14)

  Personal, Food & Misc. Services         572,800        2,681        69   

Great American Group Inc.(15)

  Personal, Food & Misc. Services         187,500        3        23   

National Specialty Alloys, LLC(10)

  Mining, Steel, Iron & Nonprecious Metals         1,000,000        10,000        16,000   

Nuveen Investments, Inc.

  Finance         3,486,444        30,875        7,844   

NXP Semiconductors Netherlands B.V.(3)

  Electronics         645,292        17,592        9,918   

Seven West Media Limited

  Broadcasting & Entertainment         437,687        2,424        1,450   
         

 

 

   

 

 

 

Total Common Equity/Partnerships Interests / Warrants

            107,108        71,124   
         

 

 

   

 

 

 

Total Investments – 129.7%

          $ 1,152,573      $ 1,045,043   

Liabilities in Excess of Other
Assets – (29.7%)

              (239,102
           

 

 

 

Net Assets – 100.0%

            $ 805,941   
           

 

 

 

 

(1) We generally acquire our investments in private transactions exempt from registration under the Securities Act of 1933, as amended (the “Securities Act”). Our investments are therefore generally subject to certain limitations on resale, and may be deemed to be “restricted securities” under the Securities Act.
(2) For each debt investment we have provided the current interest rate in effect as of December 31, 2011. Variable rate debt investments generally bear interest at a rate that may be determined by reference to LIBOR or EURIBOR, and which may reset daily, quarterly or semi-annually.
(3) The following entities are domiciled outside the United States and the investments are denominated in British Pounds, Euro, Canadian Dollars or Australian Dollars: Weetabix Group in the United Kingdom; ProSieben Sat.1 Media AG in Germany; Granite Global Solutions Corp. in Canada; and Seven West Media Group Pty Limited in Australia. NXP Semiconductors Netherlands B.V. is domiciled in the Netherlands and $14,750 of MYI Aquiror Corporation is domiciled in the United Kingdom, but these assets are denominated in US Dollars. All other investments are domiciled in the United States.
(4) Solar Capital Ltd.’s foreign domiciled portion of MYI Aquiror Corporation is held through its wholly-owned subsidiary Solar Capital Luxembourg I S.a.r.l.
(5) Solar Capital Ltd.’s investments in Weetabix Group are held through its wholly-owned subsidiary Solar Capital Luxembourg I S.a.r.l.
(6) Solar Capital Ltd.’s investments in ProSieben Sat. 1 Media AG are held through its wholly-owned subsidiary Solar Capital Luxembourg I S.a.r.l.
(7) Coupon is payable in cash and/or in kind (PIK).
(8) Includes an unfunded commitment of $6,000.
(9) Solar Capital Ltd. has an unfunded commitment of $2,879.
(10) Denotes a Control Investment. “Control Investments” are defined in the 1940 Act as investments in those companies that the Company is deemed to “Control.” Generally, under the Investment Company Act of 1940, as amended (the “1940 Act”), the Company is deemed to “Control” a company in which it has invested if it owns 25% or more of the voting securities of such company or has greater than 50% representation on its board.
(11) Denotes an Affiliate Investment. “Affiliate Investments” are investments in those companies that are “Affiliated Companies” of the Company, as defined in the 1940 Act, which are not “Control Investments.” The Company is deemed to be an “Affiliate” of a company in which it has invested if it owns 5% or more but less than 25% of the voting securities of such company.
(12) Solar Capital Ltd.’s investment in Ark Real Estate Partners LP is held through its taxable subsidiary SLRC ADI Corp.
(13) SODO Corp. and SOCAY Corp. own equity interests that represent a majority of the equity ownership in Aviator Cap SII, LLC and USAW 767. Solar Capital Ltd.’s investments in SODO Corp. and SOCAY Corp. each include a one dollar investment in common shares.
(14) Founders Shares.
(15) Contingent Founders Shares.
(16) Includes an unfunded commitment of $15,600 Canadian Dollars or $15,313 U.S Dollars as of December 31, 2011.
(17) Indicates an investment held by Solar Capital Ltd. through its wholly-owned subsidiary Solar Capital Funding II LLC. Such investments are pledged as collateral under the Senior Secured Loan Facility (see Note 6 to the consolidated financial statements) and are not generally available to the creditors of Solar Capital Ltd. Unless otherwise noted, as of December 31, 2011, all other investments were pledged as collateral for the Senior Secured Revolving Credit Facility and the Term Loan (see Note 6 to the consolidated financial statements).
(18) Indicates an investment partially held by Solar Capital Ltd. through its wholly-owned subsidiary Solar Capital Funding II LLC. (See note 17 above for further explanation.) Par amounts held through Solar Capital Funding II LLC include: Asurion $14,224; Fulton Holding Corp. $18,000; Interactive Health Solutions, Inc. $10,236; Roundy’s Supermarkets Inc. $10,000; Transplace Texas, LP $18,800; ViaWest Inc. $15,239; Vision Holding Corp $13,883; Earthbound $23,500; Midcap Financial Intermediate Holdings, LLC $23,500; and Rug Doctor L.P. $9,515. Remaining par balances are held directly by Solar Capital Ltd.
(19) Includes an unfunded commitment of $1,250.

 

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Table of Contents

SOLAR CAPITAL LTD.

CONSOLIDATED SCHEDULE OF INVESTMENTS (continued)

December 31, 2011

(in thousands, except shares)

 

(20) Investment is on non-accrual status.
(21) Indicates assets that the Company believes do not represent “qualifying assets” under Section 55(a) of the Investment Company Act of 1940, as amended. Qualifying assets must represent at least 70% of the Company’s total assets at the time of acquisition of any additional non-qualifying assets.
(22) Includes PIK payable on $12,466 of par at 4.50% PIK, $14,405 of par at 5.25% PIK, $14,839 of par at 8.00% PIK, and $9,515 of par at 3.50% PIK.

See notes to consolidated financial statements.

 

F-12


Table of Contents

SOLAR CAPITAL LTD.

CONSOLIDATED SCHEDULE OF INVESTMENTS (continued)

December 31, 2011

(in thousands, except shares)

 

Industry Classification

   Percentage of Total
Investments (at fair value) as
of December 31, 2011
 

Beverage, Food & Tobacco

     16

Insurance

     10

Banking

     10

Personal, Food & Misc. Services

     8

Leisure, Amusement, Entertainment

     7

Healthcare, Education & Childcare

     5

Farming & Agriculture

     5

Grocery

     5

Retail Stores

     4

Diversified/Conglomerate Service

     4

Personal & Nondurable Consumer Products

     4

Aerospace & Defense

     4

Buildings & Real Estate

     3

Cargo Transport

     2

Hotels, Motels, Inns and Gaming

     2

Machinery

     2

Personal Transportation

     2

Mining, Steel, Iron & Nonprecious Metals

     1

Textiles & Leather

     1

Broadcasting & Entertainment

     1

Electronics

     1

Telecommunications

     1

Finance

     1

Home, Office Furnishing & Durable Consumer Products

     1
  

 

 

 
     100
  

 

 

 

See notes to consolidated financial statements.

 

F-13


Table of Contents

SOLAR CAPITAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

September 30, 2012

(in thousands, except shares)

Note 1. Organization

Solar Capital Ltd. (“Solar Capital”, “we”, or the “Company”), a Maryland corporation formed in November 2007, is a closed-end, externally managed, non-diversified management investment company that has elected to be treated as a business development company (“BDC”) under the Investment Company Act of 1940, as amended (the “1940 Act”). In addition, for tax purposes the Company has elected to be treated as a regulated investment company (“RIC”) under Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”). In February 2010, Solar Capital Ltd. completed its initial public offering.

The Company’s investment objective is to generate both current income and capital appreciation through debt and equity investments. We invest primarily in leveraged middle-market companies in the form of senior secured loans, mezzanine loans and equity securities. From time to time, we may also invest in public companies. Our business model is focused primarily on the direct origination of investments through portfolio companies or their financial sponsors. Our investments generally range between $20 million and $100 million each, although we expect that this investment size will vary, including proportionately with the size of our capital base.

Note 2. Significant Accounting Policies

Basis of Presentation – The accompanying consolidated financial statements have been prepared on the accrual basis of accounting in conformity with accounting principles generally accepted in the United States of America (“GAAP”), and include the accounts of the Company and its wholly-owned subsidiaries, Solar Capital Luxembourg I S.a.r.l., which was incorporated under the laws of the Grand Duchy of Luxembourg on April 26, 2007, and Solar Capital Funding II LLC (“SC Funding”), a Delaware limited liability company formed on December 8, 2010. The consolidated financial statements reflect all adjustments and reclassifications which, in the opinion of management, are necessary for the fair presentation of the results of the operations and financial condition for the periods presented. All significant intercompany balances and transactions have been eliminated. Certain prior period amounts have been reclassified to conform to current year presentation.

Interim financial statements are prepared in accordance with GAAP for interim financial information and pursuant to the requirements for reporting on Form 10-Q and Articles 6 or 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by GAAP for annual financial statements. In the opinion of management, all adjustments, consisting solely of normal recurring accruals considered necessary for the fair presentation of financial statements for the interim period, have been included. The current period’s results of operations will not necessarily be indicative of results that ultimately may be achieved for the fiscal year ending December 31, 2012.

Investments – The Company applies fair value accounting in accordance with GAAP. Securities transactions are accounted for on trade date. Securities for which market quotations are readily available on an exchange are valued at such price as of the closing price on the valuation date. The Company may also obtain quotes with respect to certain of its investments from pricing services or brokers or dealers in order to value assets. When doing so, the Company determines whether the quote obtained is sufficient according to GAAP to determine the fair value of the security. If determined adequate, the Company uses the quote obtained.

Securities for which reliable market quotations are not readily available or for which the pricing source does not provide a valuation or methodology or provides a valuation or methodology that, in the judgment of the Company’s Investment Adviser or Board of Directors (the “Board”), does not represent fair value, shall each be valued as follows:

 

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

 

F-14


Table of Contents

SOLAR CAPITAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (continued)

September 30, 2012

(in thousands, except shares)

 

  2) Preliminary valuation conclusions are then documented and discussed with senior management;

 

  3) Third-party valuation firms are engaged by, or on behalf of, the Board to conduct independent appraisals and review management’s preliminary valuations and make their own independent assessment, for all material assets; and

 

  4) The Board discusses valuations and determines the fair value of each investment in the portfolio in good faith based on the input of our Investment Adviser (Note 4) and, where appropriate, the respective independent valuation firms.

Valuation methods, among other measures and as applicable, may include comparisons of financial ratios of the portfolio companies that issued such securities to peer companies that are public, the nature and realizable value of any collateral, the portfolio company’s ability to make payments and its earnings and discounted cash flows, the markets in which the portfolio company does business, and other relevant factors.

When an external event such as a purchase transaction, public offering or subsequent equity sale occurs, the Company will consider the pricing indicated by the external event to corroborate the valuation. Due to the inherent uncertainty of determining the fair value of investments that do not have a readily available market value, the fair value of the investments may differ significantly from the values that would have been used had a readily available market value existed for such investments, and the differences could be material.

Investments of sufficient credit quality purchased within 60 days of maturity are valued at cost plus accreted discount, or minus amortized premium, which approximates fair value.

Credit Facilities – The Company has made an irrevocable election to apply the fair value option of accounting to the certain credit facilities and senior secured notes (see Note 6), in accordance with Accounting Standards Codification (“ASC”) 825-10. The Company uses an independent third-party valuation firm to measure their fair values.

Cash and Cash Equivalents – Cash and cash equivalents include investments in money market accounts or investments with original maturities of three months or less.

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

Sales: Gains or losses on the sale of investments are calculated by using the specific identification method.

Interest Income: Interest income, adjusted for amortization of premium and accretion of discount, is recorded on an accrual basis. Origination, closing and/or commitment fees associated with investments in portfolio companies are accreted into interest income over the respective terms of the applicable loans. Upon the prepayment of a loan or debt security, any prepayment penalties and unamortized loan origination, closing and commitment fees are recorded as part of interest income. The Company has loans in its portfolio that contain a payment-in-kind (“PIK”) provision. PIK interest is accrued at the contractual rates and added to the loan principal on the reset dates.

Dividend Income: Dividend income on preferred equity securities is recorded as dividend income on an accrual basis to the extent that such amounts are payable by the portfolio company and are expected to be collected. Dividend income on common equity securities is recorded on the record date for private portfolio companies or on the ex-dividend date for publicly traded portfolio companies.

Non-accrual: Loans are placed on non-accrual status when principal or interest payments are past due 30 days or more or when there is reasonable doubt that principal or interest will be collected. Accrued interest is

 

F-15


Table of Contents

SOLAR CAPITAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (continued)

September 30, 2012

(in thousands, except shares)

 

generally reversed when a loan is placed on non-accrual status. Interest payments received on non-accrual loans may be recognized as income or applied to principal depending upon management’s judgment. Non-accrual loans are restored to accrual status when past due principal and interest are paid and, in management’s judgment, are likely to remain current.

Fee Revenue Receivable – Fee revenue receivable consists of premium payments owed to the Company at the maturity of certain loans. The premium payments are recorded as a receivable at the inception of the loan and are accreted into interest income over the respective terms of the applicable loans.

Deferred Fee Revenue – Deferred fee revenue represents the unearned portion of premium payments owed to the Company at the maturity of certain loans.

U.S. Federal Income Taxes – The Company has elected to be treated as a RIC under subchapter M of the Code and operates in a manner so as to qualify for the tax treatment applicable to RICs. In order to qualify as a RIC, among other things, the Company is required to timely distribute to its stockholders at least 90% of investment company taxable income, as defined by the Code, for each year. Depending on the level of taxable income earned in a given tax year, we may choose to carry forward taxable income in excess of current year dividend distributions into the next tax year and pay a 4% excise tax on such income, as required. To the extent that the Company estimates that its current year annual taxable income may be in excess of estimated current year dividend distributions, the Company may accrue an excise tax on estimated excess taxable income as it is earned. For the nine months ended September 30, 2012, $343 was accrued for estimated U.S. Federal excise tax.

Although the Company files federal and state tax returns, its major tax jurisdiction is federal. The Company’s inception-to-date federal tax years remain subject to examination by the Internal Revenue Service. The Company is also subject to taxes in Luxembourg, through Solar Capital Luxembourg I S.a.r.l., a wholly-owned subsidiary. Under the laws of Luxembourg, the Company pays a corporate income tax and a municipal business tax on its subsidiary’s taxable income.

The Company has formed and used certain taxable subsidiaries to be taxed as a corporation for federal income tax purposes. These taxable subsidiaries allow the Company to hold portfolio companies organized as pass-through entities and still satisfy certain RIC income requirements. The Company does not consolidate the taxable subsidiaries for income tax purposes but recognizes the results of these subsidiaries for financial reporting purposes.

The Company evaluates tax positions taken or expected to be taken in the course of preparing its financial statements to determine whether the tax positions are “more-likely-than-not” of being sustained by the applicable tax authority. Tax positions not deemed to meet the “more-likely-than-not” threshold are reversed and recorded as a tax benefit or expense in the current year. All penalties and interest associated with income taxes are included in income tax expense. Conclusions regarding tax positions are subject to review and may be adjusted at a later date based on factors including, but not limited to, on-going analyses of tax laws, regulations and interpretations thereof. The Company did not have any uncertain tax positions that met the recognition or measurement criteria of ASC 740-10-25 nor did it have any unrecognized tax benefits as of the periods presented herein.

Capital Accounts – Certain capital accounts including under (over) distributed net investment income, accumulated net realized gain or loss, net unrealized depreciation, and paid-in capital in excess of par, are adjusted, at least annually, for permanent differences between book and tax. In addition, the character of income and gains to be distributed is determined in accordance with income tax regulations that may differ from GAAP.

 

F-16


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SOLAR CAPITAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (continued)

September 30, 2012

(in thousands, except shares)

 

At December 31, 2011, as a result of permanent book-to-tax differences, the Company decreased under (over) distributed net investment income by $4,582, decreased accumulated net realized loss by $8,555, and decreased paid-in capital in excess of par value by $3,973. Aggregate stockholders’ equity was not affected by this reclassification.

Dividends – Dividends and distributions to common stockholders are recorded on the ex-dividend date. Quarterly dividend payments are determined by the Board and are generally based upon taxable earnings estimated by management. Net realized capital gains, if any, are typically distributed at least annually, although we may decide to retain such capital gains for investment. We have adopted a dividend reinvestment plan that provides for reinvestment of any distributions we declare in cash on behalf of our stockholders, unless a stockholder elects to receive cash. As a result, if our Board authorizes, and we declare, a cash dividend, then our stockholders who have not “opted out” of our dividend reinvestment plan will have their cash dividends automatically reinvested in additional shares of our common stock, rather than receiving the cash dividend. While we generally use newly issued shares to implement the plan, we may purchase shares in the open market in connection with our obligations under the plan. In particular, if our shares are trading at a significant discount to net asset value and we are otherwise permitted under applicable law to purchase such shares, we intend to purchase shares in the open market in connection with our obligations under our dividend reinvestment plan.

Foreign Currency Translation – The accounting records of the Company are maintained in U.S. dollars. Foreign currency amounts are translated into U.S. dollars on the following basis:

 

  (i) Market value of investment securities, other assets and liabilities – at the current rates of exchange.

 

  (ii) Purchase and sales of investment securities, income and expenses – at the rates of exchange prevailing on the respective date of such transactions.

The Company does not isolate that portion of realized and unrealized gains or losses on investments that result from changes in market prices of investments from those that result from fluctuations in foreign exchange rates. Net realized foreign currency gains or losses arise from sales or repayments of foreign denominated investments (recorded in realized gain/loss on investments), maturities or terminations of foreign currency derivatives (recorded in realized gain/loss on derivatives), repayments of foreign denominated liabilities and other transactional gain or loss resulting from fluctuations in foreign exchange rates on amounts received or paid (recorded in realized gain/loss on foreign exchange). Net unrealized foreign exchange gains and losses arise from valuation changes in foreign denominated assets and liabilities, resulting from changes in exchange rates, including unrealized foreign exchange gains and losses on investments (recorded in unrealized gain/loss on investments), foreign currency derivatives (recorded in unrealized gain/loss on derivatives), and all other assets and liabilities (recorded in unrealized gain/loss on foreign exchange).

The Company’s investments in foreign securities may involve certain risks such as foreign exchange restrictions, expropriation, taxation or other political, social or economic risks, all of which could affect the market and/or credit risk of the investment. In addition, changes in the relationship of foreign currencies to the U.S. dollar can significantly affect the value of these investments and therefore the earnings of the Company.

Derivative Instruments and Hedging Activity – The Company recognizes derivatives as either assets or liabilities at fair value on its Consolidated Statements of Assets and Liabilities with valuation changes recorded as realized or unrealized gains and losses. The Company currently does not have any formally documented hedges that qualify for hedge accounting treatment.

The Company generally uses foreign exchange forward contracts and/or borrowings on its multicurrency revolving credit facility to minimize foreign currency exchange risks. Changes in the values of the Company’s

 

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Table of Contents

SOLAR CAPITAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (continued)

September 30, 2012

(in thousands, except shares)

 

foreign denominated assets are recorded in current earnings as realized and unrealized gains and losses; likewise, realized and unrealized gains and losses from derivatives and foreign denominated debt are also recorded in current earnings. The fair value of foreign exchange forward contracts is determined by recognizing the difference between the contract exchange rate and the current market exchange rate. Fluctuations in market values of assets and liabilities denominated in the same foreign currency offset in earnings, providing a “natural” foreign currency hedge.

The Company may use interest rate caps to create a synthetic “ceiling” on its borrowing rates. An interest rate cap is a derivative in which the buyer receives payments at the end of each period in which the interest rate exceeds an agreed cap rate. Interest payments on the Company’s credit facilities are primarily LIBOR based. By purchasing caps on LIBOR, if LIBOR exceeds the cap rate, the Company will pay a higher interest rate on its credit facilities but receive an offsetting payment from the cap counterparty on the notional amount above the cap rate. Caps have an initial cost. The fair value of interest rate caps is determined using option pricing models that use readily available market inputs.

Deferred Offering Costs – The Company records expenses related to shelf registration statement filings and other applicable offering costs as prepaid assets. These expenses are charged to capital upon utilization, in accordance with ASC 946-20-25.

Receivable for Investments Sold – Receivable for investments sold represents a receivable for investments that have been sold but the proceeds have not been received.

Payable for Investments Purchased – Payable for investments purchased represents a liability for investments that have been purchased but the proceeds have not been paid and any unfunded loan commitments.

Deferred Credit Facility Costs – Deferred credit facility costs are amortized over the life of the related credit facility unless the fair value option was elected in accordance with ASC 825-10.

Use of Estimates in the Preparation of Financial Statements – The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amount of assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reported period. Changes in the economic environment, financial markets and any other parameters used in determining these estimates could cause actual results to differ materially.

Subsequent Events Evaluation – The Company evaluates the need for disclosures and/or adjustments resulting from subsequent events through the date the financial statements were issued.

Note 3. Investments

Investments consisted of the following as of September 30, 2012 and December 31, 2011:

 

     September 30, 2012      December 31, 2011  
     Cost      Fair Value      Cost      Fair Value  

Bank Debt/Senior Secured Loans

   $ 484,350       $ 476,517       $ 426,201       $ 412,396   

Subordinated Debt/Corporate Notes

     508,558         494,594         604,157         546,859   

Preferred Equity

     148,921         147,852         15,107         14,664   

Common Equity/Partnership Interests/Warrants

     88,430         51,664         107,108         71,124   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 1,230,259       $ 1,170,627       $ 1,152,573       $ 1,045,043   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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Table of Contents

SOLAR CAPITAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (continued)

September 30, 2012

(in thousands, except shares)

 

As of September 30, 2012, the Company had two non-accrual assets with a total market value of $20,725. As of December 31, 2011, there was one non-accrual asset with a market value of $5,875.

Note 4. Agreements

Solar Capital has an Investment Advisory and Management Agreement with Solar Capital Partners, LLC (the “Investment Adviser”), under which the Investment Adviser will manage the day-to-day operations of, and provide investment advisory services to, Solar Capital. For providing these services, the Investment Adviser receives a fee from Solar Capital, consisting of two components – a base management fee and an incentive fee. The base management fee is determined by taking the average value of Solar Capital’s gross assets at the end of the two most recently completed calendar quarters calculated at an annual rate of 2.00%. The incentive fee has two parts, as follows: one part is calculated and payable quarterly in arrears based on Solar Capital’s pre-incentive fee net investment income for the immediately preceding calendar quarter. For this purpose, pre-incentive fee net investment income means interest income, dividend income and any other income (including any other fees (other than fees for providing managerial assistance), such as commitment, origination, structuring, diligence and consulting fees or other fees that we receive from portfolio companies) accrued during the calendar quarter, minus Solar Capital’s operating expenses for the quarter (including the base management fee, any expenses payable under the Administration Agreement, and any interest expense and dividends paid on any issued and outstanding preferred stock, but excluding the incentive fee). Pre-incentive fee net investment income does not include any realized capital gains computed net of all realized capital losses and unrealized capital depreciation. Pre-incentive fee net investment income, expressed as a rate of return on the value of Solar Capital’s net assets at the end of the immediately preceding calendar quarter, is compared to the hurdle rate of 1.75% per quarter (7% annualized). Our net investment income used to calculate this part of the incentive fee is also included in the amount of our gross assets used to calculate the 2% base management fee. Solar Capital pays the Investment Adviser an incentive fee with respect to Solar Capital’s pre-incentive fee net investment income in each calendar quarter as follows: (1) no incentive fee in any calendar quarter in which Solar Capital’s pre-incentive fee net investment income does not exceed the hurdle rate; (2) 100% of Solar Capital’s pre-incentive fee net investment income with respect to that portion of such pre-incentive fee net investment income, if any, that exceeds the hurdle rate but is less than 2.1875% in any calendar quarter; and (3) 20% of the amount of Solar Capital’s pre-incentive fee net investment income, if any, that exceeds 2.1875% in any calendar quarter. These calculations are appropriately pro-rated for any period of less than three months. The second part of the incentive fee is determined and payable in arrears as of the end of each calendar year (or upon termination of the Investment Advisory and Management Agreement, as of the termination date), commencing on February 12, 2007, and equals 20% of Solar Capital’s cumulative realized capital gains less cumulative realized capital losses, unrealized capital depreciation (unrealized depreciation on a gross investment-by-investment basis at the end of each calendar year) and all capital gains upon which prior performance-based capital gains incentive fee payments were previously made to the adviser. For financial statement presentation purposes, a fee is accrued to include unrealized capital appreciation. No accrual was required for the capital gains based incentive fee for the nine months ended September 30, 2012 or for the year ended December 31, 2011.

Solar Capital has also entered into an Administration Agreement with Solar Capital Management, LLC (the “Administrator”) under which the Administrator provides administrative services for Solar Capital. For providing these services, facilities and personnel, Solar Capital reimburses the Administrator for Solar Capital’s allocable portion of overhead and other expenses incurred by the Administrator in performing its obligations under the Administration Agreement, including rent. The Administrator will also provide, on Solar Capital’s behalf, managerial assistance to those portfolio companies to which Solar Capital is required to provide such assistance.

 

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Table of Contents

SOLAR CAPITAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (continued)

September 30, 2012

(in thousands, except shares)

 

Note 5. Derivatives

The Company is exposed to interest rate risk both as a lender and a borrower. The Company’s borrowing facilities and term loan bear interest at a floating rate, which means that rising interest rates would increase our cost of borrowing. To partially mitigate this risk, in 2011, the Company purchased two interest rate cap contracts, which effectively limit the interest rate payable on $150 million of LIBOR based borrowings. The following table highlights the outstanding interest rate caps:

 

Index Rate

  Cap Rate     Notional
Amount
    Expiration     Cost     September 30, 2012     December 31, 2011     Counterparty  
          Fair Value     Unrealized
Depreciation
    Fair Value     Unrealized
Depreciation
   

3 Month Libor

    1.0   $ 100,000        1/13/2014      $ 1,950      $ 14      $ (1,936   $ 279      $ (1,671     Wells Fargo   

3 Month Libor

    1.0     50,000        5/4/2014        988        16        (972     190        (798     Wells Fargo   
   

 

 

     

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   
    $ 150,000        $ 2,938      $ 30      $ (2,908   $ 469      $ (2,469  
   

 

 

     

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

The Company is also exposed to foreign exchange risk through its investments denominated in foreign currencies. The Company attempts to mitigate this risk through the use of foreign currency forward contracts and/or borrowing in local currencies. As an investment company, all changes in the fair value of assets, including changes caused by foreign currency fluctuation, flow through current earnings.

As of September 30, 2012, there were no open forward foreign currency contracts outstanding. As of December 31, 2011, there were two open forward foreign currency contracts entered into with SunTrust, one selling 966 Euro and the other selling 12,989 GBP, for USD values of $1,295 and $20,308 at December 31, 2011, respectively. Unrealized appreciation as of December 31, 2011 totaled $180, or $44 and $136, respectively, for the Euro and GBP foreign currency forward contracts.

The Company had no derivatives designated as hedging instruments at September 30, 2012 and December 31, 2011.

Note 6. Borrowing Facilities and Senior Secured Notes

Senior Secured Credit Facility – In June 2012, Solar Capital Ltd. entered into a $485 million Senior Secured Credit Facility comprised of $450 million of multi-currency revolving credit and a $35 million term loan. In August 2012, the Company added $40 million under the Facility’s accordion feature split $25 million in USD revolving credit commitments and $15 million in a term loan. Borrowings bear interest at a rate per annum equal to LIBOR plus 2.50% or the alternate base rate plus 1.50%. The Facility has no LIBOR floor requirement. Citibank N.A. acted as Administrative Agent, JPMorgan Chase Bank, N.A. acted as Syndication Agent, and SunTrust Bank acted as Documentation Agent for the Facility. The Facility matures in July 2016 and includes a ratable amortization in the fourth year. At September 30, 2012, total outstanding USD equivalent borrowings under the Facility were $135,907.

The Facility may be increased up to $800 million with new or existing lenders. The Facility also contains certain customary affirmative and negative covenants and events of default. In addition, the Facility contains certain financial covenants that among other things, requires the Company to maintain a minimum shareholder’s equity and a minimum asset coverage ratio. The Company will pay the issuers of the term loans quarterly in arrears a commitment fee at the rate of 0.25% per annum on the average daily outstanding balance.

In conjunction with the establishment of the Facility, the predecessor facility and a term loan was retired, resulting in $2,295 of non-recurring charges to expense unamortized costs.

 

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Table of Contents

SOLAR CAPITAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (continued)

September 30, 2012

(in thousands, except shares)

 

At September 30, 2012, the Company had outstanding non-USD borrowings on the revolving portion of the Facility. Unrealized appreciation (depreciation) on these outstanding borrowings is indicated in the table below: